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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 JULY 1, 2000
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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 August 4, 2000 15,417,424 shares of the registrant's Common Stock, $.01
par value, were outstanding.
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HOLOGIC, INC. AND SUBSIDIARIES
INDEX
Page
----
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets
July 1, 2000 (unaudited) and September 25, 1999.........3
Consolidated Statements of Operations
Three Months and Nine Months Ended July 1, 2000
and June 26, 1999 (unaudited)...........................4
Consolidated Statements of Cash Flows
Nine Months Ended July 1, 2000
and June 26, 1999 (unaudited)...........................5
Notes to Consolidated Financial Statements..............6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations....................10
Item 3. Quantitative and Qualitative Disclosure About
Market Risk............................................13
PART II - OTHER INFORMATION.....................................14
SIGNATURES......................................................15
2
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<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
HOLOGIC, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(in thousands, except per share data)
ASSETS
July 1, September 25,
<S> <C> <C>
2000 1999
-------- --------
CURRENT ASSETS:
Cash and cash equivalents.................................$ 34,098 $ 36,508
Short-term investments..................................... 15,033 26,170
Accounts receivable, less reserves of $4,015 and
$3,480, respectively...................................... 26,240 28,056
Inventories................................................ 21,733 17,596
Prepaid expenses and other current assets.................. 2,814 6,841
-------- --------
Total current assets....................................... 99,918 115,171
-------- --------
PROPERTY AND EQUIPMENT, at cost:
Equipment................................................. 17,188 15,981
Furniture and fixtures.................................... 3,789 3,224
Land...................................................... 10,002 10,002
Buildings and improvements................................ 30,848 28,812
Leasehold improvements.................................... 512 605
-------- --------
62,339 58,624
Less-Accumulated depreciation and amortization............. 10,480 8,154
-------- --------
51,859 50,470
-------- --------
Other assets, net.......................................... 18,829 10,129
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$170,606 $175,770
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
July 1, September 25,
2000 1999
---- ----
CURRENT LIABILITIES:
Line of credit............................................$ 411 $ 1,103
Accounts payable.......................................... 6,842 6,063
Accrued expenses.......................................... 9,970 10,103
Deferred revenue.......................................... 10,767 8,079
-------- --------
Total current liabilities............................. 27,990 25,348
-------- --------
STOCKHOLDERS' EQUITY:
Preferred Stock, $.01 Par value-
Authorized - 1,623 shares
Issued - none............................................ -- --
Common stock, $.01 par value-
Authorized - 30,000 shares
Issued - 15,372 and 15,303 shares, respectively.......... 154 153
Capital in excess of par value............................ 109,985 109,624
Retained earnings......................................... 34,744 42,440
Cumulative translation adjustment......................... (1,803) (1,331)
Treasury stock, at cost, 45 shares........................ (464) (464)
-------- --------
Total stockholders equity............................. 142,616 150,422
-------- --------
$170,606 $175,770
======== ========
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
3
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<TABLE>
<CAPTION>
HOLOGIC, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except per share data)
Three Months Ended Nine Months Ended
----------------- -----------------
July 1, June 26, July 1, June 26,
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUES:
Product sales................................... $21,923 $19,303 $ 63,903 $ 62,014
Other revenues.................................. 160 705 2,726 1,987
------- ------- -------- -------
22,083 20,008 66,629 64,001
------- ------- -------- -------
COSTS AND EXPENSES:
Cost of product sales............................ 13,975 12,093 40,531 36,416
Research and development......................... 3,872 3,215 12,626 8,316
Selling and marketing............................ 6,098 4,816 17,232 14,786
General and administrative....................... 3,161 2,953 10,922 8,000
-------- ------- -------- -------
27,106 23,077 81,311 67,518
-------- ------- -------- -------
Loss from operations......................... (5,023) (3,069) (14,682) (3,517)
Interest income................................... 888 848 2,767 3,249
Other expense..................................... (8) (167) (82) (651)
-------- ------- -------- -------
Loss before benefit
for income taxes............................. (4,143) (2,388) (11,997) (919)
