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 28, 1996
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 __
As of January 31, 1997, 12,938,465 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 28, 1996 and September 28, 1996............... 3
Consolidated Statements of Income
Three Months Ended December 28, 1996
and December 30, 1995.................................. 4
Consolidated Statements of Cash Flows
Three Months Ended December 28, 1996
and December 30, 1995.................................. 5
Notes to Consolidated Financial Statements............. 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.............................. 9
PART II - OTHER INFORMATION.............................. 12
SIGNATURES............................................... 13
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
HOLOGIC, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
ASSETS
December 28, September 28,
1996 1996
CURRENT ASSETS:
Cash and cash equivalents............... $33,165,214 $28,754,023
Short-term investments.................. 46,407,851 46,907,728
Accounts receivable, less reserves of
$1,400,000 and $1,360,000, respectively. 23,813,051 21,735,613
Inventories............................. 11,223,163 11,122,988
Prepaid expenses and other
current assets........................ 4,782,571 4,513,375
----------- -----------
Total current assets.................... 119,391,850 113,033,727
PROPERTY AND EQUIPMENT, at cost:
Equipment............................... 5,120,052 4,813,647
Furniture and fixtures.................. 1,426,168 1,349,659
Leasehold improvements.................. 1,498,870 1,494,936
------------ ----------
8,045,090 7,658,242
Less- Accumulated depreciation
and amortization..................... 4,221,482 3,973,723
------------ ---------
3,823,608 3,684,519
----------- ---------
Other assets, net ..................... 7,895,997 6,389,210
----------- ---------
$131,111,455 $123,107,456
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
December 28, September 28,
1996 1996
CURRENT LIABILITIES:
Line of credit........................ $2,661,823 $2,534,740
Accounts payable...................... 3,854,815 4,025,790
Accrued expenses...................... 10,863,377 7,515,365
Deferred revenue...................... 1,806,292 1,758,871
---------- ----------
Total current liabilities.............. 19,186,307 15,834,766
COMMITMENTS
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value-
Authorized - 30,000,000 shares
Issued and outstanding - 12,885,822 and
12,871,274 shares, respectively.... 128,858 128,713
Capital in excess of par value........ 89,495,208 89,253,570
Retained earnings..................... 22,477,991 18,069,697
Cumulative translation adjustment..... (176,909) (179,290)
---------- ----------
Total stockholders' equity............. 111,925,148 107,272,690
----------- -----------
$131,111,455 $123,107,456
============= ============
The accompanying notes are an integral part of these consolidated financial
statements.
HOLOGIC, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended
December 28, December 30,
1996 1995
---- ----
REVENUES:
Product sales........................... $26,275,509 $17,954,817
Other revenue........................... 834,234 737,327
----------- -----------
27,109,743 18,692,144
----------- -----------
COSTS AND EXPENSES:
Cost of product sales.................... 11,954,466 8,384,660
Research and development................. 1,731,440 1,399,736
Selling and marketing.................... 4,568,730 3,764,331
General and administrative............... 2,907,441 2,055,543
Litigation expenses...................... -- 797,819
---------- ---------
21,162,077 16,402,089
---------- ----------
Income from operations........ 5,947,666 2,290,055
---------- ----------
Interest income.......................... 1,076,959 233,408
Other expense............................ (116,331) (65,594)
---------- ----------
Income before provision
for income taxes................... 6,908,294 2,457,869
PROVISION FOR INCOME TAXES................ 2,500,000 740,000
---------- ---------
Net income............................... $4,408,294 $1,717,869
========== ==========
NET INCOME PER COMMON AND
COMMON EQUIVALENT SHARE $.32 $.16
==== ====
WEIGHTED AVERAGE NUMBER OF
COMMON AND COMMON EQUIVALENT
SHARES OUTSTANDING 13,636,834 10,545,461
========== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
HOLOGIC, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
December 28, December 30,
1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................... $4,408,294 $1,717,869
Adjustments to reconcile net income
to net cash provided by
operating activities-
Depreciation and amortization......... 294,787 167,946
Adjustments for FluoroScan Imaging
Systems, Inc. pooling of interests
from year-end change (Note 3)......... -- (403,152)
Compensation expense related
to issuance of stock option.......... 9,000 --
Changes in assets and liabilities-
Accounts receivable................ (2,753,952) (2,510,115)
Inventories........................ (100,175) 482,981
Prepaid expenses and other
