<PAGE>
Report of Independent Public Accountants
To Hologic, Inc.:
We have audited the accompanying consolidated balance sheets of Hologic, Inc. (a
Delaware corporation) and subsidiaries as of September 25, 1999 and September
30, 2000, and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the three years in the period ended September
30, 2000. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Hologic, Inc. and subsidiaries as of September 25, 1999 and September 30, 2000,
and the results of their operations and their cash flows for each of the three
years in the period ended September 30, 2000, in conformity with accounting
principles generally accepted in the United States.
Boston, Massachusetts
November 15, 2000 /s/ Arthur Andersen LLP
F-1
<PAGE>
HOLOGIC, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(In Thousands)
<TABLE>
<CAPTION>
ASSETS September 25, September 30,
1999 2000
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 36,508 $ 22,778
Short-term investments 26,170 -
Accounts receivable, less reserves of $3,480 and $7,923, respectively 28,056 50,580
Inventories 17,596 39,706
Prepaid expenses and other current assets 6,841 3,041
-------- --------
Total current assets 115,171 116,105
-------- --------
Property and Equipment, at cost:
Land 10,002 12,203
Buildings and improvements 28,812 35,919
Equipment 15,981 21,568
Furniture and fixtures 3,224 3,918
Leasehold improvements 605 636
-------- --------
58,624 74,244
Less--Accumulated depreciation and amortization 8,154 11,450
-------- --------
50,470 62,794
-------- --------
Intangible Assets:
Developed technology and know-how - 11,800
Assembled workforce - 3,000
Goodwill and other intangible assets, net - 4,337
-------- --------
- 19,137
-------- --------
Deferred Income Taxes, net 6,225 16,809
Other Assets, net 3,904 4,810
-------- --------
Total assets $175,770 $219,655
======== ========
Current Liabilities:
Line of credit $ 1,103 $ 388
Accounts payable 6,063 16,414
Accrued expenses 10,103 32,639
Deferred revenue 8,079 13,642
-------- --------
Total current liabilities 25,348 63,083
-------- --------
Note Payable (Note 3b) - 25,000
Commitments and Contingencies (Notes 9 and 14)
Stockholders' Equity:
Preferred stock, $0.01 par value-
Authorized--1,623 shares
Issued--0 shares - -
Common stock, $0.01 par value-
Authorized--30,000 shares
Issued--15,303 and 15,419 shares, respectively 153 154
Capital in excess of par value 109,624 110,233
Retained earnings 42,440 23,821
Accumulated other comprehensive loss (1,331) (2,172)
Treasury stock, at cost--45 shares in 1999 and 2000 (464) (464)
-------- --------
Total stockholders' equity 150,422 131,572
-------- --------
Total liabilities and stockholders' equity $175,770 $219,655
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-2
<PAGE>
HOLOGIC, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(In Thousands)
<TABLE>
<CAPTION>
Years Ended
--------------------------------------------
September 26, September 25, September 30,
1998 1999 2000
<S> <C> <C> <C>
Revenues:
Product sales $111,498 $81,737 $ 90,864
Other revenue 4,066 2,403 2,882
-------- ------- --------
115,564 84,140 93,746
-------- ------- --------
Costs and Expenses:
Cost of product sales 55,891 50,333 63,604
Research and development 9,778 12,664 17,178
In-process research and development - - 5,000
Selling and marketing 28,589 19,658 23,882
General and administrative 10,452 10,963 16,441
-------- ------- --------
104,710 93,618 126,105
-------- ------- --------
Income (loss) from operations 10,854 (9,478) (32,359)
Interest Income 5,998 4,204 3,567
Other Expense (664) (548) (227)
-------- ------- --------
Income (loss) before provision (benefit) for
income taxes 16,188 (5,822) (29,019)
Provision (Benefit) for Income Taxes 5,800 (2,075) (10,400)
-------- ------- --------
Net income (loss) $ 10,388 $(3,747) $(18,619)
======== ======= ========
Net Income (Loss) per Share:
Basic $ 0.78 $ (0.27) $ (1.22)
======== ======= ========
Diluted $ 0.75 $ (0.27) $ (1.22)
======== ======= ========
Weighted Average Number of Shares Outstanding:
Basic 13,259 13,950 15,320
======== ======= ========
Diluted 13,766 13,950 15,320
======== ======= ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
HOLOGIC, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
(In Thousands)
<TABLE>
<CAPTION>
Common Stock Capital in
Number of $0.01 Excess of Retained
Shares Par Value Par Value Earnings
<S> <C> <C> <C> <C>
Balance, September 27, 1997 13,111 $ 131 $ 91,668 $ 35,799
Exercise of stock options 229 2 1,307 -
Stock issued for employee compensation 9 - 227 -
Issuance of common stock under employee stock
purchase plan 17 - 278 -
Issuance of common stock under 401(k) plan 12 1 291 -
Purchase of treasury stock - - - -
Compensation for grants of stock options to
nonemployees - - 133 -
Tax benefit from stock options exercised - - 1,196 -
Net income - - - 10,388
Translation adjustments - - - -
------ ----- -------- --------
Comprehensive income
Balance, September 26, 1998 13,378 134 95,100 46,187
Exercise of stock options 30 - 131 -
Stock issued for employee compensation 11 - 144 -
Issuance of common stock under employee stock
purchase plan 27 - 163 -
Issuance of shares related to acquisition 1,857 19 13,910 -
Compensation for grants of stock options to
nonemployees - - 133 -
Tax benefit from stock options exercised - - 43 -
Net loss - - - (3,747)
Translation adjustments - - - -
------ ----- -------- --------
Comprehensive loss
Balance, September 25, 1999 15,303 153 109,624 42,440
Exercise of stock options 13 - 49 -
Stock issued for employee compensation 12 - 61 -
Issuance of common stock under employee stock
purchase plan 91 1 499 -
Net loss - - - (18,619)
Translation adjustments - - - -
------ ----- -------- --------
Comprehensive loss
Balance, September 30, 2000 15,419 $ 154 $110,233 $ 23,821
====== ===== ======== ========
Accumulated
Treasury Stock Other Total
Number of Comprehensive Stockholders' Comprehensive
Shares Amount Income (Loss) Equity Income (Loss)
Balance, September 27, 1997 - $ - $ (831) $126,767 -
Exercise of stock options - - - 1,309 -
Stock issued for employee compensation - - - 227 -
Issuance of common stock under employee stock
purchase plan - - - 278 -
Issuance of common stock under 401(k) plan - - - 292 -
Purchase of treasury stock 45 (464) (464)
Compensation for grants of stock options to
nonemployees - - - 133 -
Tax benefit from stock options exercised - - - 1,196 -
Net income - - - 10,388 10,388
Translation adjustments - - 256 256 256
------ ----- ------- -------- --------
Comprehensive income $ 10,644
========
Balance, September 26, 1998 45 (464) (575) 140,382 -
Exercise of stock options - - - 131 -
Stock issued for employee compensation - - - 144 -
Issuance of common stock under employee stock
purchase plan - - - 163 -
Issuance of shares related to acquisition - - - 13,929 -
Compensation for grants of stock options to
nonemployees - - - 133 -
Tax benefit from stock options exercised - - - 43 -
Net loss - - - (3,747) (3,747)
