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 March 31, 2001
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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
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Hologic, Inc.
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(Exact name of registrant as specified in its charter)
Delaware 04-2902449
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(State of incorporation) (I.R.S. Employer Identification No.)
35 Crosby Drive, Bedford, Massachusetts 01730
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(Address of principal executive offices) (Zip Code)
(781) 999-7300
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(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 May 9, 2001 15,517,408 shares of the registrant's Common Stock, $.01 par
value, were outstanding.
1
HOLOGIC, INC. AND SUBSIDIARIES
INDEX
Page
----
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets
March 31, 2001 (unaudited) and September 30, 2000.............. 3
Consolidated Statements of Operations
Three Months and Six Months Ended March 31, 2001
and March 25, 2000 (unaudited)................................. 4
Consolidated Statements of Cash Flows
Six Months Ended March 31, 2001
and March 25, 2000 (unaudited)................................. 5
Notes to Consolidated Financial Statements..................... 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations......................................... 11
Item 3. Quantitative and Qualitative Disclosure About Market Risk............ 15
PART II - OTHER INFORMATION.................................................... 16
SIGNATURES..................................................................... 17
2
HOLOGIC, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
ASSETS
March 31, September 30,
2001 2000
--------- ------------
(Unaudited)
CURRENT ASSETS:
Cash and cash equivalents........................................ $ 16,166 $ 22,778
Accounts receivable, less reserves of $7,938 and
$7,923, respectively.......................................... 45,337 50,580
Inventories...................................................... 35,949 39,706
Prepaid expenses and other current assets........................ 3,631 3,041
--------- ----------
Total current assets.......................................... 101,083 116,105
--------- ----------
Property and equipment, net...................................... 61,714 62,794
Intangible assets, net............................................ 17,905 19,137
Deferred income taxes, net........................................ 16,809 16,809
Other assets,..................................................... 4,684 4,810
--------- ----------
$ 202,195 $ 219,655
========= ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
March 31, September 30,
2001 2000
--------- ------------
CURRENT LIABILITIES:
Line of credit.................................................... $ 1,592 $ 388
Accounts Payable................................................... 16,811 16,414
Accrued expenses.................................................. 28,372 32,639
Deferred expenses................................................. 13,128 13,642
--------- ----------
Total current liabilities....................................... 59,903 63,083
--------- ----------
Note payable...................................................... 25,000 25,000
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STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value-
Authorized - 1,623 shares
Issued - none................................................ -- --
Common stock, $.01 par value-
Authorized - 30,000 shares
Issued - 15,515 and 15,419 shares, respectively................ 155 154
Capital in excess of par value................................... 110,694 110,233
Retained earnings................................................ 9,111 23,821
Cumulative translation adjustment................................ (2,204) (2,172)
Treasury stock, at cost, 45 shares............................... (464) (464)
--------- ----------
Total stockholders' equity...................................... 117,292 131,572
--------- ----------
$ 202,195 $ 219,655
========= ==========
The accompanying notes are an integral part of these consolidated financial
statements.
3
HOLOGIC, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except per share data)
Three Months Ended Six Months Ended
------------------ ----------------
March 31, March 25, March 31, March 25,
2001 2000 2001 2000
------- ------- ------- -------
REVENUES:
Product sales....................................... $43,552 $20,907 $ 88,002 $41,980
Other revenue....................................... 189 2,345 290 2,568
------- ------- -------- -------
43,741 23,252 88,292 44,548
------- ------- -------- -------
COSTS AND EXPENSES:
Cost of product sales............................... 29,272 13,524 60,552 26,556
Research and development............................ 6,466 4,042 12,450 8,754
Selling and marketing............................... 9,303 5,259 18,372 11,134
General and administrative.......................... 5,827 4,793 11,005 7,761
------- ------- -------- -------
50,868 27,618 102,379 54,205
------- ------- -------- -------
Loss from operations...................... (7,127) (4,366) (14,087) (9,657)
Interest income..................................... 277 1,026 596 1,879
Other expense....................................... (1,041) (44) (1,165) (75)
------- ------- -------- -------
Loss before provision (benefit)
for income taxes.......................... (7,891) (3,384) (14,656) (7,853)
PROVISION (BENEFIT) FOR INCOME TAXES................. 54 (1,200) 54 (2,800)
------- ------- -------- -------
Net loss.................................. $(7,945) $(2,184) $(14,710) $(5,053)
======= ======= ======== =======
NET LOSS PER COMMON AND
COMMON EQUIVALENT SHARES:
Basic and diluted.......................... $(.51) $(.14) $(.95) $(.33)
======= ======= ======== =======
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING............................ 15,467 15,318 15,427 15,290
======= ======= ======== =======
The accompanying notes are an integral part of these consolidated financial
statements.