current assets.................. (269,188) (39,841)
Accounts payable................... (170,146) 574,923
Accrued expenses................... 3,562,435 236,004
Deferred revenue................... 47,421 (66,513)
---------- --------
Net cash provided by
operating activities........... 5,028,476 160,102
----------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of held-to-maturity investments.. (3,138,523) --
Sales of held-to-maturity investments..... 1,330,561 --
Purchases of available-for-sale investments. (17,826,632) (3,226,735)
Sales of available-for-sale investments... 19,326,350 3,359,858
Purchases of property and equipment....... (386,850) (260,259)
Increase in other assets.................. (69,084) (328,681)
------------ -----------
Net cash used in investing activities... (764,178) (455,817)
----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in line of credit............ 127,083 77,815
Exercise of stock options................. 32,445 431,122
Tax benefit from stock option exercises... -- 550,000
--------- --------
Net cash provided by financing activities. 159,528 1,058,937
-------- ---------
EFFECT OF EXCHANGE RATE CHANGES ON CASH...... (12,635) 23,358
-------- --------
NET INCREASE IN CASH AND
CASH EQUIVALENTS........................... 4,411,191 786,580
CASH AND CASH EQUIVALENTS,
beginning of period...................... 28,754,023 12,886,413
---------- ----------
CASH AND CASH EQUIVALENTS, end of period..... $33,165,214 $13,672,993
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for income taxes. $ 54,427 $107,081
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
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 28, 1996, included in the Company's Form 10-K as filed with the
Securities and Exchange Commission on December 27, 1996.
The consolidated balance sheet as of December 28, 1996, the consolidated
statements of income for the three months ended December 28, 1996 and December
30, 1995 and the consolidated statements of cash flows for the three months
ended December 28, 1996 and December 30, 1995, 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 28, 1996
are not necessarily indicative of the results to be expected for the entire
fiscal year ending September 27, 1997.
(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 28, September 28,
1996 1996
Raw materials and work-in-process...... $9,290,129 $8,291,870
Finished goods......................... 1,933,034 2,831,118
---------- ---------
$11,223,163 $11,122,988
=========== ============
Work-in-process and finished goods inventories consist of material,
labor and manufacturing overhead.
(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 $82,324 and $22,080 for the three months ended December
28, 1996 and December 30, 1995, respectively, are included in other expense in
the accompanying consolidated statements of income.
(3) Acquisition of FluoroScan Imaging Systems, Inc.
On August 29, 1996, the Company acquired all the common stock of
FluoroScan Imaging Systems, Inc. (FluoroScan) in exchange for 1,454,901 shares
of the Company's common stock. FluoroScan is a manufacturer and distributor
of low-intensity, real-time X-ray imaging devices. The merger was accounted
for as a pooling of interests. Accordingly, the Company's financial
statements have been restated to include the results of FluoroScan for all
periods presented. FluoroScan's fiscal year-end has been changed from
December 31 to the last Saturday in September to conform to the Company's
fiscal year-end. Based on the difference in fiscal year-ends, results of
operations for the three months ended December 31, 1995 for FluoroScan have
been included in the consolidated statements of income for both fiscal 1995
and 1996. For the three months ended December 31, 1995, FluoroScan recorded
total revenues of $3,877,968 and net income of $403,152. The accompanying
consolidated statements of cash flows has been adjusted to eliminate this net
income in 1996.
(4) 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 1.50%. 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.
(5) Significant Customers and Concentration of Credit Risk
In the three months ended December 28, 1996, the Company had no
customers who comprised greater than 10% of product sales. In the three
months ended December 30, 1995, the Company had one customer who comprised 18%
of DXA product sales. 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 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 April 1996, a
motion for reconsideration filed by Oldelft was dismissed and in May 1996, the
Company and Oldelft settled the matter.
(7) Stock Split
On February 25, 1996, the stockholders' of the Company approved an
amendment to the Company's Certificate of Incorporation to increase the number
of shares of Common Stock authorized from 10,000,000 to 30,000,000. On March
25, 1996, the Company effected a two-for-one stock split in the form of a
stock dividend. All share and per share data in the accompanying consolidated
financial statements have been retroactively restated to reflect the stock
split.