BENEFIT FOR INCOME TAXES (1,500) (855) (4,300) (335)
-------- ------- --------- -------
Net loss..................................... $ (2,643) $(1,533) $ (7,697) $ (584)
======== ======= ======== =======
NET LOSS PER COMMON AND:
COMMON EQUIVALENT SHARE
Basic and diluted earnings per share........ $ (.17) $ (.11) $ (.50) $ (.04)
======== ======= ======== =======
BASIC AND DILUTED WEIGHTED
AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING...................................... 15,327 13,841 15,302 13,515
======== ======= ======== =======
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
4
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<TABLE>
<CAPTION>
HOLOGIC, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Nine Months Ended
-----------------
July 1, June 26,
<S> <C> <C>
2000 1999
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss........................................................... $ (7,697) $ (584)
Adjustments to reconcile net loss to net cash provided by
operating activities-
Depreciation and amortization.................................. 3,111 2,086
Compensation expense related to issuance of stock options...... 37 192
Change in deferred tax asset (4,990) --
Changes in assets and liabilities-
Accounts receivable.......................................... 2,313 1,192
Inventories.................................................. (4,137) 3,759
Prepaid expenses and other current assets.................... 4,089 211
Accounts payable............................................. 779 (757)
Accrued expenses............................................. (133) (2,202)
Deferred revenue............................................. 2,689 (188)
--------- -----------
Net cash (used in) provided by operating activities........ (3,939) 3,709
--------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of held-to-maturity investments.......................... (19,879) (32,277)
Sales and maturities of held-to-maturity investments............... 31,182 38,361
Acquisition of Direct Radiography Corporation...................... -- (8,218)
Purchases of property and equipment................................ (3,900) (8,187)
Increase in other assets........................................... (4,920) (201)
--------- -----------
Net cash provided by (used in) investing activities........ 2,483 (10,522)
--------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net decrease in line of credit..................................... (692) (2,708)
Issuance of common stock pursuant to options and employee stock
purchase plan, including tax benefit............................. 264 207
--------- -----------
Net cash used in financing activities.............................. (428) (2,501)
--------- -----------
EFFECT OF EXCHANGE RATE CHANGES ON CASH............................. (526) (735)
--------- -----------
NET DECREASE IN CASH AND
CASH EQUIVALENTS................................................... (2,410) (10,048)
CASH AND CASH EQUIVALENTS, beginning of period..................... 36,508 48,423
--------- -----------
CASH AND CASH EQUIVALENTS, end of period........................... $ 34,098 $ 38,376
========= ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for income taxes.................... $ 167 $ 2,500
========= ===========
Cash paid during the period for interest............................ $ 25 $ 94
========= ===========
Acquisition of Direct Radiography Corporation in 1999:
Fair value of assets acquired...................................... $ -- $ 23,668
Liabilities assumed................................................ -- (1,522)
Cash paid.......................................................... -- (7,216)
Acquisition costs incurred......................................... -- (1,002)
--------- -----------
Fair value of stock issued......................................... $ -- $ 13,929
========= ===========
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
5
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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 25, 1999,
included in the Company's Form 10-K as filed with the Securities and Exchange
Commission on December 23, 1999.
The consolidated balance sheet as of July 1, 2000, the consolidated
statements of operations for the three months and nine months ended July 1, 2000
and June 26, 1999 and the consolidated statements of cash flows for the nine
months ended July 1, 2000 and June 26, 1999, 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 quarterly and year-to-date periods ended July 1, 2000 consisted of
14 weeks and 40 weeks, respectively, which is one week more than the comparable
periods in the previous year.
The results of operations for the three months and nine months ended July
1, 2000 are not necessarily indicative of the results to be expected for the
entire fiscal year ending September 30, 2000.
(2) ACQUISITION
On June 3, 1999, the Company acquired Direct Radiography Corp. (DRC) and
the building in which DRC conducted its operations for an aggregate $21,901,
including acquisition costs. The Acquisition was accounted for as a purchase in
accordance with Accounting Principles Board Opinion No. 16. Accordingly, the
results of the operations of DRC have been included in the accompanying
consolidated financial statements from the date of acquisition.
