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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended: September 30, 2000
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or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____ to _____
Commission File Number: 0-18281
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Hologic, Inc.
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(Exact Name of Registrant as Specified in Its Charter)
Delaware 04-2902449
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(State or Other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification No.)
35 Crosby Drive, Bedford, Massachusetts 01730
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(Address of Principal Executive Offices, Including Zip Code)
(781) 999-7300
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(Registrant's Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant Common Stock, $.01 par value
to Section 12(g) of the Act: Rights to Purchase Common Stock
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
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
10-K. X
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The aggregate market value of the registrant's Common Stock held by non-
affiliates of the registrant as of December 19, 2000 was $86,787,416 based on
the price of the last reported sale on the Nasdaq National Market System on that
date.
As of December 19, 2000 there were 15,428,874 shares of the registrant's Common
Stock, $.01 par value, outstanding.
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DOCUMENTS INCORPORATED BY REFERENCE
Proxy Statement for the registrant's annual meeting of stockholders scheduled to
be held on March 6, 2001 (Part III: Items 10, 11, 12 and 13).
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Introductory Statement
We have made forward-looking statements in this document that are subject
to risks and uncertainties. Forward-looking statements include statements of
our plans, objectives, expectations and intentions. Also, when we use words
such as "may," "will," "should," "could," "would," "expects," "anticipates,"
"believes," "plans," "intends," "estimates," "is being" or "goal" or other
variations of these terms or comparable terminology, we are making forward-
looking statements. These statements, which include statements relating to the
timing and availability of products under development, our ability to market
such products once developed, the anticipated growth or expansion of the markets
for our products, expectations regarding our integration and plans for our
recently acquired businesses and other matters that are subject to risks and
uncertainties that could cause actual results to differ materially from those
anticipated. You should note that many factors could affect our future
financial results and could cause these results to differ materially from those
expressed in our forward-looking statements. These forward-looking statements
speak only as of the date of this report. We expressly disclaim any obligation
or undertaking to release publicly any updates or revisions to any forward-
looking statement contained in this report to reflect any change in our
expectations or any change in events, conditions or circumstances on which any
of our forward-looking statements are based. Factors that could cause or
contribute to differences in our future financial results include those
discussed in the risk factors set forth in Item 7 below as well as those
discussed elsewhere in this report.
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Part I
Item 1. Business
We are a leading developer, manufacturer and supplier of bone
densitometers, mammography and breast biopsy devices and direct-to-digital X-ray
systems. We also develop, manufacture and supply other X-ray based imaging
systems. These products are generally targeted to address women's healthcare
and general radiographic applications.
We develop, manufacture and market X-ray bone densitometers and ultrasound
bone analyzers that address the market for osteoporosis prevention and treatment
-- a key element of women's healthcare. Our Quantitative Digital Radiography
(QDR) X-ray bone densitometers are used for the precise measurement of bone
density to assist in the diagnosis and monitoring of osteoporosis and other
metabolic bone diseases. Our systems are used by more leading medical schools,
universities and osteoporosis opinion leaders than any other bone densitometer.
Direct Radiography Corp., one of our wholly owned subsidiaries, provides
dose-efficient, high productivity direct-to-digital X-ray image capture systems
for the medical and nondestructive testing markets. The Direct Radiography
proprietary flat panel technology, DirectRay, converts X-ray energy directly
into electrical signals. This technology produces radiographic images in
seconds that can be electronically displayed, transferred and stored, including
in hospital Picture, Archive and Communication Systems, known as PACs. We offer
DirectRay digital technology as fully integrated radiographic systems, as an
image capture upgrade for X-ray equipment and as a digital component for
original equipment manufacturers to incorporate into their own products.
In September 2000, we significantly expanded our product breadth through
the acquisition of substantially all of the business and assets of the United
States operations of Trex Medical Corporation. The principal businesses acquired
included Trex Medical's Lorad mammography and breast biopsy operations, and its
general radiography operations. Trex Medical was a leading developer,
manufacturer and supplier of mammography and breast biopsy systems. These
systems incorporate patented technology that provides high quality contrast and
resolution. We plan to combine our DirectRay technology with our Lorad and
other Trex Medical imaging products to develop new digital X-ray technology
platforms.
FluoroScan Imaging Systems, Inc., another of our wholly owned subsidiaries,
develops, manufactures and sells low intensity, real time mini c-arm X-ray
imaging devices that address a trend towards minimally invasive surgery. These
systems provide surgeons with high-resolution images at radiation levels and at
a cost well below those of conventional X-ray and fluoroscopic equipment.
We were incorporated in Massachusetts in October 1985 and reincorporated in
Delaware in March 1990. Unless the context otherwise requires, references to
us, Hologic or our company refer to Hologic, Inc. and each of its consolidated
subsidiaries. We view our operations and manage our business in four principal
operating segments: bone assessment products, mini c-arm imaging products,
direct-to-digital imaging products, and mammography and general radiography
products. We have provided financial information concerning these segments in
Note 12 of the Notes to our Consolidated Financial Statements included in this
report.
The Hologic logo is one of our service marks. QDR, ACCLAIM, Sahara, EPEX,
RADEX and Lorad are our registered trademarks. QDR 4000, QDR 4500, QDR 4500A,
QDR 4500SL, QDR 4500W, QDR 4500C, Delphi, FluoroScan, Premier, OfficeMate,
FluoroScan Imaging Systems, DirectRay, DR1000C, Elite, MultiCare, HTC,
Automatic Internal Reference System, Instant Vertebral Assessment, and Direct
Radiography are other trademarks that we own. We license the trademark Profile
from Technix SpA.
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Bone Assessment Products
Overview
Osteoporosis is a condition characterized by reduced bone density that
leads to an increased risk of fractures. According to the National Osteoporosis
Foundation, approximately 28 million Americans, 80% of whom are women, and
approximately 250 million people worldwide, suffer from osteoporosis.
Osteoporosis typically develops silently over a period of years, eventually
progressing to a point where a fracture can easily occur, causing pain and
disability. The post-menopausal female population has the highest incidence of
osteoporosis and the highest rate of loss of quality of life and mortality due
to osteoporosis.
Pharmaceutical companies are investing considerable resources in the
development of new drug therapies to treat osteoporosis, and in marketing
initiatives designed to increase the awareness that osteoporosis is treatable.
As a result of the recent introduction of new therapies to treat and prevent
osteoporosis, industry sources report that the market for osteoporosis therapies
has grown to over $2 billion annually. Several of these new drugs have
demonstrated that they may be able to slow down or even reverse bone loss in
patients suffering from osteoporosis or at risk of suffering from the disease.
While osteoporosis is often thought to be an inevitable and untreatable
consequence of aging, we believe that the recent development and introduction of
new drug therapies, the aging of the population, and an increased focus on
women's health issues and preventive medical practices has created a growing
awareness among patients and physicians that osteoporosis is treatable.
In 1987 we introduced the first bone densitometer incorporating dual-energy
X-ray absorptiomety technology, referred to as DXA. The most advanced DXA
systems can be used to measure the bone density of the whole body, or any
specific site within the body, including the most important fracture sites of
the hip or spine. As a result of their precision and versatility, DXA systems
have become the predominant means of evaluating low bone density before
fractures occur and monitoring changes in a patient's bone density in response
to therapies.
In addition to low bone density, the presence of a spine fracture is an
important indicator of the risk of a future fracture. Numerous studies have
determined that patients with a single spine fracture have four to five times
the risk of future spine fracture and twice the risk of future hip fracture.
However, fractures of the spine are often difficult to diagnose in the course of
typical clinical evaluation, because the most prevalent fractures do not have
symptoms. As a result, it is estimated that only about one in four spine
fractures are recognized clinically. In November 1999, we introduced our Delphi
QDR series bone densitometers, which are capable of providing a combination of
bone mineral density assessment and spine fracture assessment. We believe that
these systems have improved the clinician's ability to accurately target therapy
to treat and prevent osteoporosis. In March 2000, we began commercial shipments
of Delphi.
The use of ultrasound for bone assessment has concentrated mainly on using
the heel as a measuring site. Clinical trials of ultrasound systems have
indicated a significant association of low ultrasonic bone measurements of the
heel and the risk of fracture. Major advantages of ultrasound examination are
the complete absence of radiation and the small size and low cost of the
equipment. Ultrasound devices do not use X-rays in making their measurements and
therefore do not require X-ray licensing or registered operators. However,
because ultrasound bone measurements currently are not as precise as X-ray and
other measurements, they are less reliable for continued monitoring of small
changes in bone density or for assessing the response to therapies. In addition,
they are generally limited to measurements at peripheral sites, not the more
important spine or hip fracture sites. Accordingly, we believe that ultrasound
systems are being used predominantly as a low cost initial screening or
diagnostic tool and not as a patient monitoring tool.
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Products
Our bone assessment products include a family of QDR X-ray bone
densitometers and the Sahara Clinical Bone Sonometer, an ultrasound device that
assesses the bone density of the heel.
QDR X-Ray Bone Densitometers. Since our first commercial shipment of a
DXA system in October 1987, we have sold more than 8,200 DXA systems. We believe
that advantages of our DXA systems include high precision, low patient radiation
exposure equivalent to 1/10th of a conventional chest X-ray, a relatively fast
scanning time, low operating cost, no radioactive source and the ability to
measure bone density of the most important fracture sites, the spine and hip.
Our studies and those of independent investigators have demonstrated that the
systems can detect a change in spine bone density with a precision error of less
than 1%.
All our DXA systems employ our patented Automatic Internal Reference
System, which continuously calibrates each patient's bone density measurement to
a known standard. This system virtually eliminates errors that might result from
manual calibration and saves operators the time-consuming task of calibrating
several times a day. The system automatically compensates for drift in the X-ray
system, detectors or other electronic components, which ensures long-term
measurement stability.
We have invested substantial resources in developing operating and
applications software for our systems. The software includes calibration
software, automated scan and analysis programs for each scan site, and a patient
data base manager that archives all raw data for later retrieval and analysis
and allows the operator to review the current image with an earlier image of the
same patient.
In November 1999, we introduced our Delphi QDR Series bone densitometer.
The Delphi offers physicians the ability to simultaneously assess two of the
strongest risk factors for osteoporotic fracture: existing fractures of the
spine and low bone density. Using high-resolution fan beam X-ray imaging
technology, Delphi provides instant vertebral assessment, permitting rapid
visual inspection of the spine in a clinical setting. The combination of bone
mineral density assessment and spine fracture assessment improves the
clinician's ability to accurately target therapy to those who can benefit most.
In March 2000, we began commercial shipments of Delphi.
In addition to instant vertebral assessment, our Delphi QDR series of bone
densitometers offers rapid scanning and high-resolution imaging using the latest
available fan beam and high density, solid-state multi-detector array
technology. These systems are built in modular configurations that allow
customers to add new features and capabilities, while protecting their
investment in the equipment and patient data. During fiscal 2000, two systems
from the Delphi series were available; the Delphi C and Delphi W. At the
November 2000 annual meeting of the Radiological Society of North America, we
introduced the more advanced Delphi SL and Delphi A systems.
We also continue to offer our customers four versions of the ACCLAIM
series: the QDR 4500A, the QDR 4500SL, the QDR 4500W and the QDR 4500C clinical
bone densitometer. As with the Delphi, these systems are built in modular
configurations that allow customers to add new features and capabilities. These
systems do not offer the instant vertebral assessment capability offered by the
Delphi systems.
An important feature of the Delphi A and SL and ACCLAIM A and SL systems is
their ability to perform lateral, side-to-side scans of the lower spine, without
turning the patient on her side, in addition to the back-to-front measurements.
The Delphi and ACCLAIM A and SL systems are capable of producing high quality
images of the spine, lateral spine, hip and other skeletal sites. The scan arm
allows for multiple scan views without patient repositioning. The images
produced can be combined with capabilities that enable the dimensions of the
spine to be determined with a radiation dose approximately ten to 100 times
lower than that of conventional chest X-rays. By using either of the A or SL
Delphi and ACCLAIM systems, high-quality lateral images of the entire spine can
be obtained in as little as ten seconds.
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Our QDR 4000 pencil beam bone densitometer combines the reliability and
economy of our DXA bone densitometers with a unique package of value-added
applications that provide physicians with bone density measurements of the hip,
spine and forearm. The QDR 4000 is targeted at the price-sensitive segment of
the market.
Ultrasound. We developed an enhanced dry ultrasound bone analyzer, called
Sahara, that assesses the bone density of the heel. At the time of our
introduction of this device, other ultrasound bone analyzers required the
patient to place her foot in water. The use of water requires cumbersome
plumbing and cleaning mechanisms to be incorporated in the system. We believe
that ultrasound systems represent a relatively low cost, compact, easy-to-use,
non-ionizing, measurement technique to assist in the initial diagnosis of
osteoporosis.
C-arm Imaging Products
Overview
We manufacture and distribute the FluoroScan Imaging System, a low
intensity, real-time mini c-arm X-ray imaging device which provides high
resolution images at radiation levels and at a cost well below those of
conventional X-ray and fluoroscopic equipment. These mini c-arm systems are used
primarily by orthopedic surgeons to perform minimally invasive surgical
procedures on a patient's extremities, such as the hand, wrist, knee, foot and
ankle. We have also begun to distribute the Profile, a 9 inch screen mobile
standard c-arm imaging system. Standard c-arm systems are used for orthopedic
care and surgical procedures, pain management and general surgical procedures.
We believe that trends in the healthcare industry could broaden the use of
mini c-arms from the hospitals and surgery centers to private orthopedic and
podiatric physician groups. Some of these trends include:
. the emergence of technology that enables minimally invasive procedures
and therapies;
. the increase in the number of office-based procedures and examinations
as a result of efforts to contain healthcare costs; and
. the development of new treatments and pharmaceuticals such as
synthetic bone materials that are facilitated by the use of a mini
c-arm to perform minimally invasive procedures.
