UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 25, 2000
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to ______
Commission File Number: 0-18281
Hologic, Inc.
----------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 04-2902449
---------------------- -----------------------------------
(State of incorporation) (I.R.S. Employer Identification No.)
35 Crosby Drive, Bedford, Massachusetts 01730
----------------------------------------
(Address of principal executive offices)
(Zip Code)
(781) 999-7300
-------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No __
As of April 28, 2000 15,371,543 shares of the registrant's Common
Stock, $.01 par value, were outstanding.
HOLOGIC, INC. AND SUBSIDIARIES
INDEX
Page
PART I - FINANCIAL INFORMATION ----
Item 1. Financial Statements
Consolidated Balance Sheets
March 25, 2000 (unaudited)
and September 25, 1999............................ 3
Consolidated Statements of Operations
Three Months and Six Months Ended March 25, 2000
and March 27, 1999 (unaudited)..................... 4
Consolidated Statements of Cash Flows
Six Months Ended March 25, 2000
and March 27, 1999 (unaudited)..................... 5
Notes to Consolidated Financial Statements......... 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations................. 12
Item 3. Quantitative and Qualitative Disclosure
About Market Risk................................... 15
PART II - OTHER INFORMATION.................................. 16
SIGNATURES................................................... 17
<TABLE>
<CAPTION>
HOLOGIC, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(in thousands, except per share data)
ASSETS
March 25, September 25,
2000 1999
---- ----
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents................ $36,722 $36,508
Short-term investments................... 18,999 26,170
Accounts receivable, less reserves
of $4,016 and $3,480, respectively..... 26,287 28,056
Inventories.............................. 20,152 17,596
Prepaid expenses and other
current assets......................... 2,822 6,841
------- -------
Total current assets................... 104,982 115,171
------- -------
PROPERTY AND EQUIPMENT, at cost:
Equipment................................ 16,789 15,981
Furniture and fixtures................... 3,521 3,224
Land..................................... 10,002 10,002
Buildings and improvements............... 29,673 28,812
Leasehold improvements................... 512 605
------ ------
60,497 58,624
Less- Accumulated depreciation
and amortization....................... 9,586 8,154
------ ------
50,911 50,470
------ ------
Other assets, net......................... 16,110 10,129
------ ------
$172,003 $175,770
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
March 25, September 25,
2000 1999
---- -----
<S> <C> <C>
CURRENT LIABILITIES:
Line of credit........................... $ 412 $ 1,103
Accounts payable......................... 5,815 6,063
Accrued expenses......................... 10,598 10,103
Deferred revenue......................... 9,803 8,079
------- -------
Total current liabilities.............. 26,628 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........... 109,979 109,624
Retained earnings........................ 37,388 42,440
Cumulative translation adjustment........ (1,682) (1,331)
Treasury stock, at cost, 45 shares....... (464) (464)
------- ------
Total stockholders' equity............. 145,375 150,422
------- -------
$172,003 $175,770
======== =========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
<TABLE>
<CAPTION>
HOLOGIC, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except per share data)
Three Months Ended Six Months Ended
March 25, March 27, March 25, March 27,
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUES:
Product sales................. $20,907 $18,797 $41,980 $42,711
Other revenues................ 2,345 565 2,568 1,285
------- ------- ------- -------
23,252 19,362 44,548 43,996
------ ------ ------ ------
COSTS AND EXPENSES:
Cost of product sales.......... 13,524 11,533 26,556 24,324
Research and development....... 4,042 2,643 8,754 5,101
Selling and marketing.......... 5,259 4,711 11,134 9,970
General and administrative..... 4,793 2,877 7,761 5,047
------ ------ ------ ------
27,618 21,764 54,205 44,442
------ ------ ------ ------
(Loss) income from
operations.............. (4,366) (2,402) (9,657) (446)
Interest income................ 1,026 991 1,879 2,244
Other expense.................. (44) (297) (75) (329)
------- ------- ------ ------
(Loss) income before
(benefit) provision
for income taxes........ (3,384) (1,708) (7,853) 1,469
(BENEFIT) PROVISION
FOR INCOME TAXES............. (1,200) ( 620) (2,800) 520
-------- -------- ------- -----
Net (loss) income.......... $(2,184) $(1,088) $(5,053) $ 949
======== ======== ======== =======
NET (LOSS) INCOME PER SHARE:
Basic...................... $ (.14) $ (.08) $ (.33) $ .07
