-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, RAecyMB0fm+aOUL6H6TneAvVMZX4ZdRht56GA/X79AzF8V+oKMY4L8cqZrIKfysD gnEU6Fj19KeWRgcN52HXsA== 0000891618-99-005014.txt : 19991111 0000891618-99-005014.hdr.sgml : 19991111 ACCESSION NUMBER: 0000891618-99-005014 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991110 FILER: COMPANY DATA: COMPANY CONFORMED NAME: VISX INC CENTRAL INDEX KEY: 0000837991 STANDARD INDUSTRIAL CLASSIFICATION: ELECTROMEDICAL & ELECTROTHERAPEUTIC APPARATUS [3845] IRS NUMBER: 061161793 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-17247 FILM NUMBER: 99745278 BUSINESS ADDRESS: STREET 1: 3400 CENTRAL EXPRESSWAY CITY: SANTA CLARA STATE: CA ZIP: 95051 BUSINESS PHONE: 4087332020 MAIL ADDRESS: STREET 1: VISX INC STREET 2: 3400 CENTRAL EXPRESSWAY CITY: SANTA CLARA STATE: CA ZIP: 95051-0703 FORMER COMPANY: FORMER CONFORMED NAME: TAUNTON TECHNOLOGIES INC DATE OF NAME CHANGE: 19901212 10-Q 1 FORM 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 --------------------------------- 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 September 30, 1999 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 1-10694 --------------------------------- VISX, INCORPORATED (Exact name of registrant as specified in its charter) --------------------------------- Delaware 06-1161793 - -------------------------------- ------------------- (State or other Jurisdiction of (IRS Employer Incorporation or Organization) Identification No.)
3400 Central Expressway, Santa Clara, California 95051-0703 (Address of principal executive offices) (Zip Code) (Registrant's telephone number, including area code): (408) 733-2020 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 October 31, 1999: 64,312,879 2 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 September 30, 1999 and December 31, 1998 Condensed Consolidated Interim Statements of Operations for the Three Months 4 Ended September 30, 1999 and 1998 and for the Nine Months Ended September 30, 1999 and 1998 Condensed Consolidated Interim Statements of Cash Flows for the Nine Months 5 Ended September 30, 1999 and 1998 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 8 Liquidity and Capital Resources 9 Year 2000 Disclosure 10 Business Risks and Fluctuations in Quarterly Results 11 PART II OTHER INFORMATION Item 1. Legal Proceedings 13 Item 6. Exhibits and Reports on Form 8-K 14 Signatures 15
2 3 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 September 30, December 31, 1999 1998 ------------- ------------ (unaudited) Current Assets: Cash and cash equivalents.......................................... $ 77,588 $ 29,870 Short-term investments............................................. 148,343 86,669 Accounts receivable, net of allowance for doubtful accounts of $1,732 and $1,620, respectively......................... 46,306 27,822 Inventories........................................................ 11,070 6,820 Deferred tax assets and prepaid expenses........................... 27,047 15,457 ------------- ------------ Total current assets............................................ 310,354 166,638 Property and Equipment, net............................................ 5,509 4,318 Other Assets........................................................... 7,660 5,663 ------------- ------------ $323,523 $176,619 ============= ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts payable................................................... $ 13,867 $ 3,682 Accrued liabilities................................................ 36,681 33,948 ------------- ------------ Total current liabilities....................................... 50,548 37,630 ------------- ------------ Stockholders' Equity: Common stock: $.01 par value, 180,000,000 shares authorized; 64,200,384 and 62,070,032 shares issued, respectively............ 642 621 Additional paid-in capital......................................... 203,292 137,334 Treasury stock, at cost: 25,000 and 471,928 shares, respectively.. (1,965) (4,581) Accumulated comprehensive income (loss)............................ (421) 188 Retained earnings.................................................. 71,427 5,427 ------------- ------------ Total stockholders' equity..................................... 272,975 138,989 ------------- ------------ $323,523 $176,619 ============= ============
The accompanying notes are an integral part of these condensed consolidated interim financial statements. 3 4 VISX, INCORPORATED AND SUBSIDIARIES CONDENSED CONSOLIDATED INTERIM STATEMENTS OF OPERATIONS (In thousands, except per share amounts)