We also believe that the demand for mobile c-arm imaging systems in
hospital settings could increase due to:
. advances in minimally invasive surgeries, particularly in vascular,
cardiac and neurology procedures;
. increase in outpatient imaging;
. advances in technology, particularly with image quality and image
archiving;
. advances in biotechnology, especially in hip and knee procedures;
. relative value of mobile c-arms compared to full radiology rooms;
. increasing population age with attendant orthopedic complications; and
. growth in pain management.
Products
Mini C-arm
Our offering of mini c-arm products includes the OfficeMate and the Premier
product lines. OfficeMate uses a ''night vision'' intensifier. The intensifier
allows the systems to produce high resolution readily viewable images by using a
small amount of radiation, converting it to visible light and amplifying it
approximately 50,000 times. The same night vision intensifier, as used by the
military, allows clear views of a battlefield at night by amplifying small
amounts of light. Advantages of these FluoroScan systems over conventional X-
ray imaging devices, such as c-arms, image intensifiers and fluoroscopy
equipment, include a substantial reduction of radiation to the patient and of
scatter radiation
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to the surgeon and other operating room personnel, a cost of approximately one-
third of the cost of a conventional c-arm, and mobility.
In combining our expertise developed using "night vision" technology and
dual-energy X-ray technology, we developed a new X-ray image intensifier that we
incorporated in our Premier mini c-arm product line. By coupling this
intensifier with other technical innovations, we have been able to significantly
improve our image quality.
Premier. We introduced the Premier mini c-arm system in August 1998. The
Premier's .085 mm focal spot X-ray tube, currently the smallest in the mini c-
arm industry, provides clear resolution and detailed images on a six-inch field
of view. The Premier's mini c-arm is designed to rotate 360 degrees easily.
The Premier also features:
. readily accessible surgeon-centered controls on the c-arm, which make
both assisted and unassisted operation much easier;
. a compact design;
. dual video channels that allow a surgeon to display different views of
the anatomy for side-by-side comparison;
. four image buffer memories for instant recall of previous images;
. permanent storage of up to 4,000 full resolution digital images; and
. built-in video and Ethernet connections that allow the user to output
images to a printer or workstation, send to or receive from remote
work stations, or record, review and archive images using existing
Windows NT or hospital Picture, Archive and Communication Systems,
known as PACS.
We believe that the combination of advanced technical features and ease-of-use
has made the Premier attractive to hospitals, surgery centers, orthopedic group
practices and private physician offices.
OfficeMate. We introduced the OfficeMate imaging system in fiscal 1997.
This system was designed specifically to meet the needs of the physician office.
The OfficeMate features efficient, user-friendly operation, high resolution
real-time and freeze frame images, full 360-degree arm rotation and the choice
of three or four inch field-of-view. Due to its compact size and portability,
we believe the OfficeMate is well suited for the in-office extremity imaging
requirements of hand and orthopedic surgeons.
Standard C-arm
In order to leverage our FluoroScan sales force and associated distribution
capability, we distribute Profile, a 9" mobile c-arm imaging system for complete
orthopedic, pain management and general surgery applications. This system is
manufactured by Technix SpA of Italy. We are the exclusive worldwide
distributor of Profile and our distribution agreement with Technix is renewable
in three years.
Direct-to-Digital Imaging Products
Overview
For nearly 100 years, conventional projection radiography has used film to
capture X-ray images. Conventional technology requires that X-ray film be
exposed and then chemically processed to create a visible image for diagnosis.
For over 60 of those years, the standard for medical imaging has been X-ray film
in combination with various intensifying screens because of the functional
utility and perceived high viewing quality of film-produced images. X-ray film
has performed the functions of capture, display, storage, and communication of
the image data.
Digital imaging technologies, such as computed tomography, known as CT,
ultrasound and nuclear medicine, gained acceptance in the 1970s as alternatives
to conventional X-ray film. In the 1980s, magnetic resonance imaging, known as
MRI, and other technologies furthered the trend toward digital imaging. Even
so, an estimated 65% of all X-ray diagnostic examinations are still performed
using X-ray film.
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Initial efforts to integrate conventional radiography into the digital
environment have resulted in less than optimal compromises. These compromises,
which include film digitizers, phosphor-based computed radiography systems and
the digital conversion of video outputs, use indirect conversion processes that
first convert X-ray energy into light and then light into electrical signals.
In addition to requiring work by technologists, we believe that the use of
indirect conversion processes degrades the image quality.
The recent emergence of direct-to-digital imaging technology that converts
X-rays directly into electronic digital signals has provided the means to
address the problems associated with the earlier digital techniques by avoiding
the intermediate conversion process. We believe that direct-to-digital
technology can allow rapid access to digital images while providing an image
quality which exceeds that of film-based X-ray systems as well as computed
radiographic and other systems that use an indirect conversion process.
We further believe that trends in the healthcare industry will increase the
demand for direct-to-digital technologies. These technologies address the trend
towards decentralization of healthcare, allowing diagnostic images to be
captured in an outpatient setting and delivered electronically for
interpretation throughout the provider's computer network. The capture of
diagnostic images in digital format should enable hospitals to share patient
data and allow radiologists to confer more easily regarding diagnoses. Patient
images can be transmitted electronically to any location without compromising
image quality. A direct-to-digital system can further enhance productivity by
eliminating costs associated with the handling and development of film. Direct-
to-digital technologies should also benefit from the increasing installation of
hospital Picture, Archive and Communication Systems, known as PACS, to store X-
ray images electronically and replace costly film archiving systems.
Products
In June 1999, we acquired Direct Radiography Corp. Direct Radiography
Corp, now a wholly owned subsidiary, has developed patented flat panel direct-
to-digital imaging technology, which we call DirectRay. This technology allows
X-ray processing to occur without the need for conventional X-ray film. With
this technology, direct-to-digital systems and products can produce radiographic
images in a matter of seconds and then electronically display, transfer and
store these images in a computer.
The DirectRay panel uses an X-ray semiconductor material, amorphous
selenium, to directly capture X-rays and convert them into electronic digital
signals. Unlike conventional film and indirect-conversion digital technologies,
these direct-to-digital detectors do not require the use of intensifying
screens, intermediate steps or additional processes to capture and convert the
incident X-ray energy. We believe this direct-to-digital conversion process
produces superior quality images when compared to other competitive technologies
such as computed radiography systems and conventional screen film systems.
All of our Direct Radiography products employ our patented DirectRay flat
panel technology. Employed similarly to a conventional X-ray film cassette, the
panel is paired with a controller that provides power and performs basic image
processing. The panel and controller are positioned under the examining table
and make use of a mechanical sleeve, referred to as a "bucky," that holds the
DirectRay panel in place.
We offer the DirectRay flat panel digital technology in several forms,
including fully integrated radiography systems, image capture upgrades to
existing X-ray equipment, and stand-alone components for OEMs to incorporate
into their own equipment.
Integrated Products. Our Direct Radiography integrated product line offers
high quality imaging, ease-of-use, a full range of motion for easy patient
positioning in multiple planes, and full DICOM compliance, which is the standard
protocol for communicating with a hospital's Picture, Archive and Communication
Systems, known as PACS.
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. EPEX and RADEX. We have developed two new integrated direct-to-digital
general radiography systems. The EPEX system is a high-end system that
permits a full range of general radiography examinations. The RADEX
system is a simpler general radiography system designed with need for
flexibility as required by outpatient departments. Commercial
shipments of the RADEX began in April 2000 and shipments of the EPEX
began in July 2000.
. DR1000C. The DR1000C is a dedicated chest radiography system. The
system is configured to provide a wide range of vertical motion,
allowing upright chest radiography of most patients, ranging from a
small child to a large adult.
. Inverse Topography. Inverse Topography, known as IT, is a software
application that we introduced at the annual meeting of the
Radiological Society of North America in November 2000. IT capitalizes
on the dynamic range of the digital detector and enables our direct
radiography products to optimize the appearance of soft tissue and
bone in one image display.
Digital Upgrade Products. Our Digital Upgrade products offer customers a
cost-effective way to convert existing conventional film-based X-ray equipment
to DirectRay technology. This customized offering includes a replacement bucky
assembly specifically designed for the DirectRay detector, and related control
equipment. This product is installed in place of the existing bucky mechanism
in the examination table, enabling the conversion to a direct-to-digital system.
This upgrade opportunity will vary depending on the different specifications on
the wide variety of X-ray systems installed worldwide. This upgrade is
currently available for some of General Electric's conventional X-ray systems.
We expect to continue to introduce additional upgrade products for some of the
more widely used conventional products during fiscal 2001.
OEM Products. We offer our DirectRay panel for sale to OEMs that desire to
incorporate direct-to-digital technology into their product offerings. Our
current OEM customers include Agfa, Analogic (a supplier to Eastman Kodak) and
E-Com Technology.
We have pursued and continue to pursue agreements to expand our direct-to-
digital market. In September 1999 we entered into an OEM agreement with E-Com
Technology LTD of Zhuhai, China, to sell our DirectRay detectors. In October
1999 we entered into a long-term sales agreement with Agfa Corporation. The
agreement gives Agfa exclusive worldwide selling rights to DirectRay X-ray image
capture detectors for the nondestructive testing market. Agfa has advised us
that it plans to sell the DirectRay detectors in a broad range of nondestructive
testing applications where image quality and throughput are critical. Eastman
Kodak has purchased systems incorporating our amorphous selenium flat panel
detectors for use in new products. DirectRay is the only commercially available
amorphous selenium detector. Eastman Kodak stated that it selected amorphous
selenium technology because it delivers the highest standard of digital
radiography image quality, and because this technology alone among current
digital radiography technologies has the potential for use across the full range
of clinical applications in the future. These developments reinforce our belief
that direct-to-digital imaging is a state-of-the-art technology that has the
potential to be a leading digital imaging product in radiology if the X-ray
market transitions from film-based to full digital imaging in both medical and
non-medical markets.
Mammography and Other Breast Cancer Detection Products
Acquisition of Lorad Division
On September 15, 2000, we significantly expanded our product breadth
through the acquisition of substantially all of the business and assets of the
United States operations of Trex Medical Corporation. The assets acquired from
Trex Medical include Trex Medical's mammography and minimally invasive breast
biopsy systems used to detect breast cancer. These product lines have been
included in our newly formed Lorad division. As a result of this acquisition,
our Lorad division is now a leading developer, manufacturer and supplier of
mammography systems.
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Overview
According to the American Cancer Society, breast cancer is the most common
cancer among women. Breast cancer is the second leading cause of death in
women, exceeded only by lung cancer. In recent years, the death rate from
breast cancer has declined, particularly among young women. This is primarily
attributed to earlier detection and the availability of better treatments to
treat the disease.
Mammography X-ray systems are used to take X-ray images of the breast,
primarily for detection and monitoring of breast cancer and breast cancer
therapies. According to an industry analyst, the worldwide mammography X-ray
equipment market was approximately $272 million in 1999 and is expected to grow
to over $300 million in 2000 and over $500 million by 2003. The anticipated
growth of this market is attributed to an aging population, increased awareness
of the benefits of regular testing, regular testing beginning at an earlier age
than in the past including public health initiatives worldwide to encourage
earlier and more frequent mammography screenings, and conversion of conventional
X-ray systems to more expensive digital systems.
Products
Our Lorad division offers a broad product line of breast imaging products,
including a range of mammography systems and breast biopsy systems. We offer
the high-end mammography system, the Lorad M-IV and the mid-tier system, the
Lorad Elite. The Lorad M-IV and the Lorad Elite can be configured with our
patented high transmission cellular, HTC, grid imaging system. This imaging
system has been shown to provide improved imaging as compared to other
conventional X-ray systems through its ability to increase the transmission of
primary X-ray while reducing X-ray scatter.
We also offer three minimally invasive breast-biopsy systems. These
systems provide an alternative to open surgical biopsy, which is generally
performed under general anesthesia. Minimally invasive biopsies are most often
performed on an outpatient basis under local anesthesia and are less expensive
than open surgery. We provide clinicians with the flexibility of choosing from
either upright or prone systems for breast biopsy. We offer two upright
systems, which are used in conjunction with our mammography systems. In
addition, for physicians that perform a significant number of biopsies, we sell
a dedicated, prone biopsy system called the Lorad MultiCare breast biopsy
system. The following is a more detailed description of the products sold by
our Lorad Division.
Mammography Systems
. Lorad M-IV. The Lorad M-IV was introduced in 1996 and has an installed
base in excess of 2,400 units. Features of the Lorad M-IV include a
bi-angular X-ray tube, dual filter capability, auto filter mode,
three-cell AEC sensor and high image quality. Image quality can be
further improved through an HTC Imaging Systems option. Other features
of the Lorad M-IV include improved patient management though
streamlined patient scheduling, integrated auto film identification,
optional bar code reader, and connectivity through a radiology
information systems interface. The Lorad M-IV has also been designed
to be upgradable to our full field digital mammography system,
currently under development.
. Lorad Elite. The Lorad Elite was introduced in June 1998. The Lorad
Elite is designed to combine quality with value. The product provides
high image quality through bi-angular X-ray tube technology and the
use of our HTC system. The unit offers high reliability, high
throughput, cost-effective ownership and upgradabilty. In combination
with the Lorad SerioLoc II, the Lorad Elite provides both diagnostic
and therapeutic capabilities.
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Breast-Biopsy Systems.
The minimally invasive breast-biopsy systems that we acquired from Trex
Medical provide an alternative to open surgical biopsy, which is generally
performed under general anesthesia. Minimally invasive biopsies are typically
done on an outpatient basis under local anesthesia and are less expensive than
open surgery.
