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 MARCH 31, 2001
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 April 30, 2001:
56,565,941
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 March 31, 2001 and December 31, 2000
Condensed Consolidated Interim Statements of Operations for the 4
Three Months Ended March 31, 2001 and 2000
Condensed Consolidated Interim Statements of Cash Flows for the 5
Three Months Ended March 31, 2001 and 2000
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
Business Risks and Fluctuations in Quarterly Results 10
ITEM 3. Quantitative and Qualitative Disclosure about Market Risk 10
PART II OTHER INFORMATION
ITEM 1. Legal Proceedings 11
ITEM 4. Submission of Matters to a Vote of Security Holders 12
ITEM 6. Exhibits and Reports on Form 8-K 12
SIGNATURES 13
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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
March 31, December 31,
2001 2000
--------- ------------
(unaudited)
CURRENT ASSETS:
Cash and cash equivalents .................................... $ 33,456 $ 19,686
Short-term investments ....................................... 146,617 209,767
Accounts receivable, net of allowance for doubtful
accounts of $5,985 and $5,771, respectively ................ 40,488 34,540
Inventories .................................................. 14,837 14,762
Deferred tax assets and prepaid expenses ..................... 19,441 19,642
--------- ---------
Total current assets ...................................... 254,839 298,397
PROPERTY AND EQUIPMENT, NET ..................................... 4,268 4,996
LONG-TERM DEFERRED TAX AND OTHER ASSETS ......................... 18,553 18,114
--------- ---------
$ 277,660 $ 321,507
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable ............................................. $ 11,340 $ 7,353
Accrued liabilities .......................................... 52,500 45,382
--------- ---------
Total current liabilities ................................. 63,840 52,735
--------- ---------
STOCKHOLDERS' EQUITY:
Common stock:
$.01 par value, 180,000,000 shares authorized;
64,990,089 shares issued ................................... 650 650
Additional paid-in capital ................................... 213,979 214,668
Treasury stock, at cost 8,322,158 and 4,233,989 shares,
respectively ............................................... (148,114) (79,946)
Accumulated comprehensive income ............................. 2,269 984
Retained earnings ............................................ 145,036 132,416
--------- ---------
Total stockholders' equity ............................... 213,820 268,772
--------- ---------
$ 277,660 $ 321,507
========= =========
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
March 31,
------------------------
2001 2000
------- -------
(unaudited)
REVENUES:
System sales ............................. $17,096 $19,877
License, service and other revenues ...... 34,480 44,120
------- -------
Total revenues ......................... 51,576 63,997
------- -------
COSTS AND EXPENSES:
Cost of revenues ......................... 17,828 16,969
Marketing, general and administrative .... 11,780 14,588
Research, development and regulatory ..... 4,550 3,510
------- -------
Total costs and expenses ............... 34,158 35,067
------- -------
INCOME FROM OPERATIONS ...................... 17,418 28,930
Interest and other income ................ 3,442 3,667
------- -------
INCOME BEFORE PROVISION FOR INCOME TAXES .... 20,860 32,597
Provision for income taxes ............... 8,240 13,039
------- -------
NET INCOME .................................. $12,620 $19,558
======= =======
EARNINGS PER SHARE
Basic .................................... $ 0.21 $ 0.31
======= =======
Diluted .................................. $ 0.21 $ 0.30
======= =======
SHARES USED FOR EARNINGS PER SHARE
Basic .................................... 59,522 63,617
======= =======
Diluted .................................. 61,018 66,147
======= =======
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)
Three months ended
March 31,
---------------------------
2001 2000
-------- --------
(unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income .................................................................. $ 12,620 $ 19,558
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization ............................................ 1,002 928
Reserve for doubtful accounts receivable ................................. 214 571
Increase (decrease) in cash flows from changes in operating assets and
liabilities:
Accounts receivable ................................................... (6,162) 9,089
Inventories ........................................................... (75) 21
Deferred tax assets and prepaid expenses .............................. 201 12,425
Long-term deferred tax and other assets ............................... (439) (16,964)
Accounts payable ...................................................... 3,987 8,901
Accrued liabilities ................................................... 7,118 600
-------- --------
Net cash provided by operating activities ................................ 18,466 35,129
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures ........................................................ (274) (336)
Proceeds from maturities of short-term investments .......................... 64,309 38,297
-------- --------
Net cash provided by investing activities ................................ 64,035 37,961
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Exercise of stock options ................................................... 467 2,199
Repurchase of common stock .................................................. (69,198) (76,152)
-------- --------
Net cash used in financing activities .................................... (68,731) (73,953)
-------- --------
Net increase (decrease) in cash and cash equivalents ........................... 13,770 (863)
Cash and cash equivalents, beginning of period ................................. 19,686 25,842
-------- --------
Cash and cash equivalents, end of period ....................................... $ 33,456 $ 24,979
======== ========
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
MARCH 31, 2001
(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 2000 Annual
Report on 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. REVENUE RECOGNITION:
We record revenue and the cost of installation, training, and warranty
services when we ship and, where applicable, install products. Software that is
used in our systems is included at the time of shipment. We recognize service
revenue when we provide service. We recognize license revenue when we ship
VisionKey(R) cards in the United States and when we receive payments from
licensees.
