16
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 June 26, 1999
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.)
35 Crosby Drive, Bedford, Massachusetts 01730
(Address of principal executive offices) (Zip Code)
(781) 999-7300
(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 August 5, 1999 15,296,489 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
June 26, 1999 and September 26, 1998 3
Consolidated Statements of Operations
Three and Nine Months Ended June 26, 1999
and June 27, 1998 4
Consolidated Statements of Cash Flows
Nine Months Ended June 26, 1999
and June 27, 1998 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 13
SIGNATURES 14
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
HOLOGIC, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(in thousands)
ASSETS
June 26, September 26,
1999 1998
-------- -----------
Cash and cash equivalents................... $38,376 $48,423
Short-term investments...................... 19,786 27,479
Accounts receivable, less reserves of
$3,287 and $2,100, respectively......... 30,418 29,287
Inventories................................. 19,967 20,438
Prepaid expenses and other current assets... 6,843 6,221
-------- -------
Total current assets.................. 115,390 131,848
-------- -------
PROPERTY AND EQUIPMENT, at cost:
Equipment................................... 15,771 8,633
Furniture and fixtures...................... 3,121 1,910
Land........................................ 10,002 -
Building and improvements................... 28,698 -
Leasehold improvements...................... 605 1,729
Construction in progress.................... - 20,066
-------- --------
58,197 32,338
Less- Accumulated depreciation
and amortization....................... 7,083 6,440
------- --------
51,114 25,898
Other assets, net........................... 14,728 14,851
------- -------
$181,232 $172,597
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
June 26, September 26,
1999 1998
-------- -------------
CURRENT LIABILITIES:
Line of credit............................. $ 1,090 $ 3,799
Accounts payable........................... 5,506 5,497
Accrued expenses........................... 11,007 12,453
Deferred revenue........................... 10,278 10,466
------- ------
Total current liabilities........... 27,881 32,215
------- -------
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value-
Authorized - 1,623 shares
Issued and outstanding - none.............. -- --
Common stock, $.01 par value-
Authorized - 30,000 shares
Issued - 15,274 and 13,378
shares, respectively.................... 153 134
Capital in excess of par value............ 109,392 95,100
Retained earnings......................... 45,603 46,187
Cumulative translation adjustment......... (1,333) (575)
Treasury stock, at cost, 45 shares........ (464) (464)
-------- -------
Total stockholders' equity........... 153,351 140,382
-------- -------
$181,232 $172,597
========= ========
The accompanying notes are an integral part of these consolidated
financial statements.
HOLOGIC, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except per share data)
Three Months Ended Nine Months Ended
June 26, June 27, June 26, June 27,
1999 1998 1999 1998
-------- ------- ------- -------
REVENUES:
Product sales................. $19,303 $33,569 $62,014 $88,163
Other revenues................ 705 857 1,987 2,580
------- ------- ------- ------
20,008 34,426 64,001 90,743
------- ------ ------- ------
COSTS AND EXPENSES:
Cost of product sales........ 12,093 15,910 36,416 43,312
Research and development..... 3,215 2,335 8,316 7,180
Selling and marketing........ 4,816 8,188 14,786 22,777
General and administrative... 2,953 2,711 8,000 7,287
------- ------ ------ ------
23,077 29,144 67,518 80,556
------- ------ ------ ------
(Loss) income from
operations.......... (3,069) 5,282 (3,517) 10,187
Interest income.............. 848 1,629 3,249 4,410
Other expense................ (167) (122) (651) (324)
-------- ------ ------- -------
(Loss) income before
(benefit) provision
for income taxes....... (2,388) 6,789 (919) 14,273
(BENEFIT) PROVISION
FOR INCOME TAXES........... ( 855) 2,500 (335) 5,200
-------- ------ ------- ------
Net (loss) income....... $(1,533) $4,289 $ (584) $9,073
======== ======= ========= ======
NET (LOSS) INCOME PER COMMON AND
COMMON EQUIVALENT SHARE:
Basic earnings
per share........... $ (.11) $ .32 $ (.04) $ .69
======= ===== ======= =====
Diluted earnings
per share........... $ (.11) $ .31 $ (.04) $ .66
====== ===== ====== ======
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING... 13,841 13,334 13,515 13,221
====== ====== ====== ======
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING
ASSUMING DILUTION........... 13,841 13,807 13,515 13,785
====== ====== ====== ======
The accompanying notes are an integral part of these consolidated
financial statements.