======== ======== ======= ======
Diluted.................... $ (.14) $ (.08) $ (.33) $ .07
======== ======== ======== ======
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING...... 15,318 13,365 15,290 13,353
====== ====== ====== ======
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING,
ASSUMING DILUTION.............. 15,318 13,365 15,290 13,628
====== ====== ====== ======
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
<TABLE>
<CAPTION>
HOLOGIC, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Six Months Ended
----------------
March 25, March 27,
2000 1999
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income.......................... $(5,053) $ 949
Adjustments to reconcile net (loss)
income to net cash provided by
operating activities-
Depreciation and amortization.......... 1,935 1,248
Compensation expense related
to issuance of stock option........... 32 126
Changes in assets and liabilities-
Accounts receivable.................. 2,281 (1,434)
Inventories.......................... (2,556) 1,349
Prepaid expenses and other
current assets...................... 3,996 (29)
Accounts payable..................... (163) 845
Accrued expenses..................... 495 (1,851)
Deferred revenue..................... 1,724 (267)
Net cash provided by operating ------ -------
activities......................... 2,691 936
------ ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of held-to-maturity investments.. (13,801) (19,517)
Sales and maturities of
held-to-maturity investments.............. 20,957 17,183
Purchases of property and equipment........ (2,043) (8,069)
Decrease (increase) in other assets........ (6,827) 256
-------- ------
Net cash used in investing activities.. (1,714) (10,147)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net decrease in line of credit............. (691) (2,276)
Issuance of common stock pursuant to
options and employee stock
purchase plan, including tax benefit...... 263 197
--- ------
Net cash used in financing activities.. (428) (2,079)
----- -------
EFFECT OF EXCHANGE RATE CHANGES ON CASH...... (334) (551)
----- -----
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS............................ 215 (11,841)
CASH AND CASH EQUIVALENTS, beginning
of period................................. 36,508 48,423
------ ------
CASH AND CASH EQUIVALENTS, end of period...... $36,723 $36,582
======= =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for income taxes. $ 146 $ 356
======= =======
Cash paid during the period for interest..... $ 21 $ 80
======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
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 March 25, 2000, the
consolidated statements of operations for the three months and
six months ended March 25, 2000 and March 27, 1999 and the
consolidated statements of cash flows for the six months ended
March 25, 2000 and March 27, 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 results of operations for the three months and six
months ended March 25, 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 Six Months Ended
March 27, March 27,
1999 1999
----- ----
Net sales..................... $21,129 $45,761
Net loss...................... $(3,935) $(3,916)
Basic and diluted net
income per share............. $(0.26) $(0.26)
(3) Inventories
Inventories are stated at the lower of cost (first-in, first-
out) or market and consist of the following:
March 25, September 25,
2000 1999
---- ----
Raw materials and work-in-process.... $12,731 $11,024
Finished goods....................... 7,421 6,572
------- -------
$20,152 $17,596
======= =======
Work-in-process and finished goods inventories consist of
material, labor and manufacturing overhead.
(4) Earnings Per Share
A reconciliation of basic and dilutive share amounts are as
follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 25, March 27, March 25, March 27,
2000 1999 2000 1999
------ ----- ------ ------
<S> <C> <C> <C> <C>
Weighted average common
shares outstanding.......... 15,318 13,365 15,290 13,353
Effect of dilutive
stock options............... -- -- -- 275
------ ------ ------- ------
Weighted average common
shares outstanding,
assuming dilution........... 15,318 13,365 15,290 13,628
====== ====== ====== ======
</TABLE>
Diluted weighted average shares outstanding do not include
1,009 and 1,023 common-equivalent shares for the three months and
six months ended March 25, 2000, respectively and 1,173 and 799
common equivalent shares for the three months and six months
ended March 27, 1999, respectively, as their effect would have
been anti-dilutive.
(5) Line of Credit
The Company has an international line of credit with a bank
for the equivalent of $3,000, which bears interest at PIBOR plus
1.50%. The borrowings under this line are denominated in the
local currency of its European subsidiaries and are primarily
used by these subsidiaries to settle intercompany sales.