We offer two upright systems, which are used in conjunction with our
mammography systems. In addition, for physicians that perform a significant
number of biopsies, we offer a dedicated, prone biopsy system called the Lorad
MultiCare Breast Biopsy System (formerly called the StereoGuide). This system is
used with Trex Medical's digital "spot" mammography system, which enables a
doctor to position the sampling device at the site of the suspicious lesion.
When performing a biopsy with any Trex Medical system, a doctor has a choice of
tissue-sampling devices, which are not manufactured by us.
. Lorad MultiCare breast biopsy system. The Lorad MultiCare breast
biopsy system was introduced in 1992. The system provides a unique
360-degree access, intended to allow the shortest path to the lesion
as well as direct access to interior lesions. The system also allows
access to auxiliary breast tissue through its contoured table. Other
features of this system include an accurate Cartesian coordinate
system to allow precise targeting in three independent planes and easy
access to lesions including chest wall and auxiliary regions, a
convenient SmartWindow providing tableside display of real-time
target/needle position, as well as the ability to accept a wide
assortment of biopsy instruments and accessories.
Products Under Development
Prior to the acquisition, Trex Medical had developed an indirect digital
mammography product. We are in the final stages of collecting the necessary
data needed to file a premarket approval application with the Food and Drug
Administration. We anticipate filing this application in the second quarter of
fiscal 2001. In addition to developing product enhancements, we are developing a
digital mammography flat panel detector and digital mammography systems
incorporating this detector. This mammography plate is being designed to
provide higher resolution, to be smaller in size and to have a thinner bucky
design than our standard digital detector.
Conventional Radiography Products
General-Purpose X-Ray
In September 2000, we also acquired Trex Medical's conventional X-ray
equipment business. We expect to integrate these X-ray systems into our current
product line. These X-ray systems include:
. Basic X-ray systems that are generally used in outpatient facilities
as well as more sophisticated and expensive X-ray systems typically
used in hospitals and clinics. For example, the Trex Medical ER system
is designed to meet the heavy-duty demands of a hospital emergency
room, while the Trex General Radiographic System is appropriate for
any setting.
. Digital radiographic/fluoroscopic (R/F) systems, such as the Trex
2200I, which provides real-time image capture. R/F systems are often
used for diagnostic gastrointestinal procedures to image the progress
of a radiopaque solution (typically barium) as it travels through the
digestive tract.
Products Under Development
Projects related to the Radiography and R/F division included the
next-generation R/F 3000i, second-generation mobile X-ray system, and the
TouchView user-interface and System HUB research and development efforts.
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Marketing and Sales
Systems
Domestic Market. In the United States, we sell our bone densitometer,
ultrasound bone analyzer, and direct-to-digital imaging systems to hospitals,
hospital radiology departments, and radiology clinics primarily through our
direct sales force. We sell the mammography and minimally invasive breast biopsy
systems, the c-arm imaging systems and other X-ray systems in the United States
through a network of independent dealers as well as our direct sales force. In
the United States, our direct sales force is comprised of over 30 individuals,
all of whom have considerable expertise in selling in the radiology market.
The dynamics of selling to hospitals, imaging clinics and private practices
has changed in recent years. Large purchasing entities, such as managed care
organizations, are becoming more commonplace and customers are seeking to
consolidate supply partners in an effort to minimize time spent on purchasing
imaging equipment. A new important component of our sales infrastructure is our
five national account sales representatives, who focus on securing purchasing
contracts with the large organizations. Recent contract awards include a two-
year imaging contract with Consorta, Catholic Resource Partners, a purchasing
contract with the U.S. Department of Veterans Affairs, a sole source, multi-year
agreement with Novation, the supply company of VHA, Inc. and the University
Health System Consortium, and renewal of our purchasing agreement with AmeriNet.
The Consorta agreement relates the purchase of our general radiographic and
Lorad mammographic product lines. The award from the U.S. Department of Veterans
Affairs relates to our providing direct-to-digital radiographic systems and
related equipment for VA medical centers and other government healthcare
facilities. The Novation and AmeriNet agreements relate to the purchase of our
bone densitometry systems.
International Markets. We sell our systems in international markets
through independent distributors, as well as a direct sales force in France, the
Benelux countries, Spain and Portugal. In a number of other territories
outside the United States, we sell our systems through independent distributors,
all of whom offer technical support. We offer our DXA systems into Latin
America, including Argentina, Brazil and Chile, and into Pacific Rim countries,
including Japan, Australia, The Peoples Republic of China, South Korea and
Taiwan, by working with local sales representatives and distributors or entering
into strategic marketing alliances in those territories. In fiscal 1998, 1999
and 2000, foreign sales accounted for approximately 28%, 37% and 33% of our
product sales, respectively. See Note 12 of Notes to Consolidated Financial
Statements for geographical information concerning those sales.
OEM and Upgrade Markets for Direct Radiography Products
Our sales to OEMs are coordinated by our OEM sales manager, who oversees a
team of individuals from sales, marketing, engineering, operations and senior
management, as well as our distributors. Our current OEM customers include Agfa,
Analogic (a supplier to Eastman Kodak) and E-Com Technology. In the United
States, we market our upgrade systems primarily through independent
distributors.
Competition
The healthcare industry in general, and the market for imaging and bone
assessment products in particular, is highly competitive and characterized by
continual change and improvement in technology, and multiple technologies that
have been or are under development. Many of the companies in this industry,
including General Electric, Siemens, Philips and Toshiba, have significantly
greater manufacturing, marketing and financial resources than we do.
Competitors may develop superior products or products of similar quality for
sale at the same or lower prices. Moreover, our products could be rendered
obsolete by new industry standards or changing technology. We cannot assure
that we will be able to compete successfully with existing or new competitors.
General Electric, Norland Medical Systems, Aloka, Diagnostic Medical
Systems and Hitachi have developed DXA systems to measure bone density of the
hip and spine. In addition, General Electric, Norland Medical Systems, and OSI
Systems have peripheral X-ray systems that compete with our DXA and ultrasound
bone densitometry products, primarily on price. We believe that competition in
the field of DXA bone densitometry is based upon product versatility and
features, price, precision, speed of measurement, reputation, cost and ease of
operation, product reliability and quality of service. While we are generally
not the lowest cost provider of DXA systems, we believe that we have been able
to compete effectively because of our advanced technology and product features.
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In ultrasound, we compete with General Electric, Myriad, McCue and OSI
Systems and expect additional competitors in the future based upon the greater
availability of ultrasound technology. We believe that competition in the field
of ultrasound systems is based on price, precision, speed of measurement, cost
and ease of operation, reputation, product reliability and quality of service.
We believe that advantages of our Sahara ultrasound bone analyzer system include
the system's dry operation, simple single-button operation, and a compact and
self-contained design that does not require the use of a separate computer. We
believe that ultrasound systems also compete with DXA systems in the diagnostic
market for initial screening of patients. However, we believe that because
ultrasound systems can only measure peripheral skeletal sites and do not have
the precision of DXA systems, DXA systems will continue to be the predominant
means of monitoring bone density for patients being treated for or at high risk
of osteoporosis.
Our direct-to-digital imaging products compete with traditional X-ray
systems as well as indirect-conversion systems such as computed radiography
systems, which are less expensive than our products, and other direct-to-digital
systems. Many of these competitors have established relationships with
hospitals and other of our potential customers in our targeted markets. The
larger competitors in these markets include General Electric, Siemens, Philips,
Canon and Varian. We have only recently introduced our direct-to-digital imaging
products, and have had only limited sales of these products, primarily for test
purposes. As a result, the markets for these products are unproven. There is a
significant installed base of conventional X-ray imaging products in hospitals
and radiological practices. The use of our direct-to digital X-ray imaging
products would require these potential customers to either modify or replace
their existing X-ray imaging equipment. Because of the early stage of the
markets for these products, it is likely that our evaluation of the potential
markets for these products will materially vary with time. We cannot assure
that any significant market will develop for our direct-to-digital imaging
products.
Our mammography and general radiography systems compete with products
offered by a number of competitors, including large companies such as General
Electric, Siemens, Philips and Toshiba. Our minimally invasive breast biopsy
systems compete with products offered by General Electric, Philips and Fischer
Imaging Corporation and with conventional surgical biopsy procedures. We believe
that competition for our mammography and general radiography products is based
largely on product features, product performance and reputation as well as price
and service. We believe that competition is likely to increase as a result of
healthcare cost-containment pressures and the development of alternative
diagnostic and interventional technologies. In addition, because of the
significant number of competitors, variety of alternative procedures and our
recent entry into these markets through our acquisition of the U.S. assets of
Trex Medical, we cannot assure that we will be able to compete in these markets
effectively.
Our mini c-arm products compete directly with mini c-arms manufactured and
sold by a limited number of companies including General Electric and XiTec. We
also compete with manufacturers of conventional c-arm image intensifiers
including Philips, Siemens, General Electric, Fischer Imaging Corporation and
Picker International. We believe that competition for our c-arm systems is based
largely on price, quality, reputation, service and production capabilities. We
believe that advantages of our c-arm systems include low levels of radiation,
low costs, mobility, quality and durability.
Manufacturing
We manufacture our DXA and ultrasound systems at our headquarters facility
in Bedford, Massachusetts. We manufacture the mammography and minimally invasive
breast-biopsy systems and the general radiography X-ray systems that we acquired
from Trex Medical at the Trex Medical manufacturing facilities in Danbury,
Connecticut and Littleton, Massachusetts. Manufacturing operations for these
systems consist primarily of assembly, test, burn-in and quality control. We
purchase a major portion of the parts and peripheral components for these
products, and manufacture some subsystems, such as high-voltage X-ray power
supply, from raw materials. Parts and materials for these systems are generally
readily available from several supply sources. However, we rely on one supplier
for the HTC grid, an important component for our more advanced mammography
systems, for our mammography systems.
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We manufacture our direct radiography plates at our manufacturing facility
in Newark, Delaware and our EPEX and RADEX systems at our facility in Bedford,
Massachusetts. Our manufacture of DirectRay plates consists primarily of vapor
deposition in clean rooms, assembly, test, burn-in and quality control. We rely
on one or only a limited number of suppliers for key components or subassemblies
for our plates. In particular we have only one source of supply for our panel
and only one source of supply for the coating of that panel.
Our manufacture of the rest of a DirectRay system differs from the process
for manufacture of the plate, and consists primarily of assembly, test, burn-in
and quality control. Parts and materials for these systems are generally
readily available from several supply sources.
We manufacture our mini c-arm systems at our manufacturing facility in
Northbrook, Illinois. Manufacturing operations for our mini c-arms consist
primarily of final assembly, test and quality control. All of the materials and
most of the purchased components used in manufacturing these products are
readily available from numerous sources. However, several key components require
high technology including the X-ray tube, image intensifier, video camera and
fiberoptic taper are manufactured by only one or a small number of suppliers.
Obtaining alternative sources of supply of components or systems that are
available from only one or a limited number of suppliers could involve
significant delays and other costs, and these supplies may not be available to
us on reasonable terms, if at all.
Backlog
Our backlog as of November 30, 2000 totaled $39.5 million and as of
November 30, 1999 totaled $10.7 million. Backlog consists of purchase orders
for which a delivery schedule within the next twelve months has been specified
by the customer. Orders included in backlog may be canceled or rescheduled by
customers without significant penalty. Backlog as of any particular date should
not be relied upon as indicative of our net revenues for any future period.
Research and Development
Our research and development efforts are focused on enhancing our existing
products and developing new products. Our current emphasis is development of
digital plates, including a new mammography digital plate, the engineering and
system design of new end-use digital radiography products, and software
improvements for our existing products. This research and development includes
refining and continuing Trex Medical's research on the full-field digital
mammography system. Our research and development personnel also are involved in
establishing protocols, monitoring, and interpreting and submitting test data to
the FDA and other regulatory agencies to obtain the requisite clearances and
approvals for our products. Our research and product development expenses,
without consideration of purchased in-process research and development, were
approximately $17.2 million in fiscal 2000, $12.7 million in fiscal 1999, and
$9.8 million in fiscal 1998.
Patents and Proprietary Rights
We rely primarily on a combination of trade secrets, patents, copyright and
trademark laws, and confidentiality procedures to protect our technology. Due to
the rapid technological change that characterizes the medical instrumentation
industry, we believe that the improvement of existing products, reliance upon
trade secrets and unpatented proprietary know-how and the development of new
products are generally as important as patent protection in establishing and
maintaining a competitive advantage. Nevertheless, we have obtained patents and
will continue to make efforts to obtain patents, when available, in connection
with our product development program.
As of November 17, 2000, we have obtained 125 patents and have pending 50
patent applications in the United States. Of these patents, 36 relate to our
DXA technology, 27 patents relate to our Direct Radiography technology, 11
patents relate to our ultrasound technology and six patents relate to our mini
c-arm technology. We have also acquired
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45 U.S. patents relating to the business we acquired from Trex Medical. In
addition we license 20 patents from others. These licensed and owned patents
have expiration dates ranging from 2001 to 2017. Two licensed patents with
ultrasound and X-ray claims will expire in 2001. We do not believe that the
expiration of these patents will have a material adverse effect on our business.
We have obtained or applied for corresponding patents and patent applications
for some of our patents and patent applications in selected foreign countries.
In January 2000, in connection with the merger of Vivid Technologies, Inc.
with and into PerkinElmer, Inc., Vivid paid us $2 million for a fully-paid up
exclusive license to our existing patents and technology for the development,
manufacture and sale of X-ray screening security systems for explosives, drugs,
currency and other contraband. All other licenses and arrangements between
Vivid and Hologic were terminated upon completion of the merger. S. David
Ellenbogen, our Chief Executive Officer, and Jay A. Stein, a Senior Vice
President, were formerly affiliated with Vivid.