Translation adjustments - - (756) (756) (756)
------ ----- ------- -------- --------
Comprehensive loss $ (4,503)
========
Balance, September 25, 1999 45 (464) (1,331) 150,422 -
Exercise of stock options - - - 49 -
Stock issued for employee compensation - - - 61 -
Issuance of common stock under employee stock
purchase plan - - - 500 -
Net loss - - - (18,619) (18,619)
Translation adjustments - - (841) (841) (841)
------ ----- ------- -------- --------
Comprehensive loss $(19,460)
========
Balance, September 30, 2000 45 $(464) $(2,172) $131,572
====== ===== ======= ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
HOLOGIC, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(In Thousands)
<TABLE>
<CAPTION>
Years Ended
---------------------------------------------
September 26, September 25, September 30,
1998 1999 2000
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income (loss) $ 10,388 $ (3,747) $(18,619)
Adjustments to reconcile net income (loss) to net cash provided by (used in)
operating activities-
Depreciation and amortization 1,851 3,474 4,420
Deferred income taxes (2,500) (2,128) (10,546)
Acquired in-process research and development - - 5,000
Compensation expense related to issuance of common stock and stock
options 302 243 105
Changes in assets and liabilities, net of impact of businesses
acquired in 1999 and 2000, respectively
Accounts receivable 526 4,010 2,190
Inventories (7,234) 6,130 836
Prepaid expenses and other current assets 405 (81) 4,605
Accounts payable 265 (200) 3,104
Accrued expenses 3,447 (3,006) 6,189
Deferred revenue 7,179 (2,388) 2,039
-------- -------- --------
Net cash provided by (used in) operating activities 14,629 2,307 (677)
-------- -------- --------
Cash Flows from Investing Activities:
Purchases of held-to-maturity investments (69,282) (40,848) (20,938)
Sales of held-to-maturity investments 95,020 46,675 50,074
Purchase of businesses, net of cash acquired - (7,972) (30,198)
Purchase of property and equipment (22,597) (8,879) (5,821)
Increase in other assets (3,714) (107) (5,218)
-------- -------- --------
Net cash used in investing activities (573) (11,131) (12,101)
-------- -------- --------
Cash Flows from Financing Activities:
Borrowings (repayments) under line of credit 3,716 (2,695) (715)
Net proceeds from sale of common stock 1,587 294 549
Purchase of treasury stock (464) - -
Tax benefit from stock options exercised 1,196 43 -
-------- -------- --------
Net cash provided by (used in) financing activities 6,035 (2,358) (166)
-------- -------- --------
Effect of Exchange Rate Changes on Cash 240 (733) (786)
-------- -------- --------
Net Increase (Decrease) in Cash and Cash Equivalents 20,331 (11,915) (13,730)
Cash and Cash Equivalents, beginning of year 28,092 48,423 36,508
-------- -------- --------
Cash and Cash Equivalents, end of year $ 48,423 $ 36,508 $ 22,778
======== ======== ========
Supplemental Disclosure of Cash Flow Information:
Cash paid during the year for income taxes $ 5,993 $ 2,592 $ 199
======== ======== ========
Cash paid during the year for interest $ 324 $ 229 $ 38
======== ======== ========
Supplemental Disclosure of Noncash Financing Activities:
Issuance of common stock under 401(k) plan $ 292 $ - $ -
======== ======== ========
Stock issued for employee compensation $ 227 $ 144 $ 61
======== ======== ========
Purchase of Business, net of cash acquired:
Fair value of assets acquired $ - $ 23,423 $ 57,050
Liabilities assumed - (1,522) (25,270)
Cost in excess of net assets acquired - - 19,220
In-process research and development cost acquired - - 5,000
Cash paid - (7,216) (30,000)
Acquisition costs incurred - (756) (1,000)
-------- -------- --------
Fair value of stock/note payable issued $ - $ 13,929 $ 25,000
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
HOLOGIC, INC. AND SUBSIDIARIES
Notes to Consolidated Fianancial Statements
(In Thousands, except per share data)
(1) OPERATIONS
Hologic, Inc. and subsidiaries (the Company or Hologic) is engaged in the
development, manufacture and distribution of proprietary X-ray, digital X-
ray and other medical systems.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying consolidated financial statements reflect the application
of certain accounting policies as described in this note and elsewhere in
the accompanying consolidated financial statements.
(a) Principles of Consolidation
The accompanying consolidated financial statements include the
accounts of the Company and all of its wholly owned subsidiaries. All
material intercompany accounts and transactions have been eliminated
in consolidation.
(b) Fiscal Year
The Company's fiscal year ends on the last Saturday in September.
Fiscal 1998, 1999 and 2000 ended on September 26, 1998, September 25,
1999 and September 30, 2000, respectively.
(c) Management's Estimates and Uncertainties
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management
to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statement, and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
The Company is subject to a number of risks similar to those of other
companies of similar size in its industry, including rapid
technological changes, competition, customer concentration, government
regulations and dependence on key individuals.
(d) Cash and Cash Equivalents and Investments
The Company considers all highly liquid investments with maturities of
three months or less at the time of acquisition to be cash
equivalents. Included in cash equivalents at September 25, 1999 and
September 30, 2000 are approximately $5,824 and $2,500, respectively,
of securities purchased under agreements to resell. The securities
purchased under agreements to resell are collateralized by U.S.
government securities. Short-term investments have maturities of
greater than three months and consist of commercial paper, corporate
bonds and securities issued by the U.S. government and its agencies.
Investments with maturities of greater than one year have been
F-6
<PAGE>
HOLOGIC, INC. AND SUBSIDIARIES
Notes to Consolidated Fianancial Statements
(In Thousands, except per share data)
classified as long-term. The Company had long-term investments of
approximately $2,966, with an average maturity period of 51 months as
of September 25, 1999, which are included in other assets in the
accompanying consolidated balance sheets. There were no long-term
investments as of September 30, 2000.
The Company accounts for investments in accordance with Statement of
Financial Accounting Standards (SFAS) No. 115, Accounting for Certain
Investments in Debt and Equity Securities. In accordance with SFAS No.
115, investments that the Company has the positive intent and ability
to hold to maturity are reported at amortized cost, which approximates
fair market value, and are classified as held-to-maturity. The
investments that the Company has deemed to be held-to-maturity include
securities issued by U.S. government agencies, which total
approximately $29,136 at September 25, 1999. There were no such
investments at September 30, 2000.