Unaudited pro forma operating results for the Company, assuming the
Acquisition of DRC occurred on September 26, 1998 are as follows:
Three Months Ended Nine Months Ended
------------------ -----------------
June 26, 1999 June 26, 1999
------------------ -----------------
Net sales............................. $20,614 $66,372
Net loss.............................. $(3,211) $(5,951)
Basic and diluted net loss per share.. $ (0.21) $ (0.40)
6
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(3) INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out) or
market and consist of the following:
July 1, September 25,
2000 1999
---- ----
Raw materials and work-in-process....... $13,433 $11,024
Finished goods.......................... 8,300 6,572
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$21,733 $17,596
======= =======
Work-in-process and finished goods inventories consist of material, labor
and manufacturing overhead.
(4) PATENT ACQUISITION
In April 2000, the Company acquired certain intellectual property to be
incorporated into certain of its products for $1.5 million. The intellectual
property is being amortized to operations on a straight-line basis over ten
years. Additionally, the Company is committed to pay an additional $500,000 to
the seller upon delivery of a prototype system by the seller.
(5) EARNINGS PER SHARE
Diluted weighted average shares outstanding do not include 1,719 and 1,774
common-equivalent shares for the three months and nine months ended July 1,
2000, respectively, and 1,596 and 1,099 common equivalent shares for the three
months and nine months ended June 26, 1999, respectively, as their effect would
have been anti-dilutive.
(6) Concentration of Credit Risk
The Company finances certain sales to Latin America over a two-to-three
year time-frame. At July 1, 2000, the Company had total accounts receivable
outstanding of approximately $5,120 relating to these sales, of which $520 were
long-term and included in other assets. As of July 1, 2000, 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.
(7) 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:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------ -----------------
July 1, June 26, July 1, June 26,
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net loss as reported...................... $ (2,643) $ (1,533) $ (7,697) $ (584)
Foreign currency translation adjustment.... (121) (219) (472) (758)
-------- -------- -------- --------
Comprehensive loss......................... $ (2,764) $ (1,752) $ (8,169) $ (1,342)
======== ======== ======== ========
</TABLE>
7
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(8) Business Segments and Geographic Information
Segment information for the three months and nine months ended July 1, 2000
and June 26, 1999 is as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------ -----------------
July 1, June 26, July 1, June 26,
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Total revenues-
Bone Assessment $ 16,657 $ 16,212 $ 50,295 $ 52,734
Mini C-Arm Imaging 3,961 3,623 10,723 11,094
Digital Imaging 1,465 173 5,611 173
-------- -------- -------- --------
$ 22,083 $ 20,008 $ 66,629 $ 64,001
======== ======== ======== ========
Operating income (loss)-
Bone Assessment $ 221 $ (1,974) $ (541) $ (3,305)
Mini C-Arm Imaging 16 182 357 1,065
Digital Imaging (5,260) (1,277) (14,498) (1,277)
-------- -------- -------- --------
$ (5,023) $ (3,069) $(14,682) $ (3,517)
======== ======== ======== ========
Net income (loss)-
Bone Assessment $ 633 $ (811) $ 1,504 $ 349
Mini C-Arm Imaging 23 105 191 592
Digital Imaging (3,299) (827) (9,392) (827)
-------- -------- -------- --------
$ (2,643) $ (1,533) $ (7,697) $ (584)
======== ======== ======== ========
Depreciation and amortization-
Bone Assessment $ 786 $ 618 $ 2,219 $ 1,749
Mini C-Arm Imaging 48 65 168 182
Digital Imaging 342 155 724 155
-------- -------- -------- --------
$ 1,176 $ 838 $ 3,111 $ 2,086
======== ======== ======== ========
Capital expenditures-
Bone Assessment $ 1,257 $ 11 $ 2,237 $ 7,421
Mini C-Arm Imaging 14 96 138 755
Digital Imaging 586 11 1,525 11
-------- -------- -------- --------
$ 1,857 $ 118 $ 3,900 $ 8,187
======== ======== ======== ========
July 1, September 25,
2000 1999
----- ----
Identifiable assets-
Bone Assessment $141,996 $137,835
Mini C-Arm Imaging 17,323 17,280
Digital Imaging 11,287 20,655
-------- --------
$170,606 $175,770
======== ========
</TABLE>
Export sales from the United States to unaffiliated customers primarily in
Europe, Asia and Latin America during the three months and nine months ended
July 1, 2000 totaled approximately $4,834 and $17,389, respectively; and for the
three months and nine months ended June 26, 1999 totaled approximately $5,002
and $18,289, 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.
