1
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
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FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 1998
or
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Transition Period from to
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Commission File Number 1-10694
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VISX, INCORPORATED
(Exact name of registrant as specified in its charter)
---------------------------------
Delaware 06-1161793
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(State or other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification No.)
3400 Central Expressway, Santa Clara, California 95051
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(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code): (408) 733-2020
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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
-- --
Total number of shares of common stock outstanding as of July 31,
1998: 15,301,968.
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VISX, INCORPORATED
TABLE OF CONTENTS
PAGE
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Interim Financial Statements
Condensed Consolidated Interim Balance Sheets as 3
of June 30, 1998 and December 31, 1997
Condensed Consolidated Interim Statements of Operations for the 4
Three Months Ended June 30, 1998 and 1997 and for the Six
Months Ended June 30, 1998 and 1997
Condensed Consolidated Interim Statements of Cash Flows for the Six Months 5
Ended June 30, 1998 and 1997
Notes to Condensed Consolidated Interim Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations
Overview 8
Results of Operations 9
Liquidity and Capital Resources 10
PART II OTHER INFORMATION
Item 1. Legal Proceedings 11
Item 4. Submission of Matters to a Vote of Security Holders 13
Item 6. Exhibits and Reports on Form 8-K 13
SIGNATURES 14
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PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Interim Financial Statements
VISX, INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED INTERIM BALANCE SHEETS
(In thousands, except share and per share amounts)
ASSETS
June 30, December 31,
1998 1997
--------- -----------
(unaudited)
Current Assets:
Cash and cash equivalents ........................................... $ 26,072 $ 29,952
Short-term investments .............................................. 59,732 70,881
Accounts receivable, net of allowance for doubtful
accounts of $1,202 and $814, respectively ......................... 20,304 16,478
Inventories ......................................................... 5,886 4,747
Prepaid expenses and deferred tax assets ............................ 4,664 1,875
--------- ---------
Total current assets ............................................. 116,658 123,933
Property and Equipment, net ............................................. 3,964 4,032
Other Assets ............................................................ 3,812 2,387
--------- ---------
$ 124,434 $ 130,352
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable .................................................... $ 5,763 $ 5,453
Accrued liabilities ................................................. 18,677 14,600
--------- ---------
Total current liabilities ........................................ 24,440 20,053
--------- ---------
Stockholders' Equity:
Common stock: $.01 par value, 90,000,000 shares authorized;
15,517,508 shares issued .......................................... 155 155
Additional paid-in capital .......................................... 132,847 133,696
Treasury stock, at cost: 259,786 and 156,000 shares, respectively... (6,506) (3,442)
Unrealized holding gain (loss) on available-for-sale securities ..... 28 53
Accumulated deficit ................................................. (26,530) (20,163)
--------- ---------
Total stockholders' equity ...................................... 99,994 110,299
--------- ---------
$ 124,434 $ 130,352
========= =========
The accompanying notes are an integral part of these condensed consolidated
interim financial statements.
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VISX, INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED INTERIM STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
Three months ended Six months ended
June 30, June 30,
-------------------------- --------------------------
1998 1997 1998 1997
-------- -------- -------- --------
(unaudited) (unaudited)
Revenues:
System sales .................................. $ 9,435 $ 8,176 $ 16,995 $ 18,273
License, service and other revenues ........... 22,228 7,419 38,978 13,065
-------- -------- -------- --------
Total revenues .............................. 31,663 15,595 55,973 31,338
-------- -------- -------- --------
Costs and Expenses:
Cost of revenues .............................. 7,477 4,558 13,307 11,022
Marketing, general and administrative ......... 6,956 5,872 12,654 11,187
Research, development and regulatory .......... 2,806 2,594 5,217 4,706
-------- -------- -------- --------
Total costs and expenses .................... 17,239 13,024 31,178 26,915
-------- -------- -------- --------
Income From Operations ............................ 14,424 2,571 24,795 4,423
Interest and other income ..................... 1,380 1,162 2,801 2,377
Litigation settlement ......................... (35,000) (4,500) (35,000) (4,500)
-------- -------- -------- --------
Income (Loss) Before Provision (Benefit) For
Income Taxes .................................. (19,196) (767) (7,404) 2,300
Provision (benefit) for income taxes .......... (3,867) (92) (1,037) 276
-------- -------- -------- --------
Net Income (Loss) ................................. $(15,329) $ (675) $ (6,367) $ 2,024
======== ======== ======== ========
Earnings (Loss) Per Share
Basic ......................................... $ (1.01) $ (0.04) $ (0.42) $ 0.13
======== ======== ======== ========
Diluted ....................................... $ (1.01) $ (0.04) $ (0.42) $ 0.13
======== ======== ======== ========
Shares Used For Earnings (Loss) Per Share
Basic ......................................... 15,190 15,454 15,203 15,408
======== ======== ======== ========
Diluted ....................................... 15,190 15,454 15,203 15,849
======== ======== ======== ========
The accompanying notes are an integral part of these condensed consolidated
interim financial statements.
