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 30, 2002
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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
-------- ----------
(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, 2002 19,266,244 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 30, 2002 (unaudited) and September 29, 2001 ........ 3
Consolidated Statements of Operations
Three Months and Six Months Ended March 30, 2002
and March 31, 2001 (unaudited) ........................... 4
Consolidated Statements of Cash Flows
Six Months Ended March 30, 2002
and March 31, 2001 (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 Disclosures About Market Risk .... 20
PART II - OTHER INFORMATION ............................................ 21
SIGNATURES ............................................................. 22
2
HOLOGIC, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(in thousands, except per share data)
ASSETS
March 30, September 29,
2002 2001
---- ----
CURRENT ASSETS:
Cash and cash equivalents ...................................... $ 26,230 $ 12,754
Accounts receivable, less reserves of $4,543 and
$4,668, respectively ........................................ 41,459 42,227
Inventories .................................................... 40,167 39,285
Prepaid expenses and other current assets ...................... 11,845 5,309
-------- --------
Total current assets .......................................... 119,701 99,575
-------- --------
PROPERTY AND EQUIPMENT, at cost:
Land ........................................................... 12,203 12,203
Buildings and improvements ..................................... 36,620 36,556
Equipment ...................................................... 25,046 23,191
Furniture and fixtures ......................................... 3,609 3,678
Leasehold improvements ......................................... 1,570 1,571
-------- --------
79,048 77,199
Less: Accumulated depreciation and amortization ................ 19,596 17,143
-------- --------
59,452 60,056
-------- --------
INTANGIBLE ASSETS:
Patented technology, net of accumulated amortization of
$4,072 and $3,402, respectively ............................ 3,228 3,741
Developed technology and know-how, net of accumulated
amortization of $1,447 and $991, respectively .................. 7,704 8,160
Goodwill, net of accumulated amortization of $592 .............. 5,989 5,989
-------- --------
16,921 17,890
-------- --------
Deferred income taxes, net ....................................... 14,816 16,516
Other assets, net ................................................ 953 1,082
-------- --------
Total assets .............................................. $211,843 $195,119
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
March 30, September 29,
2002 2001
---- ----
CURRENT LIABILITIES:
Lines of credit ................................................ $ 316 $ 1,998
Current portion of note payable ................................ 480 485
Accounts payable ............................................... 10,170 18,152
Accrued expenses ............................................... 22,003 25,507
Deferred revenue ............................................... 8,579 8,754
-------- --------
Total current liabilities ................................... 41,548 54,896
-------- --------
Notes payable, net of current portion ........................... 27,739 28,416
-------- --------
Commitments and Contingencies (Note 9)
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value-
Authorized - 1,623 shares
Issued - 0 shares ............................................. -- --
Common stock, $.01 par value-
Authorized - 30,000 shares
Issued - 19,180 and 15,670 shares, respectively ............... 192 157
Capital in excess of par value ................................. 139,337 111,300
Retained earnings .............................................. 5,824 2,971
Cumulative translation adjustment .............................. (2,333) (2,157)
Treasury stock, at cost, 45 shares ............................. (464) (464)
-------- --------
Total stockholders' equity .................................. 142,556 111,807
-------- --------
Total liabilities and stockholders' equity .................. $211,843 $195,119
======== ========
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 30, March 31, March 30, March 31,
2002 2001 2002 2001
---- ---- ---- ----
Revenues:
Product sales ..................................... $45,473 $43,552 $91,796 $ 88,002
Other revenue ..................................... 595 189 1,414 290
------- ------- ------- --------
46,068 43,741 93,210 88,292
------- ------- ------- --------
Costs and Expenses:
Cost of product sales ............................. 28,040 29,272 57,514 60,552
Research and development .......................... 4,770 6,466 10,050 12,450
Selling and marketing ............................. 6,620 9,303 13,458 18,372
General and administrative ........................ 5,500 5,827 10,257 11,005
Restructuring costs ............................... 495 -- 2,070 --
------- ------- ------- --------
45,425 50,868 93,349 102,379
------- ------- ------- --------
Income (loss) from operations .......... 643 (7,127) (139) (14,087)
Interest income ................................... 170 277 259 596
Interest/other expense ............................ (810) (1,041) (1,609) (1,165)
------- ------- ------- --------
Income (loss) before (benefit)
provision for income taxes ............. 3 (7,891) (1,489) (14,656)
(Benefit) Provision for Income Taxes .............. (4,423) 54 (4,342) 54
------- ------- ------- --------
Net income (loss) ...................... $ 4,426 $(7,945) $ 2,853 $(14,710)
======= ======= ======= ========
Net Income (Loss) per Common and
Common Equivalent Share:
Basic earnings per share ................ $ .23 $ (.51) $ .16 $ (.95)
======= ======= ======= ========
Diluted earnings per share .............. $ .22 $ (.51) $ .16 $ (.95)
======= ======= ======= ========
Weighted Average Number of
Common Shares Outstanding ......................... 18,947 15,467 17,508 15,427
======= ======= ======= ========
Weighted Average Number of
Dilutive Potential
Common Shares Outstanding ......................... 20,182 15,467 18,126 15,427
======= ======= ======= ========
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 30, March 31,
2002 2001
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ................................................... $ 2,853 $ (14,710)
Adjustments to reconcile net income (loss) to net cash used in
operating activities-
Depreciation and amortization .................................... 3,853 4,754
Deferred income taxes............................................. 1,700 --
Compensation expense related to issuance of common stock ......... -- 166
Changes in assets and liabilities-
Accounts receivable .......................................... 768 5,244
Inventories .................................................. (882) 3,757
Prepaid expenses and other current assets .................... (6,536) (590)
Accounts payable ............................................. (7,979) 397
Accrued expenses ............................................. (2,702) (4,267)
Deferred revenue ............................................. (176) (514)
-------- ---------
Net cash used in operating activities ....................... (9,101) (5,763)
-------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment ................................. (2,204) (2,020)
Decrease (increase) in other assets ................................. 32 (374)
-------- ---------
Net cash used in investing activities ....................... (2,172) (2,394)
-------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
(Repayments) borrowings under line of credit ....................... (1,681) 1,204
Repayments of notes payable ......................................... (683) --
Net proceeds from sale of common stock .............................. 24,780 --
Issuance of common stock pursuant to options and employee stock
purchase plan ...................................................... 2,489 296
-------- ---------
Net cash provided by financing activities ................... 24,905 1,500
-------- ---------
EFFECT OF EXCHANGE RATE CHANGES ON CASH ............................... (156) 45
-------- ---------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS ................................................... 13,476 (6,612)
CASH AND CASH EQUIVALENTS, beginning of period ........................ 12,754 22,778
-------- ---------
CASH AND CASH EQUIVALENTS, end of period .............................. $ 26,230 $ 16,166
======== =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for income taxes ........................ $ 92 $ 18
======== =========
Cash paid during the period for interest ............................ $ 1,560 $ 52
======== =========
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 29, 2001,
included in the Company's Form 10-K as filed with the Securities and Exchange
Commission on December 12, 2001.