(e) Concentration of Credit Risk
SFAS No. 105, Disclosure of Information about Financial Instruments
with Off-Balance-Sheet Risk and Financial Instruments with
Concentrations of Credit Risk, requires disclosure of any significant
off-balance-sheet and credit risk concentrations. Financial
instruments that subject the Company to credit risk consists primarily
of cash, short-term investments, trade accounts receivable and long-
term receivables. The Company's credit risk is managed by investing
its cash in high-quality money market instruments, securities of the
U.S. government and its agencies, and high-quality corporate issuers.
The Company has not experienced any material losses related to
receivables from individual customers, geographic regions or groups of
customers in the X-ray and medical devices industry. Due to these
factors, no additional credit risk beyond amounts provided for, is
believed by management to be inherent in the Company's accounts
receivable.
The Company utilizes distributors in certain countries with various
credit terms, depending on the individual circumstances. One
distributor had amounts due to the Company of approximately $748 and
$794 as of September 25, 1999 and September 30, 2000, respectively.
This distributor accounted for 2%, 3.5% and 3.2% of product sales for
fiscal 1998, 1999 and 2000, respectively.
The Company finances certain sales to Latin American customers over
two to three years. At September 25, 1999 and September 30, 2000, the
Company had long-term accounts receivable outstanding of approximately
$1,020 and $492, respectively, relating to these sales, which are
included in other assets. The economic and currency related
uncertainties in these countries may increase the likelihood of
nonpayment. As a result, the Company increased its bad debt reserve
during fiscal 2000.
F-7
<PAGE>
HOLOGIC, INC. AND SUBSIDIARIES
Notes to Consolidated Fianancial Statements
(In Thousands, except per share data)
The Company has sold its systems to a leasing company, which in turn
leased the systems to third parties. The leasing company accounted for
33%, 5% and 0% of product sales for fiscal 1998, 1999 and 2000,
respectively (see Notes 11 and 14).
(f) Disclosure of Fair Value of Financial Instruments
The Company's financial instruments consist mainly of cash and cash
equivalents, short-term investments, accounts receivable, line of
credit, accounts payable and note payable to Trex Medical Corporation.
The carrying amounts of the Company's cash and cash equivalents,
short-term investments, accounts receivable, line of credit and
accounts payable approximate fair value due to the short-term nature
of these instruments. The note payable to Trex Medical Corporation
has a fixed rate of interest and will be subject to fluctuations in
fair value during its term. As of September 30, 2000, the fair value
of the note approximates its carrying amount due to the short lapse of
time from its issuance.
(g) Inventories
Inventories are stated at the lower of cost (first-in, first-out) or
market and consist of the following:
September 25, September 30,
1999 2000
Raw materials and work-in-process $ 7,918 $ 24,742
Finished goods 9,678 14,964
------------ ------------
$ 17,596 $ 39,706
============ ============
Work-in-process and finished goods inventories consist of materials,
labor and manufacturing overhead.
(h) Depreciation and Amortization
The Company provides for depreciation and amortization by charges to
operations, using the straight-line and declining-balance methods,
which allocate the cost of property and equipment over the following
estimated useful lives:
Estimated
Asset Classification Useful Life
Building and improvements 40 years
Equipment 3-5 years
Furniture and fixtures 5-7 years
Leasehold improvements Life of lease
F-8
<PAGE>
HOLOGIC, INC. AND SUBSIDIARIES
Notes to Consolidated Fianancial Statements
(In Thousands, except per share data)
(i) Long-Lived Assets
The Company assesses the realizability of its long-lived assets,
including intangible assets, in accordance with SFAS No. 121,
Accounting for Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of. To date, the Company has not identified any
impairments requiring adjustment.
(j) Foreign Currency Translation
The Company translates the financial statements of its foreign
subsidiaries in accordance with SFAS No. 52, Foreign Currency
Translation. In translating the accounts of the foreign subsidiaries
into U.S. dollars, assets and liabilities are translated at the rate
of exchange in effect at year-end, while stockholders' equity is
translated at historical rates. Revenue and expense accounts are
translated using the weighted average exchange rate in effect during
the year. Gains and losses from foreign currency translation are
credited or charged to cumulative translation adjustment, included in
stockholders' equity, in the accompanying consolidated balance sheets.
Transaction gains and losses in fiscal 1998, 1999 and 2000 were not
significant.
(k) Revenue Recognition
The Company recognizes product revenue upon shipment. A provision is
made at that time for estimated warranty costs to be incurred. Other
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 arrangement with a leasing Company for
certain products, the Company has entered into a remarketing agreement
whereby the Company has agreed to perform certain remarketing
activities on a best efforts basis to help recover any losses incurred
by the leasing Company up to 10% of the total fee-per-scan contracts
funded. The leasing Company purchases all such products covered under
these contracts from the Company. The Company has reserved for
potential losses under these contracts by deferring revenue in an
amount equal to 10% of the contracts funded (see Notes 11 and 14).
Maintenance revenues are recognized over the term of the contract.
(l) Research and Development and Software Development Costs
Research and development costs have been charged to operations as
incurred. SFAS No. 86, Accounting for the Costs of Computer Software
to Be Sold, Leased or Otherwise Marketed, requires the capitalization
of certain computer software development costs incurred after
technological feasibility is established. The Company believes that
once technological feasibility of a software product has been
established, the additional development costs incurred to bring the
product to a commercially acceptable level are not significant.
F-9
<PAGE>
HOLOGIC, INC. AND SUBSIDIARIES
Notes to Consolidated Fianancial Statements
(In Thousands, except per share data)
(m) Net Income (Loss) Per Share
Basic and diluted net income (loss) per share are presented in
conformity with SFAS No. 128, Earnings per Share. Basic net income
(loss) per share is computed by dividing net income (loss) by the
weighted average number of common shares outstanding during the
period. Diluted net loss per share in 1999 and 2000 is computed in the
same way as basic, as all common equivalent shares are considered
antidilutive. Diluted net income per share in 1998 was computed by
dividing net income by the diluted weighted average number of common
and common-equivalent shares outstanding during the period. The
weighted average number of common-equivalent shares has been
determined in accordance with the treasury stock method. Common stock
equivalents include options to purchase common stock.
The reconciliation of basic and diluted shares outstanding is as
follows:
1998 1999 2000
Weighted average common shares
outstanding 13,259 13,950 15,320
Effect of dilutive securities
stock options 507 - -
------ ------ ------
Weighted average common shares
outstanding, assuming dilution 13,766 13,950 15,320
====== ====== ======
Dilutive weighted average shares outstanding do not include 831, 2,130
and 2,712 common-equivalent shares for the end of fiscal years 1998,
1999 and 2000, respectively, as their effect would have been
antidilutive.
(n) Derivative Financial Instruments
At September 25, 1999 and September 30, 2000, the Company had no
instruments requiring disclosure under SFAS No. 119, Disclosure About
Derivative Financial Instruments and Fair Value of Financial
Instruments.