(6) Concentration of Credit Risk
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
consist 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 finances certain sales to Latin America over a
two-to-three year time-frame. At March 25, 2000, the Company had
total accounts receivable outstanding of approximately $6,000
relating to these sales, of which $500 were long-term and
included in other assets. As of March 25, 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. As a
result, the Company increased its bad debt reserve in the second
quarter of fiscal 2000.
(7) Comprehensive Income (Loss)
Statement of Financial Accounting Standards No.130, Reporting
Comprehensive Income established standards for reporting and
display of comprehensive income (loss) and its components in the
financial statements. The Company's only item of other
comprehensive income (loss) relates to foreign currency
translation adjustments, and is presented separately on the
balance sheet as required.
A reconciliation of comprehensive income (loss) is as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 25, March 27, March 25, March 27,
2000 1999 2000 1999
---- ---- ---- -----
<S> <C> <C> <C> <C>
Net (loss) income as reported ... $(2,184) $(1,088) $(5,053) $ 949
Foreign currency translation
adjustment.................... (203) (530) (351) (539)
-------- -------- -------- ------
Comprehensive (loss) income...... $(2,387) $(1,618) $(5,404) $ 410
======== ======== ======== =====
</TABLE>
(8) Business Segments and Geographic Information
SFAS No. 131, Disclosures about Segments of an Enterprise
and Related Information, 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. To date, the Company has viewed its operations and
manages its business as principally three operating segments:
the manufacture and sale of Bone Assessment products, Mini-C Arm
Imaging products and Digital Imaging products. Intersegment
sales and transfers are not significant.
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 sales,
operating income (loss), net income (loss) and total assets.
Segment information for the three months and six months ended
March 25, 2000 and March 27, 1999 is as follows:
Three Months Ended Six Months Ended
March 25, March 27, March 25, March 27,
2000 1999 2000 1999
---- ---- ---- -----
Total revenues-
Bone Assessmen $17,440 $16,151 $33,640 $36,567
Mini C-Arm Imaging 3,350 3,211 6,762 7,429
Digital Imaging 2,463 - 4,146 -
-------- ------- ------- -------
$23,253 $19,362 $44,548 $43,996
======= ======= ======= =======
Operating income (loss)-
Bone Assessment $(326) $(2,617) $(760) $ (1,287)
Mini C-Arm Imaging 105 215 341 841
Digital Imaging (4,145) - (9,238) -
------- ------ ------ --------
$(4,366) $(2,402) $(9,657) $ (446)
======== ======= ======== =======
Net income (loss)-
Bone Assessment $ 608 $(1,201) $872 $447
Mini C-Arm Imaging 26 113 168 502
Digital Imaging (2,818) - (6,093) -
------- ------- ------- ----
$(2,184) $(1,088) $(5,053) $949
======== ======= ======== ====
Depreciation and
amortization-
Bone Assessment $674 $302 $1,433 $1,131
Mini C-Arm Imaging 63 55 120 117
Digital Imaging 78 - 382 -
----- ---- ------ ------
$815 $357 $1,935 $1,248
===== ==== ====== ======
Capital expenditures-
Bone Assessment $170 $2,730 $980 $7,410
Mini C-Arm Imaging 11 143 124 659
Digital Imaging 675 - 939 -
---- ------ ---- ------
$ 856 $2,873 $2,043 $8,069
===== ====== ====== ======
March 25, March 27,
2000 1999
-------- ---------
Identifiable assets-
Bone Assessment $139,993 $152,632
Mini C-Arm Imaging 17,349 17,178
Digital Imaging 14,661 -
-------- --------
$172,003 $169,810
======== =========
Export sales from the United States to unaffiliated customers
primarily in Europe, Asia and Latin America during the three
months and six months ended March 25, 2000 totaled
approximately $6,200 and $13,001, respectively; and for the
three months and six months ended March 27, 1999 totaled
approximately $6,077 and $13,969, respectively.
Transfers between the Company and its European subsidiaries
are generally recorded at amounts similar to the prices paid
by unaffiliated foreign dealers. All intercompany profit is
eliminated in consolidation.