4
HOLOGIC, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
Six Months Ended
----------------
March 31, March 25,
2001 2000
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss................................................................... $(14,710) $ (5,053)
Adjustments to reconcile net loss to net cash (used in) provided by
operating activities-
Depreciation and amortization............................................ 4,754 1,935
Compensation expense related to issuance of stock options................ 166 32
Changes in assets and liabilities-
Accounts receivable................................................... 5,190 2,281
Inventories........................................................... 3,757 (2,556)
Prepaid expenses and other current assets............................. (590) 3,996
Accounts payable...................................................... 397 (163)
Accrued expenses...................................................... (4,267) 495
Deferred revenue...................................................... (514) 1,724
-------- --------
Net cash (used in) provided by operating activities................. (5,817) 2,691
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of held-to-maturity investments.................................. -- (13,801)
Sales and maturities of held-to-maturity investments....................... -- 20,957
Purchases of property and equipment........................................ (2,020) (2,043)
Increase in other assets................................................... (320) (6,827)
-------- --------
Net cash used in investing activities............................... ( 2,340) (1,714)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in line of credit.................................. 1,204 (691)
Issuance of common stock pursuant to options and employee stock
purchase plan, including tax benefit..................................... 296 263
-------- -------
Net cash provided by (used in) financing activities................. 1,500 (428)
-------- -------
EFFECT OF EXCHANGE RATE CHANGES ON CASH..................................... 45 (334)
-------- -------
NET (DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS........................................................... (6,612) 215
CASH AND CASH EQUIVALENTS, beginning of period.............................. 22,778 36,508
-------- --------
CASH AND CASH EQUIVALENTS, end of period.................................... $ 16,166 $ 36,723
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for income taxes............................... $ 18 $ 146
======== ========
Cash paid during the period for interest................................... $ 52 $ 21
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
5
HOLOGIC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In thousands, except per share data)
(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, 2000,
included in the Company's Form 10-K as filed with the Securities and Exchange
Commission on December 22, 2000.
The consolidated balance sheet as of March 31, 2001, the consolidated
statements of operations for the three months and six months ended March 31,
2001 and March 25, 2000 and the consolidated statements of cash flows for the
six months ended March 31, 2001 and March 25, 2000, 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 and six months ended
March 31, 2001 are not necessarily indicative of the results to be expected for
the entire fiscal year ending September 29, 2001.
(2) Acquisition
On September 15, 2000 the Company acquired the U.S. business assets of
Trex Medical Systems Corporation (Trex Medical) in exchange for $30,000 in cash
and a note in the amount of $25,000 at 11.5% per annum that requires the full
amount of principal to be repaid on September 13, 2003.
The aggregate purchase price for Trex Medical was $56,000 which
included approximately $1,000 related to acquisition fees and expenses. The
purchase price is subject to an adjustment based upon the working capital
position of the business as of September 15, 2000.
Unaudited pro forma operating results for the Company, assuming the
Acquisition of Trex Medical occurred on September 26, 1999 are as follows:
Three Months Ended Six Months Ended
------------------ ----------------
March 25, March 25,
2000 2000
-------- ------
Net sales.................................. $52,418 $ 97,484
Net loss................................... $(7,405) $(21,519)
Basic and diluted net income per share..... $ (0.48) $ (1.41)
6
(3) Inventories
Inventories are stated at the lower of cost (first-in, first-out) or
market and consist of the following:
March 31, September 30,
2001 2000
------- -------
Raw materials and work-in-process.............................. $25,025 $24,742
Finished goods................................................. 10,924 14,964
------- -------
$35,949 $39,706
======= =======
Work-in-process and finished goods inventories consist of material,
labor and manufacturing overhead.