The consolidated balance sheet as of March 30, 2002, the consolidated
statements of operations for the three months and six months ended March 30,
2002 and March 31, 2001 and the consolidated statements of cash flows for the
six months ended March 30, 2002 and March 31, 2001, 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 six months ended March 30,
2002 are not necessarily indicative of the results to be expected for the entire
fiscal year ending September 28, 2002. Certain prior-period amounts have been
reclassified to conform with the current-period presentation.
(2) Inventories
Inventories are stated at the lower of cost (first-in, first-out) or
market and consist of the following:
March 30, September 29,
2002 2001
Raw materials and work-in-process ............. $27,729 $27,421
Finished goods ................................ 12,438 11,864
------- -------
$40,167 $39,285
======= =======
Work-in-process and finished goods inventories consist of material,
labor and manufacturing overhead.
(3) Credit Facility Amendment
In December 2001, the Company executed an amendment to the Loan and
Security agreement with Foothill Capital Corporation primarily to change
financial covenants to reflect restructuring charges the Company incurred in the
fourth quarter of fiscal 2001 and the additional charges expected in connection
with the decision to close the Littleton facility. Also, as a result of this
amendment, the loan may be limited based upon certain financial covenants and
formulas. The term loan accrues interest at prime plus 1.25% for five years. The
line of credit advances accrue interest at prime plus 0.5%. The line of credit
expires in September 2004.
6
(4) Net Income (Loss) Per Share
A reconciliation of basic and dilutive share amounts are as follows:
Three Months Ended Six Months Ended
------------------ ----------------
March 30, March 31, March 30, March 31,
2002 2001 2002 2001
---- ---- ---- ----
(in thousands)
Weighted average common shares outstanding 18,947 15,467 17,508 15,427
Common stock equivalents outstanding
pursuant to the treasury stock method 1,235 -- 618 --
------- ------- ------- -------
Weighted average number of common and dilutive
potential common shares outstanding 20,182 15,467 18,126 15,427
======= ======= ======= =======
Anti-dilutive shares of 167 and 687 for the three and six months ended
March 30, 2002, respectively, and 2,005 and 2,020 for the three and six months
ended March 31, 2001, respectively, have been excluded from the weighted average
number of common and dilutive potential common shares outstanding.
(5) Concentration of Credit Risk
The Company utilizes a distributor in the United States for certain
product lines. The distributor had amounts due to the Company of approximately
$6,566 as of March 30, 2002 and $6,969 as of September 29, 2001, respectively.
This distributor accounted for approximately 16% and 12% of revenues for the
three months ended March 30, 2002 and March 31, 2001, respectively; and
approximately 17% and 14% of revenues for the first six months of fiscal 2002
and fiscal 2001, respectively. There were no other customers with balances
greater than 10% of accounts receivable as of March 30, 2002 or September 29,
2001 or customers with greater than 10% of the Company's revenues for the first
three or six months of fiscal 2002 or fiscal 2001.
The Company finances certain sales to Latin America over a two-to-three
year time-frame. At March 30, 2002, the Company had total accounts receivable
outstanding of approximately $2,693 relating to these sales, of which $144 were
long-term and included in other assets. As of March 30, 2002, 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.
(6) Comprehensive Income (Loss)
Statement of Financial Accounting Standards No. 130, Reporting
Comprehensive Income established standards for reporting and display of
comprehensive income (loss) and its components in the financial statements. The
Company's only item of other comprehensive income (loss) relates to foreign
currency translation adjustments, and is presented separately on the balance
sheet as required.
A reconciliation of comprehensive income (loss) is as follows:
Three Months Ended Six Months Ended
------------------ ----------------
March 30, March 31, March 30, March 31,
2002 2001 2002 2001
---- ---- ---- ----
Net income (loss) as reported .................. $4,426 $(7,945) $2,853 $(14,710)
Foreign currency translation adjustment ........ (54) (248) (175) (33)
------ ------- ------ --------
Comprehensive income (loss) .................... $4,372 $(8,193) $2,678 $(14,743)
====== ======= ====== ========
7
(7) Restructuring Costs
In fiscal 2001, the Company incurred a restructuring charge of $1,218
in accordance with Emerging Issues Task Force Issue ("EITF") 94-3 and SEC Staff
Accounting Bulletin 100 (SAB 100). The restructuring charge includes
severance-related costs associated with workforce reductions of approximately
102 persons across all functional areas. In addition, the Company recorded $300
of moving and other costs incurred to move the Fluoroscan operations to the
corporate headquarters from Northbrook, Illinois.
During the first quarter of fiscal 2002, the Company announced the
finalization of an exit strategy for the Hologic Systems Division. As part of
this exit strategy, the Company closed its conventional general radiography
manufacturing facility in Littleton, Massachusetts, and relocated certain of its
product lines and sales and support personnel to the corporate headquarters in
Bedford, Massachusetts. The Company accrued costs of approximately $3,500
related to the closing as part of the final Trex Medical purchase price
allocation in the fourth quarter of fiscal 2001. These costs included amounts
for lease abandonment, as well as for the write-off of certain fixed assets and
accounts receivable. The Company commenced the closure in the first quarter of
fiscal 2002 and completed the closure in January 2002. The Company also incurred
a restructuring charge of approximately $806 in the first quarter of fiscal 2002
primarily comprised of severance costs related to the termination of 85
employees at the Littleton facility. In addition, the Company incurred severance
costs of approximately $561 and $208 in connection with the closure of the
Company's direct sales and service office in Paris, France and the continued
reduction of Lorad's workforce, respectively. The severance charges related to
the workforce reductions of 5 persons and 20 persons in France and at Lorad,
respectively, were across all functional areas.