(8) Recent Accounting Pronouncement
In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards ("SFAS") 123 "Accounting for
Stock-Based Compensation," which becomes effective for fiscal years beginning
after December 15, 1995. SFAS 123 establishes new financial accounting and
reporting standards for stock-based compensation plans. However, entities are
allowed to elect whether to measure compensation expense for stock-based
compensation under SFAS 123 or Accounting Principles Board ("APB") No. 25,
"Accounting for Stock Issued to Employees." The Company has elected to remain
with the accounting under APB Opinion No. 25 and will make the required pro
forma disclosures of net income and earnings per share in its September 27,
1997 financial statements as if the provisions of SFAS 123 had been applied.
The potential impact of adopting this standard on the Company's pro forma
disclosures of net income and earnings per share has not been quantified at
this time.
(9) Rights Agreement
On December 9, 1996, the Board of Directors increased the exercise price
per common share under the Company's Rights Agreement from $15 per share to
$90 per share.
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, the use of mini c-arms in minimally-invasive
surgical procedures, 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 1997 increased
45% to $27,109,743 from $18,692,144 for the first quarter of fiscal 1996.
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 150% 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 87% of DXA 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 and an increase in royalties
from the license of the Company's technology to Vivid Technologies, Inc.
Total revenues for the first quarter of fiscal 1997 increased 11% from
$24,370,896 in the immediately preceding quarter primarily due to an increase
in the number DXA systems sold in the United States and Europe.
In the first quarter of fiscal 1997, approximately 63% of product sales
were generated in the United States, 21% in Europe, 9% in Asia, and 7% in
other international markets. In the first quarter of fiscal 1996,
approximately 52% of product sales were generated in the United States, 22% in
Asia, 20% in Europe and 6% in other international markets.
The Company's sales of x-ray bone densitometers reached record levels as
interest in bone diseases, such as osteoporosis, has grown, as new drug
therapies have become available in the United States and other countries to
treat these diseases and as the use of DXA systems to measure bone density has
become more widespread.
Costs and Expenses. The cost of product sales decreased as a
percentage of product sales to 45% in the first quarter of fiscal 1997 from
47% in the first quarter of fiscal 1996. In the current quarter, these costs
decreased as a percentage of product sales primarily due to (i) increased
shipments of a new family of DXA bone densitometers, the ACCLAIM series, which
earns a better gross margin than the Company's older DXA systems, (ii) a
volume increase in the number of DXA systems sold resulting in certain
manufacturing efficiencies and (iii) an increase in sales by the Company's
direct sales force (primarily in the United States) which results in higher
average selling prices. Partially offsetting these decreases was an increase
in costs as a percentage of product sales relating to the mini c-arm systems.
Research and development expenses increased 24% to $1,731,440 (6% of
total revenues) in the current quarter from $1,399,736 (7% of total revenues)
in the first quarter of fiscal 1996 primarily due to the addition of
engineering personnel working on the development of new products and the
funding of Serex to develop a biochemical marker strip test.
Selling and marketing expenses increased 21% to $4,568,730 (17% of
product sales) in the current quarter from $3,764,331 (21% of product sales)
in the first quarter of fiscal 1996 primarily due to an increase in sales
personnel and related expenses, marketing and promotional costs and increased
sales commissions based on the higher sales volume in areas where commissions
are generally paid, particularly in the United States.
General and administrative expenses increased 41% to $2,907,441 (11% of
total revenues) in the first quarter of fiscal 1997 from $2,055,543 (11% of
total revenues) in the first quarter of fiscal 1996 primarily due to increased
headcount and other compensation-related expenditures.
Litigation expenses incurred in the first quarter of fiscal 1996 were in
connection with the Company's disputes with Lunar and Oldelft. These disputes
were settled in November 1995 and May 1996, respectively.
Interest Income. Interest income increased to $1,076,959 in the current
quarter from $233,408 in the first quarter of fiscal 1996 as the Company had
a higher investment base than in the prior year. In January 1996, the Company
received proceeds of approximately $49.2 million from a public sale of Common
Stock which increased the investment base. The Company also received
approximately $8.0 million from the exercise of FluoroScan warrants in July
1996. The Company has invested these proceeds in investment grade corporate
and government securities. In the current quarter, the Company also increased
the number of long-term receivables to Latin American customers resulting in
additional interest income.
