UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 30, 1995
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to ______
Commission File Number: 0-18281
Hologic, Inc.
(Exact name of registrant as specified in its charter)
Delaware 04-2902449
(State of incorporation) (I.R.S. Employer Identification No.)
590 Lincoln Street, Waltham, Massachusetts 02154
(Address of principal executive offices) (Zip Code)
(617) 890-2300
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No __
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
As of January 31, 1996 5,411,773 shares of the registrant's Common Stock, $.01
par value, were outstanding.
HOLOGIC, INC. AND SUBSIDIARIES
INDEX
Page
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets
December 30, 1995 and September 30, 1995.................... 3
Consolidated Statements of Income
Three Months Ended December 30, 1995
and December 24, 1994....................................... 4
Consolidated Statements of Cash Flows
Three Months Ended December 30, 1995
and December 24, 1994....................................... 5
Notes to Consolidated Financial Statements.................. 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations............. 8
PART II - OTHER INFORMATION................................... 12
SIGNATURES.................................................... 13
2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
HOLOGIC, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
ASSETS
December 30, September 30,
1995 1995
CURRENT ASSETS:
Cash and cash equivalents.................. $8,234,393 $7,447,813
Short-term investments..................... 2,359,548 2,492,671
Accounts receivable, less reserves of
$1,000,000 and $850,000, respectively...... 13,875,897 11,643,883
Inventories................................ 6,433,578 6,917,000
Prepaid expenses and other current assets.. 2,097,492 2,058,707
---------- ----------
Total current assets....................... 33,000,908 30,560,074
========== ==========
PROPERTY AND EQUIPMENT, at cost:
Equipment.................................. 2,844,158 2,600,381
Furniture and fixtures..................... 665,429 652,446
Leasehold improvements..................... 510,186 506,495
--------- ---------
4,019,773 3,759,322
Less- Accumulated depreciation
and amortization..................... 2,441,852 2,298,168
--------- ---------
1,577,921 1,461,154
Other assets, net........................... 2,430,323 1,840,785
----------- -----------
$37,009,152 $33,862,013
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
December 30, September 30,
1995 1995
CURRENT LIABILITIES:
Line of credit............................ $2,139,298 $2,058,898
Accounts payable.......................... 4,347,208 3,773,000
Accrued expenses.......................... 4,203,179 3,965,750
Deferred revenue.......................... 1,327,172 1,392,667
---------- ----------
Total current liabilities................. 12,016,857 11,190,315
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value-
Authorized - 10,000,000 shares
Issued and outstanding - 4,183,850 and
4,122,100 shares, respectively.......... 41,839 41,221
Capital in excess of par value........... 16,335,398 15,354,893
Retained earnings........................ 8,735,310 7,420,593
Cumulative translation adjustment........ (120,252) (145,009)
---------- ------------
Total stockholders' equity............... 24,992,295 22,671,698
----------- ----------
$37,009,152 $33,862,013
=========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
3
HOLOGIC, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended
December 30, December 24,
1995 1994
REVENUES:
Product sales......................... $14,076,548 $9,783,121
Other revenue......................... 687,085 415,734
----------- ----------
14,763,633 10,198,855
COSTS AND EXPENSES:
Cost of product sales................... 6,769,581 5,342,890
Research and development................ 1,307,493 967,580
Selling and marketing................... 2,737,146 1,822,849
General and administrative.............. 1,406,987 1,139,585
Litigation expenses..................... 797,819 53,945
----------- ---------
13,019,026 9,326,849
Income from operations............ 1,744,607 872,006
Interest income........................... 155,704 115,682
Other expense............................. (65,594) (83,968)
---------- ---------
Income before provision for income taxes.. 1,834,717 903,720
PROVISION FOR INCOME TAXES................. 520,000 260,000
---------- --------
Net income................................ $1,314,717 $ 643,720
========== ==========
NET INCOME PER COMMON AND
COMMON EQUIVALENT SHARE................... $.28 $ .15
==== =====
WEIGHTED AVERAGE NUMBER OF
COMMON AND COMMON EQUIVALENT
SHARES OUTSTANDING........................ 4,733,292 4,404,414
The accompanying notes are an integral part of these consolidated financial
statements.