HOLOGIC, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Nine Months Ended
June 26, June 27,
1999 1998
-------- -------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income............................... ($584) $9,073
Adjustments to reconcile net (loss) income
to net cash provided by operating activities-
Depreciation and amortization................ 2,086 1,225
Compensation expense related to
issuance of stock and stock options......... 192 217
Changes in assets and liabilities net
of acquisition of DRC-
Accounts receivable....................... 1,192 (2,514)
Inventories............................... 3,759 (4,792)
Prepaid expenses and other current assets. 211 (711)
Accounts payable.......................... (757) 620
Accrued expenses.......................... (2,202) 3,553
Deferred revenue.......................... (188) 7,431
Net cash provided by ------- ------
operating activities................ 3,709 14,132
------- ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of held-to-maturity investments........ (32,277) (60,324)
Sales of held-to-maturity investments........... 38,361 66,331
Acquisition of Direct Radiography Corporation... (8,218) --
Purchases of property and equipment, net........ (8,187) (2,128)
Increase in other assets........................ (201) (2,735)
-------- -------
Net cash (used in) provided by
investing activities................ (10,522) 1,144
-------- ------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (decrease) increase in line of credit....... (2,708) 1,075
Net proceeds from sale of common stock
pursuant to options, stock grants and
employee stock purchase plans.................. 164 1,300
Tax benefit from stock options exercised........ 43 340
------ -----
Net cash used in) provided by
financing activities................ (2,501) 2,715
------- -----
EFFECT OF EXCHANGE RATE CHANGES ON CASH........... (735) (152)
------- ------
NET (DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS................................ (10,048) 17,838
CASH AND CASH EQUIVALENTS, beginning of period.... 48,423 28,092
-------- ------
CASH AND CASH EQUIVALENTS, end of period.......... $38,376 $45,930
======= =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for -
Income taxes.......................... $2,500 $3,603
====== ======
Interest.............................. $94 $85
=== ===
Acquisition of Direct Radiography
Corporation in 1999:
Fair value of assets acquired......... $23,668 $--
Liabilities assumed................... (1,522) --
Cash paid............................. (7,216) --
Acquisition costs incurred............ (1,002) --
-------- ------
Fair value of stock issued............ $13,929 $--
======= =====
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 26, 1998, included in the Company's Form 10-
K as filed with the Securities and Exchange Commission on
December 23, 1998.
The consolidated balance sheet as of June 26, 1999, the
consolidated statements of operations for the three and nine
months ended June 26, 1999 and June 27, 1998 and the consolidated
statements of cash flows for the nine months ended June 26, 1999
and June 27, 1998, 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 and nine months
ended June 26, 1999 are not necessarily indicative of the results
to be expected for the entire fiscal year ending September 25,
1999.
(2) Acquisition
On June 3, 1999, pursuant to a securities purchase agreement
dated April 28, 1999, as amended, between Hologic, Inc.