Export product sales as a percentage of total product sales
are as follows:
Three Months Ended Six Months Ended
March 25, March 27, March 25, March 27,
2000 1999 2000 1999
-------- --------- --------- ---------
Europe 22% 25% 26% 24%
Asia 8 9 7 8
All others 5 4 4 6
--- --- --- ---
35% 38% 37% 38%
(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 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. SAB 101 will require
companies to recognize certain up front non-refundable fees and
milestone payments over the life of the related agreements when
such fees are received in conjunction with agreements which have
multiple elements. 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 second
quarter of fiscal 2001. The Company is still in the process of
evaluating the impact this bulletin will have on the consolidated
financial statements.
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. 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.
Revenues. Total revenues for the second quarter of fiscal
2000 increased 20% to $23.3 million from $19.4 million for the
second quarter of fiscal 1999. Total revenues for the current
six month period increased 1 % to $44.5 million from $44.0
million for the first six months of fiscal 1999. In the current
quarter, product sales increased 11% to $20.9 million and other
revenues increased 315% to $2.3 million compared to the second
quarter of fiscal 1999. For the first six months of fiscal 2000,
product sales decreased 2% and other revenues increased 100%
compared to the same period last year.
The increase in product sales in the current quarter is
primarily due to the addition of revenues from sales of our
digital x-ray products from DRC and to a lesser extent from an
increase in Sahara product sales. Partially offsetting these
increases was a decrease in DXA bone densitometer sales primarily
due to 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, and to a lesser extent to decreased
unit prices. Partially offsetting these decreases in DXA sales
was an increase in the number of DXA units sold through our
direct sales force primarily in the United States and also in
Europe. In the current quarter, we began initial 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 decrease in product sales for the first six
months of fiscal 2000 compared to the same period last year is
due to 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 decrease in mini c-arm and
Sahara product sales. Partially offsetting these decreases was
the addition of revenues from DRC.
The increases in other revenues for the three and six month
periods is the result of the completion of the sale of a fully
paid up license to Vivid for $2 million in the current quarter,
partially offset by 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.
In the first six months of fiscal 2000, approximately 63% of
product sales were generated in the United States, 26% in Europe
and 11% in other international markets. In the first six 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 65% in the second quarter of
fiscal 2000 from 61% in the second quarter of fiscal 1999. The
cost of product sales increased as a percentage of product sales
to 63% in the current six month period from 57% in the same six
month period in fiscal 1999. These costs increased as a
percentage of product sales primarily due to the addition in the
current quarter and six month periods of manufacturing costs of
approximately $2.5 million and $4.1 million, respectively,
related to DRC, which has significant fixed manufacturing costs
and is operating significantly below manufacturing capacity.
Absent DRC, cost of product sales would have decreased to
approximately 56% for the current three and six month periods.
The low sales volume of digital imaging plates resulted in the
under absorption of fixed manufacturing costs.
Research and development expenses increased 53% to $4.0
million (17% of total revenues) in the current quarter from $2.6
million (14% of total revenues) in the first quarter of fiscal
1999. For the current six month period, research and development
costs increased 72% to $8.8 million (20% of total revenues) from
$5.1 (12% of total revenues) million for the first six months of
fiscal 1999. This increase was primarily due to the acquisition
of DRC which added approximately $2.3 million and $5.2 million of
research and development expenses in the current quarter and six
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 12% to $5.3 million
(25% of product sales) in the current quarter from $4.7 million
(25% of product sales) in the second quarter of fiscal 1999. For
the current six month period, selling and marketing expenses
increased 12% to $11.1 million (27% of product sales) from $10.0
million (23% of product sales) for the first six months of fiscal
1999. These increases are primarily due to selling and marketing
expenses of $600,000 and $1.7 million at DRC for the current
three month and six 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 67% to $4.8
million (21% of total revenues) in the current quarter from $2.9
million (15% of total revenues) in the second quarter of fiscal
1999. During the first six months of fiscal 2000, general and
administrative expenses increased 54% to $7.8 million (17% of
total revenues) from $5.0 million (11% of total revenues) in the
first six months of fiscal 1999. These increases were primarily
due to approximately $1.5 million of charges in the current
quarter 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 six month periods
include $486,000 and $1.1 million, respectively, of general and
administrative expenses related to DRC.
Total costs and expenses related to DRC totaled
approximately $6.0 million and $12.2 million for the three and
six months ended March 25, 2000, respectively. We expect to
continue to incur significant costs and expenses at DRC for the
foreseeable future as efforts are placed on developing and
commercializing our digital radiography systems.