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VISX, INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED INTERIM STATEMENTS OF CASH FLOWS
(in thousands)
Six months ended
June 30,
--------------------------
1998 1997
-------- --------
(unaudited)
Cash flows from operating activities:
Net income (loss) ....................................................... $ (6,367) $ 2,024
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities:
Depreciation and amortization ........................................ 973 892
Increase (decrease) in cash flows from changes in operating assets and
liabilities:
Accounts receivable .............................................. (3,826) (6,705)
Inventories ...................................................... (1,139) (545)
Prepaid expenses and deferred tax assets ......................... (2,789) (505)
Other assets ..................................................... (1,714) (247)
Accounts payable ................................................. 310 1,251
Accrued liabilities .............................................. 4,077 299
-------- --------
Net cash provided by (used in) operating activities .................. (10,475) (3,536)
-------- --------
Cash flows from investing activities:
Capital expenditures .................................................... (616) (1,168)
Purchase of short-term investments ...................................... (59,372) (40,070)
Proceeds from maturities of short-term investments ...................... 70,496 48,400
-------- --------
Net cash provided by (used in) investing activities .................. 10,508 7,162
-------- --------
Cash flows from financing activities:
Net proceeds from new issuance of common stock .......................... -- 900
Repurchases of common stock, net of shares used for option exercises .... (3,913) (628)
-------- --------
Net cash provided by (used in) financing activities .................. (3,913) 272
-------- --------
Net increase (decrease) in cash and cash equivalents ........................ (3,880) 3,898
Cash and cash equivalents, beginning of period .............................. 29,952 24,909
-------- --------
Cash and cash equivalents, end of period .................................... $ 26,072 $ 28,807
======== ========
The accompanying notes are an integral part of these condensed consolidated
interim financial statements.
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VISX, INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
June 30, 1998
(Unaudited)
The accompanying interim financial statements and related notes should
be read in conjunction with the financial statements and related notes included
in the Company's 1997 annual report on Form 10-K.
1. Basis of Presentation:
The Condensed Consolidated Interim Financial Statements included herein
have been prepared by the Company, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations. These Condensed Consolidated
Interim Financial Statements should be read in conjunction with the consolidated
financial statements and the notes thereto included in the Company's annual
report on Form 10-K for the year ended December 31, 1997.
The Condensed Consolidated Interim Financial Statements included herein
reflect, in the opinion of management, all adjustments (consisting primarily
only of normal recurring adjustments) necessary to present fairly the results
for the interim period.
2. Earnings Per Share:
Basic earnings per share is computed based on the weighted average
number of common shares outstanding. Diluted earnings per share is computed
based on the weighted average number of common shares outstanding plus dilutive
potential common shares calculated in accordance with the treasury stock method.
Three Months Ended Six Months Ended
June 30, June 30,
---------------------- -----------------------
1998 1997 1998 1997
-------- -------- -------- --------
NET INCOME (LOSS) ...................................................... $(15,329) $ (675) $ (6,367) $ 2,024
======== ======== ======== ========
BASIC EARNINGS (LOSS) PER SHARE
Income (loss) available to common shareholders ....................... $(15,329) $ (675) $ (6,367) $ 2,024
Weighted average common shares outstanding ........................... 15,190 15,454 15,203 15,408
-------- -------- -------- --------
Basic earnings (loss) per share ...................................... $ (1.01) $ (0.04) $ (0.42) $ 0.13
======== ======== ======== ========
DILUTED EARNINGS (LOSS) PER SHARE
Income (loss) available to common shareholders ....................... $(15,329) $ (675) $ (6,367) $ 2,024
-------- -------- -------- --------
Weighted average common shares outstanding ........................... 15,190 15,454 15,203 15,408
Dilutive potential common shares from stock options .................. -- -- -- 441
-------- -------- -------- --------
Weighted average common shares and dilutive potential common shares .. 15,190 15,454 15,203 15,849
-------- -------- -------- --------
Diluted earnings (loss) per share .................................... $ (1.01) $ (0.04) $ (0.42) $ 0.13
======== ======== ======== ========
All options outstanding during the three and six months ended June 30,
1998 and during the three months ended June 30, 1997 were excluded from the
computation of diluted earnings per share because the effect of including them
would have been antidilutive. Weighted average options outstanding
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to purchase 670,000 shares during the six months ended June 30, 1997 were
excluded from the computation of diluted earnings per share because the exercise
prices for these options were greater than the average market price of the
Company's common stock during this period.