3. 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, and are unaudited.
Three Months
Ended
March 31,
------------------------
2001 2000
------- -------
NET INCOME ................................................. $12,620 $19,558
======= =======
BASIC EARNINGS PER SHARE
Income available to common shareholders ................... $12,620 $19,558
Weighted average common shares outstanding ................ 59,522 63,617
------- -------
Basic Earnings Per Share .................................. $ 0.21 $ 0.31
======= =======
DILUTED EARNINGS PER SHARE
Income available to common shareholders ................... $12,620 $19,558
------- -------
Weighted average common shares outstanding ................ 59,522 63,617
Dilutive potential common shares from stock options ....... 1,496 2,530
------- -------
Weighted average common shares and dilutive potential
common shares .......................................... 61,018 66,147
------- -------
Diluted Earnings Per Share ................................ $ 0.21 $ 0.30
======= =======
Options to purchase 5,124,000 shares and 1,850,000 shares during the
three month periods ended March 31, 2001 and 2000, 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.
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4. INVENTORIES (in thousands):
March 31, December 31,
2001 2000
-------- ------------
(unaudited)
Raw materials and subassemblies ........ $ 9,998 $ 9,278
Work in process ........................ 3,137 4,099
Finished goods ......................... 1,702 1,385
------- -------
Total ................................ $14,837 $14,762
======= =======
5. COMPREHENSIVE INCOME (unaudited, in thousands):
Three Months Ended
March 31,
--------------------------
2001 2000
-------- --------
NET INCOME ............................................ $ 12,620 $ 19,558
OTHER COMPREHENSIVE INCOME
Change in unrealized holding gains (losses) on
available-for-sale securities ..................... 1,159 (272)
Change in accumulated foreign currency
translation adjustment ............................ 126 (20)
-------- --------
COMPREHENSIVE INCOME .................................. $ 13,905 $ 19,266
======== ========
6. 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"). It 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
adopted SFAS No. 133 in the first quarter of 2001. As we do not hold derivative
instruments, it did not have a material effect on our financial position or
results of operations.
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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
2000 Annual Report and Form 10-K and under "Business Risks and Fluctuations In
Results" 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 Excimer 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. The FDA has also approved our WaveScan(TM)
Wavefront System ("WaveScan System") which provides a complete refractive
analysis of the eye's entire optical system. In the future, we anticipate that
doctors will be able to use this analysis to enhance treatments with the VISX
System. We sell VisionKey(R) cards to control the use of the VISX System and to
collect license fees for the use of our patents.
The laser vision correction industry is evolving rapidly. New
developments and changes in market conditions frequently affect VISX and could
harm our business in the future. We may face increased competition from
manufacturers and users of other laser vision correction systems or new
competition from non-laser methods for correcting a person's vision. Patients'
and doctors' desire for laser vision correction using VISX Systems may not grow
or may decline in the future. Prices for our products and services may change as
the result of new developments in our market. If adverse determinations were
rendered in current or future patent and antitrust litigation, damages might be
assessed against us and we may not be able to enforce our current patent rights
or collect license fees. All of these factors could cause orders and revenues
for VISX Systems and VisionKey(R) cards to fluctuate or even decline.
Accordingly, our past results may not be useful in predicting our future
results.