(4) Earnings Per Share
Diluted weighted average shares outstanding do not include 2,005 and
2,020 common equivalent shares for the three months and six months ended March
31, 2001, respectively and 1,009 and 1,023 common-equivalent shares for the
three months and six months ended March 25, 2000, respectively, as their effect
would have been anti-dilutive. These common stock equivalents represent all
stock options granted and not cancelled or expired.
(5) Concentration of Credit Risk
The Company finances certain sales to Latin America over a two-to-three
year time-frame. At March 31, 2001, the Company had total accounts receivable
outstanding of approximately $3,350 relating to these sales, of which $545 were
long-term and are included in other assets. As of March 31, 2001, the Company
has not experienced any significant change in the status of these receivables,
however, the economic and currency related uncertainties in these countries may
increase the likelihood of non-payment.
(6) Comprehensive Loss
Statement of Financial Accounting Standards No.130, Reporting
Comprehensive Income established standards for reporting and display of
comprehensive loss and its components in the financial statements. The Company's
only item of other comprehensive loss relates to foreign currency translation
adjustments, and is presented separately on the balance sheet as required.
A reconciliation of comprehensive loss is as follows:
Three Months Ended Six Months Ended
------------------ ----------------
March 31, March 25, March 31, March 25,
2001 2000 2001 2000
------- ------- ------- -------
Net loss as reported $(7,945) $(2,184) $(14,710) $(5,053)
Foreign currency translation adjustment. (248) (203) (33) (351)
------- ------- -------- -------
Comprehensive loss. $(8,193) $(2,387) $(14,743) $(5,404)
======= ======= ======== =======
7
(7) Business Segments and Geographic Information
Segment information for the three months and six months ended March 31,
2001 and March 25, 2000 is as follows:
Three Months Ended Six Months Ended
------------------- ----------------
March 31, March 25, March 31, March 25,
2001 2000 2001 2000
-------- -------- -------- -------
Total revenues-
Bone Assessment $ 15,714 $ 17,440 $ 30,491 $33,640
Mini C-Arm Imaging 3,909 3,350 7,672 6,762
Digital Imaging 2,559 2,463 4,935 4,146
Mammography/General Radiography 21,559 - 45,194 -
-------- -------- -------- -------
$ 43,741 $ 23,253 $ 88,292 $44,548
======== ======== ======== =======
Operating income (loss)-
Bone Assessment $ 1,586 $ (326) $ 2,525 $ (760)
Mini C-Arm Imaging 165 105 108 341
Digital Imaging (6,235) (4,145) (12,405) (9,238)
Mammography/General Radiography (2,643) - (4,315) -
-------- -------- -------- -------
$ (7,127) $ (4,366) $(14,087) $(9,657)
======== ======== ======== =======
Net income (loss)-
Bone Assessment $ 1,761 $ 608 $ 3,178 $ 872
Mini C-Arm Imaging 41 26 427 168
Digital Imaging (6,235) (2,818) (12,408) (6,093)
Mammography/General Radiography (3,512) - (5,907) -
-------- -------- -------- -------
$ (7,945) $ (2,184) $(14,710) $(5,053)
======== ======== ======== =======
Depreciation and amortization-
Bone Assessment $ 738 $ 674 $ 1,593 $ 1,433
Mini C-Arm Imaging 77 63 139 120
Digital Imaging 353 78 703 382
Mammography/General Radiography 1,291 - 2,319 -
-------- -------- -------- -------
$ 2,459 $ 815 $ 4,754 $ 1,935
======== ======== ======== =======
Capital expenditures-
Bone Assessment $ 250 $ 170 $ 592 $ 980
Mini C-Arm Imaging 21 11 183 124
Digital Imaging 140 675 613 939
Mammography/General Radiography 240 - 632 -
-------- -------- -------- -------
$ 651 $ 856 $ 2,020 $ 2,043
======== ======== ======== =======
March 31, September 30,
2001 2000
-------- --------
Identifiable assets-
Bone Assessment $ 106,297 $110,425
Mini C-Arm Imaging 18,382 17,539
Digital Imaging 4,029 10,038
Mammography/GeneralRadiography 73,487 81,653
--------- --------
$ 202,195 $219,655
========= ========
8
Export sales from the United States to unaffiliated customers primarily in
Europe, Asia and Latin America during the three months and six months ended
March 31, 2001 totaled approximately $10,595 and $21,308, respectively; and
for the three months and six months ended March 25, 2000 totaled
approximately $6,200 and $13,001, respectively.