3. Inventories (in thousands):
June 30, December 31,
1998 1997
-------- -----------
(unaudited)
Raw materials and subassemblies $3,150 $2,487
Work in process ............... 1,857 1,538
Finished goods ................ 879 722
------ ------
Total ....................... $5,886 $4,747
====== ======
4. Comprehensive Income
The Company adopted Statement of Financial Accounting Standard No. 130
"Reporting Comprehensive Income" ("SFAS 130") effective for fiscal years
beginning after December 15, 1997 and has restated information for all prior
periods reported below to conform to this standard.
Three Months Ended Six Months Ended
June 30, June 30,
----------------------- -----------------------
1998 1997 1998 1997
-------- -------- -------- --------
NET INCOME (LOSS) ....................................... $(15,329) $ (675) $ (6,367) $ 2,024
OTHER COMPREHENSIVE INCOME
Unrealized holding gains (losses) on available-for-sale
securities.......................................... 18 122 (25) 21
-------- -------- -------- --------
COMPREHENSIVE INCOME (LOSS) ............................. $(15,311) $ (553) $ (6,392) $ 2,045
======== ======== ======== ========
5. Litigation
On June 4, 1998 VISX and Summit agreed to dissolve Pillar Point and
settle all pending disputes and litigation between them. Each party retained all
rights to license its own patents to other manufacturers. VISX and Summit have
also granted each other a worldwide, royalty free cross license. Each party has
full rights to grant to its laser system users licenses to all patents owned by
either party relating to laser ablation of corneal tissue. Under the terms of
the agreement, VISX paid Summit a total of $35 million to settle litigation and
other disputes related to Pillar Point. The litigation pending between VISX and
Summit, namely, VISX , Incorporated v. Pillar Point Partners, et al., and VISX
Partner, Inc. on behalf of Pillar Point Partners v. Summit Technology, Inc., and
VISX Partner, Inc. v. Summit Partner, Inc., has been dismissed. See Part II -
Other Information, Item 1 - Legal Proceedings for a discussion of new
proceedings and new developments on previously disclosed proceedings.
6. New Accounting Pronouncement
In June 1998, the Financial Accounting Standards Board issued SFAS No.
133 "Accounting for Derivative Instruments and Hedging Activities" which
establishes accounting and reporting standards for derivative instruments and
hedging activities. The Company does not expect the adoption of SFAS No. 133,
required beginning January 2000, to have a material effect on its consolidated
financial statements.
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ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following Management's Discussion and Analysis of Financial
Condition and Results of Operations ("MD&A") contains forward-looking statements
that involve risks and uncertainties. The Company's actual results of operations
could differ materially from those anticipated in such forward-looking
statements as a result of various factors, including those identified below. In
particular, the factors set forth in the Company's 1997 annual report on Form
10-K under Item 1. Business -- "Market Acceptance of Laser Vision Correction,"
"Reliance on Patents and Proprietary Technology," "Risks Relating to Pillar
Point Partners; Patent Litigation," "Government Regulation; Unapproved Lasers,"
"Manufacturing, Components and Raw Materials," "Competition," "Product Liability
and Insurance" and under Item 3 -- Legal Proceedings may cause the Company's
actual results to vary from those contemplated by certain forward-looking
statements set forth in this report and should be considered carefully in
addition to other information presented in this report. This MD&A should be read
in conjunction with the MD&A included in the Company's 1997 annual report on
Form 10-K.