Three months ended Nine months ended September 30, September 30, --------------- --------------- --------------- --------------- 1999 1998 1999 1998 --------------- --------------- --------------- --------------- (unaudited) Revenues: System sales.................................... $ 23,321 $ 12,183 $ 50,083 $ 29,178 License, service and other revenues............. 56,347 23,661 146,037 62,639 --------------- --------------- --------------- --------------- Total revenues................................ 79,668 35,844 196,120 91,817 --------------- --------------- --------------- --------------- Costs and Expenses: Cost of revenues................................ 17,480 8,175 40,573 21,482 Marketing, general and administrative........... 19,235 9,171 41,296 21,825 Research, development and regulatory............ 4,599 2,655 11,550 7,872 --------------- --------------- --------------- --------------- Total costs and expenses...................... 41,314 20,001 93,419 51,179 --------------- --------------- --------------- --------------- Income From Operations.............................. 38,354 15,843 102,701 40,638 Interest and other income....................... 2,886 1,290 7,300 4,091 Litigation settlement........................... -- -- -- (35,000) --------------- --------------- --------------- --------------- Income Before Provision For Income Taxes............ 41,240 17,133 110,001 9,729 Provision for income taxes...................... 16,497 2,401 44,001 1,364 =============== =============== =============== =============== Net Income.......................................... $ 24,743 $ 14,732 $ 66,000 $ 8,365 =============== =============== =============== =============== Earnings Per Share Basic........................................... $ 0.39 $ 0.24 $ 1.05 $ 0.14 =============== =============== =============== =============== Diluted......................................... $ 0.36 $ 0.22 $ 0.97 $ 0.13 =============== =============== =============== =============== Shares Used For Earnings Per Share Basic........................................... 63,913 61,201 63,115 60,943 =============== =============== =============== =============== Diluted......................................... 68,727 66,188 67,991 64,985 =============== =============== =============== ===============
The accompanying notes are an integral part of these condensed consolidated interim financial statements. 4 5 VISX, INCORPORATED AND SUBSIDIARIES CONDENSED CONSOLIDATED INTERIM STATEMENTS OF CASH FLOWS (In thousands)
Nine months ended September 30, ------------------------------------- 1999 1998 ------------- ------------ (unaudited) Cash flows from operating activities: Net income.................................................................. $ 66,000 $ 8,365 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization............................................ 2,210 1,515 Increase (decrease) in cash flows from changes in operating assets and liabilities: Accounts receivable.................................................. (18,484) (6,343) Inventories.......................................................... (4,250) (2,403) Deferred tax assets and prepaid expenses............................. (11,590) (6,051) Other assets......................................................... (2,401) (2,425) Accounts payable..................................................... 10,185 635 Accrued liabilities.................................................. 2,733 13,974 ------------- ------------ Net cash provided by operating activities................................ 44,403 7,267 ------------- ------------ Cash flows from investing activities: Capital expenditures........................................................ (2,997) (1,269) Purchase of short-term investments.......................................... (135,861) (87,899) Proceeds from maturities of short-term investments.......................... 73,537 85,662 ------------- ------------ Net cash (used in) investing activities.................................. (65,321) (3,506) ------------- ------------ Cash flows from financing activities: Exercise of stock options, including income tax benefit..................... 74,812 8,066 Repurchase of common stock.................................................. (6,176) (12,972) ------------- ------------ Net cash provided by (used in) financing activities...................... 68,636 (4,906) ------------- ------------ Net increase (decrease) in cash and cash equivalents............................ 47,718 (1,145) Cash and cash equivalents, beginning of period.................................. 29,870 29,952 ============= ============ Cash and cash equivalents, end of period........................................ $ 77,588 $ 28,807 ============= ============
The accompanying notes are an integral part of these condensed consolidated interim financial statements. 5 6 VISX, INCORPORATED AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS September 30, 1999 (Unaudited) 1. Basis of Presentation: We prepared our Condensed Consolidated Interim Financial Statements in conformity with Securities and Exchange Commission rules and regulations. Accordingly, we condensed or omitted certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles. Please read our 1998 Annual Report and Form 10-K to gain a more complete understanding of these interim financial statements. We included in these interim financial statements all adjustments (consisting primarily only of normal recurring adjustments) necessary to present fairly our results for the interim period. Our interim financial statements have not been audited. 2. Earnings Per Share: Basic earnings per share ("EPS") equals net income divided by the weighted average number of common shares outstanding. Diluted EPS equals net income divided by the weighted average number of common shares outstanding plus dilutive potential common shares calculated in accordance with the treasury stock method. All amounts in the following table are in thousands, except per share data.