Transfers between the Company and its European subsidiaries are generally
recorded at amounts similar to the prices paid by unaffiliated foreign
dealers. All intercompany profit is eliminated in consolidation.
Export product sales as a percentage of total product sales are as follows:
Three Months Ended Six Months Ended
March 31, March 25, March 31, March 25,
2001 2000 2001 2000
---- ---- ---- ----
Europe 18% 22% 16% 26%
Asia 8 8 8 7
All others 5 5 7 4
--- --- -- --
31% 35% 31% 37%
=== === == ==
(8) Litigation
In September 1999, Hologic commenced litigation against Fleet Business
Credit Corp. (FBCC), seeking a declaratory judgment with respect to the parties'
respective rights and obligations under a Master Product Financing Agreement
(the Agreement) dated September 25, 1996, as supplemented and amended. FBCC
subsequently commenced a separate action against Hologic in state court in
Illinois to recover damages allegedly arising out of or relating to the
Agreement. Neither Hologic nor FBCC has precisely quantified the alleged
potential liability of Hologic to FBCC and Hologic is vigorously defending
against the claims asserted by FBCC.
In connection with the Trex Medical acquisition, Hologic assumed
liability for a lawsuit filed by Fisher Imaging against Trex Medical alleging
that the Lorad prone biopsy system infringes upon two Fischer Imaging patents,
subject to indemnification from Trex Medical and its parent, Thermo Electron
Corporation, for any damages up to our adjusted purchase price for the Trex
Medical assets. In connection with this arrangement, Trex Medical is continuing
to defend this lawsuit and has advised the Company that it has meritorious
defenses to Fischer's claims. If Trex Medical is unsuccessful in defending this
lawsuit, the Company may be prohibited from manufacturing and selling the prone-
breast biopsy system without a license from Fischer Imaging and Fischer Imaging
could be awarded significant damages. If a license were required, Hologic cannot
assure that it would be able to obtain one on commercially reasonable terms, if
at all. Moreover, if Fischer Imaging were awarded damages, Hologic cannot assure
that its indemnification from Trex Medical and Thermo Electron would be
sufficient to cover the amount of the award.
In the ordinary course of business, the Company is party to other
various types of litigation. The Company believes it has meritorious defenses to
all claims, and, in its opinion, all litigation currently pending or threatened
will not have a material effect on the Company's financial position or results
of operations.
9
(9) New Accounting Pronouncements
In June 1999, the Financial Accounting Standards Board (FASB) issued
SFAS No. 137, Accounting for Derivative Instruments and Hedging Activities -
Deferral of the Effective Date of FASB Statement No 133, which defers the
effective date of SFAS No. 133 to all fiscal quarters of all fiscal years
beginning after June 15, 2000. SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities, issued in June 1998, establishes accounting
and reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. It requires
that an entity recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value. The
adoption of this statement did not have a material impact on the Company's
financial position or results of operations.
Staff Accounting Bulletin No. 101 (SAB 101), Revenue Recognition, was
issued in December 1999. On March 24, 2000, the SEC deferred implementation of
SAB 101 until the second calendar quarter of 2000, and on June 26, 2000,
implementation was further deferred until the fourth quarter of calendar 2000.
The Company is required to adopt this new accounting principle through a
cumulative charge to the statement of operations, in accordance with Accounting
Principles Board Opinion No. 20, Accounting Changes, no later than the fourth
quarter of fiscal 2001. The Company is still in the process of evaluating the
impact this bulletin will have on the consolidated financial statements.
10
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
This report contains forward-looking information that involves risks and
uncertainties, including statements about the Company's and its management's
plans, objectives, expectations, beliefs and intentions. Actual results may be
materially different than those anticipated in these forward-looking statements.