In the second quarter of fiscal 2002, the Company incurred additional
severance costs of approximately $495 primarily comprised of severance costs in
connection with the reduction of the Company's workforce in the United States
and Europe by 13 persons across all functional areas.
Cash payments totaled approximately $1,512 for the six months ended
March 30, 2002 and $2,379 in restructuring liabilities remain in accrued
expenses in the accompanying balance sheet at March 30, 2002.
(8) Business Segments and Geographic Information
As a result of the Company's decision to close its Hologic Systems
Division manufacturing facility in Littleton, Massachusetts, the Company has
presented the conventional General Radiography business as a separate segment
from Mammography. Prior periods have been restated to conform to this
presentation. Segment information for the three months and six months ended
March 30, 2002 and March 31, 2001 is as follows:
Three Months Ended Six Months Ended
------------------ ----------------
March 30, March 31, March 30, March 31,
2002 2001 2002 2001
---- ---- ---- ----
Total revenues-
Bone Assessment $14,925 $15,714 $31,523 $30,491
Mammography 17,949 14,752 35,092 30,508
Digital Imaging 5,389 2,559 10,857 4,935
Mini C-Arm Imaging 4,753 3,909 8,056 7,672
General Radiography 3,052 6,807 7,682 14,686
------- ------- ------- -------
$46,068 $43,741 $93,210 $88,292
======= ======= ======= =======
Operating income (loss)-
Bone Assessment $ 1,514 $ 1,586 $ 3,727 $ 2,525
Mammography 1,032 (832) 1,976 (997)
Digital Imaging (2,672) (6,235) (4,753) (12,405)
8
Mini C-Arm Imaging 1,175 165 1,712 108
General Radiography (407) (1,811) (2,801) (3,318)
------- -------- -------- ---------
$ 642 $ (7,127) $ (139) $ (14,087)
======= ======== ======== =========
Depreciation and amortization-
Bone Assessment $ 824 $ 738 $ 1,705 $ 1,593
Mammography 590 1,173 1,221 2,063
Digital Imaging 420 353 836 703
Mini C-Arm Imaging 61 77 91 139
General Radiography -- 118 -- 256
------- -------- -------- ---------
$ 1,895 $ 2,459 $ 3,853 $ 4,754
======= ======== ======== =========
Capital expenditures-
Bone Assessment $ 993 $250 $ 1,256 $ $592
Mammography 221 400 421 706
Digital Imaging 321 140 527 613
Mini C-Arm Imaging -- 21 -- 183
General Radiography -- (160) -- (74)
------- -------- -------- ---------
$ 1,535 $ 651 $ 2,204 $ 2,020
======= ======== ======== =========
March 30, September 29,
2002 2001
---- ----
Identifiable assets-
Bone Assessment $ 146,948 $ 117,796
Mammography 48,713 50,811
Digital Imaging (2,449) 1,108
Mini C-Arm Imaging 15,343 15,402
General Radiography 3,288 10,002
---------- ------------
$ 211,843 $ 195,119
========== ============
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 30, 2002 totaled approximately $7,847 and $15,302, respectively; and for
the three months and six months ended March 31, 2001 totaled approximately
$10,595 and $21,308, 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 30, March 31, March 30, March 31,
2002 2001 2002 2001
---- ---- ---- ----
Europe 10% 18% 10% 16%
Asia 9 8 10 8
All others 2 5 2 7
----- ----- ----- -----
21% 31% 22% 31%
===== ===== ===== =====
9
(9) Litigation
In connection with the acquisition of the U.S. assets of Trex Medical,
the Company assumed liability for a lawsuit filed by Fischer 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 and related costs,
including attorneys' fees, up to the adjusted purchase price for the Trex
Medical assets. In connection with this arrangement, Trex Medical is continuing
to defend this lawsuit. In November and December 2001, Fischer Imaging filed
lawsuits against the Company in the United States, France and Germany in
connection with sales of this product. The lawsuits seek to enjoin Trex Medical,
the Company and its German distributor from further violation of Fischer
Imaging's patents and damages including, in the United States, damages of up to
three times the amount found or assessed and attorneys' fees. Trex Medical and
Thermo Electron have agreed to indemnify the Company, and to defend the recently
filed lawsuits on the same basis as the previously existing lawsuit. If the
Company or Trex Medical are unsuccessful in defending these lawsuits, we may be
prohibited from manufacturing and selling the existing prone breast biopsy
system without a license from Fischer Imaging and Fischer Imaging could be
awarded significant damages. If required, a license from Fischer Imaging to
manufacture or sell the existing prone breast biopsy system may not be available
or may not be available on commercially reasonable terms. Moreover, if Fischer
Imaging were awarded damages, indemnification from Trex Medical and Thermo
Electron, if any, may be insufficient to cover the award. A significant award
above the indemnification amount actually received could harm the Company's
business and prospects.
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.
(10) Public Offering of Common Stock
In December 2001, the Company sold 3,000 shares of its Common Stock
to the public at a price of $9.00 per share. The Company received net proceeds
from this offering of approximately $24.8 million.
(11) New Accounting Pronouncements
In July 2001, the FASB issued SFAS No. 142, Goodwill and Other
Intangible Assets. This statement applies to goodwill and intangible assets
acquired after June 30, 2001, as well as goodwill and intangible assets
previously acquired. Under this statement, goodwill will no longer be amortized,
instead goodwill will be reviewed for impairment annually, at a minimum, by
applying a fair-value-based test. The Company early adopted this statement,
effective in the first quarter of this year. Accordingly, the Company has
reclassified the net book value of assembled workforce to goodwill and ceased
amortization. The Company expects this will reduce annual amortization expense
by approximately $700.