8
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Export product sales as a percentage of total product sales are as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
July 1, June 26, July 1, June 26,
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Europe 17% 25% 23% 24%
Asia 5 9 7 8
All others 7 4 5 6
---- ---- ---- ----
29% 38% 35% 38%
==== ==== ==== ====
</TABLE>
(9) 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 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) 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. Hologic does not
anticipate that the adoption of this statement will have a material impact on
its financial position or results of operations.
In March 2000, the FASB issued Interpretation No. 44, Accounting for
Certain Transactions Involving Stock Compensation - An Interpretation of APB
Opinion No. 25. Interpretation 44 clarifies the application of Opinion 25 in
certain situations, as defined. Interpretation 44 is effective July 1, 2000 but
covers certain events having occurred after December 15, 1998. Accordingly, upon
initial application of the Interpretation, (a) no adjustments would be made to
financial statements for periods before the effective date and (b) no expense
would be recognized for any additional compensation cost measured that is
attributable to periods before the effective date. Hologic expects that the
adoption of this Interpretation will not have any effect on the accompanying
financial statements.
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.
9
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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
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 the Company's ability to integrate the
operations of Direct Radiography Corp. (DRC) 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 Company's reliance on one or only
a limited number of suppliers for some key components or subassemblies of its
Direct Radiography 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; technical innovations that could render products
marketed or under development by Hologic obsolete; competition; reimbursement
policies for bone density testing and vertebral fracture assessment; and
regulatory approval and market acceptance of drug therapies for osteoporosis.
The following discussion and analysis of the results of operations reflect
that i) the results of DRC are included for the entire current three and nine
month periods ended July 1, 2000 and only the results from the acquisition date,
June 3, 1999, through June 26, 1999 are included in the three and nine month
periods ended June 26, 1999 and ii) our fiscal year 2000 is a 53 week year and
the current three month period includes the results of operations for 14 weeks
compared to the usual 13 weeks.
Revenues. Total revenues for the third quarter of fiscal 2000 increased 10%
to $22.1 million from $20.0 million for the third quarter of fiscal 1999. Total
revenues for the current nine month period increased 4% to $66.6 million from
$64.0 million for the first nine months of fiscal 1999. In the current quarter,
product sales increased 14% to $21.9 million and other revenues decreased 77% to
$160,000 compared to the third quarter of fiscal 1999. For the first nine months
of fiscal 2000, product sales increased 3% and other revenues increased 37%
compared to the same period last year.
The increase in product sales in the current quarter is primarily due to an
increase in revenues from sales of our digital x-ray products from DRC and to a
lesser extent from an increase in mini c-arm and DXA product sales. The
increase in digital x-ray sales is primarily due to an increase in the number of
digital array shipments and digital system installations. The increase in DXA
sales was primarily due to an increase in the number of DXA units sold through
our direct sales force primarily in the United States, partially offset by a
decrease in the total number of DXA bone densitometer product shipments through
our distributors, especially to the United States primary care market including
strategic alliance sales to a leasing company. In the current quarter, we had
our first full quarter of shipments of our Delphi QDR series bone densitometers.