Three Months Ended Nine Months Ended September 30, September 30, ---------------------- ----------------------- 1999 1998 1999 1998 ----------- ---------- ---------- ----------- NET INCOME......................................................... $ 24,743 $ 14,732 $ 66,000 $ 8,365 =========== ========== ========== =========== BASIC EARNINGS PER SHARE Income available to common shareholders.......................... $ 24,743 $ 14,732 $ 66,000 $ 8,365 Weighted average common shares outstanding....................... 63,913 61,201 63,115 60,943 ----------- ---------- ---------- ----------- Basic Earnings Per Share......................................... $ 0.39 $ 0.24 $ 1.05 $ 0.14 =========== ========== ========== =========== DILUTED EARNINGS PER SHARE Income available to common shareholders.......................... $ 24,743 $ 14,732 $ 66,000 $ 8,365 ----------- ---------- ---------- ----------- Weighted average common shares outstanding....................... 63,913 61,201 63,115 60,943 Dilutive potential common shares from stock options.............. 4,814 4,987 4,876 4,042 ----------- ---------- ---------- ----------- Weighted average common shares and dilutive potential common shares ............................................... 68,727 66,188 67,991 64,985 ----------- ---------- ---------- ----------- Diluted Earnings Per Share....................................... $ 0.36 $ 0.22 $ 0.97 $ 0.13 =========== ========== ========== ===========
Options to purchase 30,000 shares and 76,000 shares during the three month periods ended September 30, 1999 and 1998, respectively, and 85,000 shares and 128,000 shares outstanding during the nine month periods ended September 30, 1999 and 1998, respectively, were excluded from the computation of diluted EPS because the options' exercise prices were greater than the average market price of the Company's common stock during these periods. 6 7 3. Inventories (in thousands):
September 30, December 31, 1999 1998 -------------- ------------ (unaudited) Raw materials and subassemblies.................... $ 5,159 $3,183 Work in process.................................... 5,241 2,869 Finished goods..................................... 670 768 -------------- ------------ Total............................................ $11,070 $6,820 ============== ============
4. Comprehensive Income (in thousands):
Three Months Ended Nine Months Ended September 30, September 30, ---------------------- ---------------------- 1999 1998 1999 1998 ---------- ----------- ----------- ---------- NET INCOME................................................. $ 24,743 $ 14,732 $ 66,000 $ 8,365 OTHER COMPREHENSIVE INCOME Change in unrealized holding gains (losses) on (42) 323 (650) 298 available-for-sale securities......................... Change in accumulated foreign currency translation 51 -- 41 -- adjustment............................................ ---------- ----------- ----------- ---------- COMPREHENSIVE INCOME....................................... $ 24,752 $ 15,055 $ 65,391 $ 8,663 ========== =========== =========== ==========
5. New Accounting Pronouncements In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standard No. 133 "Accounting for Derivative Instruments and Hedging Activities" ("SFAS No. 133") which establishes accounting and reporting standards for derivative instruments, including certain derivative instruments imbedded in other contracts, and for hedging activities. It requires that we recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. We are required to adopt SFAS No. 133 in the first quarter of 2001. We do not expect the impact of adopting SFAS No. 133 to have a material effect on our financial position or results of operations. 6. Stock Splits On April 14, 1999 our Board of Directors approved a two-for-one stock split (in the form of a 100% stock dividend) to shareholders of record on April 27, 1999 which was issued on May 13, 1999. On December 17, 1998 our Board of Directors approved a two-for-one stock split (in the form of a 100% stock dividend) to shareholders of record on December 28, 1998 which was issued on January 14, 1999. We have adjusted all references to share and per share data for all periods presented to give effect for both of these stock splits. 