During the second quarter of fiscal 2002, an independent appraiser,
experienced in conducting these impairment tests, completed the fair-value-based
test of the Company's goodwill. Based on the results of this test, goodwill was
deemed not to be impaired for fiscal 2002.
10
PART I - FINANCIAL INFORMATION (Continued)
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
HOLOGIC, INC. AND SUBSIDIARIES
CRITICAL ACCOUNTING POLICIES
The discussion and analysis of our financial condition and results of
operations are based upon our consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in the U.S.
The preparation of these financial statements requires us to make estimates and
judgments that affect the reported amounts of assets, liabilities, revenues and
expenses, and related disclosure of contingent assets and liabilities. On an
on-going basis, we evaluate our estimates, including those related to customer
programs and incentives, product returns, bad debts, inventories, investments,
intangible assets, income taxes, warranty obligations, restructuring and
contingencies and litigation. We base our estimates on historical experience and
on various other assumptions that are believed to be reasonable under the
circumstances, the results of which form the basis for making judgments about
the carrying values of assets and liabilities that are not readily apparent from
other sources. Actual results may differ from these estimates under different
assumptions or conditions.
We believe the following critical accounting policies affect our more
significant judgments and estimates used in the preparation of our consolidated
financial statements.
Inventory
Our inventories include material, labor and overhead, and are stated at
the lower of cost (first-in, first-out) or market. We write down inventory for
estimated obsolescence based upon assumptions about future demand and market
conditions, which may negatively affect our ability to dispose of inventory. If
actual market conditions are less favorable than those projected by management,
additional inventory write-downs may be required, which would have a negative
effect on our results of operations.
Allowance for Doubtful Accounts
We maintain allowances for doubtful accounts for estimated losses
resulting from the inability of our customers to make required payments. If the
financial condition of the customers were to deteriorate, resulting in an
impairment of their ability to make payments, additional allowances may be
required.
Valuation of Long-lived and Intangible Assets and Goodwill
We assess the impairment of identifiable intangibles, long-lived assets
and goodwill whenever events or changes in circumstances indicate that the
carrying value may not be recoverable. Factors we consider important that could
trigger an impairment review include but are not limited to the following:
. significant under-performance relative to historical or projected
future operating results;
. significant changes in the manner of our use of the acquired
assets or the strategy for our overall business; and
. significant negative industry or economic trends.
When we determine that the carrying value of intangibles, long-lived
assets and goodwill may not be recoverable based on a change in events and
circumstances discussed above, we measure any impairment based on the projected
undiscounted cash flow method. Net intangible assets and goodwill amounted to
$16.9 million as of March 31, 2002, consisting of $13.7 million related to
Mammography business, $2.9 million related to the Bone Assessment Business and
11
$300 related to the Digital Imaging Business.
In the first quarter of fiscal 2002, we early-adopted Statement of
Financial Accounting Standards ("SFAS") No. 142, "Goodwill and Other Intangible
Assets", and as a result, we ceased amortizing approximately $4.4 million of
goodwill. We had recorded approximately $549 of amortization on these amounts
during fiscal 2001 and would have recorded approximately $700 of amortization
during 2002 if the existing standards had been continued. In lieu of
amortization, we are required to perform an initial impairment review of our
goodwill in 2002 and an annual impairment review thereafter. We completed our
initial review during the quarter ended March 31, 2002. During the second
quarter of fiscal 2002, an independent appraiser, experienced in conducting
these impairment tests, completed the fair-value-based test of the Company's
goodwill. Based on the results of this test, goodwill was deemed not to be
impaired for fiscal 2002.
Revenue Recognition
We recognize product revenue upon shipment, provided that there is
persuasive evidence of an arrangement, there are no uncertainties regarding
acceptance, the sales price is fixed or determinable, collection of the
resulting receivable is probable and only perfunctory Company obligations
included in the arrangement remain to be completed. A provision is made at that
time for estimated warranty costs to be incurred. Other product revenues, which
includes primarily replacement parts and services, are recorded at the time of
shipment or as the service is rendered.
In connection with a fee-per-scan program with a leasing company for
certain products, we entered into a remarketing agreement whereby we agreed to
perform certain remarketing activities on a best efforts basis. We agreed to
perform these activities to help recover any losses incurred by the leasing
company up to 10% of the total fee-per-scan contracts funded. The leasing
company purchased all such products covered under these contracts from us. We
had reserved for potential losses under these contracts by deferring revenue in
an amount equal to 10%. During fiscal 1999, we and the leasing company commenced
claims against each other regarding this program. On August 9, 2001, we reached
an agreement with the leasing company to settle the litigation between the
parties. Under the terms of the $3,050 settlement, we made a cash payment of
$1,500 and issued a note payable to the leasing company for $1,550 payable in
full on August 10, 2004 and bearing interest at a rate of prime (6.0% at
September 29, 2001) plus 1%. As of March 31, 2002, there was approximately $1.1
million outstanding on this note.
As a result of the settlement, we recognized the amount deferred in
excess of the settlement totaling $2,147 as revenue in the fourth quarter of
2001. In addition, we reversed $500 of related warranty reserves which were no
longer necessary through a reduction of cost of product sales.
Income Taxes
We account for income taxes under SFAS No. 109, "Accounting for Income
Taxes". This statement requires that we recognize a current tax liability or
asset for current taxes payable or refundable and a deferred tax liability or
asset for the estimated future tax effects of temporary differences and
carryforwards to the extent they are realizable. We record a valuation allowance
to reduce our deferred tax assets to the amount that is more likely than not to
be realized. While we have considered future taxable income and ongoing prudent
and feasible tax planning strategies in assessing the need for the valuation
allowance, in the event we were to determine that we would be able to realize
our deferred tax assets in the future in excess of the net recorded amount, an
adjustment to the deferred tax asset would increase income in the period such
determination was made. Likewise, should we determine that we would not be able
to realize all or part of our net deferred tax asset in the future, an
adjustment to the deferred tax asset would be charged to income in the period
such determination was made.