RESULTS OF OPERATIONS
Three Months Ended March 31,
---------------------------------------------
REVENUES (000's) 2001 2000 Change
-------- ------- ------- ------
System sales ...................... $17,096 $19,877 (14)%
Percent of total revenues ..... 33.1% 31.1%
License, service & other
revenues ...................... 34,480 44,120 (22)%
Percent of total revenues ..... 66.9% 68.9%
Total ............................. $51,576 $63,997 (19)%
We sold fewer laser systems in the first quarter of 2001 than in the
first quarter of 2000. Sales of laser upgrades, which commenced in the fourth
quarter of 2000, partially offset the decline in sales of new lasers. The
average selling price for laser systems was approximately the same in both
years. We believe the decline in laser system sales was due to a number of
factors including the economic slowdown in the United States and increased
competition.
Customers in the U.S. purchased VisionKey(R) cards for more procedures in
the first quarter of 2001 than in the comparable period of 2000. This volume
increase was partially offset by the reduction of our license fee, effective
February 22, 2000, from $250 to $100 per procedure in the U.S. We believe that
our U.S. procedure volume increased due to a number of factors: consumer demand
for laser vision
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correction increased, VISX customers advertised the benefits of their new VISX
STAR S3 ActiveTrak laser systems to consumers, and VISX's share of the U.S.
market for laser vision correction grew in the first quarter of 2001.
Three Months Ended March 31,
---------------------------------------------
COSTS & EXPENSES (000's) 2001 2000 Change
---------------- --------- --------- ------
Cost of revenues .................. $ 17,828 $ 16,969 5%
Percent of total revenues ..... 34.6% 26.5%
Marketing, gen'l and admin ........ 11,780 14,588 (19)%
Percent of total revenues ..... 22.8% 22.8%
R&D and regulatory ................ 4,550 3,510 30%
Percent of total revenues ..... 8.8% 5.5%
In the first quarter of 2001, cost of revenues for upgrades (first
shipped in the fourth quarter of 2000) more than offset the decline in cost of
revenues for laser system. Our gross profit margin was lower in 2001 than in
2000 due to lower license fee revenue and the fact that gross profit margins
were lower on laser upgrades than on laser systems. Marketing, general and
administrative expenses were lower in the first quarter of 2001 than in the
comparable period of the prior year. Marketing expenses were lower due to a
reduction in costs associated with consumer programs. Legal expenses were also
lower in 2001 than in 2000. In research and development we increased spending in
our three main areas of focus: new capabilities for the VISX STAR Excimer Laser
platform, development of new products such as our WaveScan System and
wavefront-driven ablations, and research into new technologies. We anticipate
that our R&D and regulatory expenses will total approximately $19 million in
2001.
Our average balance of cash invested in interest bearing securities
declined in 2001 from 2000 because we repurchased a significant amount of our
stock. Accordingly, interest income declined in 2001 from 2000. We accrued
income taxes based on our expected effective income tax rate for all of 2000,
net of credits anticipated.
LIQUIDITY AND CAPITAL RESOURCES
Cash, cash equivalents and short-term investments ("cash") and working
capital were as follows:
(000's)
March 31, 2001 December 31, 2000
-------------- -----------------
Cash, cash equivalents and short-term
investments ................................. $180,073 $229,453
Working capital ............................. 190,999 245,662
Cash decreased by $49 million in the first three months of 2001
principally because we spent $69 million to repurchase 4.1 million shares of
VISX stock on the open market. This was partially offset by $18 million
generated from operations.
On April 4, 2001 our Board of Directors authorized a new Stock Repurchase
Program under which up to 10 million shares of VISX common stock may be
repurchased. Before repurchasing shares we consider a number of factors
including market conditions, the market price of the stock, and the number of
shares needed for employee benefit plans. As a result, we cannot predict the
number of shares that we may repurchase in the future.
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Purchases of short-term investments represent reinvestment into
short-term investments of the proceeds from short-term investments that matured
and investment of cash and cash equivalents. As of March 31, 2001 we did not
have any borrowings outstanding nor any credit agreements.
Our normal payment terms are net 30 days. However, based on our
evaluation of customers, market conditions and industry practices, we provide
extended payment terms beyond one year on some of our system sales in certain
markets. We believe 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.