7 8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations In our Management's Discussion and Analysis of Financial Condition and Results of Operations we review our past performance and, where appropriate, state our expectations about future activity in forward-looking statements. Our future results may differ from our expectations. We have described our business and the challenges and risks we may face in the future in Items 1 and 3 of our 1998 Annual Report and Form 10-K and under "Business Risks and Quarterly Fluctuations" below. Please read these items carefully. Overview We develop products and procedures to improve people's eyesight using lasers. Our principal product, the VISX STAR S2(TM) Laser System ("VISX System"), is designed to correct the shape of a person's eyes to reduce or eliminate their need for eyeglasses or contact lenses. The Food and Drug Administration ("FDA") has approved the VISX System for use in the treatment of most types of refractive vision disorders including nearsightedness, farsightedness, and astigmatism. We sell VisionKey(R) cards to control the use of the VISX System and to collect license fees for the use of our proprietary technology. The laser vision correction industry is evolving rapidly. New developments could harm our business in the future. We may face increased competition from manufacturers of other laser vision correction systems (several have now received FDA approval) or new competition from non-laser methods for correcting a person's vision. Further, patients' and doctors' enthusiasm for laser vision correction may decline in the future. In addition, we may not be able to enforce our current patent rights or collect license fees due to adverse determinations in current and future patent and antitrust litigation. All of these factors may cause orders for VISX Systems and VisionKey(R) cards to fluctuate. Accordingly, our past results may not be useful in predicting our future results. Results of Operations
Three Months Ended September 30, Nine Months Ended September 30, ------------------------------------- ------------------------------------- REVENUES (000's) 1999 1998 Change 1999 1998 Change - -------- ------------- ------------- --------- ------------ ------------ --------- System sales........................ $ 23,321 $ 12,183 91% $ 50,083 $ 29,178 72% Percent of total revenues...... 29.3% 33.9% 25.5% 31.8% License, service & other revenues... 56,347 23,661 138% 146,037 62,639 133% Percent of total revenues...... 70.7% 66.1% 74.5% 68.2% Total............................... $ 79,668 $ 35,844 122% $ 196,120 $ 91,817 114%
We sold substantially more VISX Systems in the third quarter and first nine months of 1999 than in the comparable periods of 1998. The increase occurred primarily in the United States, though sales in international markets also rose from the prior year. We believe that U.S. doctors and laser centers increased purchases of VISX Systems in response to rising consumer demand for laser vision correction and popular acceptance of the VISX System. Partially offsetting the increase in unit sales, our average U.S. selling price for a VISX System was lower than in the prior year. This was due to a variety of factors including allowances for the trade-in of a competitor's laser, discounts for a second laser at an existing location, volume purchase incentives, and general price reductions. The overall average selling price of a system in international markets declined from the prior year due mainly to trade-in allowances. License fees from procedures in the United States generated most of the increase in license, service and other revenues in 1999 over 1998. We believe that procedures on VISX Systems increased because laser vision correction has become increasingly well known and popular among consumers. Further, in the third quarter of 1999 we completed of the installation of approximately $6 million of 8 9 upgrades to systems in the U.S. This also contributed to the increase in license, service and other revenues over the comparable period of 1998.