We do not provide for U.S. income taxes on earnings of our subsidiaries
outside of the U.S. Our intention is to reinvest these earnings permanently or
12
to repatriate the earnings only when tax-effective to do so. It is not practical
to estimate the amount of additional taxes that might be payable upon
repatriation of foreign earnings; however, we believe that U.S. foreign tax
credits would largely eliminate any U.S. taxes or offset any foreign withholding
taxes.
Warranty Reserves
We provide for the estimated cost of product warranties at the time
revenue is recognized. Although we engage in extensive product quality programs
and processes, our warranty obligation is affected by product failure rates and
service delivery costs incurred in correcting a product failure. Should actual
product failure rates or service delivery costs differ from our estimates, which
are based on historical data and engineering estimates, where applicable,
revisions to the estimated warranty liability would be required.
Legal Contingencies
We are currently involved in certain legal proceedings. In connection
with these legal proceedings, which we discuss in Note 9 to our Consolidated
Financial Statements, management periodically reviews estimates of potential
costs to be incurred by the Company in connection with the adjudication or
settlement, if any, of these proceedings. These estimates are developed in
consultation with outside counsel and are based on an analysis of potential
litigation outcomes and settlement strategies. In accordance with FASB Statement
No. 5, Accounting for Contingencies, loss contingencies are accrued if, in the
opinion of management, an adverse outcome is probable and such outcome can be
reasonably estimated. We do not believe that these proceedings will have a
material adverse effect on our financial position; however, it is possible that
future results for any particular quarter or annual period may be materially
affected by changes in our assumptions or the effectiveness of our strategies
relating to these proceedings.
RESULTS OF OPERATIONS
This report contains forward-looking information that involves risks and
uncertainties, including statements about our and our 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, our historical losses, the early
stage of market development for digital X-ray products, our ability to predict
accurately the demand for our products and to develop strategies to address our
markets successfully; uncertainties inherent in the development of new products
and the enhancement of existing products, including technical and regulatory
risks, cost overruns and delays; the risk that newly introduced products may
contain undetected errors or defects or otherwise not perform as anticipated;
risks relating to our reliance on a single source of supply for some key
components of our products; the need to comply with especially high standards in
the manufacture of digital X-ray products; risks related to ongoing litigation;
our ability to meet ongoing financial covenants under our line of credit;
technical innovations that could render products marketed or under development
by us obsolete; competition; reimbursement policies for the use of our products;
market acceptance of drug therapies for osteoporosis. Other factors that could
adversely affect our business and prospects are described in our 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. We expressly disclaim any
obligation or undertaking, except as required by law, to release publicly any
updates or revisions to any such statements to reflect any change in our
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 2002 increased
5% to $46.1 million from $43.7 million for the second quarter of fiscal 2001.
Total revenues for the current six month period increased 6% to $93.2 million
from $88.3 million for the first six months of fiscal 2001. These increases were
primarily due to an increase in revenues from sales of our mammography, digital
13
imaging and mini c-arm products. Partially offsetting these increases was a
decrease in revenues from our conventional general radiography business and to a
lesser extent, in the second quarter, a slight reduction of bone assessment
sales. We have completed the process of phasing-out the unprofitable
conventional general radiography line of business we acquired from Trex Medical.
Other revenues increased for the current three month period primarily
due to a license of certain digital imaging software during the current quarter.
The increase for the current six month period was due to this proprietary
software license, an increase in additional fee-per-scan revenues and from a
license of certain mammography patented technology. We do not expect to receive
ongoing royalty or license revenue from these licenses.
Revenues in our mammography business increased approximately 22% to
$17.9 million for the second quarter of fiscal 2002 from $14.8 million for the
corresponding three month period in fiscal 2001 and increased 15% to $35.1
million for the six months ended March 30, 2002 from $30.5 million for the same
period in fiscal 2001. These increases were primarily due to an increase in the
number of mammography systems sold in the United States partially offset by
fewer systems sold internationally, and to a lesser extent, lower average
selling prices. Digital imaging revenues increased 111% to $5.4 million in the
second quarter of fiscal 2002 compared to revenues of $2.6 million in the second
quarter of fiscal 2001 and increased 120% to $10.9 million for the first six
months of fiscal 2002 compared to $4.9 million for the comparable period in
fiscal 2001. These increases were primarily due to an increase in the number of
digital systems sold in the United States and to a lesser extent, an increase in
the number of systems sold internationally. Mini c-arm revenues increased 22% to
$4.8 million in the current quarter of fiscal 2002 from $3.9 million for the
same period last year and increased 5% for the current six month period from
$7.7 million for the first six months of fiscal 2001. These increases were
primarily due to an increase in the number of systems sold domestically. Bone
assessment revenues decreased 5% to $14.9 million in the second quarter of
fiscal 2002 from $15.7 million for the same period last year primarily due to a
decrease in the number of systems sold internationally. These revenues for the
first six months of fiscal 2002 increased 5% to $31.3 million from $29.9 million
for the comparable six month period in fiscal 2001 primarily due to an increase
in the number of systems sold in the United States partially offset by fewer
systems sold internationally, and to a lesser extent, lower average selling
prices. Conventional radiography revenues decreased 55% to $3.1 million in the
second quarter of fiscal 2002 from $6.8 million in the same quarter of fiscal
2001 and decreased 48% to $7.7 million for the first six months of fiscal 2002
from $14.7 million for the same period in fiscal 2001. These decreases were
primarily due to our decision to phase-out our unprofitable conventional general
radiography business.
In the first six months of fiscal 2002, approximately 78% of product
sales were generated in the United States, 10% in Europe and 12% in other
international markets. 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.
We expect that foreign sales in the current fiscal year will continue to
account for a substantial 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 and
impact collections on previous sales.
Cost of Product Sales. The cost of product sales decreased as a
percentage of product sales to 62% in the second quarter of fiscal 2002 from 67%
in the second quarter of fiscal 2001. The cost of product sales decreased as a
percentage of product sales to 63% in the current six month period from 69% in
the first six months of fiscal 2001. In the current three month period, these
costs decreased as a percentage of product sales primarily due to improved gross
margins recognized on the mammography and digital imaging products as a result
of a significant increase in revenues. The increased volume has improved the
absorption of manufacturing overhead at both facilities. DRC continues to have
significant fixed manufacturing costs and is operating significantly below
14
manufacturing capacity. However, margins on these products were positive this
quarter. Our gross margins also improved as a result of the decrease in sales of
conventional general radiography products which generally have lower margins.