We had been involved in extensive patent litigation with Lunar Corporation,
which has since been acquired by General Electric. This litigation was settled
by agreement dated November 22, 1995. The agreement provides that neither party
will engage the other party in patent litigation for a period of ten years
following the date of the agreement, regardless of the infringement claimed and
regardless of whether the technology in question currently exists or is
developed or acquired by the other party in the future. Neither party is
required to disclose to the other any of its technology during this ten year
period or otherwise.
In connection with our Trex Medical acquisition, we assumed liability for a
lawsuit filed by Fisher Imaging against Trex Medical alleging that the Lorad
prone biopsy system infringes upon two Fischer Imaging patents, subject to
indemnification from Trex Medical and its parent, Thermo Electron Corporation,
for any damages up to our adjusted purchase price for the Trex Medical assets.
In connection with this arrangement, Trex Medical is continuing to defend this
lawsuit. If Trex Medical is unsuccessful in defending this lawsuit, we may be
prohibited from manufacturing and selling the prone-breast biopsy system without
a license from Fischer Imaging and Fischer Imaging could be awarded significant
damages. If a license were required, we cannot assure that we would be able to
obtain one on commercially reasonable terms, if at all. Moreover, if Fischer
Imaging were awarded damages, we cannot assure that our indemnification from
Trex Medical and Thermo Electron would be sufficient to cover the amount of the
award.
There has been substantial litigation regarding patent and other
intellectual property rights in the medical device and related industries. We
have been, and may be in the future, notified that we may be infringing
intellectual property rights possessed by other third parties. If any such
claims are asserted against our intellectual property rights, we may seek to
enter into royalty or licensing arrangements. There is a risk in these
situations that no license will be available or that a license will not be
available on reasonable terms. Alternatively, we may decide to litigate such
claims or to design around the patented technology. These actions could be
costly and would divert the efforts and attention of our management and
technical personnel. As a result, any infringement claims by third parties or
other claims for indemnification by customers resulting from infringement
claims, whether or not proven to be true, may have a material adverse effect on
our business, financial condition and results of operations.
Regulation
The medical devices manufactured and marketed by us are subject to
regulation by the FDA and, in many instances, by foreign governments. Under the
Federal Food, Drug and Cosmetic Act, known as the FDA Act, manufacturers of
medical devices must comply with certain regulations governing the testing,
manufacturing, packaging and marketing of medical devices. Our products are also
subject to the Radiation Control for Health and Safety Act, administered by the
FDA, which imposes performance standards and record keeping, reporting, product
testing and product labeling requirements for devices using radiation, such as
X-rays.
The FDA generally must approve the commercial sale of new medical devices.
Commercial sales of our medical devices within the United States must be
preceded by either a premarket notification filing pursuant to Section 510(k) of
the FDA Act or the granting of a premarket approval. The 510(k) notification
filing must contain information that
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establishes that the device is substantially equivalent to an existing device
that has been continuously marketed since May 28, 1976.
The premarket approval procedure involves a more complex and lengthy
testing and review process by the FDA than the 510(k) premarket notification
procedure and often requires at least several years to obtain. We must first
obtain an investigational device exemption, known as an IDE, for the product to
conduct extensive clinical testing of the device to obtain the necessary
clinical data for submission to the FDA. The FDA will thereafter only grant
premarket approval if, after evaluating this clinical data, it finds that the
safety and efficacy of the product has been sufficiently demonstrated. This
approval may restrict the number of devices distributed or require additional
patient follow-up for an indefinite period of time. We believe that the digital
mammography system that our Lorad division is developing will require the more
rigorous Pre-Market Approval.
Our systems are also subject to approval by certain foreign regulatory and
safety agencies. Some of our technology, including that used in some of our
FluoroScan Systems, is governed by the International Traffic in Arms Regulations
of the United States Department of State. As a result, the export of
FluoroScan Systems to some countries may be limited or prohibited.
We cannot assure that the FDA or foreign regulatory agencies will give the
requisite approvals or clearances for any of our medical devices under
development on a timely basis, if at all. Moreover, after clearance is given,
these agencies can later withdraw the clearance or require us to change the
device or its manufacturing process or labeling, to supply additional proof of
its safety and effectiveness, or to recall, repair, replace or refund the cost
of the medical device, if it is shown to be hazardous or defective. The process
of obtaining clearance to market products is costly and time-consuming and can
delay the marketing and sale of our products.
As a manufacturer of medical devices, we are subject to additional FDA
regulations, including the Radiation Control for Health and Safety Act of 1968,
which specifically regulates radiation-emitting products. In addition, our
manufacturing processes and facilities are subject to continuing review by the
FDA. Most states and many other foreign countries monitor and require licensing
of X-ray devices. Federal, state and foreign regulations regarding the
manufacture and sale of medical devices are subject to future change. We cannot
predict what impact, if any, such changes might have on our business.
Reimbursement
In the United States, the Health Care Finance Administration, known as
HCFA, establishes guidelines for the reimbursement of healthcare providers
treating Medicare and Medicaid patients. Under current HCFA guidelines, varying
reimbursement levels have been established for DXA and ultrasound bone density
assessment, mammography and other imaging and diagnostic procedures performed by
our products. The actual reimbursement amounts are determined by individual
state Medicare carriers and, for non-Medicare and Medicaid patients, private
insurance carriers. There are often delays between the reimbursement approvals
by HCFA and by a state Medicare carrier and private insurance carriers.
Moreover, states as well as private insurance carriers may choose not to follow
the HCFA reimbursement guidelines. The use of our products outside the United
States are similarly affected by reimbursement policies adopted by foreign
regulatory and insurance carriers.
Employees
As of November 30, 2000, we had 846 full-time employees, including 413 in
manufacturing operations, 60 in research and development, 283 in marketing,
sales and support services, and 90 in finance and administration. None of our
employees are represented by a union.
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Item 2. Properties
We own and lease the real property identified below. We believe that we
have adequate space for our anticipated needs and that suitable additional space
will be available at commercially reasonable prices as needed.
Owned Real Property
On July 30, 1998, we purchased a 200,000 square foot building located in
Bedford, Massachusetts for approximately $20 million in cash and incurred costs
of approximately $5 million for renovations. We moved our headquarters and bone
assessment manufacturing operations into this facility on January 25, 1999. We
lease approximately 30,000 square feet of the facility to two tenants, Tech
Online and Enmed, under leases which expire in May 2005 and July 2003,
respectively. A third tenant vacated approximately 10,000 square feet of the
facility in November 2000, and we are currently marketing this space to other
third parties.
In connection with the acquisition of DRC, we purchased a 168,000 square
foot research and development, manufacturing and administrative site in Newark,
Delaware at which DRC conducts its research and development and plate
manufacture. We currently occupy approximately 63,000 square feet of this
building, which houses our plate manufacturing facility, including both a class
1 and a class 2 clean room. We lease approximately 45,000 square feet of the
facility to Agfa under a lease which expires in April 2005. The remaining space
in the facility, approximately 60,000 square feet, is leased to Dade Behring
under a lease which expires in July 2010.
In connection with the acquisition of Trex Medical, we acquired a 62,500
square foot office and manufacturing facility in Danbury, Connecticut. As part
of the purchase price for the medical imaging assets of Trex Medical we issued a
note in the principal amount of $25 million. This note is secured by a mortgage
on the property we own in Danbury, Connecticut and in Bedford, Massachusetts.
Leased Real Property
We also use approximately 25,500 square feet of space in Northbrook,
Illinois under a lease that expires in February 2001. We are currently
negotiating an extension to this lease. We also maintain sales and service
offices in France, Belgium and Spain.
In connection with our acquisition of the medical imaging assets of Trex
Medical, we also acquired a lease to a 156,000 square foot office and
manufacturing facility in Littleton, Massachusetts and a lease to a 60,000
square foot office and manufacturing facility in Danbury, Connecticut. These
leases expire in May 2010 and November 2006, respectively.
Item 3. Legal Proceedings
On September 30, 1999, we filed suit against Fleet Business Credit
Corporation, formerly known as Sanwa Business Credit Corporation, in
Massachusetts Superior Court in Middlesex County. The lawsuit sought declaratory
relief and damages relating to our Strategic Alliance Program with Fleet
Business Credit Corporation. Under the program, which was discontinued in
February 1999, we sold bone densitometers to Sanwa, which Sanwa leased to
physicians on a fee-per-scan basis. Sanwa agreed to bear the primary risk under
the leases and to reimburse us for remarketing expenses. Fleet has advised us
that it has incurred substantial losses under the program and has sought to
shift the losses that Fleet faces to us and has failed to reimburse us for its
remarketing expenses. In our suit, we sought declaratory judgment regarding
Fleet's contractual obligations, reimbursement of remarketing expenses, damages
for Fleet's violation of its covenant of good faith and fair dealing, and
attorney's fees.
On October 1, 1999, Fleet filed a complaint in the Chancery Division of the
Circuit Court of Cook County, Illinois, seeking an injunction to stop the
Massachusetts action, and alleging fraud, breach of warranty and breach of
contract by us. The complaint seeks unspecified damages in excess of $50,000
for each count. The complaint relates to
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units sold and returned under the strategic alliance program as described in
further detail in Item 7 of this report, Management's Discussion and Analysis of
Financial Condition and Results of Operations, under the heading, Liquidity and
Capital Resources. Following filing of this action, we stipulated to the
dismissal without prejudice of our Massachusetts lawsuit. In the Illinois
action, we have denied all of Fleet's claims against us, and have asserted
claims against Fleet of the type earlier asserted by us in the Massachusetts
action. We believe that we have meritorious defenses and counterclaims and
intend to vigorously pursue our position.
On April 2, 1992, Fischer Imaging Corporation filed a lawsuit in the United
States District Court, District of Colorado, against Trex Medical Systems,
alleging that Lorad's prone breast-biopsy system infringes a Fischer Imaging
patent on a precision mammographic needle-biopsy system. On April 7, 1998,
Fischer Imaging filed a second lawsuit in the United States District Court,
District of Colorado, against Trex Medical Systems, alleging that Lorad's
manufacture of breast-imaging equipment and breast-biopsy system equipment
infringes on a second Fischer Imaging patent which was issued April 7, 1998.
These two lawsuits were consolidated into a single lawsuit. The lawsuit seeks to
enjoin further violation of Fischer Imaging's patents, unspecified damages and
attorneys fees. In connection with our Trex Medical acquisition, we assumed
liability for this lawsuit subject to indemnification from Trex Medical and its
parent, Thermo Electron Corporation, for any damages up to our adjusted purchase
price for the Trex Medical assets. In connection with this arrangement, Trex
Medical is continuing to defend this lawsuit. Trex Medical has advised us that
they believe that they have meritorious defenses to Fischer Imaging's claims.
We are the subject of additional lawsuits, none of which we believe to be
material to our business or financial condition.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
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Part II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
Market Information. Our common stock is traded on the Nasdaq National
Market under the symbol "HOLX." The following table sets forth, for the periods
indicated, the high and low bid prices per share of our common stock, as
reported by the Nasdaq National Market.
Fiscal Year Ended September 25, 1999 High Low
First Quarter $16 7/16 $9 7/8
Second Quarter 13 3/8 8 1/2
Third Quarter 11 1/8 5 1/2
Fourth Quarter 6 7/16 3 15/16
--------------------------------------------------------------------------------
Fiscal Year Ended September 30, 2000 High Low
First Quarter $ 7 1/4 $3
Second Quarter 11 5 1/2
Third Quarter 9 1/2 5 1/8
Fourth Quarter 9 1/8 5 11/32
--------------------------------------------------------------------------------
Number of Holders. As of December 19, 2000, there were approximately 1,878
holders of record of our common stock, including multiple beneficial holders at
depositaries, banks and brokers listed as a single holder in the street name of
each respective depositary, bank or broker.
Dividend Policy. We have never declared or paid cash dividends on our
capital stock and do not plan to pay any cash dividends in the foreseeable
future. Our current policy is to retain all of our earnings to finance future
growth.
Recent Sales of Unregistered Securities. On November 8, 1999, we granted
6,000 shares of our common stock to a non-executive employee and on December 8,
1999 we granted 6,000 shares of common stock to a non-executive employee. These
shares were granted in connection with the performance of services.
We did not register these securities under the Securities Act of 1933, as
amended, in reliance upon the exemptions from registration set forth in Sections
3(b) and 4(2) of that act, relating to offers and sales by an issuer not
involving any public offering. None of these transactions, either individually
or in the aggregate, involved a public offering.
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Item 6. Selected Financial Data.
Our historical selected financial data has been retroactively restated to
reflect the merger with FluoroScan in a pooling-of-interests transaction in
August 1996. In 1999, we acquired Direct Radiography Corp. and in 2000 we
acquired the U.S. assets of Trex Medical. The purchase accounting method under
APB No. 16 was used for both of these transactions. Included in the 2000
financial data are acquisition related pre-tax charges of $13.3 million related
to the Trex Medical acquisition.