Three Months Ended September 30, Nine Months Ended September 30, ------------------------------------- ------------------------------------- COSTS & EXPENSES (000's) 1999 1998 Change 1999 1998 Change - ---------------- ------------- ------------- --------- ------------ ------------ --------- Cost of revenues.................... $ 17,480 $ 8,175 114% $ 40,573 $ 21,482 89% Percent of total revenues...... 21.9% 22.8% 20.7% 23.4% Marketing, gen'l and admin.......... 19,235 9,171 110% 41,296 21,825 89% Percent of total revenues...... 24.1% 25.6% 21.1% 23.8% R&D and regulatory.................. 4,599 2,655 73% 11,550 7,872 47% Percent of total revenues...... 5.8% 7.4% 5.9% 8.6%
Cost of revenues increased in the third quarter and first nine months of 1999 over the comparable periods of the prior year because we sold more systems and serviced a larger installed base of systems. Marketing, general and administrative expenses grew in 1999 over the comparable periods of the prior year due to a variety of factors. We increased spending on marketing programs directed towards eye care professionals. We also launched our consumer marketing campaign in July. We anticipate spending approximately $11 million on this marketing campaign in 1999. Further, our legal expenses increased significantly in 1999 over the comparable periods of the prior year due to the International Trade Commission (ITC) trial regarding its investigation of Nidek Co., Ltd., the Federal Trade Commission (FTC) administrative action, and other patent litigation. In research and development, our efforts were directed mainly at developing new capabilities for current and planned new products. We continued to conduct clinical studies and prepare submissions designed to obtain additional approvals from the FDA and regulatory authorities in other countries. We anticipate that research, development and regulatory expenses could increase to $16 million for 1999. Interest income increased because we have continued to generate cash from operations and have invested this in additional interest bearing securities. We have accrued income taxes based on our expected effective income tax rate for all of 1999, net of credits anticipated. Liquidity and Capital Resources Cash, cash equivalents and short-term investments ("cash") and working capital were as follows.
(000's) September 30, 1999 December 31, 1998 ------------------------- ------------------------- Cash, cash equivalents and short-term investments........ $225,931 $116,539 Working capital.......................................... 259,806 129,008
Cash increased by $109 million in the first nine months of 1999 due primarily to net income and the exercise of stock options. Approximately $18 million net was generated from the exercise of stock options. In addition, our income tax payments have been reduced by approximately $46 million in 1999 as the result of tax deductions arising from exercises of non-qualified stock options and disqualifying dispositions of stock purchased upon the exercise of incentive stock options. This amount was credited directly to additional paid in capital. 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. 9 10 We anticipate that our current cash, cash equivalents and short-term investments, as well as anticipated cash flows from operations, will be sufficient to meet our working capital and capital equipment needs at least through the next twelve months. Year 2000 Disclosure We are aware that some information technology ("IT") systems may not function properly at the onset of the year 2000. These systems record only the last two digits of a date's year instead of the full four digits. For example, they would record "00" as the year for dates in both 1900 and 2000. This could cause such systems to process and record information incorrectly or possibly fail to function in the year 2000. State of Readiness Our products, operations, customers, suppliers and service providers all rely on IT systems, both hardware and software, to function properly. They include readily apparent systems such as those controlling our VISX Systems as well as less obvious systems such as those imbedded in the security apparatus that protects our main facility. Products: We have evaluated the performance of the STAR S2(TM), VISX STAR(TM), and VISX Model B Excimer Laser Systems and concluded that none has any problems related to system performance, safety, efficacy, or printer equipment interface as a result of handling dates in the year 2000 or beyond. However, we determined that these laser systems did not properly print or store patient report dates for procedures performed in the year 2000 or beyond. We developed software revisions that correct this problem for the STAR S2, VISX STAR and Model B Excimer Laser Systems. We have