BUSINESS RISKS AND FLUCTUATIONS IN RESULTS
Our results of operations have varied widely in the past, and they could
continue to vary significantly due to a number of factors, including:
- Patients' and doctors' acceptance of laser vision correction as a
preferred means of vision correction;
- Competition from manufacturers and users of other laser vision
correction systems;
- Introduction of new methods for vision correction which render our
products less competitive or obsolete;
- Changes in prices for our products and services as the result of
new developments in our markets;
- Developments in antitrust litigation to which we are currently a
party;
- Developments in patent litigation that we have initiated,
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; and
- Developments in patent litigation in which we are a defendant,
particularly to the extent that adverse developments in these
proceedings result in damages being assessed against VISX, prevent
us from manufacturing or selling our products, or 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.
In the future, our revenue may fluctuate significantly. Any shortfall in
revenues below expectations would likely 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 expectations, we will not be able to reduce
our spending rapidly in response to such a shortfall. This will adversely affect
our operating results. We devote significant resources to research and
development. We anticipate that the resulting new products and capabilities will
be well received by customers and generate future revenue, however the actual
results may vary from expectations. Due to the foregoing factors, we believe
that our results of operations in any given period may not be a good indicator
of our future performance.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There were no material changes during the three months ended March 31,
2001 to our exposure to market risk for changes in interest rates and foreign
currency exchange rates.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
OVERVIEW
VISX is engaged in numerous legal proceedings. 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 and securities 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, could
give rise to significant monetary damages, could prevent VISX from manufacturing
and selling the VISX System, and therefore could have a material adverse effect
on VISX's 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, 2000. During the quarter ended
March 31, 2001, 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: LASERSIGHT
In February 2000, LaserSight filed a lawsuit against VISX in the United
States District Court in Delaware alleging that VISX infringes United States
Patent No. 5,630,810 (the " `810 Patent") which is licensed to LaserSight (USDC
Del. 00-059). On May 10, 2001, LaserSight agreed to dismiss its claim against
VISX with prejudice and granted VISX and its customers a covenant not to sue for
infringement of the `810 Patent and any present and future continuations,
continuations in part, divisionals, reissues or reexaminations thereof, as well
as any foreign counterparts thereto. VISX did not pay any money for this
dismissal and covenant.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
a) We held our Annual Meeting of Stockholders on May 4, 2001.
b) The stockholders voted as follows on the election of all five members of
the Board of Directors. There were no abstentions or non-votes for any
nominee and all five were elected as directors.
Name For Withheld
---- --- --------
Elizabeth H. Davila 31,399,089 1,930,103
Glendon E. French 31,430,330 1,898,862
John W. Galiardo 31,432,288 1,896,904
Jay T. Holmes 30,575,147 2,754,045
Richard B. Sayford 31,424,210 1,904,982
c) The stockholders voted as follows on a proposal to ratify the appointment
of Arthur Andersen LLP as auditors of the Company for 2001.
For Against Abstain
--- ------- -------
32,760,865 504,825 63,502
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
a) Exhibits.
None
b) Reports on Form 8-K.
VISX filed two reports on Form 8-K during or after the period covered by
this report, as follows:
(1) Report on Form 8-K filed on April 6, 2001 under Item 5 (Other
Events) covering amendments and restatements of VISX Bylaws, as
revised through April 3, 2001. Attached as exhibits to the Form
8-K were VISX's amended and restated Bylaws, as revised through
April 3, 2001.
(2) Report on Form 8-K filed on May 1, 2001 under Item 5 (Other
Events) covering VISX Board of Directors authorization of an
amendment to the Rights Agreement, dated as of August 3, 2000 (the
"Rights Agreement"), between VISX and Fleet National Bank, as
rights agent. Attached as exhibits to the Form 8-K were the Rights
Agreement, dated as of August 3, 2000, and the Amendment to the
Rights Agreement, dated as of April 25, 2001.
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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)
May 11 , 2001 /s/ Elizabeth H. Davila
---- -------------------------------------
(Date) Elizabeth H. Davila
Chairman of the Board and
Chief Executive Officer
May 11 , 2001 /s/ Timothy R. Maier
---- -------------------------------------
(Date) Timothy R. Maier
Executive Vice President and
Chief Financial Officer (principal
financial officer)
May 11 , 2001 /s/ Derek A. Bertocci
---- -------------------------------------
(Date) Derek A. Bertocci
Vice President, Controller (principal
accounting officer)
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