Overview
Since its inception, VISX has been engaged in the design and
development of proprietary technologies and systems for laser vision correction
and has been manufacturing such systems since 1987. The U.S. Food and Drug
Administration ("FDA") granted pre-market approval ("PMA") for use of the VISX
STAR Excimer Laser System(TM) ("VISX System") for the following indications:
phototherapeutic keratectomy ("PTK") on September 29, 1995, photorefractive
keratectomy treatment of low to moderate myopia ("PRK") on March 27, 1996, PRK
treatment of low to moderate myopia with astigmatism on April 25, 1997 and PRK
treatment of higher degrees of myopia with astigmatism on January 29, 1998. The
FDA Ophthalmic Devices Advisory Panel recommended approval of the VISX System
for use in the treatment of hyperopia on July 23, 1998. Although the FDA accords
significant weight to advisory panel recommendations, the FDA is not bound by
the recommendations of the panel and, accordingly, there can be no assurance as
to whether or when PMA approval for use of the VISX System for treatment of
hyperopia will be received.
The Company's future growth and ability to sustain profitability cannot
be predicted with certainty and will be influenced by a variety of factors.
These include the extent to which laser vision correction is broadly accepted in
the United States and key international markets targeted by the Company, the
degree to which the Company is successful in generating license revenue from its
patent rights, developments in patent litigation both in defense and enforcement
of the Company's patents, developments with respect to other litigation to which
the Company is a party or in which it may become involved, and competition from
other vision correction products and procedures which are currently in use or
may be developed and introduced in the future. In addition, several competitors
are seeking PMA approval from the FDA for laser systems for PRK. If and to the
extent that such companies receive PMA approval, price competition could
increase in the United States market with respect to both laser system sales and
procedure fees. Any such increased competition could have a material adverse
effect on the Company's business, financial condition and results of operations.
The Company intends to offer to license certain of its patents to one or more of
its competitors in the United States. However, there can be no assurance that
mutually agreeable terms will be reached between the parties. The inability to
license the Company's patents to any competitor in the United States could lead
to litigation and a loss of license revenue. As a result of these factors, as
well as those set forth in the above referenced portions of the Business and
Legal Proceedings sections of the Company's 1997 annual report on Form 10-K,
there can be no assurance that the Company will be able to sustain
profitability. In particular, adverse determinations in the Company's pending
legal proceedings described in Part II, Item 1 of this report, in the Company's
annual report on Form 10-K for the year ended December 31, 1997, or in the
Company's
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quarterly report on Form 10-Q for the period ended March 31, 1998 could have a
material adverse effect on the Company's business, financial condition and
results of operations. Results of operations in the current or any prior fiscal
period should not be considered as indicative of results to be expected for any
future fiscal period.
Results of Operations
Three Months Ended June 30, Six Months Ended June 30,
------------------------------------ ----------------------------------
REVENUES 1998 1997 Change 1998 1997 Change
- -------- ------- ------- ------ ------- ------- ------
System sales ....................... $ 9,435 $ 8,176 15% $16,995 $18,273 (7%)
Percent of total revenues ..... 29.7% 52.4% 30.4% 58.3%
License, service & other revenues... 22,228 7,419 200% 38,978 13,065 198%
Percent of total revenues ..... 70.3% 47.6% 69.6% 41.7%
Total .............................. $31,663 $15,595 103% $55,973 $31,338 79%
System sales revenue was higher in the second quarter of 1998 than in
the comparable period of 1997 due to an increase in units shipped, offset
partially by a decline in average net selling prices. Unit sales increased due
to growth in the number of U.S. customers trading in a competitor's laser for a
VISX System plus expansion in new international markets entered by the Company.
Average net selling prices declined due to a higher proportion of sales in the
U.S. having trade in credits for a competitor's laser, special promotions in
select international markets, and pricing pressure in international markets
resulting from a rise in the value of the dollar relative to other currencies.
System sales revenue for the first half of 1998 was below the level reached in
the comparable period of 1997 due mainly to lower average net selling prices in
the U.S., the result of a higher proportion of trade in sales and a general
decline in prices net of sales promotions.
License, service and other revenue increased in the second quarter and
first half of 1998 over the comparable periods of 1997 due mainly to growth in
procedure license revenue. Procedure volume rose significantly and VISX recorded
the majority of procedure license fees directly as revenue in 1998, whereas in
1997 most procedure license fees were shared through Pillar Point Partners
("Pillar Point"). As a result of the June 1998 dissolution of Pillar Point by
VISX and Summit Technologies, Inc. ("Summit"), VISX will record all procedure
license fees on VISX Systems directly as revenue in the future. See Part II,
Item 1 - Legal Proceedings for a more detailed description of this settlement.