Other Expense. In the first quarters of fiscal 1997 and 1996, the
Company incurred other expenses of $116,331 and $65,594, respectively. In the
current quarter, these expenses were primarily attributable to foreign
currency transaction losses and, to a lesser extent, to interest costs on the
line of credit established 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. In the
first quarter of fiscal 1996, these expenses were primarily attributable to
the interest costs on the line of credit. 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 outstanding exposure.
Provision for Income Taxes. The Company's effective tax rate was 36% in
the current quarter and 30% in the first quarter of fiscal 1996. The increase
in the effective tax rate is primarily due to the significant increase in U.S.
income. The effective tax rate is less than the combined Federal and state
statutory rates due primarily to the favorable Federal and state tax treatment
afforded the Company's foreign sales corporation and the favorable state tax
treatment of certain of the Company's interest income.
Liquidity and Capital Resources
At December 28, 1996, working capital was $100 million, and cash, cash
equivalents and short-term investments totaled $79.6 million. The Company has
funded its operations primarily through cash flows from operations and the
issuance of securities. The cash, cash equivalents and short-term investments
balance increased approximately $3.9 million from September 28, 1996 primarily
due to operating activities which included net income of $4.4 million and an
increase in the Company's accrued expenses, which were partially offset by an
increase in accounts receivable. The increase in accrued expenses and
accounts receivable reflects the increase in the Company's sales activity. At
December 28, 1996, one customer had accounts receivable outstanding of
approximately $1.8 million which were within their payment terms. The Company
finances certain sales to Latin America over a two to three year time frame.
At December 28, 1996, the Company had long-term accounts receivable
outstanding of approximately $2.0 million relating to these sales which were
included in other assets. In the first quarter of 1997, the Company purchased
approximately $390,000 of property and equipment, primarily computers and
other equipment associated with the hiring of additional personnel.
The Company does not currently have any significant capital commitments
and believes that existing sources of liquidity, 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.
Recent Accounting Pronouncement
In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards ("SFAS") 123 "Accounting for
Stock-Based Compensation," which becomes effective for fiscal years beginning
after December 15, 1995. SFAS 123 establishes new financial accounting and
reporting standards for stock-based compensation plans. However, entities are
allowed to elect whether to measure compensation expense for stock-based
compensation under SFAS 123 or Accounting Principles Board ("APB") No. 25,
"Accounting for Stock Issued to Employees." The Company has elected to remain
with the accounting under APB Opinion No. 25 and will make the required pro
forma disclosures of net income and earnings per share in its September 27,
1997 financial statements as if the provisions of SFAS 123 had been applied.
The potential impact of adopting this standard on the Company's pro forma
disclosures of net income and earnings per share has not been quantified at
this time.
PART II - OTHER INFORMATION
HOLOGIC, INC. AND SUBSIDIARIES
Item 1. Legal Proceedings.
No material litigation.
Item 2. Changes in Securities.
On January 17, 1997, the Company filed with the Securities and Exchange
Commission a Form 8A to reflect the amendment to the Company's Rights
Agreement.
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.
(27) Financial Data Schedule
(b) Reports on For 8-K:
None.
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 11, 1997 /s/ S. David Ellenbogen
- ----------------- -----------------------------
Date S. David Ellenbogen
Chairman and Chief Executive Officer
February 11, 1997 /s/ Glenn P. Muir
- ---------------- --------------------
Date Glenn P. Muir
Vice President, Finance and Treasurer
(Principal Financial and Chief Accounting
Officer)
HOLOGIC, INC. AND SUBSIDIARIES
STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE
(Unaudited)
Three Months Ended
December 28, December 30,
1996 1995
PRIMARY:
Net income.................... $4,408,294 $1,717,869
========== ==========
Weighted average shares
outstanding................ 12,879,124 9,385,179
Common stock equivalents
outstanding,pursuant to the
treasury stock method....... 757,710 1,160,282
---------- ----------
Weighted average number of
common and common equivalent
shares outstanding............ 13,636,834 10,545,461
========== ==========
Per share amount............... $ .32 $.16
===== ====