The cost of product sales for all products excluding the digital imaging
and conventional general radiography products decreased as a percentage of
product sales to 54% in the second quarter of fiscal 2002 from 57% in the second
quarter of fiscal 2001. This improvement in gross margins was primarily due to
generally higher revenues and reduced manufacturing costs resulting from the
corporate restructuring and cost initiatives enacted in the summer of 2001.
In the current six month period, improvements in margins in the digital
imaging and mammography businesses were partially offset by lower margins on
sales of general radiography products. The improved margins in the digital
imaging and mammography products were primarily due to increased sales volume
combined with reduced manufacturing costs resulting from the corporate
restructuring and cost saving initiatives enacted in the summer of 2001.
Included in the cost of product sales for Lorad mammography products in the
first quarter of fiscal 2001 was approximately $800,000 for the impact the fair
market write-up of acquired inventory on equipment sold.
Research and Development Expenses. Research and development expenses
decreased 26% to $4.8 million (10% of total revenues) in the current quarter
from $6.5 million (15% of total revenues) in the second quarter of fiscal 2001.
For the current six month period, these costs decreased 19% to $10.0 million
(11% of total revenues) from $12.5 million (14% of total revenues) for the first
six months of fiscal 2001. These decreases were primarily due to a decrease in
research and development spending and personnel primarily related to our
cost-saving initiatives enacted during last summer. In addition, approximately
$1.9 million and $2.9 million of the total in the second quarter of fiscal 2002
and 2001, respectively; and approximately $3.6 million and $5.4 million of the
total in the first six months of fiscal 2002 and 2001, respectively, related to
the development of new digital mammography and radiography systems and detectors
at DRC.
Selling and Marketing Expenses. Selling and marketing expenses decreased
29% to $6.6 million (15% of product sales) in the current quarter from $9.3
million (21% of product sales) in the second quarter of fiscal 2001. For the
current six month period, selling and marketing expenses decreased 27% to $13.5
million (15% of product sales) from $18.4 (21% of product sales) for the first
six months of fiscal 2001. These decreases were primarily due to our reduction
in personnel relating to our cost-saving initiatives enacted during the summer
of 2001.
General and Administrative Expenses. General and administrative expenses
decreased 6% to $5.5 million (12% of total revenues) in the current quarter from
$5.8 million (13% of total revenues) in the second quarter of fiscal 2001.
During the first six months of fiscal 2002, general and administrative expenses
decreased 7% to $10.3 million (11% of total revenues) from $11.0 million (12% of
total revenues) in the first six months of fiscal 2001. These decreases were
primarily due to our reduction in personnel and other cost-savings initiatives
enacted during the summer of 2001 and, to a lesser extent, the elimination of
the legal expenses as a result of the settlement with Fleet Business Credit, LLC
in August, 2001. In addition, in connection with our early adoption of SFAS 142,
(see Note 11) we eliminated approximately $180,000 and $360,000 of goodwill
amortization expense in the current quarter and six month periods, respectively.
Restructuring Costs. Restructuring costs in the first and second
quarters of fiscal 2002 were primarily the result of our continuing efforts to
streamline operations and eliminate unprofitable product lines. In the current
quarter, we incurred severance costs of approximately $500,000 primarily related
to additional costs in connection with our closure of our direct sales and
service office in Paris and to continued reductions in the bone assessment
business. In January 2002 we completed the closure of our Littleton
manufacturing facility which was acquired from Trex Medical. We eliminated
approximately 80 employment positions and incurred restructuring costs,
primarily related to severance costs, of approximately $806,000, in the first
quarter. In addition, we incurred severance costs of approximately $561,000 and
15
$208,000, in connection with our closure of our direct sales and service office
in Paris and the continued reduction of Lorad's workforce, respectively, in the
first quarter of fiscal 2002.
Interest Income. Interest income decreased to $170,000 in the current
quarter from $277,000 in the second quarter of fiscal 2001 and decreased to
$259,000 in the current six month period from $596,000 in the comparable period
in fiscal 2001. These decreases were due to a lower investment base than in the
prior year, primarily due to the use of cash to fund operations during fiscal
2001, and to reduced interest rates on our investments.
Interest / Other Expense. In the second quarters of fiscal 2002 and 2001,
we incurred interest and other expenses of approximately $810,000 and $1.0
million, respectively. For the first six months of fiscal 2002 and 2001, we
incurred interest and other expense of approximately $1.6 million and $1.2
million, respectively. In the current fiscal year, these expenses included
interest costs of approximately $717,000 per quarter on the $25 million note
payable issued in connection with the Trex Medical acquisition, and to a lesser
extent, 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
foreign currency, the euro, in which our subsidiaries currently conduct business
to minimize this risk, we cannot assure that we will be successful or can fully
hedge our outstanding exposure. In the first six months of fiscal 2001, these
expenses were primarily due to the interest costs on the Trex Medical note
payable which was partially offset by insurance proceeds received in excess of
cost related to storm damage at FluoroScan in fiscal 2000.
(Benefit) Provision for Income Taxes. For the current quarter and six month
periods, the Company has recorded a tax benefit of $4.5 million as a result of
the passing of the President's Economic Stimulus Bill. This bill includes an
extension of the net operating loss carry back for losses incurred in tax years
2001 and 2002. Accordingly, the benefit reflects our ability to carry back our
net operating losses to previous years to obtain a refund. In fiscal 2001, the
effective tax rate reflected the establishment of a valuation allowance for the
tax benefit associated with the losses in those periods.
Segment Results of Operations
As a result of our decision to close the Hologic Systems Division
manufacturing facility, we have moved the General Radiography business from the
Mammography/General Radiography segment into a separate segment. Prior periods
have been restated to conform to this presentation. Our businesses are reported
as five segments: bone assessment; mammography; digital imaging; mini c-arm
imaging; and general radiography. The accounting policies of the segments are
the same as those described in the footnotes to the accompanying consolidated
financial statements. We measure segment performance based on total revenues and
operating income or loss. Revenues from each of these segments are described
above. The discussion that follows is a summary analysis of the primary changes
in operating income by segment.