F-10
<PAGE>
HOLOGIC, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In Thousands, except per share data)
(o) Recently Issued Accounting Standards
SFAS No. 133, Accounting for Derivative Instruments and Hedging
Activities establishes accounting and reporting standards requiring
that every derivative instrument (including certain derivative
instruments embedded in other contracts) be recorded in the balance
sheet as either an asset or liability measured at fair value. The
statement requires that changes in the derivative's fair value be
recognized in earnings currently, unless specific hedge accounting
criteria are met. Special accounting or qualifying hedges allows
derivative gains and losses to offset related results on the hedged
item in the income statement, and require that a company must formally
document, designate and assess the effectiveness of transactions that
receive hedge accounting. SFAS No. 133, as amended by SFAS No. 137 and
No. 138, is effective for all fiscal quarters of fiscal years after
June 15, 2000. The Company is still in the process of evaluating the
impact, but has not yet quantified the impact, this bulletin will have
on its results of operations, financial position or cash flows upon
the adoption of SFAS No. 133.
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. The adoption of
this Interpretation did 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,
but has not yet quantified the impact, this bulletin will have on the
consolidated financial statements.
(3) ACQUISITIONS
(a) Direct Radiography Corporation
On June 3, 1999, pursuant to a securities purchase agreement dated
April 28, 1999, as amended (the Securities Purchase Agreement),
between Hologic, Sterling Diagnostic Imaging, Inc., a Delaware
corporation (SDI) and SDI Investments, LLC, a Delaware limited
liability company (SDI Investments), Hologic purchased 100% of the
F-11
<PAGE>
HOLOGIC, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In Thousands, except per share data)
issued and outstanding shares of capital stock of Direct Radiography
Corporation Holding Corp., the parent company of Direct Radiography
Corp. (DRC), a manufacturer of digital X-ray systems for medical
imaging and non-destructive testing applications. On June 3, 1999,
pursuant to a contract of sale (the Contract of Sale) with Glasgow
Land Company, a Delaware limited liability company and a wholly-owned
subsidiary of SDI Investments, Hologic also purchased the land and
building in Glasgow, Delaware, at which DRC conducted its business.
Hologic paid approximately $21,145 for DRC and the real estate, of
which approximately $7,216 was paid in cash and of which approximately
$13,929 was paid by delivery of 1,857 shares of Hologic's common
stock, par value $.01 per share (the Purchase Price). In connection
with the acquisition, Hologic incurred $756 of 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. In
accordance with APB Opinion No. 16, the Company allocated the purchase
price of the Acquisition based on the fair value of the assets
acquired and liabilities assumed.
The aggregate purchase price of $21,901 including acquisition costs
was allocated as follows:
Current assets $ 4,788
Property, plant and equipment 18,635
Liabilities assumed (1,522)
-------
$21,901
=======
Unaudited pro forma operating results for the Company, assuming the
acquisition of DRC occurred on September 28, 1997 and September 27,
1998 are as follows:
1998 1999
Net sales $116,565 $86,466
Net income (loss) 382 (9,114)
Net income (loss) per share-
Basic .03 (.60)
Diluted .02 (.60)
(b) Trex Medical Systems Corporation
On September 15, 2000, pursuant to an Asset Purchase and Sale
Agreement between Hologic, Inc. (Hologic) and Trex Medical Systems
Corporation (Trex Medical) (the Purchase Agreement), dated August 13,
2000, Hologic acquired the U.S. business assets of Trex Medical in
exchange for $30,000 in cash and a note in the amount of $25,000. The
note has a term of three years, bears interest at a rate of 11.5% per
annum and requires the full amount of principal be repaid on September
13, 2003. The note is secured by a mortgage on Hologic's principal
office in Bedford, Massachusetts as well as the facility in Danbury,
Connecticut, which was acquired from Trex Medical.
F-12
<PAGE>
HOLOGIC, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In Thousands, except per share data)
The aggregate purchase price for Trex Medical was approximately
$56,000, which includes approximately $1,000 related to acquisition
fees and expenses. The purchase price is subject to an adjustment
based upon the working capital position of the business as of
September 15, 2000. The Trex Medical acquisition has been accounted
for as a purchase in accordance with Accounting Principles Board (APB)
Opinion No. 16 and accordingly, the results of the operations of Trex
Medical have been included in the accompanying consolidated financial
statements from the date of acquisition. In accordance with APB
Opinion No. 16, the purchase price has been allocated to the acquired
assets and assumed liabilities of Trex Medical based on their fair
value.
As part of the purchase price allocation, all intangible assets that
are a part of the acquisition were identified and valued. It was
determined that technology assets and assembled workforce had
separately identifiable values. As a result of this identification and
valuation process, the Company allocated approximately $5,000 of the
purchase price to in-process research and development projects. This
allocation represented the estimated fair value based on risk-adjusted
cash flows related to the incomplete research and development
projects. At the date of acquisition, the development of these
projects had not yet reached technological feasibility, and the
research and development in progress had no alternative future uses.
Accordingly, these costs were expensed as of the acquisition date.
In addition, the Company allocated approximately $11,800 and $3,000 to
developed technology and assembled workforce, respectively. Developed
technology represents patented and unpatented technology and know-how
related to the Trex X-ray mammography, breast biopsy and radiography
systems. Developed technology is expected to be amortized over a
period of 10 years. Assembled workforce is the presence of a skilled
workforce that is knowledgeable about company procedures and possesses
expertise in certain fields that are important to profitability and
growth of a company. Assembled workforce is expected to be amortized
over a period of five years.
The excess of the purchase price over the fair value of identifiable
intangible and tangible net assets of approximately $4,337 will be
allocated to goodwill, which is expected to be amortized over a period
of 15 years.
In connection with the allocation of the purchase price to the
acquired assets and assumed liabilities of Trex Medical based on their
estimated fair value. Management determined that the balance of
certain reserves and accruals at the closing date were not sufficient
to cover the estimated economic exposure. Therefore, the Company has
increased the balance of the applicable reserves and accruals to
reflect Management's estimated economic exposure through charges to
earnings in the period after acquisition in accordance with the
guidance provided under Staff Accounting Bulletin No. 100 (SAB 100),
Restructuring and Impairment. As a result, in the period the
acquisition occurred, the Company recorded pre-tax charges totaling
$6,800 to increase the reserve for bad debts, warranty accruals and
other liabilities.
Also, in conjunction with the acquisition, the Company committed to
dispose of the acquired Trexnet product line. Trex Medical had
existing obligations under
F-13
<PAGE>
HOLOGIC, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In Thousands, except per share data)
contractual agreements with customers related to this product line
which were assumed by the Company in the acquisition. The Company has
begun to solicit offers on this product line from likely buyers. Based
on the current level of interest and interaction with potential
buyers, the Company has estimated that it will likely be required to
pay a buyer approximately $2,000 in order to transfer these
obligations, along with the assets and other liabilities associated
with that product line. Such amount has been accrued as part of the
purchase price allocation.