(Hologic), Sterling Diagnostic Imaging, Inc., a Delaware
corporation ("SDI") and SDI Investments, LLC, a Delaware limited
liability company ("SDI Investments") (the "Securities Purchase
Agreement"), Hologic purchased 100% of the issued and outstanding
shares of capital stock of Direct Radiography Corporation Holding
Corp., the parent company of Direct Radiography Corp. (DRC), a
manufacturer of digital X-ray systems for medical imaging and non-
destructive testing applications. On June 3, 1999, pursuant to a
Contract of Sale between Glasgow Land Company ("Contract of
Sale"), Hologic also purchased from Glasgow Land Company, LLC, a
Delaware limited liability company and a wholly-owned subsidiary
of SDI Investments, the land and buildings in Glasgow, Delaware
at which DRC conducts its business. Hologic intends to continue
to conduct the business operations of DRC as conducted prior to
the acquisition. The aggregate purchase price for the stock of
DRC Holding and for the real estate and buildings was
approximately $20,000,000, of which approximately $7,000,000 was
paid in cash and of which approximately $13,000,000 was paid by
delivery of 1,857,142 shares of Hologic's Common Stock, par value
$.01 per share (the "Purchase Price"). In connection with the
acquisition, Hologic incurred $1,002,000 of acquisition costs.
Unaudited pro forma operating results for the Company for
the three and nine month periods ended June 26, 1999, and June
27, 1998, assuming the DRC Acquisition occurred on September 28,
1997, are as follows:
Three Months Ended Nine Months Ended
June 26, June 27, June 26, June 27,
1999 1998 1999 1998
------- ------ ------- -------
(In thousands, except per share data)
Net sales...................... $20,614 $34,426 $66,372 $90,743
Net (Loss) Income.............. $(3,211) $1,269 $(5,951) $(198)
Basic Net (Loss) Income
Per Share................. $(.21) $.09 $(.40) $(.01)
Diluted Net (Loss) Income
Per Share................. $(.21) $.08 $(.40) $(.01)
(3) Sales of Division
On June 29, 1999, the Company sold the Medical Data
Management ("MDM") division to Synarc, Inc., a privately held
imaging provider, in exchange for a minority ownership position
in Synarc, Inc. MDM was formed in 1992 to provide quality
assurance and data management services to the pharmaceutical
industry. Revenues from MDM for the first nine months of fiscal
1999 were $1,200,000. The sale of MDM did not result in any gain
or loss to the Company.
(4) 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:
June 26, September 26,
1999 1998
--------- -----------
(in thousands)
Raw materials and work-in-process........ $13,609 $13,859
Finished goods........................... 6,358 6,579
-------- -------
$19,967 $20,438
======= =======
Work-in-process and finished goods inventories consist of
material, labor and manufacturing overhead.
(b) Earnings Per Share: A reconciliation of basic and dilutive
share amounts are as follows:
Three Months Ended Nine Months Ended
June 26, June 27, June 26, June 27,
1999 1998 1999 1998
------- ----- ------- ------
(in thousands)
Weighted average common
shares outstanding.............. 13,841 13,334 13,515 13,221
Common stock equivalents
outstanding pursuant to the
treasury stock method........... -- 473 -- 564
Weighted average number of ------- ----- ------ -------
common shares outstanding
assuming dilution............... 13,841 13,807 13,515 3,785
======= ====== ====== ======
Anti-dilutive shares of 1,596 and 1,099 for the three and
nine months ended June 26, 1999, respectively, and 442 and 344
for the three and nine months ended June 27, 1998, respectively,
have been excluded from the weighted average number of common and
dilutive potential common shares outstanding.
(5) Line of Credit
The Company has an international line of credit with a bank
for the equivalent of $3.0 million, 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.
(6) Concentration of Credit Risk
The Company sells certain of its systems to a leasing
company, which in turn leases the systems to third parties. The
leasing company accounted for 7% and 39% of product sales in the
nine months ended June 26, 1999 and June 27, 1998, respectively.
The Company finances certain sales to Latin America over a two-to-
three year time-frame. At June 26, 1999, the Company had total
accounts receivable outstanding of approximately $7.1 million
relating to these sales, of which $1.5 million were long-term and
included in other assets. As of June 26, 1999, the Company has
not experienced any significant change in these receivables,
however, the economic and currency related uncertainties in these
countries may increase the likelihood of non-payment. As a
result, the Company increased its bad debt reserve in the second
and third quarters of fiscal 1999.