<TABLE>
<CAPTION>
Fiscal Years Ended
September 28, September 27, September 26, September 25, September 30,
1996 1997 1998 1999 2000
---------------------------------------------------------------------------------------------------------------------------
Consolidated Statement of Operations Data (In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Revenues:
Product sales $ 88,201 $102,781 $111,498 $ 81,737 $ 90,864
Other revenue 3,390 3,908 4,066 2,403 2,882
-------- -------- -------- -------- ---------
91,591 106,689 115,564 84,140 93,746
-------- -------- -------- -------- ---------
Costs and Expenses:
Cost of product sales 41,253 47,492 55,891 50,333 63,604
Research and development 7,283 8,527 9,778 12,664 22,178
Selling and marketing 16,504 19,448 28,589 19,658 23,882
General and administrative 9,879 8,827 10,452 10,963 16,441
Acquisition expenses 1,949 --- --- --- ---
-------- -------- -------- -------- ---------
76,868 84,294 104,710 93,618 126,105
-------- -------- -------- -------- ---------
Income (loss) from operations 14,723 22,395 10,854 (9,478) (32,359)
Interest income 2,583 5,346 5,998 4,204 3,567
Other expense (249) (172) (664) (548) (227)
-------- -------- -------- -------- ---------
Income (loss) before income taxes 17,057 27,569 16,188 (5,822) (29,019)
Provision (benefit) for income taxes 5,700 9,840 5,800 (2,075) (10,400)
-------- -------- -------- -------- ---------
Net income (loss) $ 11,357 $ 17,729 $ 10,388 $(3,747) $(18,619)
======== ======== ======== ======== =========
Net income (loss) per share:
Basic $.97 $1.37 $.78 $(.27) $(1.22)
======== ======== ======== ======== =========
Diluted $.91 $1.30 $.75 $(.27) $(1.22)
======== ======== ======== ======== =========
Weighted average number of shares outstanding:
Basic 11,698 12,986 13,259 13,950 15,320
======== ======== ======== ======== =========
Diluted 12,524 13,672 13,766 13,950 15,320
======== ======== ======== ======== =========
---------------------------------------------------------------------------------------------------------------------------
Consolidated Balance Sheet Data
Working capital $ 97,199 $112,869 $ 99,633 $ 89,823 $ 53,022
Total assets 123,107 144,667 172,597 175,770 219,655
Long-term debt --- --- --- --- 25,000
Total Stockholders' equity 107,272 126,767 140,382 150,422 131,572
---------------------------------------------------------------------------------------------------------------------------
</TABLE>
21
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Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
The following discussion and analysis should be read in conjunction with
the "Selected Consolidated Financial Data" and the Consolidated Financial
Statements included elsewhere in this Report and the information described under
the caption "Risk Factors" below.
Overview
From inception through fiscal 1998, we had experienced generally increasing
annual sales as interest in bone diseases, such as osteoporosis, has grown, as
new drug therapies have become available in the United States and other
countries to treat these diseases and as the use of systems to asses bone
density has become more widespread. In fiscal 2000, our bone assessment revenues
increased by approximately 2% compared to fiscal 1999. In fiscal 1999, our bone
assessment product revenues decreased by approximately 45% compared to fiscal
1998 primarily due to lower sales to the primary care market in the United
States, and, to a lesser extent, increased competition.
In June 1999, we acquired Direct Radiography Corp. and the land and
buildings at which it conducted its business for approximately $20 million.
Direct Radiography Corp. was a development stage manufacturer of digital x-ray
systems for medical imaging and non-destructive testing applications. During
fiscal 2000 we introduced two new general radiography digital systems, EPEX and
RADEX. We began shipping these systems in the second half of fiscal 2000. We
also sell a digital chest system and digital upgrade package for conventional x-
ray systems. In fiscal 2000, we continued to invest heavily in the research and
development of the digital plates and the engineering and system design of new
end-use digital radiography products. Sales of Direct Radiography Corp. digital
products accounted for approximately 6% of our total revenues in fiscal 2000.
On September 15, 2000, we significantly expanded our product breadth
through the acquisition of substantially all of the business and assets of the
United States operations of Trex Medical. The principal businesses acquired
included Trex Medical's Lorad mammography, breast biopsy and general radiography
operations. Trex Medical was a leading manufacturer and supplier of mammography
and breast biopsy systems. These systems incorporate patented technology that
provides high quality contrast and resolution. We plan to combine our DirectRay
technology with our Lorad and other Trex Medical imaging products to develop new
digital X-ray technology platforms.
We have accounted for the Trex Medical asset acquisition under the purchase
accounting method. Included in our fiscal 2000 results are revenues of $5.1
million and expenses of $17.4 million from the date of acquisition. These
expenses include pre-tax charges of $13.3 million in connection with the
acquisition as follows:
. $5,000,000 for purchased in-process research and development
. $6,848,000 to increase reserves and assumed liabilities to their fair
value
. $974,000 related to the impact of the fair value write up of acquired
inventory on equipment sold
. $500,000 for employee compensation
Results of Operations
The following table sets forth, for the periods indicated, the percentage of
revenues represented by items as shown in our consolidated statements of
operations.
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Fiscal Years Ended
-------------------------------------------
September 26, September 25, September 30,
1998 1999 2000
-------------------------------------------
Revenues:
Product sales 96.5% 97.1% 96.9%
Other revenue 3.5 2.9 3.1
--------------------------------------------------------------------------------
100.0 100.0 100.0
--------------------------------------------------------------------------------
Cost and expenses:
Cost of product sales 48.4 59.8 67.8
Research and development 8.5 15.1 23.7
Selling and marketing 24.7 23.4 25.5
General and administrative 9.0 13.0 17.5
--------------------------------------------------------------------------------
90.6 111.3 134.5
--------------------------------------------------------------------------------
Income (loss) from operations 9.4 (11.3) (34.5)
Interest income 4.7 5.0 3.8
Other expense (0.1) (0.7) (0.2)
--------------------------------------------------------------------------------
Income (loss) before income taxes 14.0 (7.0) (30.9)
Provision (benefit) for income taxes 5.0 (2.5) (11.1)
Net income (loss) 9.0% (4.5)% (19.8)%
--------------------------------------------------------------------------------
Fiscal Year Ended September 30, 2000 Compared to Fiscal Year Ended September 25,
1999
Revenues. Total revenues increased 11.4% to $93.7 million in fiscal 2000
compared to $84.1 million in fiscal 1999. The increase in revenues was primarily
due to the addition of $5.1 million of revenues from the Lorad and Trex general
radiography products acquired in September 2000, a $4.9 million increase in
revenues from sales of our digital X-ray products from Direct Radiography Corp.,
an increase in the number of DXA units sold through our direct sales force
primarily in the United States and increased service revenues. The increase in
revenues was partially offset by a decrease in the number of DXA bone
densitometer product shipments to the United States primary care market
including strategic alliance sales to a leasing company, and to a lesser extent,
a decrease in Sahara and mini c-arm product sales.
Other revenues increased 19.9% to $2.9 million in fiscal 2000 compared to
$2.4 million in fiscal 1999. Other revenues has historically consisted
primarily of revenue relating to medical data management services provided to
pharmaceutical companies to assist in the collection and monitoring of clinical
trial data, royalty revenues from our licensing of our DXA technology to Vivid
Technologies, Inc. for explosives detection screening, and additional revenues
generated from our Strategic Alliance Program on a fee-per-scan basis. The
increase in other revenues in fiscal 2000 is the result of the sale of a fully
paid up license to Vivid Technologies, Inc. for $2.0 million in the second
quarter of fiscal 2000, which was partially offset by the elimination of
revenues relating to the medical data management services division, which we
sold to Synarc in June 1999. As a result of the sale of the fully paid-up
license and the sale of the medical data management services division, we do not
expect to have significant other revenues in fiscal 2001. Our other revenues in
the fourth quarter of fiscal 2000 were $156,000 primarily from additional fee-
per-scan revenues.
Total revenues for the fourth quarter of fiscal 2000 increased 22.6% to
$27.1 million from $22.1 million in the immediately preceding quarter. Total
revenues for the fourth quarter of fiscal 2000 increased 34.7% compared to the
$20.1 million for fourth quarter of fiscal 1999. The increase over the
immediately preceding quarter was primarily attributable to the addition of $5.1
million of revenues from the Lorad and Trex general radiography products
acquired in September 2000, increased shipments of the new Delphi bone
densitometer and, when compared to the fourth quarter of last year, an increase
in revenues from our digital radiography products. Partially offsetting these
increases was a decrease in revenues from Sahara and, to a lesser extent, a
decrease in mini c-arm revenues. Historically, our sales have been somewhat
seasonal, with generally lower sales in our fourth quarter due to customer
summer vacation patterns.
In fiscal 2000, approximately 67% of product sales were generated in the
United States, 21% in Europe, 7% in Asia and 5% in other international markets.
In fiscal 1999, approximately 63% of product sales were generated in the United
States, 24% in Europe, 7% in Asia and 6% 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
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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 70% in fiscal 2000 from 61.6% in fiscal 1999. These costs
increased as a percentage of product sales primarily due to the addition of
approximately $8.9 million related to Lorad and the Trex Medical general
radiography products sold in the last 2 weeks of fiscal 2000 and the increase in
manufacturing costs of approximately $6.1 million related to Direct Radiography
Corp., which has significant fixed manufacturing costs and is operating
significantly below manufacturing capacity. Included in the cost of product
sales for Lorad and the Trex Medical general radiography products is
approximately $5.6 million of acquisition related charges and the impact of the
fair value write-up of acquired inventory on equipment sold. We anticipate that
we will incur approximately $900,000 of inventory write-up charges in the first
quarter of 2001 in connection with this acquisition. Absent Direct Radiography
Corp., Lorad and Trex Medical general radiography products, cost of product
sales as a percentage of product sales would have decreased to approximately
57.6%. The low sales volume of digital imaging plates resulted in the under
absorption of fixed manufacturing costs.
Research and development expenses increased 75.1% to $22.2 million, 23.7%
of total revenues, in fiscal 2000 from $12.7 million, 15.0% of total revenues,
in fiscal 1999. This increase was primarily due to the acquisition of Direct
Radiography Corp. in June 1999 and the associated inclusion of a full year of
research and development expenses associated with our direct radiography plates
and systems in fiscal 2000. In addition, our research and development expense
included a $5.0 million charge related to purchased in-process research and
development acquired in connection with the acquisition of the assets of Trex
Medical. 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, certain tradename and assembled workforce had value. As a
result of this identification and valuation process, we allocated approximately
$5 million 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. We believe that our research and development expense for
fiscal 2001 will increase in absolute dollars, net of the acquired in-process
research and development charge, but will decrease as a percent of total
revenues.
Selling and marketing expenses increased 21.5% to $23.9 million, 25.5% of
total revenues, in fiscal 2000 from $19.7 million, 23.4% of total revenues, in
fiscal 1999. The increase in selling and marketing expenses in 2000 is
primarily due to additional selling and marketing expenses of $2.7 million at
Direct Radiography Corp., and approximately $900,000 related to Trex Medical, of
which approximately $400,000 were acquisition related charges.
General and administrative expenses increased 50.0% to $16.4 million, 17.5%
of total revenues, in fiscal 2000 from $11.0 million, 13.0% of total revenues,
in fiscal 1999. The increase was primarily due to the addition of $2.2 million
of charges associated with our acquisition of Trex Medical, to increase reserves
to their required levels, the addition of approximately $1.5 million of general
and administrative expenses related to Direct Radiography Corp. and, to a lesser
extent, an increase in professional service fees and employee benefit expenses.
Interest Income. Interest income decreased to $3.6 million in fiscal 2000
from $4.2 million in fiscal 1999. This decrease was primarily attributable to a
lower investment base than in the prior year, as a result of the use of cash for
the Direct Radiography Corp. acquisition and building renovations during fiscal
1999. As a result of the use of $31 million of cash, the issuance of a $25
million note payable to acquire Trex Medical and the anticipated ongoing use of
cash to support our operations, we expect that we will have a net interest
expense in the first quarter of fiscal 2001.
Other Expense. Other expense decreased to $227,000 in fiscal 2000 from
$548,000 in fiscal 1999. 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 all
intercompany sales, thereby reducing the foreign currency exposure on those
transactions. To the extent that foreign currency exchange rates fluctuate in
the
24
<PAGE>
future, we may be exposed to continued financial risk. Although we have
established a borrowing line 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 we believe will be realizable
in the future. Our effective tax rate was 35.8%, which was lower than the
statutory tax rates due primarily to the favorable Federal and state tax
treatment afforded to our foreign sales corporation and the favorable state tax
treatment of a portion of our interest income.
We generated significant tax loss carryforwards during fiscal 2000, which can be
carried forward for 20 years. Under SFAS No. 109, we can only recognize a
deferred tax asset for future benefit of our tax loss carryforward to the extent
that it is "more likely than not" that this asset will be realized. In
determining the realizability of this asset, we considered numerous factors,
including historical profitability, estimated future taxable income and the
industry in which we operate. See Note 5 of Notes to the Consolidated Financial
Statements.
Fiscal Year Ended September 25, 1999 Compared to Fiscal Year Ended September 26,
1998
Revenues. Total revenues decreased 27% to $84.1 million in fiscal 1999
compared to $115.6 million in fiscal 1998. This decrease was primarily
attributable to a decrease in revenues from DXA sales and in other revenues.
These decreases were partially offset by an increase in the number of mini c-arm
product sales, primarily from our recently introduced Premier system and, to a
lesser extent, by revenues from Direct Radiography Corp. The decrease in DXA
revenues was a result of a decrease in the total number of domestic DXA bone
densitometer product shipments, especially to the United States primary care
market including strategic alliance sales to a leasing company, and to decreased
unit prices. This leasing company discontinued the placement of new bone
densitometers under the strategic alliance program in February 1999.
Other revenues consist primarily of revenue relating to medical data
management services provided to pharmaceutical companies to assist in the
collection and monitoring of clinical trial data, royalty revenues from our
licensing of our DXA technology to Vivid Technologies, Inc. for explosives
detection screening, and additional revenues generated from our Strategic
Alliance Program on a fee-per-scan basis. In fiscal 1999, other revenues
decreased 41% to $2.4 million from $4.1 million in fiscal 1998 primarily due to
a decrease in revenues relating to medical data management services provided by
our medical data management division, which we sold to Synarc in June 1999, and
from a decrease in royalty revenues.