Based on the timing of the closing of the transaction, the
finalization of the integration plans, resolution of the pending
purchase price adjustment with Trex Medical and other factors, the
final purchase adjustments may differ materially from those presented
in the pro forma financial information. The effect of the adjustments
on the results of operations will depend on the nature and amount of
assets or liabilities adjusted.
The aggregate purchase price of $56,000 including acquisition costs
was allocated as follows:
Current assets $ 48,077
Property, plant and equipment 8,973
In-process research and development 5,000
Cost in excess of net assets acquired 19,220
Liabilities assumed (25,270)
--------
$ 56,000
========
Unaudited pro forma operating results for the Company, assuming the
Acquisition of Trex Medical occurred on September 27, 1998 and
September 26, 1999 are as follows:
1999 2000
Net sales $257,877 $ 196,655
Net loss (38,167) (121,485)
Net loss per share-
Basic and diluted $ (2.74) $ (7.93)
F-14
<PAGE>
HOLOGIC, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In Thousands, except per share data)
(4) LINE OF CREDIT
The Company maintains a line of credit with a bank for the equivalent of
$3,000, which bears interest at the Europe Interbank Offered Rate (4.8% at
September 30, 2000) plus 1.50%. As of September 30, 2000, $388 was
outstanding. The borrowings under this line are primarily used by the
Company's 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 average outstanding balance during fiscal 2000 was
approximately $444 and the weighted average interest rate for fiscal 2000
was 5.0%. Interest expense on this line of credit of approximately $60, $82
and $23 has been included in other expenses in the accompanying
consolidated statements of operations for 1998, 1999 and 2000,
respectively.
(5) INCOME TAXES
The Company provides for income taxes under the liability method in
accordance with SFAS No. 109, Accounting for Income Taxes.
The provision (benefit) for income taxes in the accompanying consolidated
statements of operations consists of the following:
Years Ended
---------------------------------------------------
September 26, September 25, September 30,
1998 1999 2000
Federal-
Current $ 7,327 $ - $ -
Deferred (2,207) (1,953) (9,963)
------- ------- --------
5,120 (1,953) (9,963)
State-
Current 973 53 134
Deferred (293) (175) (583)
------- ------- --------
680 (122) (449)
Foreign-
Current - - 12
------- ------- --------
$ 5,800 $(2,075) $(10,400)
======= ======= ========
F-15
<PAGE>
HOLOGIC, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In Thousands, except per share data)
A reconciliation of the federal statutory rate to the Company's effective
tax rate is as follows:
<TABLE>
Years Ended
-----------------------------------------------------------
September 26, September 25, September 30,
1998 1999 2000
<S> <C> <C> <C>
Income tax provision at federal statutory rate 35.0% (35.0)% (35.0)%
Increase (decrease) in tax resulting from-
Net effect of losses of foreign
subsidiaries not provided 0.1 2.7 1.3
State tax provision(benefit), net of federal
benefit 2.7 (0.9) (1.3)
Research and development tax credit (0.9) - -
Effect of not providing U.S. taxes on exempt FSC (1.2) - (0.1)
income
Other 0.1 (2.4) (0.7)
---- ------ ------
35.8% (35.6)% (35.8)%
==== ====== ======
</TABLE>
The components of domestic and foreign income (loss) before the provision
(benefit) for income taxes are as follows:
Years Ended
-----------------------------------------------------------
September 26, September 25, September 30,
1998 1999 2000
Domestic $16,266 $(5,368) $(27,942)
Foreign (78) (454) (1,077)
------- ------- --------
$16,188 $(5,822) $(29,019)
======= ======= ========
During fiscal 1998, 1999 and 2000, the Company realized tax benefits of
approximately $1,196, $43 and $0, respectively, relating to the exercise of
certain stock options. These benefits are reflected as a component of
capital in excess of par value.
The components of the net deferred tax asset recognized in the accompanying
consolidated balance sheets are as follows:
September 25, September 30,
1999 2000
Deferred tax assets $6,898 $ 17,400
Valuation allowance (673) (591)
------ --------
$6,225 $ 16,809
====== ========
The Company generated significant tax loss carryforwards during fiscal 1999 and
2000, which can be carried forward for 19 and 20 years, respectively. Under SFAS
No. 109, the Company can only recognize a deferred tax asset for future benefit
of its tax loss carryforward to the extent that it is "more likely than not"
that these assets will be realized. In determining the realizability of these
assets, the Company considered numerous factors, including historical
profitability, estimated future taxable income and the industry in which it
operates.
F-16
<PAGE>
HOLOGIC, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In Thousands, except per share data)
The Company has recorded a valuation allowance against a portion of its
deferred tax assets. The valuation allowance relates primarily to certain
deferred tax assets in foreign jurisdictions, for which realization is
uncertain.
The approximate income tax effect of each type of temporary difference and
carryforward before allocation of the valuation allowance is approximately
as follows:
September 25, September 30,
1999 2000
Net operating loss carryforwards $2,458 $ 8,792
Nondeductible accruals 486 1,191
Nondeductible reserves 2,096 4,005
Other temporary differences 571 (396)
Deferred revenue 1,287 3,808
------ -------
$6,898 $17,400
====== =======
(6) COMMON STOCK
(a) Stock Option Plans
The Company's 1986 Combination Stock Option Plan (the 1986 Plan) is
administered by the Board of Directors. Under the terms of the 1986
Plan, the Company granted employees either incentive stock options or
nonqualified stock options to purchase shares of the Company's common
stock at a price not less than fair market value at the date of grant.
In addition, the Company may grant nonqualified options to other
participants. During fiscal 1996, the 1986 Plan was terminated.
Options granted under the 1986 Plan vest over a five-year period and
are exercisable at varying dates.
The Company's 1994 Stock Option Plan (the 1994 Plan) and the 1995
Stock Option Plan (the 1995 Plan), both of which were originally
adopted by FluoroScan, are administered by the Board of Directors and
the Company has issued options to purchase 276 shares of the Company's
common stock, as of September 30, 2000. Under the terms of the 1994
Plan and the 1995 Plan, the Company may grant employees either
incentive stock options, nonqualified stock options, stock
appreciation rights, restricted stock and deferred stock awards at a
price not less than the fair market value on the date of grant. The
Company does not intend to grant any additional options under these
plans.
In June 1995, the Board of Directors adopted the 1995 Combination
Stock Option Plan (the 1995 Combination Plan), pursuant to which the
Company is authorized to issue 1,100 options to purchase shares of
common stock. Under the terms of the 1995 Combination Plan, the
Company may grant employees either incentive stock options or
nonqualified stock options to purchase shares of the Company's common
stock at a price not less than the fair market value at the date of
grant. In addition, the Company may grant nonqualified options
F-17
<PAGE>
HOLOGIC, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In Thousands, except per share data)
to other participants. As of September 30, 2000, the Company had 91
shares available for future grant under this plan.