notified all customers that these software revisions are currently available and free to all customers. They can be self-installed by customers on any STAR S2 or VISX STAR system and most Model B systems. In the U.S. approximately 95% of customers have requested and been shipped this software update. While we expect that all U.S. customers will update their systems by December 31, 1999, there may be some customers who elect not to update their systems. In international markets we have notified all distributors that these software revisions are available. Distributors and customers in international markets have requested and been shipped this software update for approximately 67% of the installed STAR S2 and VISX STAR systems. While most international customers are likely to update their systems by December 31, 1999, we expect that some customers will elect not to update their systems. Suppliers: We have sent a survey to all of our manufacturing suppliers inquiring about the ability of their systems and products to properly handle dates for the year 2000 and beyond. We have received responses from approximately 75% of these suppliers and, in general, they have or expect to have implemented any upgrades and fixes necessary to their systems and products. We plan to follow up on vendors who have not returned their surveys or who do not anticipate having solutions in place before 2000. If suppliers do not reply or cannot comply, we may need to locate alternative sources for critical parts and services. We anticipate that we will be able to locate and contract with alternative suppliers if necessary. Operations: Our internal IT systems, listed below, include a variety of equipment and software to process and store both voice and data information. o LAN and WAN infrastructure which is used to link users and internal and external systems and networks 10 11 o Desktop and laptop computers and related software o PBX, voicemail, and fax systems Based on information supplied by the vendors of each of the major elements of these systems, we determined what changes, if any, were necessary to make the products year 2000 compliant. We have installed all upgrades, new equipment and software identified as necessary by vendors. We have tested and will continue to test year 2000 compliance of our current configuration both on a back-up set of equipment and certain segments of our live system. We use our enterprise resource planning ("ERP") system to help manage manufacturing, sales, customer service, and accounting activities and prepare financial reports. Based on representations from vendors, all elements of our current ERP system are year 2000 compliant. We have tested and will continue to test year 2000 compliance of our ERP system. With regard to our facility, providers of key services have represented that their products and services will function properly when handling dates for the year 2000 and beyond. Costs to Address Year 2000 Issues We have spent no more than $900,000 to date identifying, developing and testing solutions to year 2000 issues. We estimate that we will spend approximately an additional $250,000 to complete testing of all major internal systems and our products' systems to determine their ability to properly handle dates in the year 2000 and beyond. However, we may be required to spend more money than we have currently estimated and this could have a material adverse effect on our results of operations and financial condition. Contingency Plans When we complete our internal reviews and external surveys we will prepare contingency plans to prepare for problems that we believe are reasonably likely to arise. However, despite our best efforts, we may not anticipate all problems that may ultimately arise. Risks of Year 2000 Issues We will continue preparations with the goal of ensuring that our products, operations and suppliers will recognize dates and function properly in the year 2000 and beyond. However, unanticipated problems could affect the operation of our products, interrupt or prevent deliveries from suppliers, or disrupt our delivery of service or VisionKey(R) cards to our customers at the onset of the year 2000. As a result, we could suffer a material adverse impact to our business, financial position and results of operation due to a loss of revenue, legal claims or extra expenses caused by unanticipated year 2000 computer problems. Business Risks and Fluctuations in Quarterly Results Our results of operations have varied widely in the past, and they could continue to vary significantly from quarter to quarter due to a number of factors, including: 11 12 o Changes in public and market acceptance of laser vision correction as a preferred means of vision correction; o Developments in patent litigation that we have initiated