Bone Assessment. Reported operating income for bone assessment was $1.5
million and $3.7 million for the three and six months ended March 30, 2002,
respectively, compared to operating income of $1.6 million and $2.5 million for
the same periods in fiscal 2001. The improvement in operating income for this
business segment for the first six months of fiscal 2002 was primarily due to
additional gross margin from an increase in revenues and an overall reduction in
operating expenses as a result of our cost-savings initiatives enacted during
last summer. Operating income for this business segment in the second quarter of
fiscal 2002 was impacted by approximately $200,000 of restructuring charges. The
improvement in operating income in the current quarter, absent those expenses,
as compared with the second quarter of fiscal 2001 was primarily attributable to
the overall reduction in operating expenses from our cost-savings initatives.
16
Mammography. Operating income for this business segment in the second
quarter of fiscal 2002 improved significantly to $1.0 million from an operating
loss of $800,000 in the corresponding quarter of fiscal 2001. For the six months
ended March 30, 2002, operating income was $2.0 million compared to an operating
loss of $1.0 million for the first six months of fiscal 2001. The significant
improvements in operating income in the current three and six month periods were
primarily due to additional gross margins from the increase in revenues and a
reduction in manufacturing cost and operating expenses as a result of our
cost-saving initiatives enacted during last summer and, to a lesser extent, to a
non-recurring charge of $800,000 in the first quarter of fiscal 2001 to product
cost of sales for the fair market write-up of acquired inventory.
Digital Imaging. The digital imaging business reported a 57% decrease in
loss from operations to $2.7 million in the current quarter from $6.2 million in
the second quarter of fiscal 2001. The operating loss decreased 62% to $4.8
million for the first six months of fiscal 2002 from $12.4 million for the first
six months of fiscal 2001. These decreases were primarily due to additional
gross margins from the increase in revenues plus reduced research and
development spending related to the completion of the EPEX(TM) and RADEX(TM)
direct-to-digital general radiography systems and a reduction in other operating
expenses as a result of our cost-saving initiatives enacted last summer.
Mini C-Arm Imaging. The mini c-arm business reported operating income of
$1.2 million and $1.7 million for the three and six months ended March 30, 2002,
respectively, compared to operating income of $165,000 and $108,000 for the same
periods in fiscal 2001. These improvements were primarily attributable to an
overall reduction in manufacturing costs and operating expenses in connection
with the assimilation of the Fluoroscan product line into the corporate
headquarters located in Bedford, Massachusetts.
General Radiography. As previously discussed, we have closed the
manufacturing facility of the Hologic Systems Division and relocated certain of
its product lines and sales and service support personnel to our corporate
headquarters. This business reported operating losses of $400,000 for the
current quarter and $1.8 million for the same period last year. For the first
six months ended March 30, 2002, the operating loss was $2.8 million compared to
an operating loss of $3.3 million for the first six months of fiscal 2001. The
decrease in operating losses are primarily due to the elimination of costs in
the current period related to the facility closure.
Acquired In-Process Technology
As part of the Trex Medical purchase price allocation, all intangible
assets that were a part of the acquisition were identified and valued. It was
determined that technology assets and assembled workforce had value. At the
acquisition date, Trex Medical was conducting design, development, engineering
and testing activities associated with the completion of several research and
development projects related to its mammography and general radiography lines of
business. As part of our exit strategy for the conventional general radiography
business, we have terminated the development projects and efforts for the
general radiography line of business. We will not incur any further expenditures
related to these projects.
Since the acquisition, we have used the acquired in-process technology to
develop new products, which have or are expected to become part of our product
lines when completed. However, we are constantly reviewing the allocation of our
research and development resources to respond to the ever changing market and
technology developments, as well as developments of our own internally developed
and acquired evolving technology portfolio. Also, we have combined acquired
research and development projects with other of our development activities, and
we have delayed two projects.
As of March 30, 2002 our expenditures incurred and estimates to complete
our acquired in-process projects related to the mammography business were
consistent with our initial expectations other than the delays mentioned above.
If we are not successful in implementing our projects, we may be unable to
realize the remaining value assigned to this in-process technology. In addition,
17
the remaining value of the other acquired intangible assets associated with this
technology may also become impaired.
Liquidity and Capital Resources
At March 30, 2002 we had approximately $78.2 million of working capital. At
that date our cash and cash equivalents totaled $26.2 million. Our cash and cash
equivalents balance increased approximately $13.5 million since September 29,
2001 primarily due to the net proceeds from our common stock offering in
December 2001 partially offset by the use of cash in operating activities. Our
cash used in operating activities included net income of $2.9 million for the
first six months of fiscal 2002 plus changes in our current assets and
liabilities, that were partially offset by non-cash charges for depreciation and
amortization of $3.9 million and a $1.7 million decrease in long term deferred
income taxes. Cash used in operations due to changes in our current assets and
liabilities included a decrease in accounts payable of $8.0 million, an increase
in prepaid expenses and other current assets of $6.5 million and a decrease in
accrued expenses of $2.7 million. The increase in prepaid expenses and the
decrease in accrued expenses and deferred income taxes were primarily due to the
recording of income tax refunds of approximately $5.8 million due to the effect
of the Economic Stimulus Bill and, to a lesser extent, other tax refunds
totaling $2.5 million. The decrease in accounts payable was primarily due to the
timing of payments.
In the first six months of fiscal 2002, we used approximately $750,000 of
cash in investing activities. This use of cash was primarily attributable to
purchases of property and equipment of $2.2 million, which consisted primarily
of corporate wide computer and information systems equipment and building
improvements at the Delaware facility.
In the first half of fiscal 2002, financing activities provided us with
$24.9 million of cash. These cash flows included approximately $24.8 million,
net of offering expenses, from the sale of 3,000,000 shares of our common stock
and proceeds from the issuance of common stock pursuant to options and employee
stock purchase plan of $2.5 million partially offset by $1.7 million of
repayments of our European line of credit.