Factors that could cause actual results to materially differ include known and
unknown risks, including, without limitation, the Company's ability to integrate
the operations of its acquired businesses successfully; the unproven nature of
the markets for digital X-ray products; the Company's ability to predict
accurately the demand for its products in these emerging markets and to develop
strategies to address these markets successfully; uncertainties inherent in the
development of new products and the enhancement of existing products, including
technical and regulatory risks and delays; the ability of the Company to reduce
losses or obtain financing to sustain its development and commercialization
efforts; the Company's reliance on one or only a limited number of suppliers for
some key components or subassemblies of our products; the Company's dependence
on third party distributors to commercialize its Direct Radiography products;
risks related to the discontinuance of placements of new bone densitometers
under the Company's strategic alliance program, and Hologic's remarketing
obligations and associated litigation under that program; risk relating to
potential unanticipated costs and disruptions associated with the Company's
recent move of its Fluoroscan mini c-arm manufacturing operations to
Massachusetts; technical innovations that could render products marketed or
under development by Hologic obsolete; competition; reimbursement policies for
bone density testing, vertebral fracture assessment and mammography; and
regulatory approval and market acceptance of drug therapies for osteoporosis.
Other factors that could adversely affect the Company's business and prospects
are described in the Company's reports and registration statements filed with
the Securities and Exchange Commission. Our 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 those set
forth above. The Company expressly disclaims any obligation or undertaking to
release publicly any updates or revisions to any such statements to reflect any
change in the Company's expectations or any change in events, conditions or
circumstances on which any such statement is based.
Revenues. Total revenues for the second quarter of fiscal 2001 increased
88% to $43.7 million from $23.3 million for the second quarter of fiscal 2000.
Total revenues for the current six month period increased 98% to $88.3 million
from $44.5 million for the first six months of fiscal 2000. These increases
were primarily due the addition of revenues of $21.6 million and $45.2 million
for the second quarter and first six months of fiscal 2001, respectively, from
sales of mammography and general radiography products acquired from Trex Medical
in September 2000. Product revenues in our original businesses of Hologic bone,
Fluoroscan c-arm and DRC digital were $22.0 million in the current quarter
compared to $20.9 million in the second quarter of fiscal 2000 and for the
current six month period were $42.8 million compared to $42.0 million for the
first six months of fiscal 2000. The increase in the historical revenue base in
the current quarter is due to an increase in DXA bone densitometer sales, mini
c-arm sales and service revenues. The increase in DXA revenues was primarily due
to higher unit prices from sales of our Delphi systems and, to a lesser extent,
an increase in Delphi upgrade revenues. Partially
11
offsetting these increases was a decrease in Sahara product sales in the current
quarter. The increase in the historical revenue base in the current six month
period was due to increased mini c-arm sales and an increase in revenues from
sales of our digital x-ray products from DRC partially offset by a decrease in
Sahara product sales.
In the first half of fiscal 2000, our bone assessment revenues included
royalty revenues from Vivid Technologies Inc., relating to the license of our
DXA technology to Vivid for use in baggage inspection equipment. Our bone
assessment revenues in the second quarter of fiscal 2000 includes $2.0 million
that we received as a result of the completion of the sale of a fully paid up
license to Vivid in that quarter. As a result of the sale, our royalty revenues
from Vivid have been eliminated.
In the first six months of fiscal 2001, approximately 69% of product sales
were generated in the United States, 16% in Europe and 15% in other
international markets. In the first six months of fiscal 2000, approximately
63% of product sales were generated in the United States, 26% in Europe and 11%
in other international markets. We expect that foreign sales in the current
fiscal year will continue to account for a significant portion of product sales.
Continued economic and currency related uncertainty in a number of foreign
countries, especially in Asia and Latin America, could reduce our future sales
to these markets.