In fiscal 1999, approximately 63% of product sales were generated in the
United States, 24% in Europe, 7% in Asia and 6% in other international markets.
In fiscal 1998, approximately 72% of product sales were generated in the United
States, 18% in Europe, 6% in other international markets and 4% in Asia.
Costs and Expenses. The cost of product sales increased as a percentage of
product sales to 62% in fiscal 1999 from 50% in fiscal 1998. These costs
increased as a percentage of product sales primarily due to a decrease of
approximately 43% in the number of DXA bone densitometers sold and, to a lesser
extent, lower average selling prices. In addition, the current year includes
manufacturing costs of approximately $3.2 million related to Direct Radiography
Corp., which has significant fixed manufacturing and is operating significantly
below manufacturing capacity. Absent Direct Radiography Corp., cost of product
sales would have increased to approximately 58%. The reduction in DXA sales
volume and the low sales volume of digital imaging plates resulted in the under
absorption of fixed manufacturing costs.
Research and development expenses increased 30% to $12.7 million, 15% of
total revenues, in fiscal 1999 from $9.8 million, 8% of total revenues, in
fiscal 1998. This increase was primarily due to the acquisition of Direct
Radiography Corp. which added approximately $2.7 million of research and
development expenses since June 3, 1999. We anticipate that research and
development costs will increase over the next year as a result of the research
and development efforts at Direct Radiography Corp.
Selling and marketing expenses decreased 31% to $19.7 million, 24% of
product sales, in fiscal 1999 from $28.6 million, 26% of product sales, in
fiscal 1998. The decrease in selling and marketing expenses in 1999 is
primarily due to a decrease in sales commissions paid to our distributor for the
United States primary care market based on the lower sales
25
<PAGE>
volume in that market. Selling and marketing expenses related to Direct
Radiography Corp. were approximately $500,000 for the current year.
General and administrative expenses increased 5% to $11.0 million, 13% of
total revenues, in fiscal 1999 from $10.5 million, 9% of total revenues, in
fiscal 1998. The increase was primarily due to an increase in the accounts
receivable reserve of approximately $900,000 related to our foreign receivables,
especially in Brazil and the addition of approximately $500,000 of general and
administrative expenses related to Direct Radiography Corp. in fiscal 1999.
These increases were partially offset by savings achieved as a result of our
downsizing implemented in the third quarter of fiscal 1999.
Total costs and expenses related to Direct Radiography Corp. totaled
approximately $6.9 million for the four months included in the fiscal 1999
results.
In the third quarter of 1999, we implemented a cost-reduction strategy in
an effort to reduce operating expenses. We reduced our U.S. workforce by
approximately 10% through attrition and a corporate downsizing. A strategy to
streamline operations and reduce discretionary spending for our existing
business was also implemented. We did not fully realize the cost savings
discussed above until the fourth quarter of fiscal 1999.
Interest Income. Interest income decreased to $4.2 million in fiscal 1999
from $5.5 million in fiscal 1998. This decrease was due to a lower investment
base than in the prior year, as a result of the use of cash to purchase our new
facility and for the acquisition of Direct Radiography Corp.
Other Expense. Other expense decreased to $548,000 in fiscal 1999 from
$664,000 in fiscal 1998. These expenses 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 all
intercompany sales, thereby reducing the foreign currency exposure on those
transactions.
Provision for Income Taxes. In fiscal 1999 we have a benefit for income
taxes as a result of the current year's loss. Our effective tax rate was 35.8%,
which was lower 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 September 30, 2000, we had approximately $53.0 million of working
capital. At that date our cash and cash equivalents totaled $22.8 million. Our
cash, cash equivalents and short-term investments balance decreased
approximately $39.9 million during fiscal 2000 primarily due to the use of $30.1
million of cash in the Trex Medical acquisition and payments for additions to
property, equipment and patents. Our net loss of $18.6 million for fiscal 2000
included acquisition related charges of $13.3 million incurred in connection
with the Trex Medical acquisition. In addition, non-cash charges for
depreciation and amortization of $4.4 million plus changes in our current assets
and liabilities, net of the Trex Medical acquisition, such amount being subject
to a working capital purchase price adjustment resulted in net cash used in
operating activities of $0.7 million. Cash used in operations due to changes in
our current assets and liabilities included increases in accounts payable of
$3.1 million, accrued expenses of $6.2 million and deferred revenue of $2.0
million and decreases in prepaid expenses and other current assets of $4.6
million, accounts receivable of $2.2 million and inventory of $0.8 million.
These sources of cash were partially offset by the increase of $10.5 million for
deferred income taxes.
We finance some sales to Latin America over a two-to-three year time-frame.
At September 30, 2000, we had total accounts receivable outstanding of
approximately $4.1 million relating to these sales, of which approximately
$490,000 were long-term and included in other assets. As of September 30, 2000,
we have not experienced any significant write-offs of these receivables,
however, the economic and currency related uncertainties in these countries may
increase the likelihood of non-payment.
26
<PAGE>
In fiscal 2000, we purchased approximately $5.8 million of property and
equipment, which consisted primarily of building improvements at our facilities
in Bedford, MA and Newark, DE, furniture and fixtures for these facilities and,
to a lesser extent, computers. In September 2000, we also purchased
substantially all of the medical imaging assets of Trex Medical for
approximately $30 million in cash and an 11.5% promissory note in the principal
amount of $25 million with accrued interest first payable on September 13, 2001
and semi-annually thereafter. The entire principal balance is due on September
13, 2003. The promissory note is secured by our real property in Danbury,
Connecticut and Bedford, Massachusetts.
In connection with a fee-per-scan program offered for our DXA bone
densitometers, we entered into a remarketing agreement whereby we have agreed to
perform certain remarketing activities and to cover certain losses incurred by
the leasing company up to 10% of the total fee-per-scan contracts funded. Under
this strategic alliance program, we installed approximately $60.6 million in
units since 1996. As of September 30, 2000, approximately 22% of these systems
were awaiting remarketing after having been returned, net of remarketed or
converted units. This fee-per-scan program was terminated in February 1999.
The leasing company purchased all the DXA densitometers covered under these
contracts from us. We reserved for potential losses under these contracts
during the fee-per-scan program term by deferring revenue of an amount equal to
10% of the contracts funded. We are in litigation that we initiated with the
leasing company through a declaratory judgment 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 we have
meritorious defenses and are vigorously defending ourselves. Nevertheless,
litigation can be expensive and time consuming. While we believe that the
outcome will not have a material adverse effect on our business, we cannot
guarantee the outcome of this litigation. An unfavorable outcome or prolonged
litigation could materially harm our business, results of operations or
financial condition.
In connection with our Trex Medical acquisition, we assumed liability for a
lawsuit filed by Fisher Imaging against Trex Medical alleging that the Lorad
prone biopsy system infringes upon two Fischer Imaging patents, subject to
indemnification from Trex Medical and its parent, Thermo Electron Corporation,
for any damages up to our adjusted purchase price for the Trex Medical assets.
In connection with this arrangement, Trex Medical is continuing to defend this
lawsuit. If Trex Medical is unsuccessful in defending this lawsuit, we may be
prohibited from manufacturing and selling the prone-breast biopsy system without
a license from Fischer Imaging and Fischer Imaging could be awarded significant
damages. If a license were required, we cannot assure that we would be able to
obtain one on commercially reasonable terms, if at all. Moreover, if Fischer
Imaging were awarded damages, we cannot assure that our indemnification from
Trex Medical and Thermo Electron would be sufficient to cover the amount of the
award.
Except as set forth above, we do not have any significant capital
commitments. We believe that our revenues and existing resources will be
sufficient to fund our planned operations for our 2001 fiscal year. However, we
are working on several projects, with an emphasis on direct radiography plates
and systems. We believe that we may require additional funds in order to
complete the development, conduct clinical trials and achieve regulatory
approvals of our direct radiography and other products under development over
the next several years. Moreover, we may require additional funds for the
working capital to commence the manufacture and marketing of these new products
in commercial quantities, if and when approved or cleared by the regulatory
authorities. We are reviewing various alternatives to obtain additional
funding, including the sale and lease-back of one of our owned facilities,
working capital financing and possible strategic alliances to help support our
ongoing research and development costs. See "Risk Factors" below.
Recent 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
27
<PAGE>
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 is still in the process of evaluating the impact, but has not yet
quantified, the adoption of this statement will have 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. 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.
Hologic 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. Hologic 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.
Risk Factors
This report contains forward looking statements that involve risks and
uncertainties, such as statements of our objectives, expectations and
intentions. The cautionary statements made in this Report should be read as
applicable to all forward-looking statements wherever they appear in this
Report. Our actual results could differ materially from those discussed
herein. Factors that could cause or contribute to such differences include
those discussed below, as well as those discussed elsewhere in this Report.
We are incurring significant losses.
We incurred net losses of $18.6 million in fiscal 2000. Of these losses,
net losses of approximately $13.4 million were attributable to the operations of
Direct Radiography Corp. and $7.8 million were attributable to charges incurred
in connection with our acquisition of substantially all of the medical imaging
assets of Trex Medical in September 2000. Direct Radiography Corp. has had only
limited sales of its products, primarily for test purposes. We intend to incur
significant expenses in connection with the further development and
commercialization of our direct radiography products and the mammography and
other X-ray systems we purchased from Trex Medical.
We may be unable to successfully integrate the operations of our recent
acquisitions.
We acquired the United States business of Trex Medical in September 2000
and Direct Radiography Corp. in June 1999. Both of these acquisitions involves
numerous risks generally associated with acquisitions, including:
. the diversion of management's attention;
. the assimilation of operations, personnel and products of the acquired
businesses;
. the ability to manage geographically remote units; and
. the potential loss of key employees of the acquired businesses.
We may not be able to successfully integrate the operations of Trex Medical
or Direct Radiography Corp. Failure to do so would have a material adverse
effect on our business, results of operations and financial condition.
28
<PAGE>
Our failure to reduce our losses or obtain additional funding could result in
the delay or limitation of our research and development activities or
otherwise have a material adverse effect on our business, results of
operations and financial condition.
We are working on the research and development of several long-term
projects, with an emphasis on direct radiography plates and systems. We believe
that we may require significant additional funds in order to complete the
development, conduct clinical trials and achieve regulatory approvals of our
direct radiography and other products under development over the next several
years. Moreover, we may require additional funds for the working capital to
commence the manufacture and marketing of these new products in commercial
quantities, if and when approved or cleared by the regulatory authorities. As a
result, we anticipate that we will be required to reduce our losses or obtain
additional funding to support these efforts. In order to reduce losses we may
be required to reduce our research and development expenditures. Such a
reduction could result in the delay or limitation of our ongoing research and
development projects.
Our success depends on new product development.
We have a continuing research and development program designed to develop
new products and to enhance and improve our products. We are expending
significant resources on the development of digital X-ray imaging products. The
successful development of our products and product enhancements are subject to
numerous risks, both known and unknown, including:
. unanticipated delays;
. budget overruns;
. technical problems; and
. other difficulties that could result in the abandonment or substantial
change in the design, development and commercialization of these new
products, including, for example, changes requested by the FDA in
connection with pre-market approval applications for our products or
510(k) notification.
Given the uncertainties inherent with product development and introduction,
we cannot assure that any of our product development efforts will be successful
on a timely basis or within budget, if at all. Our failure to develop new
products and product enhancements on a timely basis or within budget could have
a material adverse effect on our business, results of operations or financial
condition.
The markets for our direct radiography products are unproven.
In 1998, Direct Radiography Corp. was the first company to introduce
direct-to-digital X-ray imaging products in the United States. Since that
introduction, Direct Radiography Corp. has had only limited sales of its
products, primarily for test purposes. Moreover, the markets for these products
are relatively new and remain unproven. There is a significant installed base
of conventional X-ray imaging products in hospitals and radiological practices.
The use of our direct-to-digital X-ray imaging products would require these
potential customers to either modify or replace their existing X-ray imaging
equipment. Because of the early stage of the markets for these products, it is
likely that our evaluation of the potential markets for these products will
materially vary with time. We cannot assure that any significant market will
develop for our direct radiography products.
Our remarketing obligations under the strategic alliance program could
adversely affect our future product sales.
At the end of February 1999, Sanwa, now known as Fleet Business Credit
Corporation, discontinued the placement of new bone densitometers under our
strategic alliance program. Under this program, Sanwa purchased bone
densitometry equipment from us that they leased to physicians, primarily in the
primary care market, on a fee-per-scan basis. Under our strategic alliance
program, we continue to be obligated to perform certain remarketing activities
for equipment repossessed by or returned to Fleet Business Credit Corporation.
As Fleet has received significant returns
29
<PAGE>
under this program, their efforts to remarket the returned equipment could have
a material adverse effect on our future product sales.
An unfavorable outcome or prolonged litigation in our lawsuit with Fleet could
materially harm our business.
We are in litigation that we initiated with Fleet through a declaratory
judgment action regarding the extent of our respective obligations under our
strategic alliance program. Fleet is seeking unspecified compensatory damages
and other relief. We believe that we have meritorious defenses and are
vigorously defending ourselves. Nevertheless, litigation can be extremely
expensive and time consuming. Furthermore, we cannot make any guarantees
regarding the outcome of this action. An unfavorable outcome or prolonged
litigation could materially harm our business, results of operations or
financial condition.
Our reliance on one or only a limited number of suppliers for some key
components or subassemblies for our products could have a material adverse
affect on our business.