against certain of our competitors, particularly to the extent that adverse developments in these proceedings could limit our ability to collect license fees from sellers and users of laser vision correction equipment; o Developments in patent litigation in which we are a defendant, particularly to the extent that adverse developments in these proceedings render certain of our patents invalid or unenforceable, which would reduce the scope of proprietary protection available to us and could limit our ability to collect license fees from sellers and users of laser vision correction equipment, which could have a material adverse effect on our business, financial condition and results of operations; o Developments in antitrust litigation to which we are currently a party, including legal actions brought against us by private parties and legal actions pending before the FTC; o The receipt by additional competitors of FDA approval to market laser vision correction systems in the United States, particularly to the extent that such competitors do not obtain licenses under VISX's patents; o The receipt by competitors of FDA approvals to market their laser vision correction systems for the treatment of additional types of refractive vision disorders. o The proliferation of unapproved lasers which are used to perform laser vision correction as well as any increase in the number of physician investigational device exemptions issued by the FDA for laser vision correction equipment; and o The introduction of new methods for vision correction which render our products less competitive or obsolete. Please also read Items 1 and 3 in our 1998 Annual Report and Form 10-K where we have described our business and the challenges and risks we may face in the future. Our revenue growth rates may not be sustainable. Any shortfall in revenues or anticipated growth rates, particularly in license fees, would have an immediate impact on our earnings per share, which could adversely affect the market price of our common stock. Our operating expenses, which include sales and marketing, research and development and general and administrative expenses, are based on our expectations of future revenues and are relatively fixed in the short term. Accordingly, if revenues fall below our expectations, we will not be able to reduce our spending rapidly in response to such a shortfall. This will adversely affect our operating results. Due to the foregoing factors, we believe that quarter-to-quarter comparisons of our results of operations are not a good indication of our future performance. Quantitative and Qualitative Disclosures About Market Risk There were no material changes during the nine months ended September 30, 1999 to our exposure to market risk for changes in interest rates and foreign currency exchange rates. 12 13 PART II. OTHER INFORMATION Item 1. Legal Proceedings. The patents owned by VISX are being challenged on several fronts. Generally, the litigation and other proceedings center on the validity or enforceability of the patents, and on whether infringement of the patents has occurred. In addition, VISX's use of patents and its business practices are being contested in several proceedings as violations of antitrust laws. The results of these complex legal proceedings are very difficult to predict with certainty. Because a number of the proceedings have issues in common, an adverse determination in one proceeding could lead to adverse determinations in one or more of the other pending proceedings. Adverse determinations in any of these proceedings could limit our ability to collect equipment and use fees in certain markets and could have a material, adverse effect on our business, financial position and results of operations. For a complete description of legal proceedings, see VISX's annual report on Form 10-K for the year ended December 31, 1998 and reports on Form 10-Q for the quarters ended March 31, 1999 and June 30, 1999. During the quarter ended September 30, 1999, there were no material developments with respect to such previously existing proceedings and no new material proceedings not previously disclosed, except as follows: Patent Litigation: Nidek and Users of Nidek Lasers International Trade Commission Investigation. The hearing in the International Trade Commission (ITC) investigation of Nidek and its United States subsidiaries based on the complaint filed with the ITC by VISX on January 22, 1999 (Investigation No. 337-TA-419) took place in August 1999. In this case, VISX is seeking an order of the ITC prohibiting the importation, sale and services of the Nidek laser system and its component parts in the United States. Nidek has denied infringement and challenged the validity and enforceability of the two VISX patents asserted in the case. The