Interest Income. Interest income increased slightly to $1.0
million in the current quarter from $991,000 in the same quarter
of fiscal 1999 and decreased to $1.9 million in the current six
month period from $2.2 million in the comparable period in fiscal
1999. The decrease in the six 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
$44,000 and $297,000, for the second quarter of fiscal 2000 and
1999, respectively. For the first six months of fiscal 2000 and
1999, we incurred other expense of $75,000 and $329,000,
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.
Provision 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. Our
effective tax rate was approximately 35% and 36% for the first
six months of fiscal 2000 and fiscal 1999, respectively. The
effective tax rate is less than the statutory tax rates due
primarily to the favorable Federal and state tax treatment
afforded our foreign sales corporation and the favorable state
tax treatment of a portion of our interest income.
Liquidity and Capital Resources
At March 25, 2000, working capital was approximately $78
million, and cash, cash equivalents and short-term investments
totaled $56 million. The cash, cash equivalents and short-term
investments balance decreased approximately $7 million from
September 25, 1999 primarily due to the net loss of $5 million
and payments for facility renovations. 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 March 25, 2000, we had
total accounts receivable outstanding of approximately $6 million
relating to these sales, of which $500,000 were long-term and
included in other assets. As of March 25, 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. As a
result, we increased our bad debt reserve in the second quarter.
In the first six months of 2000, we purchased approximately $2
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 March 25, 2000,
approximately 25% 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
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 March 25, 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.
PART II - OTHER INFORMATION
HOLOGIC, INC. AND SUBSIDIARIES
Item 1. Legal Proceedings.
No material developments.
Item 2. Changes in Securities.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
The Company held its Annual Meeting of Stockholders on March
7, 2000. At the meeting, a total of 13,527,508 shares or
88% of the Common Stock issued and outstanding as of the
record date, were represented in person or by proxy. Set
forth below is a brief description of each matter voted upon
at the meetings and the voting results with respect to each
matter.
1. A proposal to elect the following seven persons to serve
as members of the Company's Board of Directors for the
ensuing year and until their successors are duly elected:
Name For Withheld Abstain
----- --- -------- -------
S. David Ellenbogen 13,421,926 105,582 0
Irwin Jacobs 13,421,956 105,552 0
Steve L. Nakashige 13,421,656 105,852 0
William A. Peck 13,421,956 105,552 0
Gerald Segel 13,421,656 105,852 0
Jay A. Stein 13,421,900 105,608 0
Elaine Ullian 13,421,656 105,852 0
2. A proposal to ratify the appointment of Arthur Andersen,
LLP as independent public accountants of the Company.
For: 13,419,805 Against: 84,799 Abstain: 22,904
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.
HOLOGIC, INC. AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
Hologic, Inc.
(Registrant)
May 8, 2000 /s/ S. David Ellenbogen
- --------------- ------------------------------
Date S. David Ellenbogen
Chairman and Chief Executive Officer
May 8, 2000 /s/ Glenn P. Muir
- ----------- ------------------------------
Date Glenn P. Muir
Vice President, Finance and Treasurer
(Principal Financial Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
the financial statements in the Company's Quarterly Report on Form 10-Q
for the period ended March 25, 2000.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-2000
<PERIOD-END> MAR-25-2000
<CASH> 36,722
<SECURITIES> 18,999
<RECEIVABLES> 26,287
<ALLOWANCES> 4,016
<INVENTORY> 20,152
<CURRENT-ASSETS> 104,982
<PP&E> 60,497
<DEPRECIATION> 9,586
<TOTAL-ASSETS> 172,003
<CURRENT-LIABILITIES> 26,628
<BONDS> 0
0
0
<COMMON> 154
<OTHER-SE> 145,221
<TOTAL-LIABILITY-AND-EQUITY> 172,003
<SALES> 41,980
<TOTAL-REVENUES> 44,548
<CGS> 26,556
<TOTAL-COSTS> 27,649
<OTHER-EXPENSES> 75
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (7,853)
<INCOME-TAX> 2,800
<INCOME-CONTINUING> (5,053)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,053)
<EPS-BASIC> (.33)
<EPS-DILUTED> (.33)
</TABLE>