We rely on one or only a limited number of suppliers for some key
components or subassemblies for our products. In particular we have only one
source of supply for each of the panel and the coating of that panel for our
direct radiography products. In addition we have only limited sources of supply
for several key components used in our mini c-arm systems. Obtaining
alternative sources of supply of these components could involve significant
delays and other costs, and may not be available to us on reasonable terms, if
at all. The failure of a component supplier or contract assembler to provide
acceptable quality and timely components or assembly service at an acceptable
price, or an interruption of supplies from such a supplier could have a material
adverse effect on our business, financial condition or results of operations.
The success of our bone densitometry business depends in large part on the
development and more widespread acceptance of complementary therapies.
Our bone densitometers and related products are used to assist physicians
in diagnosing patients at risk for osteoporosis and other bone disorders, and to
monitor the effectiveness of therapies to treat these disorders. As a result,
the success of these products will in large part be dependent upon the
development and more widespread acceptance of drug therapies to prevent and to
treat osteoporosis. Over the last several years, the FDA has approved a number
of drug therapies to treat osteoporosis. We also understand that a number of
other drug therapies are under development. While sales of our bone
densitometry products have benefited from the increased availability and use of
these therapies, most patients who are at risk for osteoporosis continue to go
untreated. We cannot assure that any therapies under development or in clinical
trials will prove to be effective, obtain regulatory approval, or that any
approved therapy will gain wide acceptance. Even if these therapies gain
widespread acceptance, we cannot assure that such acceptance will increase the
sales of our products.
The uncertainty of healthcare reform could adversely affect our business.
Healthcare reform proposals and medical cost containment measures in the
United States and in many foreign countries could:
. limit the use of our products;
. reduce reimbursement available for such use; or
. adversely affect the use of new therapies for which our products may
be targeted.
These reforms or cost containment measures, including the uncertainty in
the medical community regarding their nature and effect, could have a material
adverse effect on our business, results of operations or financial condition.
30
<PAGE>
A reduction in reimbursement levels could have a material adverse effect on
our business.
In the United States, the Health Care Finance Administration, known as
HCFA, establishes guidelines for the reimbursement of healthcare providers
treating Medicare and Medicaid patients. Under current HCFA guidelines, varying
reimbursement levels have been established for DXA and ultrasound bone density
assessment, mammography and other imaging and diagnostic procedures performed by
our products. The actual reimbursement amounts are determined by individual
state Medicare carriers and, for non Medicare and Medicaid patients, private
insurance carriers. There are often delays between the reimbursement approvals
by HCFA and by a state Medicare carrier and private insurance carriers.
Moreover, states as well as private insurance carriers may choose not to follow
the HCFA reimbursement guidelines. The use of our products outside the United
States are similarly affected by reimbursement policies adopted by foreign
regulatory and insurance carriers. A reduction or other adverse change in
reimbursement policies for the use of our products could have a material adverse
effect on our business, results of operations or financial condition.
Our success depends upon our ability to adapt to rapid changes in technology
and customer requirements.
The market for our products has been characterized by rapid technological
change, frequent product introductions and evolving customer requirements. We
believe that these trends will continue into the foreseeable future. Our
success will depend, in part, upon our ability to enhance our existing products,
successfully develop new products that meet increasing customer requirements and
gain market acceptance. If we fail to do so our products may be rendered
obsolete or uncompetitive by new industry standards or changing technology.
We may not be able to compete successfully.
We may not be able to compete successfully. A number of companies have
developed, or are expected to develop, products that compete or will compete
with our products. Many of these competitors and potential competitors have
substantially greater resources than we do.
General Electric, Norland Medical Systems, Aloka, Diagnostic Medical
Systems and Hitachi have developed dual X-ray systems to measure bone density.
In ultrasound, we compete with General Electric, Myriad, McCue and OSI Systems
and expect additional competitors in the future based upon the greater
availability of ultrasound technology. In addition, General Electric, Norland
Medical Systems, OSI Systems and Schick have peripheral X-ray systems that
compete with our dual X-ray and ultrasound bone densitometry products, primarily
on price.
Our direct-to-digital imaging and general radiography products compete with
traditional X-ray systems as well as computed radiography systems, which are
less expensive than our products, and other direct-to-digital systems. Many of
these competitors have established relationships with hospitals and other of our
potential customers in our targeted markets. The larger competitors in these
markets include General Electric, Siemens and Philips, Canon and Varian.
Our mini c-arm products compete directly with mini c-arms manufactured and
sold by a limited number of companies including General Electric, OEC Medical
and XiTec. We also compete indirectly with manufacturers of conventional c-arm
image intensifiers including Philips, Siemens, General Electric, OEC Medical,
Fischer Imaging and Picker International.
Our mammography systems and our minimally invasive breast-biopsy systems
compete with products offered by General Electric, Fischer Imaging Corporation
and Philips and with conventional surgical biopsy procedures.
Our results of operations are subject to significant quarterly variation and
seasonal fluctuation.
Our results of operations have been 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:
31
<PAGE>
. the overall state of healthcare and cost containment efforts;
. the development status and demand for drug therapies to treat
osteoporosis;
. the development status and demand for our direct-to-digital imaging
products;
. economic conditions in our markets;
. the timing of orders;
. the timing of expenditures in anticipation of future sales;
. the mix of products sold by us;
. the introduction of new products and product enhancements by us or our
competitors; and
. pricing and other competitive conditions.
We also believe that our sales may be somewhat seasonal, with reduced
orders in the summer months reflecting summer vacation schedules. Customers may
also cancel or reschedule shipments. Production difficulties could also delay
shipments. Any of these factors also could have a material adverse effect on our
business, results of operations or financial condition.
Reductions in revenues could have a material adverse effect on operating
results because a high percentage of our operating expenses is relatively
fixed.
A high percentage of our operating expenses is relatively fixed. We likely
will not be able to reduce spending to compensate for adverse fluctuations in
revenues. As a result, shortfalls in revenues are likely to have a material
adverse effect on our operating results.
Our delay or inability to obtain any necessary United States or foreign
regulatory clearances or approvals for our products could have a material
adverse effect on our business.
Our products are medical devices that are the subject of a high level of
regulatory oversight. Our delay or inability to obtain any necessary United
States or foreign regulatory clearances or approvals for our products could have
a material adverse effect on our business. The process of obtaining clearances
and approvals can be costly and time-consuming. There is a risk that any
approvals or clearances, once obtained, may be withdrawn or modified. Medical
devices cannot be marketed in the United States without clearance or approval by
the FDA. Medical devices sold in the United States must also be manufactured in
compliance with FDA Good Manufacturing Practices, which regulate the design,
manufacture, packing, storage and installation of medical devices. Moreover,
medical devices are required to comply with FDA regulations relating to
investigational research and labeling. States may also regulate the manufacture,
sale and use of medical devices, particularly those that employ X-ray
technology. Our products are also subject to approval and regulation by foreign
regulatory and safety agencies.
We conduct our business worldwide, which exposes us to a number of
difficulties in coordinating our international activities and dealings with
multiple regulatory environments.
We maintain sales and service offices in Belgium, France and Spain, and
sell our products to customers throughout the world. Our worldwide business may
be materially adversely affected by:
. difficulties in staffing and managing operations in multiple
locations;
. greater difficulties in trade accounts receivable collection;
. possible adverse tax consequences;
. governmental currency controls;
. changes in various regulatory requirements;
. political and economic changes and disruptions;
. export/import controls; and
. tariff regulations.
32
<PAGE>
We have experienced difficulties in collecting accounts receivable in Latin
America, which as of September 30, 2000 totaled $4.1 million, including $490,000
of long-term accounts receivable included in other assets. In fiscal 2000, we
increased our reserve against our receivables, including these Latin American
receivables, by $500,000.
Fluctuations in the exchange rates, in relation to the U.S. dollar, and the
other foreign currencies in which we conduct our business could have a
material adverse effect on our operating results.
In fiscal 2000, foreign sales accounted for approximately 33% of our
product sales. We maintain sales and service offices in Belgium, France and
Spain. The expenses and sales of these offices are denominated in local
currencies. We anticipate that foreign sales and sales denominated in foreign
currencies will continue to account for a significant portion of our total
sales. Fluctuations in the value of local currencies have caused and are likely
to continue to cause, amounts translated into U.S. dollars to fluctuate in
comparison with previous periods. In particular, an increase in the value of
the local currencies in which we have offices would likely increase our expenses
relative to U.S. dollar sales and could have a material adverse effect on our
operating results. We have hedged our foreign currency exposure by borrowing
funds in local European currencies to pay the expenses of our foreign offices.
There is a risk that these hedging activities will not be successful in
mitigating our foreign exchange risk exposure.
Our business could be materially adversely affected if we are unable to
protect our proprietary technology.
We rely primarily on a combination of trade secrets, patents, copyright and
trademark laws, confidentiality procedures to protect our technology. As of
November 17, 2000, we had obtained 125 patents, licensed 20 patents and have
pending 50 patent applications in the United States. Our patents have
expiration dates ranging from 2001 to 2017. Two licensed patents with
ultrasound and X-ray claims will expire in 2001. We have obtained or applied
for corresponding patents and patent applications in several foreign countries
for some of our patents and patent applications. There is a risk that these
patent applications will not be granted or that the patent or patent application
will not provide significant protection for our products and technology.
Moreover, there is a risk that foreign intellectual property laws will not
protect our intellectual property rights to the same extent as United States
intellectual property laws. In the absence of significant patent protection, we
may be vulnerable to competitors who attempt to copy our products, processes or
technology.
Our business could be materially adversely affected if we infringe upon the
intellectual property rights of others.
There has been substantial litigation regarding patent and other
intellectual property rights in the medical device and related industries. We
have been, and may be in the future, notified that we may be infringing
intellectual property rights possessed by other third parties. If any such
claims are asserted against our intellectual property rights, we may seek to
enter into royalty or licensing arrangements. There is a risk in these
situations that no license will be available or that a license will not be
available on reasonable terms. Alternatively, we may decide to litigate such
claims or to design around the patented technology. These actions could be
costly and would divert the efforts and attention of our management and
technical personnel. As a result, any infringement claims by third parties or
other claims for indemnification by customers resulting from infringement
claims, whether or not proven to be true, may have a material adverse effect on
our business, financial condition and results of operations.
We may be prohibited from manufacturing and selling the Lorad prone breast-
biopsy system and be required to pay significant damages if Fischer Imaging
Corporation succeeds in its lawsuit against Trex Medical which alleges that
the system infringes two Fischer Imaging patents.
In connection with our Trex Medical acquisition, we assumed liability for a
lawsuit filed by Fisher Imaging against Trex Medical alleging that the Lorad
prone biopsy system infringes upon two Fischer Imaging patents, subject to
indemnification from Trex Medical and its parent, Thermo Electron Corporation,
for any damages up to our adjusted purchase price for the Trex Medical assets.
In connection with this arrangement, Trex Medical is continuing to defend
33
<PAGE>
this lawsuit. If Trex Medical is unsuccessful in defending this lawsuit, we may
be prohibited from manufacturing and selling the prone-breast biopsy system
without a license from Fischer Imaging and Fischer Imaging could be awarded
significant damages. If a license were required, we cannot assure that we would
be able to obtain one on commercially reasonable terms, if at all. Moreover, if
Fischer Imaging were awarded damages, we cannot assure that our indemnification
from Trex Medical and Thermo Electron would be sufficient to cover the amount of
the award. A significant award above the indemnification amount could have a
material adverse effect on our on our business, financial condition or results
of operations.
Our future success will depend on the continued services of our executive
officers and key research and development personnel.
The loss of any of our executive officers or key research and development
personnel could have a material adverse effect on our business and prospects.
Our success will also depend upon our ability to attract and retain other
qualified managerial and technical personnel. Competition for such personnel,
particularly software engineers and other technical personnel, is intense. We
may not be able to attract and retain personnel necessary for the development of
our business. We do not have any key man life insurance for any of our officers
or other key personnel.
There is a risk that our insurance will not be sufficient to protect us from
product liability claims, or that in the future product liability insurance
will not be available to us at a reasonable cost, if at all.
Our business involves the risk of product liability claims inherent to the
medical device business. We maintain product liability insurance subject to
certain deductibles and exclusions. There is a risk that our insurance will
not be sufficient to protect us from product liability claims, or that product
liability insurance will not be available to us at a reasonable cost, if at all.
An underinsured or uninsured claim could have a material adverse effect on our
business, financial condition or results of operations.
Provisions in our Certificate of Incorporation and By-laws and a rights
distribution may have the effect of discouraging advantageous offers for our
business or common stock and limit the price that investors might be willing
to pay in the future for shares of our common stock.
Our Certificate of Incorporation, By-laws and the provisions of Delaware
corporate law include provisions that may have the effect of discouraging or
preventing a change in control. In addition, we made a rights distribution in
December 1992 that could also have the effect of discouraging or preventing a
change in control. These provisions could limit the price that our stockholders
might receive in the future for shares of our common stock.
The volatility of our stock price could adversely affect your investment in
our stock.
The market price of the common stock has been, and may continue to be,
highly volatile. We believe that a variety of factors could cause the price of
the common stock to fluctuate, perhaps substantially, including:
. announcements and rumors of developments related to our business;
. quarterly fluctuations in our actual or anticipated operating results
and order levels;
. general conditions in the worldwide economy;
. announcements of technological innovations;
. new products or product enhancements by us or our competitors;
. developments in patents or other intellectual property rights and
litigation; and
. developments in our relationships with our customers and suppliers.
In addition, in recent years the stock market in general and the markets
for shares of small capitalization and "high-tech" companies in particular, have
experienced extreme price fluctuations which have often been unrelated to the
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<PAGE>
operating performance of affected companies. Any such fluctuations in the future
could adversely affect the market price of the common stock, and the market
price of the common stock may decline.