Delphi provides Instant Vertebral Assessment (IVA) which permits a rapid visual
interpretation of vertebral status in a clinical setting. A separate
reimbursement is available for the IVA procedure in the United States. The
increase in product sales for the first nine months of fiscal 2000 compared to
the same period last year is primarily due to an increase in revenues from DRC
and an increase in the number of DXA units sold through our direct sales force
primarily in the United States and increased service revenues. Partially
offsetting these increases was a decrease in the total number of DXA product
shipments through our distributors, especially to the United States primary care
market including strategic alliance sales to a leasing company, and to a lesser
extent, a slight decrease in mini c-arm and Sahara product sales.
10
<PAGE>
The decrease in other revenues for the current quarter is primarily do to
i) the elimination of royalty revenues as a result of the sale of a fully paid
up license to Vivid in the second quarter of fiscal 2000, ii) the elimination of
revenues relating to medical data management services provided by our medical
data management division which we sold to Synarc in June 1999 and iii) a
decrease in additional fee-per-scan revenues. The increase in other revenues
for the current nine month period compared to the same period last year is the
result of the sale of a fully paid up license to Vivid for $2 million in the
second quarter of fiscal 2000, partially offset by the elimination of revenues
relating to medical data management services.
In the first nine months of fiscal 2000, approximately 65% of product sales
were generated in the United States, 23% in Europe and 12% in other
international markets. In the first nine months of fiscal 1999, approximately
62% of product sales were generated in the United States, 24% in Europe and 14%
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.
Costs and Expenses. The cost of product sales increased as a percentage of
product sales to 64% in the third quarter of fiscal 2000 from 63% in the third
quarter of fiscal 1999. The cost of product sales increased as a percentage of
product sales to 63% in the current nine month period from 59% in the same nine
month period in fiscal 1999. These costs increased as a percentage of product
sales primarily due to the increase in manufacturing costs of approximately $2.0
million and $6.1 million, in the current quarter and nine month periods,
respectively, related to DRC which has significant fixed manufacturing costs and
is operating significantly below manufacturing capacity. The low sales volume of
digital imaging plates resulted in the under absorption of fixed manufacturing
costs. Absent DRC, cost of product sales would have decreased to approximately
57% for the current three and nine month periods.
Research and development expenses increased 20% to $3.9 million (18% of
total revenues) in the current quarter from $3.2 million (16% of total revenues)
in the third quarter of fiscal 1999. For the current nine month period,
research and development costs increased 52% to $12.6 million (19% of total
revenues) from $8.3 million (13% of total revenues) for the first nine months of
fiscal 1999. This increase was primarily due to the acquisition of DRC which
added approximately $1.8 million and $7.1 million of research and development
expenses in the current quarter and nine month periods, respectively. Partially
offsetting the increases from the DRC acquisition is a reduction in outside
consultants and the effect of cost saving initiatives enacted last year.
Selling and marketing expenses increased 27% to $6.1 million (28% of
product sales) in the current quarter from $4.8 million (25% of product sales)
in the third quarter of fiscal 1999. For the current nine month period, selling
and marketing expenses increased 17% to $17.2 million (27% of product sales)
from $14.8 million (24% of product sales) for the first nine months of fiscal
1999. These increases are primarily due to additional selling and marketing
expenses of $600,000 and $2.4 million at DRC for the current three month and
nine month periods, respectively, partially offset by a decrease in sales
commissions primarily due to the lower sales volume in the primary care market
in the United States.
General and administrative expenses increased 7% to $3.2 million (14% of
total revenues) in the current quarter from $3.0 million (15% of total revenues)
in the third quarter of fiscal 1999. During the first nine months of fiscal
2000, general and administrative expenses increased 37% to $10.9 million (17% of
total revenues) from $8.0 million (13% of total revenues) in the first nine
months of fiscal 1999. The increase in the current quarter compared to the same
period last year is primarily due to the incremental expenses of DRC partially
offset by lower bad debt expense. The increase in the first nine months of
fiscal 2000 compared to the same period last year is primarily due to
approximately $1.5 million of charges in the second quarter of fiscal 2000
related to an increase in the accounts receivable reserve, additional litigation
costs and employee benefit expenses, as well as the addition of general and
administrative expenses of DRC. The current quarter and nine month periods
include $500,000 and $1.6 million, respectively, of general and administrative
expenses related to DRC compared to $120,000 for the same periods last year.