Three Months Ended June 30, Six Months Ended June 30,
------------------------------------ --------------------------------
COSTS & EXPENSES 1998 1997 Change 1998 1997 Change
- ---------------- --------- --------- ------ --------- ------- -------
Cost of revenues ................ $ 7,477 $ 4,558 64% $ 13,307 $11,022 21%
Percent of total revenues... 23.6% 29.2% 23.8% 35.2%
Marketing, gen'l and admin ...... 6,956 5,872 18% 12,654 11,187 13%
Percent of total revenues... 22.0% 37.6% 22.6% 35.7%
R&D and regulatory .............. 2,806 2,594 8% 5,217 4,706 11%
Percent of total revenues... 8.9% 16.7% 9.3% 15.0%
Cost of revenues increased in the second quarter and first half of 1998
over the comparable periods of 1997 due mainly to an increase in the number of
systems sold. Also contributing was an increase in the cost of service and other
revenue which resulted from a larger installed base of systems and the
conversion of many systems from warranty to contract service coverage in 1998.
Cost of revenues on system sales, as a percentage of system sales, was higher in
the second quarter and first half of 1998 than in the comparable periods of 1997
due mainly to a decline in the average price for systems sold in the United
States.
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Marketing, general and administrative expenses increased in the second
quarter and first half of 1998 over the comparable periods of 1997 as the result
of increased incentive compensation, which is tied to sales and operating
profit, plus increases in other sales related expenses.
Research, development and regulatory costs increased in the second
quarter and first half of 1998 over the comparable periods of 1997 as the result
of increased expenses associated with the development of new products and
technologies and increased costs associated with clinical trials and submissions
for regulatory approvals sought in the U.S. and Japan.
Interest and other income increased due to higher average balances of
cash, cash equivalents and short-term investments.
On June 4, 1998 VISX and Summit agreed to dissolve Pillar Point and
settle all pending disputes and litigation between them. Each party retained all
rights to license its own patents to other manufacturers. VISX and Summit have
also granted each other a worldwide, royalty free cross license. Each party has
full rights to grant to its laser system users licenses to all patents owned by
either party relating to laser ablation of corneal tissue. Under the terms of
the agreement, VISX paid Summit a total of $35 million to settle all outstanding
litigation between VISX and Summit and to resolve other legal disputes related
to Pillar Point. In June 1997, the Company settled certain U.S. and
international patent disputes between itself and Summit. The settlement required
an exchange of payments resulting in a net payment of $4.5 million to Summit.
These payments were recorded as litigation settlement expense in the Statements
of Operations for the second quarters of 1998 and 1997, respectively.
The benefit for income taxes accrued in the second quarter and first
half of 1998 represents an offset against income taxes on income anticipated for
the remainder of 1998. The provision for income taxes in the comparable periods
of 1997 covers alternative minimum taxes due under Federal statutes and state
taxes at regular rates, net of credits anticipated.
Liquidity and Capital Resources
Cash, cash equivalents and short-term investments ("cash") and working
capital were as follows.
June 30, December 31,
1998 1997
-------- -----------
Cash, cash equivalents and short-term investments............. $ 85,804 $ 100,833
Working capital............................................... 92,218 103,880
Cash generated by income from operations was more than offset by cash
used for a $35 million litigation settlement during the second quarter of 1998
and for increases in accounts receivable and inventory to support higher sales
in 1998 over the prior year.
Purchases of short-term investments represent reinvestment of the
proceeds from maturities of short-term investments and investment of cash and
cash equivalents into short-term investments.
The Company anticipates that its current cash, cash equivalents and
short-term investments, as well as anticipated cash flows from operations, will
be sufficient to meet its working capital and capital equipment needs at least
through the next twelve months.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
VISX is a party to a number of patent and antitrust legal proceedings
in the United States and in several international jurisdictions. Adverse
determinations in one or more of such proceedings could limit VISX's ability to
collect equipment and use fees in certain markets and could have a material,
adverse effect on VISX's business, financial position and results of operations.