(7) Recent Accounting Pronouncements
In July 1997, the FASB issued Statement of Financial
Accounting Standards ("SFAS No. 131") Disclosures About Segments
of an Enterprise and Related Information. SFAS No. 131 requires
certain financial and supplementary information to be disclosed
on an annual and interim basis for each reportable segment of an
enterprise, as defined. SFAS No. 131 is effective for fiscal
years beginning after December 15, 1997. Unless impracticable,
companies would be required to disclose similar prior period
information upon adoption. The Company will adopt this statement
in their fiscal 1999 year-end financial statements.
In June 1998, the FASB issued SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities. SFAS No. 133
establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments investments
embedded in other contracts (collectively referred to as
derivatives) and for hedging activities. SFAS No. 133, as
amended by SFAS No. 137, is effective for fiscal years beginning
after June 15, 2000. The Company does not expect the adoption of
this statement to have a material impact on its consolidated
financial position or results of operations.
(8) Land, Building and Improvements
In fiscal 1998, the Company purchased a 200,000 square foot
building for approximately $20 million in cash, and has incurred
approximately $5 million for renovations. The Company moved its
headquarters and manufacturing into this facility on January 25,
1999. The Company began to amortize the cost of the building
straight-line over 40 years in the second quarter of fiscal 1999.
(9) Comprehensive (Loss) Income
The Company adopted SFAS 130, Reporting Comprehensive
Income, effective September 27, 1998. SFAS 130 established
standards for reporting and display of comprehensive income and
its components in the financial statements. The Company's only
item of other comprehensive income relates to foreign currency
translation adjustments, and is presented separately on the
balance sheet as required. A reconciliation of comprehensive
(loss) income is as follows:
Three Months Ended Nine Months Ended
June 26, June 27, June 26, June 27,
1999 1998 1999 1998
------- -------- ------ -------
(in thousands)
Net (loss) income as reported... $(1,533) $4,289 $(584) $9,073
Foreign currency translation
adjustment................... (219) 55 (758) (152)
-------- ------ ------ -------
Comprehensive (loss) income..... $(1,752) $4,344 $(1,342) $8,921
======== ====== ======== =======
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 Company's recent acquisition of Direct Radiography Corp.
("DRC"), the introduction of new products or product enhancements
by the Company or its competitors, the timing of FDA approvals or
clearances for such introductions, the overall state of health
care and cost containment efforts, the development status and
demand for drug therapies to treat osteoporosis, the status and
amount of reimbursement for approved procedures, the use of mini
c-arms in minimally-invasive surgical procedures, the
availability of financing alternatives, including fee-per-scan
programs, for the Company's products, the Company's abilities to
re-market equipment returned to Fleet under the strategic
alliance program, dependence on Physician Sales and Service, Inc.
to broaden the sales of the Company's product to the primary care
market, 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, and pricing and
other competitive conditions.
On June 3, 1999, the Company completed the acquisition of
Direct Radiography Corp. ("DRC") and the land and buildings at
which it conducts its business for approximately $20 million.
DRC is a development stage manufacturer of digital x-ray systems
for medical imaging and non-destructive testing applications.
Revenues. Total revenues for the third quarter of fiscal
1999 decreased 42% to $20.0 million from $34.4 million in the
third quarter of fiscal 1998. Total revenues for the current
nine month period decreased 30% to $64.0 million from $90.7
million for the first nine months of fiscal 1998. These
decreases were primarily due to a decrease in the total number of
domestic DXA bone densitometer product shipments, especially to
the primary care market including strategic alliance sales to a
leasing company. This leasing company discontinued the placement
of new bone densitometers under the strategic alliance program in
February 1999. The decrease in DXA sales was partially offset by
an increase in the number of mini c-arm product sales, primarily
from the Company's recently introduced Premier system. In the
current quarter, revenues also decreased due to fewer shipments
of Sahara (the Company's ultrasound bone sonometer) in the U.S.
market as compared to the same quarter last year. In the current
nine month period, the decrease in revenues was partially offset
by an increase in the number of Sahara product sales. In the
current quarter, revenues from DRC were approximately $173,000.