Costs and Expenses. The cost of product sales increased as a percentage
of product sales to 67% in the second quarter of fiscal 2001 from 65% in the
second quarter of fiscal 2000. The cost of product sales increased as a
percentage of product sales to 69% in the current six month period from 63% in
the same six month period in fiscal 2000. These costs increased as a percentage
of product sales primarily due to the lower margin recognized on the mammography
and digital radiography products and to increased manufacturing costs related to
DRC, which has significant fixed manufacturing costs and is operating
significantly below manufacturing capacity. Included in the cost of product
sales for the current six month period for Lorad and the Trex Medical general
radiography products is approximately $800,000 for the impact of the fair market
write-up of acquired inventory on equipment sold. Absent Direct Radiography
Corp., Lorad and Trex Medical general radiography products, cost of product
sales as a percentage of product sales would have decreased to approximately 52%
and 53% for the current quarter and six month periods, respectively. The low
sales volume of digital imaging plates, systems and general radiography products
resulted in the under absorption of fixed manufacturing costs.
Research and development expenses increased 60% to $6.5 million (15% of
total revenues) in the current quarter from $4.0 million (17% of total revenues)
in the second quarter of fiscal 2000. For the current six month period,
research and development costs increased 42% to $12.5 million (14% of total
revenues) from $8.8 million (20% of total revenues) for the first six months of
fiscal 2000. These increases were primarily due to the acquisition of the U.S.
assets of Trex Medical which added approximately $2.6 million and $4.9 million
of research and development expenses in the current quarter and six month
periods, respectively. Partially offsetting the increases from the Trex
acquisition is a reduction in research and development spending primarily
related to our bone densitometry products. In addition, in the current quarter
and six month periods, approximately $2.9 million and $5.4 million of the total,
respectively, related to the development of new digital radiography systems and
detectors in connection with DRC.
Selling and marketing expenses increased 77% to $9.3 million (21% of
product sales) in the current quarter from $5.3 million (25% of product sales)
in the second quarter of fiscal 2000. For the current six month period, selling
and marketing expenses increased 65% to $18.4 million (21% of product sales)
from $11.1 million (27% of product sales) for the first six months of fiscal
2000. These increases are primarily due to selling and marketing expenses of
$3.9 million and $7.8 million related to the mammography and general radiography
products acquired from Trex Medical for the current three
12
month and six month periods, respectively, partially offset by a decrease in the
historical business sales commissions primarily due to the lower sales volume in
the primary care market in the United States.
General and administrative expenses increased 22% to $5.8 million (13% of
total revenues) in the current quarter from $4.8 million (21% of total revenues)
in the second quarter of fiscal 2000. During the first six months of fiscal
2001, general and administrative expenses increased 42% to $11.0 million (12% of
total revenues) from $7.8 million (17% of total revenues) in the first six
months of fiscal 2000. These increases, in absolute dollars, were primarily due
to the addition of approximately $2.6 million and $5.1 million of general and
administrative expenses related to the acquired Trex Medical businesses in the
current quarter and six month periods, respectively. As part of our ongoing
efforts to streamline operations, we recently completed the move of our
Fluoroscan operations from our facility in Northbrook, Illinois to our corporate
headquarters in Bedford, Massachusetts. We believe that we will incur
approximately $500,000 in expenses in the third quarter in connection with this
move. Longer term, we believe that the move will result in operating
efficiencies and reduced overhead for the Fluoroscan operations.
Total costs and expenses related to DRC totaled approximately $8.8 million
and $17.3 million for the three and six months ended March 31, 2001,
respectively. We expect to continue to incur significant costs and expenses at
DRC for the foreseeable future as efforts are placed on developing and
commercializing our digital radiography systems.
Interest Income. Interest income decreased to $300,000 in the current
quarter from $1.0 million in the same quarter of fiscal 2000 and decreased to
$600,000 in the current six month period from $1.9 million in the comparable
period in fiscal 2000. These decreases were due to a lower investment base than
in the prior year, primarily due to the use of cash for the Trex Medical
acquisition during fiscal 2000 and our continuing investment in research and
development of digital radiography products.
Other Expense. We incurred other expense of approximately $1.0 million
and $44,000, for the second quarter of fiscal 2001 and 2000, respectively. For
the first six months of fiscal 2001 and 2000, we incurred other expense of $1.2
million and $75,000, respectively. In the current fiscal year, these expenses
are primarily due to interest costs of approximately $700,000 per quarter on the
$25 million note payable issued in connection with the Trex Medical acquisition.