4
HOLOGIC, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
December 30, December 24,
1995 1994
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................. $1,314,717 $643,720
Adjustments to reconcile net income
to net cash provided by operating activities-
Depreciation and amortization........... 167,946 115,054
Changes in assets and liabilities-
Accounts receivable................ (2,510,115) 562,229
Inventories........................ 482,981 (760,911)
Prepaid expenses and
other current assets............. (39,841) (169,239)
Accounts payable................... 574,923 537,036
Accrued expenses................... 236,004 (52,439)
Deferred revenue................... (66,513) (87,016)
Net cash provided by ---------- --------
operating activities............ 160,102 788,434
---------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net sales of short-term investments........ 133,123 2,022,357
Purchase of property and equipment......... (260,259) (179,112)
Increase in other assets................... (328,681) (31,157)
Net cash (used in) provided by ----------- ---------
investing activities............. (455,817) 1,812,088
----------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in
settlements of line of credit............ 77,815 (188,526)
Exercise of stock options..... ............ 431,122 19,205
Tax benefit from stock option exercises 550,000 --
-------- --------
Net cash provided by (used in)
financing activities.............. 1,058,937 (169,321)
EFFECT OF EXCHANGE RATE CHANGES ON CASH...... 23,358 4,509
NET INCREASE IN CASH AND
CASH EQUIVALENTS........................... 786,580 2,435,710
CASH AND CASH EQUIVALENTS, beginning of period 7,447,813 5,880,010
--------- ---------
CASH AND CASH EQUIVALENTS, end of period...... $8,234,393 $8,315,720
========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for income taxes $27,081 $74,480
======= =======
The accompanying notes are an integral part of these consolidated financial
statements.
5
HOLOGIC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) Basis of Presentation
The consolidated financial statements of Hologic, Inc. (the Company)
presented herein have been prepared pursuant to the rules of the Securities
and Exchange Commission for quarterly reports on Form 10-Q and do not include
all of the information and note disclosures required by generally accepted
accounting principles. These statements should be read in conjunction with
the consolidated financial statements and notes thereto for the year ended
September 30, 1995, included in the Company's Form 10-K as filed with the
Securities and Exchange Commission on December 26, 1995.
The consolidated balance sheet as of December 30, 1995, the consolidated
statements of income for the three months ended December 30, 1995 and December
24, 1994 and the consolidated statements of cash flows for the three months
ended December 30, 1995 and December 24, 1994, are unaudited but, in the
opinion of management, include all adjustments (consisting of normal,
recurring adjustments) necessary for a fair presentation of results for these
interim periods.
The results of operations for the three months ended December 30, 1995
are not necessarily indicative of the results to be expected for the entire
fiscal year ending September 28, 1996.
(2) Summary of Significant Accounting Policies
The accompanying consolidated financial statements reflect the
application of certain accounting policies described in this and other notes
to the consolidated financial statements.
(a) Inventories: Inventories are stated at the lower of cost (first-
in, first-out) or market and consist of the following:
December 30, September 30,
1995 1995
Raw materials and work-in-process....... $4,029,374 $4,030,275
Finished goods.......................... 2,404,204 2,886,725
---------- ----------
$6,433,578 $6,917,000
=========== ==========
Work-in-process and finished goods inventories consist of material,
labor and manufacturing overhead.
6
(b) Foreign Currency Translation:
Assets and liabilities of the Company's foreign subsidiaries are
translated into U.S. dollars at exchange rates in effect at the end of the
period, and revenues and expenses are translated at the weighted average
exchange rate in effect during the period. Gains and losses from foreign
currency translation are included in the stockholders' equity section under
cumulative translation adjustment. Foreign currency transaction gains and
losses arising primarily from settlement of sales transactions with the
Company's foreign subsidiaries are included in results of operations. A
transaction loss of $22,080 and $40,371 for the three months ended December
30, 1995 and December 24, 1994, respectively, are included in other expense in
the accompanying consolidated statements of income.