Other revenues decreased for the current three and nine
month periods due to a decrease in royalties from the license of
the Company's technology to Vivid Technologies, Inc. and a
decrease in revenues relating to medical data management services
provided to pharmaceutical companies to assist in the collection
and monitoring of clinical trial data. Partially offsetting these
decreases was an increase in additional fee-per-scan revenues.
On June 29, 1999, the Company sold the Medical Data
Management ("MDM") division to Synarc, Inc., a privately held
imaging provider, in exchange for a minority ownership position
in Synarc, Inc. Revenues from MDM for the first nine months of
fiscal 1999 were $1,200,000. The sale of MDM did not result in
any gain or loss to the Company.
Total revenues for the third quarter of fiscal 1999
increased slightly from $19.4 million in the immediately
preceding quarter. This increase was primarily due to increased
sales of the Company's mini c-arm (Premier) and ultrasound
(Sahara) products.
In the first nine months of fiscal 1999, approximately 64%
of product sales were generated in the United States, 23% in
Europe, 7% in Asia, and 6% in other international markets. In
the first nine months of fiscal 1998, approximately 73% of
product sales were generated in the United States, 17% in Europe,
6% in other international markets, and 4% in Asia.
Costs and Expenses. The cost of product sales increased
as a percentage of product sales to 63% in the current quarter
from 47% in the same quarter of fiscal 1998. The cost of product
sales increased as a percentage of product sales to 59% in the
current nine month period of fiscal 1999 from 49% in the same
nine month period of fiscal 1998. In the current quarter and
nine month periods, these costs increased as a percentage of
product sales primarily due to a decrease of approximately 50% in
the number of DXA bone densitometers sold and, to a lesser
extent, lower average selling prices. In addition, the current
periods include manufacturing costs of approximately $700,000
related to DRC. The reduction in DXA sales volume and the low
sales volume of digital imaging plates resulted in the under
absorption of fixed manufacturing costs.
Research and development expenses increased 38% to $3.2
million (16% of total revenues) in the current quarter from $2.3
million (7% of total revenues) in the third quarter of fiscal
1998. For the current nine month period, research and
development expenses increased 16% to $8.3 million (13% of total
revenues) from $7.2 million (8% of total revenues) for the first
nine months of 1998. The increase in research and development
expenses in 1999 is primarily due to the acquisition of DRC which
added approximately $500,000 of research and development expenses
and the addition of engineering personnel and outside consultants
working on the development of new products and product
enhancements.
Selling and marketing expenses decreased 41% to $4.8 million
(25% of product sales) in the current quarter from $8.2 million
(24% of product sales) in the third quarter of fiscal 1998. For
the current nine month period, selling and marketing expenses
decreased 35% to $14.8 million (24% of product sales) from $27.8
million (26% of product sales) for the first nine months of 1998.
The decrease in selling and marketing expenses in 1999 is
primarily due to a decrease in sales commissions paid to PSS
based on the lower sales volume in the primary care market in the
United States. Selling and marketing expenses related to DRC
were approximately $100,000 for the current periods.
General and administrative expenses increased 9% to $3.0
million (15% of total revenues) in the current quarter from $2.7
million (8% of total revenues) in the third quarter of fiscal
1998. During the first nine months of fiscal 1999, general and
administrative expenses increased 10% to $8.0 million (13% of
total revenues) from $7.3 million (8% of total revenues) in the
first nine months of 1998. These increases in general and
administrative expenses in fiscal 1999 were primarily due to an
increase in the accounts receivable reserve of approximately
$900,000 related to the Company's foreign receivables, especially
in Brazil. In addition, the current periods include general and
administrative expenses of approximately $120,000 related to DRC.