Item 7A. Quantitative and Qualitative Disclosures 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 September 30, 2000, our outstanding borrowings under the line
of credit were $388,000, at a weighted average interest rate of 5.0%
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.
35
<PAGE>
Item 8. Financial Statements and Supplementary Data.
The consolidated Financial Statements and Supplementary Data of Hologic
are listed under Part IV, Item 14, in this Report.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
Not applicable.
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<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant.
The information required by this item is incorporated by reference to the
sections entitled "Election of Directors" and "Executive Officers" in Hologic's
Definitive Proxy Statement for its annual meeting of stockholders scheduled to
be held on March 6, 2001 to be filed with the Securities and Exchange Commission
within 120 days after the close of its fiscal year.
Item 11. Executive Compensation.
The information required by this item is incorporated by reference to the
sections entitled "Executive Compensation" in Hologic's Definitive Proxy
Statement for its annual meeting of stockholders scheduled to be held on March
6, 2001 to be filed with the Securities and Exchange Commission within 120 days
after the close of its fiscal year.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The information required by this item is incorporated by reference to the
section entitled "Share Ownership of Directors, Officers and Certain Beneficial
Owners" in Hologic's Definitive Proxy Statement for its annual meeting of
stockholders scheduled to be held on March 6, 2001 to be filed with the
Securities and Exchange Commission within 120 days after the close of its fiscal
year.
Item 13. Certain Relationships and Related Transactions.
The information required by this item is incorporated by reference to the
section entitled "Certain Transactions" in Hologic's Definitive Proxy Statement
for its annual meeting of stockholders scheduled to be held on March 6, 2001 to
be filed with the Securities and Exchange Commission within 120 days after the
close of its fiscal year.
37
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a) The following documents are filed as part of this report:
(1) Financial Statements
Report of Independent Public Accountants
Consolidated Balance Sheets as of September 25, 1999
and September 30, 2000
Consolidated Statements of Operations for the years
ended September 26, 1998, September 25, 1999 and September 30, 2000
Consolidated Statements of Stockholders' Equity for the years ended
September 26, 1998, September 25, 1999 and September 30, 2000
Consolidated Statements of Cash Flows for the years ended September
26, 1998, September 25, 1999 and September 30, 2000
Notes to Consolidated Financial Statements
(2) Financial Statement Schedules
The following financial statement schedules are filed as part of this
report and should be read in conjunction with the consolidated
financial statements:
Schedule
--------
Report of Independent Public Accountants on Schedule II,
Valuation and Qualifying Accounts
All other schedules have been omitted because they are not required or
because the required information is given in the Consolidated Financial
Statements or Notes thereto.
(3) Listing of Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Reference
------- ---------
<C> <S> <C>
2.01 Securities Purchase Agreement dated April 28, 1999, as amended on June 3, 1999, by and among M-1
Hologic, Sterling Diagnostic Imaging, Inc., and SDI Investments, L.L.C.
2.02 Contract of Sale dated April 28, 1999, as amended on June 3, 1999, by and between Hologic and M-2
Glasgow Land Company, L.L.C.
2.03 Asset Purchase and Sale Agreement Among Trex Medical Systems, Corporation, Trex Medical O-2
Corporation, ThermoTrex Corporation and Thermo Electron Corporation and Hologic, Inc. dated
August 13, 2000
3.01 Certificate of Incorporation of Hologic A-3.01
</TABLE>
38
<PAGE>
<TABLE>
<S> <C>
3.02 By-laws of Hologic A-3.02
4.01 Specimen certificate for shares of Hologic's Common Stock B-1
4.02 Description of capital stock (contained in the Certificate of Incorporation of Hologic, filed as A-3.01
Exhibit 3.01).
4.03 Rights Agreement dated December 22, 1992 C-1
4.04 Form of Rights Certificate C-2
4.05 Amendment No. 1 to Rights Agreement, dated as of December 13, 1995 H-4.01
4.06 Amendment No. 2 to Rights Agreement, dated as of December 9, 1996 H-4.02
4.07 Amendment No. 3 to Rights Agreement, dated as of April 25, 1999 L-4.03
10.01 1986 Combination Stock Option Plan, as amended E-10.07*
10.02 Amended and Restated 1990 Non-Employee Director Stock Option Plan F-10.08*
10.03 1995 Employee Stock Purchase Plan E-10.09*
10.04 1995 Combination Stock Option Plan F-10.10*
10.05 Amended and Restated 1999 Equity Incentive Plan K-10*
10.06 Form of Indemnification Agreement for directors and certain officers of Hologic A-10.12*
10.07 Employment Agreement with an officer of Hologic D-10.22*
10.08 Severance Agreement with an officer of Hologic P-10.08*
10.09 Severance Agreement with an officer of Hologic P-10.09*
10.10 Severance Agreement with an officer of Hologic P-10.10*
10.11 Severance Agreement with an officer of Hologic P-10.11*
10.12 Restricted Stock Purchase Agreement with an officer of Hologic filed herewith*
10.13 Restricted Stock Purchase Agreement with an officer of Hologic filed herewith*
10.14 Restricted Stock Purchase Agreement with an officer of Hologic filed herewith*
10.15 License Agreement by and between Hologic and Vivid Technologies, Inc. A-10.18
10.16 Amendment No.1 to the License Agreement by and between Hologic and Vivid Technologies, Inc. G-10.25
10.17 Termination Agreement P-10.16
10.18 Facility Lease (Northbrook) G-10.26
10.19 Building Purchase and Sale Agreement I-10
10.20 Master Product Financing Agreement J-10.34**
10.21 Amendment to Master Product Financing Agreement by and between Hologic and Sanwa Business Credit N-10.2
Corporation
10.22 Amended and Restated Program Supplement Number 1 to Master Product Financing Agreement by and N-10.3
between Hologic and Sanwa Business Credit Corporation
10.23 Secured Promissory Note filed herewith
10.24 Mortgage, Security Agreement and assignment of Leases and Rents (Danbury) filed herewith
10.25 Mortgage, Security Agreement and assignment of Leases and Rents (Bedford) filed herewith
10.26 Guaranty filed herewith
10.27 Supply Agreement filed herewith
10.28 Facility Lease (Littleton) Q-10.89
10.29 Facility Lease (Danbury) Q-10.14
21.01 Subsidiaries of the Company P-21.01
23.01 Consent of Arthur Andersen LLP Filed herewith
</TABLE>
_______________________
39
<PAGE>
* Management compensation plan or arrangement
** Confidentiality requested as to certain provisions
A We previously filed this exhibit on January 24, 1990 with the referenced
exhibit number as an exhibit to our Registration Statement on Form S-1
(Registration No. 33-33128), and the previously filed exhibit is incorporated
herein by reference.
B We previously filed this exhibit on January 31, 1990 with the referenced
exhibit number as an exhibit to our Registration Statement on Form 8-A, and
the previously filed exhibit is incorporated herein by reference.
C We previously filed this exhibit on January 29, 1993 with the referenced
exhibit number as an exhibit to our Registration Statement on Form 8-A, and
the previously filed exhibit is incorporated herein by reference.
D We previously filed this exhibit on December 22, 1993 with the referenced
exhibit number as an exhibit to our 1993 Annual Report on Form 10-K (SEC File
No. 000-18281) for the fiscal year ended September 25, 1993, and the
previously filed exhibit is incorporated herein by reference.
E We previously filed this exhibit on December 22, 1994 with the referenced
exhibit number as an exhibit to our 1994 Annual Report on Form 10-K (SEC File
No. 000-18281) for the fiscal year ended September 24, 1994, and the
previously filed exhibit is incorporated herein by reference.
F We previously filed this exhibit on December 26, 1995, with the referenced
exhibit number as an exhibit to our 1995 Annual Report on Form 10-K (SEC File
No. 000-18281) for the fiscal year ended September 30, 1995, and the
previously filed exhibit is incorporated herein by reference.
G We previously filed this exhibit on December 27, 1996 with the referenced
exhibit number as an exhibit to our 1996 Annual Report on Form 10-K (SEC File
No. 000-18281) for the fiscal year ended September 28, 1996, and the
previously filed exhibit is incorporated herein by reference.
H We previously filed this exhibit on January 17, 1997 with the referenced
exhibit number as an exhibit to our Registration Statement on Form 8-A/A, and
the previously filed exhibit is incorporated herein by reference.
I We previously filed this exhibit on August 7, 1998 with the referenced exhibit
number as an exhibit to our 1998 Third Quarter Report on Form 10-Q (SEC File
No. 000-18281) for the quarter ended June 27, 1998, and the previously filed
exhibit is incorporated herein by reference.
J We previously filed this exhibit on December 23, 1998 with the referenced
exhibit number as an exhibit to our 1998 Annual Report on Form 10-K (SEC File
No. 000-18281) for the fiscal year ended September 26, 1998, and the
previously filed exhibit is incorporated herein by reference.
K We previously filed this exhibit on May 11, 1999 with the referenced exhibit
number as an exhibit to our 1999 Second Quarter Report on Form 10-Q (SEC File
No. 000-18281) for the quarter ended March 27, 1999, and the previously filed
exhibit is incorporated herein by reference.
L We previously filed this exhibit on May 20, 1999 with the referenced exhibit
number as an exhibit to our Registration Statement on Form 8-A/A, and the
previously filed exhibit is incorporated herein by reference.
M We previously filed this exhibit on June 18, 1999 with the referenced exhibit
number as an exhibit to our Current Report on Form 8-K (SEC File No. 000-
18281) dated as of June 3, 1999, and the previously filed exhibit is
incorporated herein by reference.
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<PAGE>
N We previously filed this exhibit on October 1, 1999 with the referenced
exhibit number as an exhibit to our Current Report on Form 8-K (SEC File No.
000-18281) dated as of September 29, 1999, and the previously filed exhibit is
incorporated herein by reference.
O We previously filed this exhibit on October 2, 2000 with the referenced
exhibit number as an exhibit to our Current Report on Form 8-K (SEC File No.
000-18281) dated as of September 15, 2000, and the previously filed exhibit is
incorporated herein by reference.
P We previously filed this exhibit on December 23, 1999 with the referenced
exhibit number as an exhibit to our Annual Report on Form 10-K (SEC File No.
000-18281) for the fiscal year ended September 25, 1999, and the previously
filed exhibit is incorporated by reference.
Q Trex Medical Corporation previously filed this exhibit with the referenced
exhibit number as an Exhibit to its Registration Statement on Form S-1 (Reg.
No. 333-2926), and the previously filed exhibit is incorporated by reference.
(b) Reports on Form 8-K.
The following Current Report on Form 8-K was filed by the registrant during
the last quarter of the period covered by this report:
Current Report on Form 8-K filed on August 28, 2000 regarding the execution
of the Trex Medical Systems Corporation Asset Purchase and Sale Agreement.
(d) Financial Statement Schedules:
The financial statement schedules required are included as part of Item (2)
above.
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<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
By: /s/ S. David Ellenbogen
---------------------------
S. DAVID ELLENBOGEN
Chairman of the Board and
Chief Executive Officer
Dated: December 21, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ S. David Ellenbogen Director and December 21,2000
----------------------------- Chief Executive Officer
S. DAVID ELLENBOGEN
/s/ Steve L. Nakashige Director, President, and December 21, 2000
----------------------------- Chief Operating Officer
STEVE L. NAKASHIGE
Executive Vice President, and
/s/ Glenn P. Muir Principal Financial Officer December 21, 2000
-----------------------------
GLENN P. MUIR
/s/ Jay A. Stein Director and December 21, 2000
----------------------------- Executive Vice President
JAY A. STEIN
/s/ Robert H. Lavallee Vice President and December 21, 2000
----------------------------- Pricipal Accounting Officer
ROBERT H. LAVALLEE
/s/ Irwin Jacobs Director December 21, 2000
-----------------------------
IRWIN JACOBS
/s/ William A. Peck Director December 21, 2000
-----------------------------
WILLIAM A. PECK
/s/ Gerald Segel Director December 21, 2000
-----------------------------
GERALD SEGEL
/s/ Elaine Ullian Director December 21, 2000
-----------------------------
ELAINE ULLIAN
</TABLE>
42
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE
To Hologic, Inc.:
We have audited in accordance with auditing standards generally accepted in the
United States, the consolidated financial statements of Hologic, Inc. and
subsidiaries included in this Form 10-K and have issued our report thereon dated
November 15, 2000. Our audits were made for the purpose of forming an opinion on
the basic financial statements taken as a whole. The schedule listed in Item 14
is the responsibility of the Company's management and is presented for the
purposes of complying with the Securities Exchange Commission's rules and is not
part of the basic financial statements. The schedule has been subjected to the
auditing procedures applied in our audits of the basic financial statements and,
in our opinion, fairly states in all material respects the financial data
required to be set forth therein in relation to the basic financial statements
taken as a whole.
/s/ Arthur Andersen LLP
Boston, Massachusetts
November 15, 2000
43
<PAGE>
SCHEDULE II
HOLOGIC, INC. AND SUBSIDIARIES
Valuation and Qualifying Accounts
(in Thousands)
<TABLE>
<CAPTION>
Balance at Charged to Balance
Beginning Costs and Acquired at End of
of Period Expenses Reserves Writeoffs Period
---------- ---------- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
Allowance for Uncollectible Amounts
Year Ended:
September 26, 1998 $1,460 $ 640 $ -- $ -- $2,100
September 25, 1999 $2,100 $1,380 $ -- $ -- $3,480
September 30, 2000 $3,480 $1,816 $3,226 $(599) $7,923
Accrued Acquisition Reserve Year Ended:
September 26, 1998 $-- $-- $ -- $ -- $--
September 25, 1999 $-- $-- $ -- $ -- $--
September 30, 2000 $-- $2,000 $ -- $ -- $2,000
</TABLE>
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