In the first quarter of fiscal 2001, these costs were partially offset by
insurance proceeds received in excess of cost related to storm damage at
Fluoroscan last year. In fiscal 2000, these expenses primarily included foreign
currency transaction losses and interest costs on a bank line of credit used by
our European subsidiaries to borrow funds in their local currencies to pay for
intercompany sales, thereby reducing the foreign currency exposure on those
transactions. To the extent that foreign currency exchange rates fluctuate in
the future, we may be exposed to continued financial risk. Although we have
established a borrowing line of credit denominated in the two foreign
currencies, the French Franc and the Belgian Franc, in which the subsidiaries
currently conduct business to minimize this risk, we cannot assure that we will
be successful or can fully hedge our outstanding exposure.
Provision (Benefit) for Income Taxes. In fiscal 2000, the Company had a
benefit for income taxes as a result of the loss during the period. The Company
believes the related deferred tax asset will be realizable in the future. The
effective tax rate for the current quarter and six month periods reflects the
establishment of a valuation allowance for the tax benefit associated with
losses arising during these periods. The Company establishes valuation
allowances in accordance with the provisions of Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes."
13
Liquidity and Capital Resources
At March 31, 2001, we had approximately $41.2 million of working capital
and our cash and cash equivalents totaled $16.2 million. Our cash and cash
equivalents balance decreased approximately $6.6 million since September 30,
2000 as the net loss of $14.7 million was partially offset by an increase in
cash from operating activities including non-cash charges for depreciation and
amortization of $4.8 million plus changes in our current assets and liabilities,
which resulted in net cash used in operating activities of $5.8 million. Cash
provided by operations due to changes in our current assets and liabilities
included decreases in accounts receivable of $5.2 million and inventory of $3.8
million. These sources of cash were partially offset by a decrease in accrued
expenses of $4.3 million. In addition, our cash flows from other activities
included purchases of property and equipment of $2.0 million which consisted
primarily of computers and information systems equipment and building
improvements and an increase in borrowings under our European line of credit of
$1.2 million.
We finance some sales to Latin America over a two-to-three year time-
frame. At March 31, 2001, we had total accounts receivable outstanding of
approximately $3.4 million relating to these sales, of which approximately
$545,000 were long-term and included in other assets. As of March 31, 2001, we
have not experienced any significant write-offs of these receivables, however,
the economic and currency related uncertainties in these countries may increase
the likelihood of non-payment.
In September 2000, we purchased substantially all of the medical imaging
assets of Trex Medical for approximately $30 million in cash and an 11.5%
promissory note in the principal amount of $25 million with accrued interest
first payable on September 13, 2001 and semi-annually thereafter. The entire
principal balance is due on September 13, 2003. The promissory note is secured
by our real property in Danbury, Connecticut and Bedford, Massachusetts.
In connection with a fee-per-scan program offered for our DXA bone
densitometers, we entered into a remarketing agreement whereby we have agreed to
perform certain remarketing activities and to cover certain losses incurred by
the leasing company up to 10% of the total fee-per-scan contracts funded. Under
this strategic alliance program, we installed approximately $60.6 million in
units since 1996. As of March 31, 2001, approximately 14% of these systems were
awaiting remarketing after having been returned, net of remarketed or converted
units. This fee-per-scan program was terminated in February 1999. The leasing
company purchased all the DXA densitometers covered under these contracts from
us. We reserved for potential losses under these contracts during the fee-per-
scan program term by deferring revenue of an amount equal to 10% of the
contracts funded. We are in litigation that we initiated with the leasing
company through a declaratory judgement action regarding the extent of our
respective obligations under this contract. Under a separate but related action,
the leasing company is seeking unspecified compensatory damages and other
relief. We believe that we have meritorious defenses and are vigorously
defending ourselves. Nevertheless, litigation can be expensive and time
consuming. While we believe that the outcome will not have a material adverse
effect on our business, we cannot guarantee the outcome of this litigation. An
unfavorable outcome or prolonged litigation could materially harm our business,
results of operations or financial condition.
In connection with our Trex Medical acquisition, we assumed liability for
a lawsuit filed by Fisher Imaging against Trex Medical alleging that the Lorad
prone biopsy system infringes upon two Fischer Imaging patents, subject to
indemnification from Trex Medical and its parent, Thermo Electron Corporation,
for any damages up to our adjusted purchase price for the Trex Medical assets.