The Company's 1990 Nonemployee Director Stock Option Plan (the
Directors' Plan) allows for eligible directors to receive options to
purchase 10 shares of common stock upon election as a director. The
options vest ratably over a five-year period. In addition, eligible
directors are entitled to annual option grants to purchase eight
shares of common stock, which vest after six months. Option grants
under the Directors' Plan are at not less than fair market value on
the date of grant. The Company has reserved 200 shares of common stock
for issuance under the Directors' Plan. As of September 30, 2000, the
Company had no shares available for future grant.
In May 1997, the Board of Directors adopted the 1997 Employee Equity
Incentive Plan (the 1997 Plan), pursuant to which the Company is
authorized to issue 1,100 shares of common stock. Under the terms of
the 1997 Plan, the Company may grant employees either nonqualified
stock options, stock appreciation rights, performance shares,
restricted stock, or stock units. As of September 30, 2000 the Company
had 328 shares available for future grant under this plan.
In March 1999, the Board of Directors adopted the 1999 Equity
Incentive Plan (the 1999 Plan), pursuant to which the Company is
authorized to issue 300 shares, plus an annual increase, as defined.
Under the terms of the 1999 Plan, the Company may grant employees
either incentive stock options, non-qualified stock options, stock
appreciation rights, performance shares, restricted stock, or stock
units. As of September 30, 2000 the Company had 12 shares available
for future grant under this plan.
F-18
<PAGE>
HOLOGIC, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In Thousands, except per share data)
The following table summarizes all stock option activity under all of
the plans for the three years ended September 30, 2000.
<TABLE>
<CAPTION>
Number Exercise Weighted
of Shares Price per Average
Share Exercise Price
<S> <C> <C> <C> <C>
Outstanding, September 27, 1997 1,492 $ 0.50-49.00 $12.08
Granted 399 10.25-29.50 24.24
Terminated (93) 2.63-45.25 21.97
Exercised (229) 0.50-25.38 5.72
----- ------------ ------
Outstanding, September 26, 1998 1,569 1.81-49.00 15.52
Granted 1,396 4.13-15.88 9.86
Terminated (805) 1.94-49.00 21.62
Exercised (30) 1.94-11.00 4.41
----- ------------ ------
Outstanding, September 25, 1999 2,130 1.81-$44.25 9.66
Granted 754 3.19-9.81 5.46
Terminated (159) 2.81-15.88 7.77
Exercised (13) 1.94-6.81 3.77
----- ------------ ------
Outstanding, September 30, 2000 2,712 $1.81-$44.25 $ 8.63
===== ============ ======
Exercisable, September 30, 2000 1,262 $1.81-$44.25 $ 9.75
===== ============ ======
Exercisable, September 25, 1999 1,009 $1.81-$44.25 $ 9.61
===== ============ ======
Exercisable, September 26, 1998 818 $1.81-$49.00 $10.46
===== ============ ======
</TABLE>
F-19
<PAGE>
HOLOGIC, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In Thousands, except per share data)
The range of exercise prices for options outstanding and options
exercisable at September 30, 2000 are as follows:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------------------------------------------------
Range of Options Weighted Average
Exercise Price Outstanding Remaining Weighted Average Options Weighted Average
Contractual Life Exercise Price Exercisable Exercise Price
(Years)
<S> <C> <C> <C> <C> <C>
$ 1.81 - $3.69 218 3.30 $ 2.77 215 $ 2.76
$ 3.75 - $3.94 273 8.88 3.93 4 3.94
$ 4.13 - $6.00 334 8.87 5.59 72 5.37
$ 6.06 - $6.63 56 6.31 6.25 29 6.19
$ 6.75 - $6.81 315 8.72 6.81 69 6.81
$ 6.88 - $7.69 166 9.16 7.51 19 7.04
$ 7.75 - $8.25 362 4.98 8.24 308 8.25
$ 8.44 - $8.88 136 8.45 8.85 28 8.85
$ 9.00 - $11.00 404 6.87 10.97 241 10.96
$ 11.38 - $44.25 448 7.23 16.73 277 18.41
----- ---- ------ ----- ------
$ 1.81 - $44.25 2,712 7.26 $ 8.63 1,262 $ 9.75
===== ==== ====== ===== ======
</TABLE>
The weighted average grant date fair value under the Black-Scholes
option pricing model of options granted during the years ended
September 26, 1998, September 25, 1999 and September 30, 2000 under
the various plans is $14.81, $6.59 and $3.37 per share, respectively.
As of September 26, 1998, September 25, 1999 and September 30, 2000,
the weighted average remaining contractual life of outstanding options
under these plans is 7.49, 7.58 and 7.26 years, respectively.
The Company accounts for its stock-based compensation plans under
Accounting Principle Board Opinion No. 25, Accounting for Stock Issued
to Employees. In October 1995 the Financial Accounting Standards Board
(FASB) issued SFAS No. 123, Accounting for Stock-Based Compensation,
which established a fair-value-based method of accounting for stock-
based compensation plans. The Company has adopted the disclosure-only
alternative under SFAS No. 123 that requires disclosure of the pro
forma effects on net income (loss) and earnings (loss) per share as if
SFAS No. 123 had been adopted, as well as certain other information.
F-20
<PAGE>
HOLOGIC, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In Thousands, except per share data)
The Company has computed the pro forma disclosures required under SFAS
No. 123 for all stock options, stock issuances under the employee
stock purchase plan and warrants granted to employees of the Company
in fiscal years ended September 25, 1999 and September 30, 2000, using
the Black-Scholes option pricing model prescribed by SFAS No. 123. The
assumptions used to calculate the SFAS No. 123 pro forma disclosure
and the weighted average information for the fiscal years ended
September 26, 1998, September 25, 1999 and September 30, 1999 are as
follows:
1998 1999 2000
Risk-free interest rate 5.96% 6.12% 6.00%
Expected dividend yield - - -
Expected lives 6 years 6 years 6 years
Expected volatility 70% 70% 72%
The pro forma effect of applying SFAS No. 123 for all options granted,
stock issuances under the employee stock purchase plan and warrants
granted to employees of the Company in fiscal years ended September
26, 1998, September 25, 1999 and September 30, 2000 would be as
follows:
1998 1999 2000
Net income (loss) as reported $ 10,388 $ (3,747) $ (18,619)
Pro forma net income (loss) 8,761 (5,388) (21,052)
Diluted net income (loss) per
share, as reported $ 0.75 $ (0.27) $ (1.22)
Pro forma diluted net income
(loss) per share $ 0.64 $ (0.39) $ (1.37)
(b) Employee Stock Purchase Plan
In December 1994, the Company adopted the 1995 Employee Stock Purchase
Plan (the ESP Plan) in compliance with Section 423 of the Internal
Revenue Code. Employees who have completed three consecutive months or
1,000 hours, whether or not consecutive, of employment with the
Company are eligible to participate in the ESP Plan. The ESP Plan
allows participants to purchase common stock of the Company at 85% of
the fair market value, as defined. The Company may issue up to 200
shares under the ESP Plan. During fiscal 1998, 1999 and 2000, the
Company issued 17, 27 and 91 shares, respectively, under the ESP Plan.