The Company notes that the results of complex legal proceedings can be very
difficult to predict with certainty. VISX is also a party to various other legal
proceedings. For a complete description of legal proceedings, see VISX's annual
report on Form 10-K for the year ended December 31, 1997 and report on Form 10-Q
for the quarter ended March 31, 1998. During the quarter ended June 30, 1998,
there were no material developments with respect to such previously existing
proceedings and no new material proceedings, except as follows:
Dissolution of Pillar Point Partners and Settlement with Summit
On June 4, 1998 VISX and Summit agreed to dissolve Pillar Point and settle all
pending disputes and litigation between them. Each party retained all rights to
license its own patents to other manufacturers. VISX and Summit have also
granted each other a worldwide, royalty free cross license. Each party has full
rights to grant to its laser system users licenses to all patents owned by
either party relating to laser ablation of corneal tissue. Under the terms of
the agreement, VISX paid Summit a total of $35 million to settle all outstanding
litigation between VISX and Summit and to resolve other legal disputes related
to Pillar Point. The litigation pending between VISX and Summit, namely, VISX ,
Incorporated v. Pillar Point Partners, et al., and VISX Partner, Inc. on behalf
of Pillar Point Partners v. Summit Technology, Inc., and VISX Partner, Inc. v.
Summit Partner, Inc., has been dismissed.
Antitrust and Patent Proceedings
Federal Trade Commission
On July 8, 1998, VISX reached a settlement with the Federal Trade
Commission (FTC) and entered into a consent decree regarding the formation and
operation of Pillar Point. The agreement was signed by VISX and by the FTC staff
lawyers. The Director of the FTC's Bureau of Competition also approved the
consent decree. In accordance with FTC regulations, the consent decree will be
presented to the Commissioners of the FTC for acceptance, placement on the
public record, and a determination regarding issuance of a final order. The
consent decree prohibits VISX and Summit from agreeing with one another on a
variety of issues, including future pricing. No fines or penalties have been
imposed against the Company, and nothing in the settlement prohibits VISX from
collecting per-procedure fees under present and future licensing agreements.
The consent decree does not address the patent portion of the FTC's
Complaint. The parties have agreed to a pretrial schedule in anticipation of an
October 13, 1998 administrative hearing regarding the remaining issues. Although
the Company believes the FTC's claims regarding the patents at issue are
unfounded and intends to vigorously defend the enforceability of the patents, it
is not possible to accurately predict the outcome of this proceeding. A
determination by the Commission that certain of the Company's patents are
unenforceable, if upheld on appeal, could reduce the breadth of the Company's
patent coverage. For a more detailed description of this proceeding, see the
Company's Annual Report on Form 10-K for the year ended December 31, 1997.
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Purported Class Actions
Since the commencement of the FTC administrative proceedings on March
24, 1998, a large number of purported class actions have been filed against the
Company alleging, among other things, violations of various state and federal
antitrust laws. All of the actions filed in California State court have now been
consolidated into one case captioned In re PRK filed on June 12, 1998 naming
VISX, VISX Partner, Inc., Summit, and Summit Partner, Inc. as defendants. The
plaintiffs in the consolidated action allege violations of the California
Business and Professions Code (under the Cartwright Act and the Unfair Business
Practices Act) and are seeking unspecified damages and injunctive relief on
behalf of a putative nationwide class of consumers. The Company has been named
in two additional state court actions in Wisconsin and Florida, captioned
Worcester v. Summit Technology, Inc. et al. and Marks v. Summit Technology Inc.,
et al., and filed on June 11, 1998 and Apr. 27, 1998, respectively, alleging
violations of state antitrust and other laws. These actions seek unspecified
damages and injunctive relief on behalf of putative classes of Wisconsin and
Florida consumers, respectively. The Marks case has been removed and
conditionally transferred to the Multi-District Litigation in Arizona (described
below).
In addition to the state court actions, a number of purported class
actions alleging violations of federal antitrust laws have been filed against
the Company in federal court. Camp v. Summit Technology, Inc., et al. (USDC MA
Mar. 26, 1998), The Eye Professionals, P.A. v. Summit Technology, Inc., et al.
(USDC NJ Apr. 27, 1998), New England Laser Vision, Inc. v. Summit Technology,
Inc., et al. (USDC NJ May 23, 1998), Metropolitan Eye Center v. Summit
Technology, Inc. et al. (USDC CA May 26, 1998), and Chisholm v. VISX, Inc. et
al. (USDC AZ June 19, 1998). With the exception of Camp, the plaintiffs in these
cases seek unspecified damages and injunctive relief on behalf of a purported
class of direct purchasers. All of these actions filed in federal court have
been, or are in the process of being, transferred to the Multi-District
Litigation in Arizona (described below).