ITC administrative law judge is expected to issue her initial determination on or before December 1, 1999. This decision may be appealed to the ITC by either party, or both, and the final determination of the ITC is expected to be made no later than March 1, 2000. If favorable to VISX, the ITC's final determination is subject to review by the President of the United States. The decision may also be appealed to the Federal Circuit Court of Appeals. While we believe that the patents asserted against Nidek in this action are infringed by the Nidek laser vision correction system and are valid and enforceable and we will vigorously defend Nidek's claims to the contrary, there can be no assurance as to the outcome of this case. Actions Filed Against Users of Nidek Laser Systems. A trial date of July 17, 2000 has been scheduled in the suit filed by VISX against users of the Nidek EC-5000 excimer laser system captioned VISX, Incorporated v. Farmington Eye Center PLLC and Donald C. Fiander, MD (USDC ED Mich 99-60139). In that case and in the three other actions filed against users of Nidek laser systems (VISX, Incorporated v. OR Providers, Inc., Refractive Support, Inc., and Robert G. Wiley, M.D. (USDC ND Ohio 1:99CV00508); VISX, Incorporated v. Southwest Eye Care Center, Inc. et al (USDC SD Cal 99 CV 1029H JFS); and VISX, Incorporated v. Antoine L. Garabet et. al (USDC CD Cal 99-05284 SVW), VISX has alleged, among other things, that the defendants' use of the Nidek laser system infringes one or more of VISX's patents and is seeking an injunction against the defendants prohibiting the use of the Nidek laser system as well as monetary damages. The defendants in these actions have filed counterclaims seeking, among other things, a declaration of non-infringement, invalidity and unenforceability of the patents asserted. Discovery and pretrial proceedings have taken place and are continuing in these cases. Nidek has filed a motion before the Judicial Panel on Multidistrict Litigation to consolidate the four 13 14 actions filed by VISX against users of Nidek laser systems for pretrial proceedings (MDL Docket No. 1319). Canadian Action. Trial in the patent infringement lawsuit filed by VISX against Nidek and certain of its customers in Canada (Court File No. T-195-94) took place in September 1999. The defendants contested VISX's infringement claims as well as the validity of the Canadian patents asserted by VISX in the case. Although it is not possible to predict the outcome of this case, VISX believes it has meritorious claims. The trial court's decision is expected in the near future. Patent Litigation: Autonomous The case captioned Autonomous Technologies Corporation v. Pillar Point Partners et al. (USDC D Del 96515JJF) was dismissed without prejudice on August 31, 1999. Antitrust 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 VISX and others alleging, among other things, violations of various state and federal antitrust laws. The case captioned Castino v. VISX, Inc. and Summit Technology, Inc. (USDC D Minn 99-861) was voluntarily dismissed without prejudice on July 12, 1999. The remainder of the purported class actions alleging violations of antitrust laws are still in the early stages. Although VISX believes it has meritorious defenses to the claims presented in these actions and intends to defend them vigorously, it is too early to estimate their outcome. Adverse determinations in any of our legal proceedings, including our patent and antitrust proceedings, could give rise to significant monetary damages and could limit VISX's ability to collect license fees which, in turn, would adversely affect VISX's business, financial position and results of operations. Item 6. Exhibits and Reports on Form 8-K. a) Exhibits. Ex. 27 Financial Data Schedule b) Reports on Form 8-K. None. 14 15 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) November 8, 1999 /s/ Mark B. Logan - ---------------- ------------------------- (Date) Mark B. Logan Chairman of the Board and Chief Executive Officer November 8, 1999 /s/ Timothy R. Maier - ---------------- ------------------------- (Date) Timothy R. Maier Executive Vice President and Chief Financial Officer (principal financial officer) November 8, 1999 /s/ Derek A. Bertocci - ---------------- ------------------------- (Date) Derek A. Bertocci Vice President, Controller (principal accounting officer)
15 16 EXHIBIT INDEX
Exhibit Number Description ------- ----------- 27 Financial Data Schedule
16 EX-27 2 FINANCIAL DATA SCHEDULE
5 1,000 9-MOS DEC-31-1999 JAN-01-1999 SEP-30-1999 77,588 148,343 48,038 (1,732) 11,070 310,354 13,308 (7,799) 323,523 50,548 0 0 0 642 272,333 323,523 50,083 196,120 40,573 40,573 0 127 0 110,001 44,001 66,000 0 0 0 66,000 1.05 0.97
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