Total costs and expenses related to DRC totaled
approximately $1.5 million for the one month included in the
current periods. The Company expects to continue to incur
significant costs and expenses at DRC for the foreseeable future
as efforts are placed on developing and commercializing its
digital systems.
In the third quarter of 1999, the Company implemented a cost-
reduction strategy in an effort to reduce operating expenses.
The Company reduced its U.S. workforce by approximately 10%
through attrition and a corporate downsizing. A strategy to
streamline operations and reduce discretionary spending for its
existing business was also implemented. The severance expenses
incurred in connection with the downsizing were offset by the
cost savings achieved through the reduction in discretionary
spending in the third quarter of fiscal 1999. The Company
expects the cost savings discussed above to be fully realized in
the fourth quarter of fiscal 1999.
Interest Income. Interest income decreased to $848,000 in
the current quarter from $1.6 million in the same quarter of
fiscal 1998 and decreased to $3.2 million in the current nine
month period from $4.4 million in the comparable period in fiscal
1998 as the Company held a lower investment base than in the
prior year, due to the Company's use of funds to purchase a new
facility and for the acquisition of DRC.
Other Expense. The Company incurred other expense of
$167,000 and $122,000 for the third quarter of fiscal 1999 and
1998, respectively. For the first nine months of fiscal 1999 and
1998, the Company incurred other expense of $651,000 and $324,000
respectively. In the current quarter and nine month periods,
these expenses include foreign currency transaction losses and
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 intercompany sales, thereby reducing the
foreign currency exposure on those transactions. For the third
quarter and first nine months of fiscal 1998, these expenses were
primarily attributable to the interest costs on the line of
credit and, to a lesser extent, to foreign currency transaction
losses. 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.
(Benefit) Provision for Income Taxes. In the first nine
months of fiscal 1999, the Company has a benefit for income taxes
as a result of the current year's loss. The Company's effective
tax rate was approximately 36% in the first nine months of fiscal
1998. 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 June 26, 1999, working capital was approximately $88.0
million, and cash, cash equivalents and short-term investments
totaled $58.0 million. The cash, cash equivalents and short-term
investments balance decreased approximately $18.0 million from
September 26, 1998 primarily due to payments for the DRC
acquisition and for facility renovations. Included in other
assets were marketable securities with maturities exceeding one
year totaling $9.0 million. The Company finances certain sales to
Latin America over a two-to-three year time-frame. At June 26,
1999, the Company had total accounts receivable outstanding of
approximately $7.1 million relating to these sales, of which $1.5
million were long-term and included in other assets. Due to the
economic and currency related uncertainties in these countries,
the Company increased its bad debt reserve by approximately
$900,000 in the current fiscal year. In the first nine months of
1999, the Company purchased approximately $8.2 million of
property and equipment, which consisted primarily of building
improvements, furniture and fixtures for the new building and, to
a lesser extent, computers. The Company purchased this 200,000
square foot building for approximately $20.0 million in cash in
fiscal 1998 and moved its headquarters into this facility on
January 25, 1999. To date, the Company has incurred
approximately $5.0 million for renovations to this building. On
June 3, 1999, the Company acquired DRC and the building in which
it conducts its operations for approximately $7 million in cash
plus approximately 1.9 million shares of common stock.
Except as set forth above, the Company does not have any
significant capital commitments. The Company believes that
existing sources of liquidity will provide adequate cash to fund
the Company's anticipated working capital and other cash needs
for the foreseeable future.
Year 2000 Readiness Disclosure
The year 2000 (Y2K) issue is the potential for system and
processing failure of date-related data and the result of
computer-controlled systems using two digits rather than four to
define the applicable year. For example, computer programs that
have date-sensitive software may recognize a date using "00" as
the year 1900 rather than the year 2000. Systems that do not
properly recognize date-sensitive information when the year
changes to 2000 could generate system failure or miscalculations
causing disruptions of operations, including a temporary
inability to process transactions, send invoices or engage in
similar ordinary business activities. The Company has defined
Y2K compliance as the ability for the Company, its products and
suppliers to continue normal business activities in the year 2000
and beyond.