(3) Line of Credit
The Company has an international line of credit with a bank for the
equivalent of $3,000,000, which bears interest at PIBOR plus 2.25%. The
borrowings under this line are denominated in the local currency of its
European subsidiaries and are primarily used by these subsidiaries to settle
intercompany sales.
(4) Stock Option Plans
A summary of stock option activity is as follows:
Number Exercise
of Shares Price Per Share
Outstanding at September 30, 1995... 884,683 $.10-$18.88
Granted....................... 44,400 23-39.25
Terminated.................... (160) 5.25-7.25
Exercised..................... (61,750) .40-14.125
-------- -----------
Outstanding at December 30, 1995... 867,173 $.10-$39.25
======== ===========
(5) Significant Customers and Concentration of Credit Risk
In the three months ended December 30, 1995 and December 24, 1994, the
Company had one customer who comprised 18% and 32% of product sales,
respectively. This customer had amounts due to the Company of approximately
$3,284,107 at December 30, 1995, all of which were within the payment terms of
the sales.
(6) Patent Litigation
The Company incurred litigation expenses in the first quarter of fiscal
1996 and in fiscal 1995 relating primarily to a patent dispute with Lunar
Corporation ("Lunar") and, to a lesser extent, a separate patent dispute with
B.V. Optische Industrie de Oude Delft ("Oldelft"). In November 1995, a
definitive settlement agreement was reached between the Company and Lunar
settling all outstanding disputes relating to x-ray and ultrasound technology.
The complaint brought by Oldelft against the Company was dismissed in December
1995. In January 1996, Oldelft filed a motion for reconsideration of the
dismissal and amended its complaint. This motion and the amended complaint
are currently pending before the court.
7
PART I - FINANCIAL INFORMATION (Continued)
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
HOLOGIC, INC. AND SUBSIDIARIES
Results of Operations
The Company's results of operations have and may continue to be subject
to significant quarterly variation. The results for a particular quarter may
vary due to a number of factors, including the overall state of health care
and cost containment efforts, the development status and demand for drug
therapies to treat osteoporosis, economic conditions in the Company's markets,
the timing of orders, the timing of expenditures in anticipation of future
sales, the mix of products sold by the Company, the introduction of new
products and product enhancements by the Company or its competitors and
pricing and other competitive conditions.
Revenues. Total revenues for the first quarter of fiscal 1996 increased
45% to $14,763,633 from $10,198,855 for the first quarter of fiscal 1995.
This increase was primarily due to the increase in the total number of DXA
bone densitometer product shipments in both the Company's domestic and
international markets, particularly in the United States where product sales
increased 290% over the prior year.There was also a shift in product sales mix
to the Company's new line of bone densitometers, the ACCLAIM series, which the
Company began shipping in January 1995. The new ACCLAIM products have higher
average selling prices than the comparable DXA bone densitometers which they
replace. For the current quarter, sales of the ACCLAIM product accounted for
over 84% of product sales. Other revenues also increased for the current
three month period due to increases in revenue relating to medical data
management services provided to pharmaceutical companies to assist in the
collection and monitoring of clinical trial data.
Total revenues for the first quarter of fiscal 1996 increased 15% from
$12,868,556 in the immediately preceding quarter primarily due to an increase
in the number QDR systems sold in the United States and Asia.
In the first quarter of fiscal 1996, approximately 41% of product sales
were generated in the United States, 27% in Asia, 25% in Europe, and 7% in
other international markets. In the first quarter of fiscal 1995,
approximately 16% of product sales were generated in the United States, 41% in
Asia, 32% in Europe and 11% in other international markets.