At September 30, 2000, the Company has 29 shares available for
purchase under the ESP Plan.
F-21
<PAGE>
HOLOGIC, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In Thousands, except per share data)
(c) Rights Agreement
In December 1992, the Company adopted a shareholder rights plan. The
plan is intended to protect shareholders from unfair or coercive
takeover practices. In accordance with the plan, the Board of
Directors declared a dividend distribution of one common stock
purchase right for each share of common stock outstanding until the
rights become detachable. Each right entitles the registered holder to
purchase from the Company one share of common stock for $90, adjusted
for certain events. In the event that the Company is acquired in a
merger or other business combination transaction or more than 50% of
its assets or earning power is sold, each holder shall thereafter have
the right to receive, upon exercise of each right, that number of
shares of common stock of the acquiring company that, at the time of
such transaction, would have a market value of two times the $90 per
share exercise price. The rights will not be detachable or exercisable
until certain events occur. The Board of Directors may elect to
terminate the rights under certain circumstances.
(d) Treasury Stock
In 1998, the Board of Directors authorized the purchase of up to 1,000
shares of the Company's common stock. As of September 30, 2000, the
Company has purchased 45 shares under this authorization.
(7) PROFIT SHARING 401(k) PLAN
The Company has a qualified profit sharing plan covering substantially all
of its employees. Contributions to the plan are at the discretion of the
Company's Board of Directors. The Company has recorded approximately $360,
$440 and $301 as a provision for the profit sharing contribution for fiscal
1998, 1999 and 2000, respectively.
(8) RELATED PARTY TRANSACTIONS
(a) Management Services Agreement
The Company had an agreement with Vivid Technologies, Inc. (Vivid), an
affiliated company, whereby the Company provided management,
administrative and support services. The Company charged Vivid
approximately $140 and $151 under the agreement during fiscal 1998 and
1999, respectively, which have been offset against operating expenses
of the Company. No amounts were charged in fiscal 2000. Of these
amounts, approximately $66 was unpaid as of September 25, 1999. There
were no amounts outstanding at September 30, 2000.
F-22
<PAGE>
HOLOGIC, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In Thousands, except per share data)
(b) License and Technology Agreement
The Company had an agreement with Vivid whereby Vivid obtained a
perpetual, exclusive worldwide license to utilize certain of the
Company's technology and patents for the sole purpose of developing
baggage and inspection security systems (the Exclusive License). In
September 1996, this license was amended to grant Vivid a nonexclusive
license to utilize these patents and technology for certain new
product development for other applications (the Nonexclusive License).
Royalty payments to the Company under the Exclusive License are 5% of
product revenue on Vivid's first $50 million in sales; thereafter,
payments are 3% of Vivid's sales up to $200 million. Royalty payments
under the Nonexclusive License are 3% on sales up to $200 million. In
the first quarter of fiscal 2000, Vivid and PerkinElmer entered into a
merger agreement (the Merger) and Hologic and Vivid entered into a
termination agreement dated October 4, 1999. Under this termination
agreement, the license fee terminated upon the effective date of the
Merger. As part of the termination agreement, Vivid paid Hologic
$2,000 in January 2000. The Company recognized approximately $1,070
and $378 of royalty revenue under the Exclusive License for fiscal
1998 and 1999, respectively and recognized $2,000 under the
termination agreement in 2000. Approximately $246 was outstanding at
September 25, 1999. No amounts were outstanding at September 30, 2000.
(9) COMMITMENTS
(a) Operating Leases
Certain subsidiaries of the Company conduct their operations in leased
facilities under operating lease agreements that expire through fiscal
2013. The Company and its subsidiaries lease certain equipment under
operating lease agreements that expire through fiscal 2013. Future
minimum lease payments under the operating leases are approximately as
follows:
Fiscal Years Ending Amount
September 29, 2001 $ 2,371
September 28, 2002 2,126
September 27, 2003 1,990
September 25, 2004 1,777
September 24, 2005 1,777
Thereafter 8,463
-------
$18,504
=======
Rental expense was approximately $1,937, $297 and $724 for fiscal
1998, 1999 and 2000, respectively.
F-23
<PAGE>
HOLOGIC, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In Thousands, except per share data)
(b) Patent Acquisition
In fiscal 1992, the Company acquired certain patents pertaining to
technology incorporated into certain of the Company's products. The
Company paid approximately $245 for these patents and related expenses
upon entering into the agreement. In May 1993, this agreement was
amended such that the Company paid approximately $344 for additional
patent rights and related expenses, of which $50 was paid through the
issuance of 21 shares of common stock. In January 1998, the Company
made the final payment of $1,086 with respect to the acquisition of
these patent rights. The cost of these patents is being amortized over
their expected life of 10 years.
(10) COLLABORATION AGREEMENT
In June 1995, the Company acquired a 5% minority interest in a
collaborating company. To acquire this minority interest, the Company
issued 56 shares of common stock and paid $76 in cash in return for all of
the outstanding convertible preferred stock of the collaborating company.
The Company also entered into a development agreement with the
collaborating company related to a certain product. As part of the
development agreement, the Company reimbursed the collaborating company for
expenses incurred in the development of this product. The Company incurred
$344 and $689 of expense, net of related royalty revenue, in connection
with this agreement in 1998 and 1999, respectively. No expense was incurred
in 2000 related to this agreement. The Company and the collaborating
company have suspended this project.
(11) FEE PER SCAN PROGRAM
The Company had a fee per scan program with a leasing company whereby the
Company sold its systems to the leasing company, which, in turn, leased the
systems to third parties. Under the terms of the agreement, the Company is
contingently liable for a certain amount per system, up to a maximum of the
greater of (i) the sale price of four systems or (ii) 10% of the aggregate
value of systems sold under the program. The Company recorded the amount
for which it is contingently liable as deferred revenue. The Company and
the leasing Company have commenced claims against each other regarding this
program (see Note 14).