The Company has evaluated the Y2K issue with respect to its
financial and management information systems, its products and
its suppliers. At this point in its assessment, the Company is
not currently aware of any Y2K problems that are reasonably
likely to have a material adverse effect on the Company's
business, results of operations or financial condition, without
taking into account the Company's efforts to avoid such problems.
The Company believes that its accounting and information systems
are currently compliant as a result of installing an upgrade
version of the software made available through the annual
maintenance contract. The Company also uses other application
hardware and software which the Company believes to be Y2K
complaint. There is a risk that, notwithstanding its internal
review, if the Company has not properly identified all year 2000
compliance issues with respect to its management and information
systems, the Company may not be able to implement all necessary
changes to these systems on a timely basis and within budget.
Such a failure could result in a material disruption to the
Company's business, including the inability to track and fill
orders on a timely basis, which could have a material adverse
effect on its business, results of operations or financial
condition.
The Company has its bone densitometer products in production
and believes them to be year 2000 compliant. The Company has
also undertaken a general review of its previously sold bone
densitometer products and determined that many of those products
will need software upgrades to become year 2000 compliant. The
Company has developed a year 2000 compliant software upgrade for
these systems and plans to make it available to its customers, at
its expense. The Company does not expect these costs to be
material. Some customers will need computer hardware upgrades in
addition to the software upgrades to become year 2000 compliant.
The Company is also exposed to the risk that it could
experience material shipment delays from its major component
suppliers or material sales delays from its major customers due
to year 2000 issues relating either to their management
information or production systems. The Company has inquired of
these suppliers in an attempt to ascertain their year 2000
readiness. Although the Company does not currently anticipate
that it will experience any material shipment delays from their
major product suppliers or any material sales delays from its
major customers due to year 2000 issues, these third parties
could experience year 2000 problems that could have a material
adverse effect on the Company's business, results of operations
or financial condition.
Apart from its activities described above, the Company does
not have and does not plan to develop a contingency plan to
address Y2K issues. Should any unanticipated significant Y2K
issues arise, the Company's failure to implement such a
contingency plan could have a material adverse affect on its
business, results of operations or financial condition.
To the extent that the Company does not identify any
material non-compliant year 2000 issues affecting the Company or
third parties, such as the Company's suppliers, service providers
and customers, the most reasonably likely worst case year 2000
scenario is a systemic failure beyond the control of the Company,
such as a prolonged telecommunications or electrical failure, or
a general disruption in United States or global business
activities that could result in a significant economic downturn.
The Company believes that the primary business risks, in the
event of such failure or other disruption, would include but not
be limited to, loss of customers or orders, increased operating
costs, inability to obtain inventory on a timely basis,
disruptions in product shipments, or other business interruptions
of a material nature, as well as claims of mismanagement,
misrepresentation, or breach of contract, any of which could have
a material adverse effect on the Company's business, results of
operations or financial condition.
Item 3. Quantitative and Qualitative Disclosure About
Market Risk.
Not applicable.
PART II - OTHER INFORMATION
HOLOGIC, INC. AND SUBSIDIARIES
Item 1. Legal Proceedings.
No material litigation.
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:
(27) Financial Data Schedule
(b) Reports on Form 8-K:
8-K filed on June 18, 1999
8-K/A filed on August 6, 1999
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)
August 10, 1999 /s/ S. David Ellenbogen
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Date S. David Ellenbogen
Chairman and Chief Executive
Officer
August 10, 1999 /s/ Glenn P. Muir
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Date Glenn P. Muir
Vice President, Finance and
Treasurer
(Principal Financial and Chief
Accounting Officer)