In connection with this arrangement, Trex Medical is continuing to defend this
lawsuit. If Trex Medical is unsuccessful in defending this lawsuit, we may be
prohibited from manufacturing and selling the prone-breast biopsy system without
a license from Fischer Imaging and Fischer Imaging could be awarded significant
damages. If a license were required, we cannot assure that we would be able to
obtain one
14
on commercially reasonable terms, if at all. Moreover, if Fischer Imaging were
awarded damages, we cannot assure that our indemnification from Trex Medical and
Thermo Electron would be sufficient to cover the amount of the award.
Except as set forth above, we do not have any significant capital
commitments. We are working on several projects, with an emphasis on direct
radiography plates and systems. We believe that we may require additional funds
in order to complete the development, conduct clinical trials and achieve
regulatory approvals of our direct radiography and other products under
development over the next several years. Moreover, we may require additional
funds for the working capital to commence the manufacture and marketing of these
new products in commercial quantities, if and when approved or cleared by the
regulatory authorities. As a result, we anticipate that we will be required to
reduce our losses or obtain additional funding to support these efforts.
Failure to obtain such funding could result in the delay or limitation of our
ongoing research and development projects. We are reviewing various
alternatives to obtain additional funding, including the sale and lease-back of
one of our owned facilities, working capital financing and possible strategic
alliances to help support our ongoing research and development costs.
Item 3. Quantitative and Qualitative Disclosure About Market Risk.
Financial Instruments, Other Financial Instruments, and Derivative
Commodity Instruments. SFAS No. 107, Disclosure of Fair Value of Financial
Instruments, requires disclosure about fair value of financial instruments.
Financial instruments consist of cash equivalents, short and long-term
investments, accounts receivable, accounts payable and debt obligations. The
fair value of these financial instruments approximates their carrying amount.
Primary Market Risk Exposures. Our primary market risk exposures are in
the areas of interest rate risk and foreign currency exchange rate risk. We
incur interest expense on loans made under a line of credit at the Europe
Interbank Offered Rate. At March 31, 2001, our outstanding borrowings under the
line of credit were approximately $1.6 million.
Substantially all of our sales outside the United States are conducted in
U.S. dollar denominated transactions. We operate two European subsidiaries
which incur expenses denominated in local currencies. However, we believe that
these operating expenses will not have a material adverse effect on our
business, results of operations or financial condition.
15
PART II - OTHER INFORMATION
HOLOGIC, INC. AND SUBSIDIARIES
Item 1. Legal Proceedings.
No material developments.
Item 2. Changes in Securities.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
The Company held its Annual Meeting of Stockholders on March 6, 2001.
At the meeting, a total of 13,380,081 shares or 86% of the Common Stock
issued and outstanding as of the record date, were represented in
person or by proxy. Set forth below is a brief description of each
matter voted upon at the meetings and the voting results with respect
to each matter.
1. A proposal to elect the following seven persons to serve as members
of the Company's Board of Directors for the ensuing year and until
their successors are duly elected:
Name For Withheld Abstain
---- --- -------- -------
S. David Ellenbogen 13,279,758 100,593 0
Irwin Jacobs 13,282,733 97,618 0
Steve L. Nakashige 13,279,133 101,218 0
William A. Peck 12,281,858 98,493 0
Gerald Segel 13,282,758 97,593 0
Jay A. Stein 13,278,832 101,519 0
Elaine Ullian 12,642,375 737,976 0
2. A proposal to ratify the appointment of Arthur Andersen, LLP as
independent public accountants of the Company.
For: 13,320,462 Against: 28,209 Abstain: 31,680
3. A proposal to adopt the 2000 Employee Stock Purchase Plan
For: 13,009,572 Against: 295,353 Abstain: 95,426
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 May 2, 2001
16
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)
May 15, 2001 /s/ S. David Ellenbogen
- ------------ -----------------------------------------------
Date S. David Ellenbogen
Chairman and Chief Executive Officer
May 15, 2001 /s/ Glenn P. Muir
- ------------ -----------------------------------------------
Date Glenn P. Muir
Executive Vice President, Finance and Treasurer
(Principal Financial Officer)
17