As of March 30, 2002 we had short term borrowings, including the current
portion of our long term obligations, of $800,000 and long term notes payable
totaling $27.7 million. The short term borrowings consisted of $300,000 borrowed
under our European line of credit and approximately $500,000 representing the
current portion of our long term notes payable. The long term notes payable
consisted of the $25.0 million note payable for the Trex Medical acquisition,
the $1.6 million borrowed from Foothill Capital Corporation as the long term
portion of our term loan under our credit facility, and the $1.1 million balance
due on the note to Fleet Business Credit, LLC.
We maintain an unsecured line of credit with a European bank for the
equivalent of $3.0 million, which bears interest at the Europe Interbank Offered
Rate (3.79% at September 29, 2001) plus 1.5%. The borrowings under this line are
primarily used by our European subsidiaries to settle intercompany sales and are
denominated in the respective local currencies of its European subsidiaries. The
line of credit may be canceled by the bank with 30 days notice.
The Trex Medical note bears interest at 11.5% per year, with accrued
interest first payable on September 13, 2001 and semi-annually thereafter. The
entire principal balance is due on September 13, 2003. The note is secured by
our real property in Danbury, Connecticut and Bedford, Massachusetts.
In September 2001 we obtained a secured loan from Foothill Capital
Corporation. The loan agreement with Foothill Capital Corporation provides for a
term loan of approximately $2.4 million, which we borrowed at signing, and a
revolving line of credit facility. The maximum amount we can borrow under the
loan agreement is $25 million with an option for us to increase this amount to
$30 million during the term of the Agreement, if certain conditions are met. The
loan agreement contains financial and other covenants and the actual amount
18
which we can borrow under the line of credit at any time is based upon a formula
tied to the amount of our qualifying accounts receivable and inventory. In
December 2001 we amended this loan agreement primarily to change financial
covenants to reflect restructuring charges we incurred in the fourth quarter of
fiscal 2001 and the additional charges we expect to incur in connection with our
decision to close our Littleton facility. Also, as a result of this amendment,
our loan may be limited based upon some financial covenants and formulas. The
term loan accrues interest at prime plus 1.25% for five years. The line of
credit advances accrue interest at prime plus 0.5%. The line of credit expires
in September 2004.
As a result of the passing of the Economic Stimulus Bill on March 9, 2002
and other tax refund opportunities, the Company is expecting to receive $8.3
million before the end of fiscal 2002. These cash refunds were recorded as an
income tax receivable in the March 30, 2002 balance sheet.
We financed some sales to Latin America over a two-to-three year
time-frame. At March 30, 2002, we had total accounts receivable outstanding of
approximately $2.7 million relating to these sales, of which approximately
$140,000 were long-term and included in other assets. As of March 30, 2002, we
had 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 connection with our acquisition of the U.S. assets of Trex Medical, we
assumed liability for a lawsuit filed by Fischer 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 and related costs, including attorneys'
fees, up to our adjusted purchase price for the Trex Medical assets. In
connection with this arrangement, Trex Medical is continuing to defend this
lawsuit. In November and December 2001, Fischer Imaging filed lawsuits against
us in the United States, Germany and France in connection with sales of this
product. The lawsuits filed by Fischer Imaging seek to enjoin Trex Medical, us
and our German distributor from further violation of Fischer Imaging's patents
and damages including, in the United States, damages of up to three times the
amount found or assessed and attorneys' fees. Trex Medical and Thermo Electron
have agreed to indemnify us, and to defend these lawsuits on the same basis as
the previously existing lawsuit. If we or Trex Medical are unsuccessful in
defending these lawsuits, we may be prohibited from manufacturing and selling
the existing prone breast biopsy system without a license from Fischer Imaging
and Fischer Imaging could be awarded significant damages. If required, a license
from Fischer Imaging to manufacture or sell the existing prone breast biopsy
system may not be available or may not be available on commercially reasonable
terms. Moreover, if Fischer Imaging were awarded damages, indemnification from
Trex Medical and Thermo Electron, if any, may be insufficient to cover the
award. A significant award above the indemnification amount actually received
could harm our business and prospects.
In April 2002, we began an implementation project for an integrated
enterprise wide software application. We expect to incur costs of approximately
$2.5 million over the next year in connection with this implementation. These
costs include hardware, software and consulting services. The total cost is
currently being capitalized and upon completion will be amortized over its
expected useful life.
Except as set forth above, we do not have any other significant capital
commitments. We are working on several projects, with an emphasis on direct
radiography plates and systems. We believe that we have sufficient funds in
order to complete the development, conduct clinical trials and achieve
regulatory approvals of our direct radiography and other products under
development for at least the next twelve months.
19
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 and under a term loan agreement at prime plus 1.25%. At March 30,
2002, our outstanding borrowings under the European line of credit and the term
loan were approximately $300,000 and $1.6 million, respectively.
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.
20
PART II - OTHER INFORMATION
HOLOGIC, INC. AND SUBSIDIARIES
Item 1. Legal Proceedings.
No material developments.
Item 2. Changes in Securities and Use of Proceeds.
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 February 25,
2002. At the meeting, a total of 12,993,803 shares or 69% 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
-------------- --------- ---------- ---------
John W. Cumming 12,129,676 864,127 0
Irwin Jacobs 12,909,189 84,614 0
Glenn P. Muir 12,130,880 862,923 0
William A. Peck 12,966,848 26,955 0
Gerald Segel 12,956,874 36,929 0
Jay A. Stein 12,131,676 862,127 0
Elaine Ullian 11,573,545 1,420,258 0
2. A proposal to ratify the appointment of Arthur Andersen, LLP as
independent public accountants of the Company.
For: 12,504,834 Against: 459,200 Abstain: 29,769
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits furnished:
None.
(b) Reports on Form 8-K:
Form 8-K filed on January 3, 2002 relating to the closing of our
public offering.
21
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 14, 2002 /s/ John W. Cumming
- ------------ ------------------------
Date John W. Cumming
President and Chief Executive Officer
May 14, 2002 /s/ Glenn P. Muir
- ------------ ------------------------
Date Glenn P. Muir
Executive Vice President, Finance and Treasurer
(Principal Financial Officer)
22