The Company believes that the two major drivers of the growth in demand
for its bone densitometers are (i) the availability of new and effective drug
therapies to treat and prevent bone diseases, including osteoporosis, and (ii)
the availability of reimbursement to healthcare providers for bone density
measurements of patients. On September 29, 1995, the FDA cleared for
marketing Merck & Co., Inc.'s ("Merck") new bisphosphonate, Fosamax, for
treatment of established osteoporosis in post-menopausal women. The Health
Care Finance Administration, the agency which administers Medicare, increased
the recommended reimbursement rate for DXA tests to a national average of
$124, effective January 1, 1995, from $68, the original recommended
reimbursement rate which went into effect in April 1994.
8
Costs and Expenses. The cost of product sales decreased as a
percentage of product sales to 48% in the first quarter of fiscal 1996 from
55% in the first quarter of fiscal 1995. In the current quarter, these costs
decreased as a percentage of product sales primarily due to the Company
initiating shipments of its new family of DXA bone densitometers, the ACCLAIM
[trademark] series, a volume increase in the number of DXA systems sold
resulting in certain manufacturing efficiencies, and an increase in sales by
the Company's direct sales force (primarily in the United States) which
results in higher selling prices. The Company began selling the ACCLAIM
product in the second quarter of fiscal 1995 and has recognized higher
gross margins than on the older DXA product line from higher average selling
prices and lower labor and overhead-related manufacturing costs.
Research and development expenses increased 35% to $1,307,493 (9% of
total revenues) in the current quarter from $967,580 (9% of total revenues) in
the first quarter of fiscal 1995 primarily due to the addition of engineering
personnel and outside consultants working on the development of new products.
Selling and marketing expenses increased 50% to $2,737,146 (19% of
product sales) in the current quarter from $1,822,849 (19% of product sales)
in the first quarter of fiscal 1995 primarily due to an increase in sales
personnel and related expenses, marketing and promotional costs incurred in
connection with the introduction of the QDR 4500 Acclaim and increased sales
commissions based on the higher sales volume. In addition, the Company
incurred additional costs in connection with its strategic alliances for the
development of new products and the distribution of products through new sales
channels.
General and administrative expenses increased 23% to $1,406,987 (10% of
total revenues) in the first quarter of fiscal 1996 from $1,139,585 (11% of
total revenues) in the first quarter of fiscal 1995 primarily due to increased
headcount and other compensation-related expenditures, and an increase in
accounts receivable reserves, which reflects the increase in accounts
receivable. As a percentage of total revenues, general and administrative
expenses declined in the current quarter from the first quarter of fiscal
1995, reflecting increased revenues in the current quarter.
Litigation expenses incurred in the current quarter and in fiscal 1995
were in connection with the Company's disputes with Lunar and Oldelft. Legal
expenses in connection with the patent litigation with Lunar began in October
1994 and represent a substantial portion of the total litigation expenses. In
November 1995, a definitive agreement that provides for the cross-licensing of
certain patent rights and a non-assertion agreement for all patents involving
DXA and ultrasound technologies for a period of ten years was reached by the
Company and Lunar. The complaint brought by Oldelft against the Company was
dismissed in December 1995. In January 1996, Oldelft filed a motion for
reconsideration of the dismissal and amended its complaint. This motion and
the amended complaint are currently pending before the court.
9
Interest Income. Interest income increased to $155,704 in the current
quarter from $115,682 in the first quarter of fiscal 1995 as the Company
earned a higher rate of return on a slightly higher investment base than in
the prior year and increased the number of long-term receivables to Latin
American customers.
Other Expense. In the first quarters of fiscal 1996 and 1995, the
Company incurred other expenses of $65,594 and $83,968, respectively. These
expenses were primarily attributable to the interest costs on the line of
credit established by the Company in the third quarter of fiscal 1994 for use
by the Company's European subsidiaries to borrow funds in their local
currencies to pay for all intercompany sales, thereby reducing the foreign
currency exposure on those transactions. To the extent that foreign currency
exchange rates fluctuate in the future, the Company may be exposed to
continued financial risk. Although the Company has established a borrowing
line denominated in the two foreign currencies (the French Franc and the
Belgian Franc) in which the subsidiaries currently conduct business to
minimize this risk, there can be no assurance that the Company will be
successful or can fully hedge its foreign currency exposure.