These antitrust class actions are still in the very early pleading
stages and it is too early to estimate the outcome of the suits. Nevertheless,
to the extent that the complaints in these purported class actions mirror the
initial FTC action, the Company believes it has meritorious defenses to the
claims and intends to defend them vigorously. For a more detailed description of
certain of these proceeding, see the Company's Quarterly Report on Form 10-Q for
the quarter ended March 31, 1998.
Multi-District Litigation
To consolidate conflicting discovery requests and save resources and
management time with respect to certain litigation involving Pillar Point, a
number of cases have been transferred to the District of Arizona for pretrial
proceedings. The case captioned Pillar Point Partners, et al. v.. Jui-Teng Lin,
et al. was transferred to the Multi-District Litigation in July 1998. VISX
believes that it and Pillar Point have meritorious defenses to the claims and
counterclaims asserted in the Multi-District Litigation. These proceedings,
however, are in various stages of discovery and there can be no assurance as to
the outcome of any of the suits. For a more detailed description of certain of
these proceeding, see the Company's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1998 and Annual Report on From 10-K for the year ended
December 31, 1997.
Other Litigation
The Company is involved in various other legal proceedings which arise
in the normal course of business. This litigation includes suits relating to
employment, product liability and other matters. Based on the current status of
these matters and the Company's review of these matters, the Company believes
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that their resolution, individually and in the aggregate, will not have a
material adverse effect on the Company's business, financial condition or
results of operations.
Item 4. Submission of Matters to a Vote of Security Holders.
a) The Company held its Annual Meeting of Stockholders on May 15, 1998.
b) The meeting involved the election of the entire Board of five directors.
The directors elected, and the tabulation of votes as to each of them, were
as follows:
Name For Against
---- --- -------
Elizabeth H. Davila 13,934,540 53,680
Glendon E. French 13,914,572 73,648
John W. Galiardo 13,934,230 53,990
Mark B. Logan 13,916,632 71,588
Richard B. Sayford 13,910,022 78,198
There were no abstentions or non-votes for any of the director nominees.
c) The meeting also involved a vote with respect to ratification of the
appointment of Arthur Andersen LLP as auditors of the Company for 1998, and
votes on such proposal were cast as follows:
For Against Abstain Non-Votes
--- ------- ------- ---------
13,847,676 7,720 123,824 -0-
Item 6. Exhibits and Reports on Form 8-K.
a) Exhibits.
Ex. 27 Financial Data Schedule
Ex. 10.19(1)(2) Settlement and Dissolution Agreement date June 4,
1998 previously filed as an exhibit to the Company's
Form 8-K filed June 23, 1998. Confidential treatment
has been requested for certain portions of this
exhibit.
- -------------------------------
(1) Incorporated by reference to Exhibit 99.1 to the Company's Report on Form
8-K filed June 23, 1998.
(2) Confidential treatment has been requested for certain portions of this
exhibit.
b) Reports on Form 8-K.
The Company filed one report on Form 8-K during the quarter covered by this
report, as follows:
(i) Report on Form 8-K filed on June 23, 1998 reporting under Item 5 the
settlement agreement entered by the Company and Summit Technology, Inc.
by which the parties dissolved Pillar Point Partners and resolved
disputes and litigation pending between them. The settlement required a
$35 million payment from the Company to Summit.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
VISX, Incorporated
------------------
(Registrant)
August 7 , 1998 /s/Mark B. Logan
----- -----------------------------------------
(Date) Mark B. Logan
Chairman of the Board and
Chief Executive Officer
August 7 , 1998 /s/Timothy R. Maier
----- -----------------------------------------
(Date) Timothy R. Maier
Vice President and
Chief Financial Officer (principal
financial and accounting officer)
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EXHIBIT INDEX
Exhibits Number
Ex. 27 Financial Data Schedule
Ex. 10.19(1)(2) Settlement and Dissolution Agreement date June 4,
1998 previously filed as an exhibit to the Company's
Form 8-K filed June 23, 1998. Confidential treatment
has been requested for certain portions of this
exhibit.
- -------------------------------
(1) Incorporated by reference to Exhibit 99.1 to the Company's Report on Form
8-K filed June 23, 1998.
(2) Confidential treatment has been requested for certain portions of this
exhibit.