11
<PAGE>
Total costs and expenses related to DRC totaled approximately $5.6
million and $17.8 million for the three and nine months ended July 1, 2000,
respectively, compared to $1.5 million for the three and nine month periods
ended June 26, 1999. 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 increased slightly to $888,000 in the
current quarter from $848,000 in the same quarter of fiscal 1999 and decreased
to $2.8 million in the current nine month period from $3.2 million in the
comparable period in fiscal 1999. The slight increase in the current quarter is
due to a higher interest rate on a lower investment base compared to the same
period last year. The decrease in the nine month period was due to a lower
investment base than in the prior year, primarily due to the use of cash for the
DRC acquisition and building renovations during fiscal 1999.
Other Expense. We incurred other expense of approximately $8,000 and
$167,000 for the third quarters of fiscal 2000 and 1999, respectively. For the
first nine months of fiscal 2000 and 1999, we incurred other expense of $82,000
and $651,000, respectively. These expenses primarily include 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.
Benefit for Income Taxes. In fiscal 2000, we have a benefit for income
taxes as a result of the current year's loss which the Company believes will be
realizable in the future.
LIQUIDITY AND CAPITAL RESOURCES
At July 1, 2000, working capital was approximately $72 million, and cash,
cash equivalents and short-term investments totaled $49 million. The cash, cash
equivalents and short-term investments balance decreased approximately $14
million from September 25, 1999 primarily due to the net loss of approximately
$8 million and payments for property, equipment and patents. Our use of cash
also included an increase in inventory of approximately $4 million primarily due
to an increase in raw materials and finished goods related to DRC and to a
lesser extent to finished DXA units. Included in other assets were marketable
securities with maturities exceeding one year totaling $3 million. We finance
certain sales to Latin America over a two-to-three year time-frame. At July 1,
2000, we had total accounts receivable outstanding of approximately $5 million
relating to these sales, of which approximately $500,000 were long-term and
included in other assets. As of July 1, 2000, we have 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. In the first nine months of 2000, we purchased approximately $4
million of property and equipment, which consisted primarily of building
improvements, computers and information systems equipment.
In connection with a fee-per-scan program offered for our DXA bone
densitometers, we have 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 the Strategic Alliance Program, we installed approximately $60.6
million in units since 1996. As of July 1, 2000, approximately 23% 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
approximately equal to 10% of the contracts funded, our maximum recourse under
the arrangement. 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. The leasing company is seeking
unspecified compensatory damages and other relief. We believe that the claims
are groundless and are vigorously defending ourselves. Nevertheless, litigation
can be expensive and time consuming. While we believe that the outcome will not
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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.
Except as set forth above, we do not have any significant capital
commitments. We believe that existing sources of liquidity will provide
adequate cash to fund our anticipated working capital and other cash needs for
the foreseeable future.
YEAR 2000 COMPLIANCE
Hologic did not experience any difficulties related to the Year 2000
problem on December 31, 1999 and has not experienced any such difficulties that
it is aware of since that date. Hologic's operations have not, to date, been
adversely affected by any difficulties experienced by any of its suppliers or
customers in connection with the Year 2000 problem. Hologic's management will
continue to monitor its systems for potential difficulties through the remainder
of calendar year 2000.
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 July 1, 2000, our outstanding borrowings under the
line of credit were approximately $400,000.
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.
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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.
None.
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits furnished:
(27) Financial Data Schedule
(b) Reports on Form 8-K:
None.
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HOLOGIC, INC. AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Hologic, Inc.
(Registrant)
August 09, 2000 /s/ S. David Ellenbogen
--------------- -----------------------
Date S. David Ellenbogen
Chairman and Chief Executive Officer
August 09, 2000 /s/ Glenn P. Muir
--------------- -----------------------
Date Glenn P. Muir
Vice President, Finance and Treasurer
(Principal Financial Officer)
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