Provision for Income Taxes. The Company's effective tax rate for the
first quarter of fiscal 1996 is 28.3%. The Company's effective tax rate is
lower than the statutory tax rates due primarily to the utilization of tax
credits, the utilization of net operating losses in foreign jurisdictions and
tax benefits associated with the Company's foreign sales corporation.
Liquidity and Capital Resources
The Company has funded its operations primarily through cash flows from
operations and the issuance of securities.
At December 30, 1995, the Company's working capital was $20,984,051. At
such date, the Company had $10,593,941 in cash, cash equivalents and short-
term investments. The current cash, cash equivalents and investments balance
increased approximately $653,000 from September 30, 1995 primarily due to the
proceeds and tax benefits from the exercise of stock options and an increase
in the Company's current liabilities, which were partially offset by an
increase in accounts receivable. The increase in current liabilities and
accounts receivable reflects the Company's introduction of its new ACCLAIM
family of bone densitometers and the increase in sales activity. At December
30, 1995, one customer had accounts receivable outstanding of approximately
$3,300,000, which were current within their payment terms. The Company
finances certain sales to Latin America over a two to three year time frame.
At December 30, 1995, the Company had long-term accounts receivable
outstanding of approximately $1,082,000 relating to these sales, which were
included in other assets. Working capital increased by approximately
$1,614,000 in the first quarter of fiscal 1996 from September 30, 1995,
primarily from the addition of net income. In the first quarter of fiscal
1996, the Company purchased approximately $260,000 of property and equipment,
primarily computers and other equipment associated with the hiring of
additional personnel.
10
On January 31, 1996, the Company completed a public offering of
1,200,000 shares of Common Stock and on February 2, 1996 sold an additional
46,000 shares to cover over-allotments. The Company received net proceeds of
$49,584,570 from the offering which the Company plans to use for general
corporate purposes, including working capital, new product development, sales
and marketing expansion, and potential acquisitions.
The Company does not currently have any significant capital commitments
and believes that existing sources of liquidity, including the net proceeds of
the offering, funds expected to be generated from operations and a $3.0
million credit line for use by its European subsidiaries, will provide
adequate cash to fund the Company's anticipated working capital and other cash
needs for the foreseeable future.
11
PART II - OTHER INFORMATION
HOLOGIC, INC. AND SUBSIDIARIES
Item 1. Legal Proceedings.
Patent Litigation. On January 24, 1995, B.V. Optische Industrie de Oude
Delft ("Oldelft") filed suit in the United States District Court for the
Southern District of New York against the Company. The complaint brought by
Oldelft against the Company was dismissed in December 1995. In January 1996,
Oldelft filed a motion for reconsideration of the dismissal and amended its
complaint. This motion and the amended complaint are currently pending before
the court.
Item 2. Changes in Securities.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security-Holders.
None.
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits furnished:
(11) Statement Re: Computation of Earnings Per Share.
(b) Reports on For 8-K:
No reports on Form 8-K were filed by the Company during the
quarter ended December 30, 1995.
12
HOLOGIC, INC. AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Hologic, Inc.
(Registrant)
February 13, 1996 /s/ S. David Ellenbogen
- ----------------- --------------------------
Date S. David Ellenbogen
Chairman and Chief Executive Officer
February 13, 1996 /s/ Glenn P. Muir
- ----------------- ----------------------
Date Glenn P. Muir
Vice President, Finance and Treasurer
(Principal Financial and
Chief Accounting Officer)
13
HOLOGIC, INC. AND SUBSIDIARIES
STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE
(Unaudited)
Three Months Ended
December 30, December 24,
1995 1994
PRIMARY:
Net income....................... $1,314,717 $643,720
========== =========
Weighted average shares
outstanding.................... 4,153,151 4,026,071
Common stock equivalents
outstanding, pursuant to the
treasury stock method.......... 580,141 378,343
--------- ---------
Weighted average number of common and
common equivalent shares outstanding 4,733,292 4,404,414
========== =========
Per share amount............. $ .28 $.15
===== ====
15