(12) BUSINESS SEGMENTS AND GEOGRAPHIC INFORMATION
Effective for the fiscal year ended September 25, 1999, the Company has
adopted SFAS No. 131, Disclosures about Segments of an Enterprise and
Related Information. SFAS No. 131 establishes standards for reporting
information regarding operating segments in annual financial statements and
requires selected information for those segments to be presented in interim
financial reports issued to stockholders. SFAS No. 131 also establishes
standards for related disclosures about products and services and
geographic areas. Operating segments are identified as components of an
enterprise about which separate discrete financial information is available
for evaluation by the chief operating decision maker, or decision making
group, in making decisions how to allocate resources and assess
performance. The Company's chief decision-maker, as defined under SFAS
F-24
<PAGE>
HOLOGIC, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In Thousands, except per share data)
No. 131, is the chief operating officer. To date, the Company has viewed
its operations and manages its business as principally four operating
segments: the manufacture and sale of Bone Assessment products, Mini-C Arm
Imaging products, Digital Imaging products and Mammography/General
Radiography products. The Company evaluates the performance of its
operating segments based on income before income taxes, accounting changes,
and nonrecurring items. Intersegment sales and transfers are not
significant.
F-25
<PAGE>
HOLOGIC, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In Thousands, except per share data)
The accounting policies of the segments are the same as those described in
the summary of significant accounting policies. The Company evaluates
performance based on the sales, operating costs, net income and total
assets. Segment information for fiscal years ended 1998, 1999 and 2000 is
as follows.
<TABLE>
<S> <C> <C> <C>
1998 1999 2000
Total revenues-
Bone Assessment $105,465 $ 67,949 $ 69,516
Mini C-Arm Imaging 10,099 15,075 13,165
Digital Imaging - 1,116 5,979
Mammography/General Radiography - - 5,086
-------- -------- --------
$115,564 $ 84,140 $ 93,746
======== ======== ========
Operating income (loss)-
Bone Assessment $ 13,205 $ (4,725) $ (553)
Mini C-Arm Imaging (2,351) 1,076 271
Digital Imaging - (5,829) (19,794)
Mammography/General Radiography - - (12,283)
-------- -------- --------
$ 10,854 $ (9,478) $(32,359)
======== ======== ========
Net income (loss)-
Bone Assessment $ 12,108 $ (647) $ 2,539
Mini C-Arm Imaging (1,720) 576 115
Digital Imaging - (3,676) (13,415)
Mammography/General Radiography - - (7,858)
-------- -------- --------
$ 10,388 $ (3,747) $(18,619)
======== ======== ========
Identifiable assets-
Bone Assessment $155,654 $137,835 $110,425
Mini C-Arm Imaging 16,943 17,280 17,539
Digital Imaging - 20,655 10,038
Mammography/General Radiography - - 81,653
-------- -------- --------
$172,597 $175,770 $219,655
======== ======== ========
Depreciation and amortization-
Bone Assessment $ 1,637 $ 2,458 $ 2,959
Mini C-Arm Imaging 214 239 233
Digital Imaging - 777 1,085
Mammography/General Radiography - - 143
-------- -------- --------
$ 1,851 $ 3,474 $ 4,420
======== ======== ========
Capital expenditures-
Bone Assessment $ 22,543 $ 7,747 $ 2,890
Mini C-Arm Imaging 54 741 318
Digital Imaging - 391 2,593
Mammography/General Radiography 20
-------- -------- --------
$ 22,597 $ 8,879 $ 5,821
======== ======== ========
</TABLE>
F-26
<PAGE>
HOLOGIC, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In Thousands, except per share data)
Export sales from the United States to unaffiliated customers primarily in
Europe, Asia and Latin America during fiscal 1998, 1999 and 2000 totaled
approximately $14,496, $13,378 and $10,912, 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, including sales to European subsidiaries, as a
percentage of total product sales are as follows:
Years Ended
-------------------------------------------------------
September 26, September 25, September 30,
1998 1999 2000
Europe 18% 24% 21%
Asia 4 7 7
All others 6 6 5
---- ---- ----
28% 37% 33%
==== ==== ====
(13) ACCRUED EXPENSES
Accrued expenses consist of the following:
September 25, September 30,
1999 2000
Accrued payroll and employee benefits $ 2,114 $ 5,961
Accrued commissions 2,644 5,913
Accrued income taxes 689 112
Accrued warranty 1,172 9,670
Accrued tradeshow - 1,142
Accrued acquisition reserve - 2,000
Other accrued expenses 3,484 7,841
------- -------
$10,103 $32,639
======= =======
(14) LITIGATION
Hologic has commenced a claim against Fleet Bank Credit Corp. (FBCC), in
which Hologic seeks a declaratory judgment with respect to the parties'
respective rights and obligations under a Master Product Financing
Agreement (the Agreement) dated September 25, 1996, as supplemented and
amended. FBCC subsequently commenced a separate action against Hologic in
state court in Illinois to recover damages allegedly arising out of or
relating to the Agreement. Neither Hologic nor FBCC has precisely
quantified the alleged potential liability of Hologic to FBCC and Hologic
is vigorously defending against the claims asserted by FBCC.
In connection with the Trex Medical acquisition, Hologic assumed liability
for a lawsuit filed by Fisher Imaging against Trex Medical alleging that
the Lorad prone biopsy system infringes upon two Fischer Imaging patents,
subject to indemnification from Trex Medical and its parent, Thermo
Electron, for any damages up to our adjusted purchase price for the Trex
Medical assets. In connection with this arrangement, Trex Medical is
continuing to defend this lawsuit and has advised the Company that it
believes that it has meritorious defenses to Fischer's claims. If Trex
Medical is unsuccessful in defending this lawsuit, the Company may be
prohibited from manufacturing and selling the prone-breast biopsy system
without a license from Fischer and Fischer could be awarded significant
damages. If a licence were required, Hologic cannot assure that it would be
able to obtain one on commercially reasonably terms, if at all. Moreover,
if Fischer were awarded damages, Hologic cannot assure that its
indemnification from Trex Medical and Thermo Electron would be sufficient
to cover the amount of the award.
In the ordinary course of business, the Company is party to various types
of litigation. The Company believes it has meritorious defenses to all
claims, and, in its opinion,
F-27
<PAGE>
HOLOGIC, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In Thousands, except per share data)
all litigation currently pending or threatened will not have a material
effect on the Company's financial position or results of operations.
(15) QUARTERLY STATEMENT OF OPERATIONS INFORMATION (UNAUDITED)
The following table presents a summary of quarterly results of operations
for 1999 and 2000:
<TABLE>
<CAPTION>
1999
--------------------------------------------------------------------------------
First Quarter Second Quarter Third Quarter Fourth Quarter
<S> <C> <C> <C> <C>
Total revenue $24,632 $19,362 $20,008 $ 20,138
Net income (loss) 2,037 (1,088) (1,533) (3,163)
Diluted net income per common and
common equivalent share 0.15 (0.08) (0.11) (0.23)
2000
--------------------------------------------------------------------------------
First Quarter Second Quarter Third Quarter Fourth Quarter
Total revenue $21,295 $23,252 $22,083 $ 27,117
Net loss (2,870) (2,184) (2,643) (10,922)
Diluted net loss per common and
common equivalent share (0.19) (0.14) (0.17) (0.71)
</TABLE>
F-28
