VISX, Incorporated, Form 10-Q, 3/31/2002
Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

FORM 10-Q

     
(X BOX)   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
     
    For the quarterly period ended March 31, 2002
     
    or
     
(BOX)   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
Incorporation or Organization)
  (IRS Employer
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 BOX) No (BOX)

         Total number of shares of common stock outstanding as of April 30, 2002: 53,970,037.

 


TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Interim Financial Statements
CONDENSED CONSOLIDATED INTERIM BALANCE SHEETS
CONDENSED CONSOLIDATED INTERIM STATEMENTS OF OPERATIONS
CONDENSED CONSOLIDATED INTERIM STATEMENTS OF CASH FLOWS
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Overview
Results of Operations
Liquidity and Capital Resources
Item 3. Quantitative and Qualitative Disclosures about Market Risk
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES


Table of Contents

VISX, INCORPORATED
TABLE OF CONTENTS

         
        Page
PART I   FINANCIAL INFORMATION    
         
Item 1.   Condensed Consolidated Interim Financial Statements    
         
    Condensed Consolidated Interim Balance Sheets as of March 31, 2002 and December 31, 2001     3
         
    Condensed Consolidated Interim Statements of Operations for the Three Months Ended March 31, 2002 and 2001     4
         
    Condensed Consolidated Interim Statements of Cash Flows for the Three Months Ended March 31, 2002 and 2001     5
         
    Notes to Condensed Consolidated Interim Financial Statements     6
         
Item 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operations    
         
    Overview     9
         
    Results of Operations     9
         
    Liquidity and Capital Resources   10
         
Item 3.   Quantitative and Qualitative Disclosure about Market Risk   12
         
PART II   OTHER INFORMATION    
         
Item 1.   Legal Proceedings   12
         
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)

                       
          March 31,   December 31,
          2002   2001
         
 
          (unaudited)    
ASSETS
               
Current Assets:
               
 
Cash and cash equivalents
  $ 32,046     $ 15,349  
 
Short-term investments
    96,805       108,458  
 
Accounts receivable, net of allowance for doubtful accounts of $4,385 and $4,567, respectively
    29,489       32,490  
 
Inventories
    12,080       14,071  
 
Deferred tax assets and prepaid expenses
    28,794       33,214  
 
   
     
 
   
Total current assets
    199,214       203,582  
Property and Equipment, net
    5,073       4,152  
Long-Term Deferred Tax and Other Assets
    10,958       12,191  
 
   
     
 
 
  $ 215,245     $ 219,925  
 
   
     
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
               
Current Liabilities:
               
 
Accounts payable
  $ 5,248     $ 3,270  
 
Accrued liabilities and other current liabilities
    42,108       40,377  
 
   
     
 
   
Total current liabilities
    47,356       43,647  
 
   
     
 
Stockholders’ Equity:
               
 
Common stock: $.01 par value, 180,000,000 shares authorized; 64,990,089 shares issued
    650       650  
 
Additional paid-in capital
    203,858       208,130  
 
Treasury stock, at cost 11,038,079 and 10,436,238 shares, respectively
    (187,741 )     (178,347 )
 
Accumulated other comprehensive income
    1,294       2,520  
 
Retained earnings
    149,828       143,325  
 
   
     
 
   
Total stockholders’ equity
    167,889       176,278  
 
   
     
 
 
  $ 215,245     $ 219,925  
 
   
     
 

         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,
       
        2002   2001
       
 
        (unaudited)
Revenues:
               
 
System sales
  $ 9,915     $ 17,096  
 
License, service and other revenues
    26,670       33,369  
 
   
     
 
   
Total revenues
    36,585       50,465  
 
   
     
 
Costs and Expenses:
               
 
Cost of revenues
    12,604       17,828  
 
Marketing, general and administrative
    10,518       10,669  
 
Research, development and regulatory
    4,245       4,550  
 
   
     
 
 
Total costs and expenses
    27,367       33,047  
 
   
     
 
Income From Operations
    9,218       17,418  
 
Interest and other income
    1,531       3,442  
 
   
     
 
Income Before Provision For Income Taxes
    10,749       20,860  
 
Provision for income taxes
    4,246       8,240  
 
   
     
 
Net Income
  $ 6,503     $ 12,620  
 
   
     
 
Earnings Per Share
               
 
Basic
  $ 0.12     $ 0.21  
 
   
     
 
 
Diluted
  $ 0.12     $ 0.21  
 
   
     
 
Shares Used For Earnings Per Share
               
 
Basic
    54,509       59,522  
 
   
     
 
 
Diluted
    55,581       61,018  
 
   
     
 

         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,
         
          2002   2001
         
 
          (unaudited)
Cash flows from operating activities:
               
 
Net income
  $ 6,503     $ 12,620  
 
Adjustments to reconcile net income to net cash provided by operating activities:
               
   
Depreciation and amortization
    905       1,002  
   
Provision for doubtful accounts receivable
    200       252  
   
Increase (decrease) in cash flows from changes in operating assets and liabilities:
               
     
Accounts receivable
    2,801       (6,200 )
     
Inventories
    1,991       (75 )
     
Deferred tax assets and prepaid expenses
    4,420       201  
     
Long-term deferred tax and other assets
    1,233       (439 )
     
Accounts payable
    1,978       3,987  
     
Accrued liabilities
    1,731       7,118  
 
   
     
 
   
Net cash provided by operating activities
    21,762       18,466  
 
   
     
 
Cash flows from investing activities:
               
 
Capital expenditures, net
    (1,826 )     (274 )
 
Purchase of short-term investments
    (13,105 )      
 
Proceeds from maturities of short-term investments
    23,523       64,309  
 
   
     
 
   
Net cash provided by investing activities
    8,592       64,035  
 
   
     
 
Cash flows from financing activities:
               
 
Exercise of stock options
    2,572       341  
 
Repurchase of common stock
    (16,238 )     (69,198 )
 
   
     
 
   
Net cash used in financing activities
    (13,666 )     (68,857 )
 
   
     
 
Effect of exchange rate changes on cash
    9       126  
 
   
     
 
Net increase in cash and cash equivalents
    16,697       13,770  
Cash and cash equivalents, beginning of period
    15,349       19,686  
 
   
     
 
Cash and cash equivalents, end of period
  $ 32,046     $ 33,456  
 
   
     
 

         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, 2002
(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 accounting principles generally accepted in the United States. Please read our 2001 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.     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,
     
      2002   2001
     
 
NET INCOME
  $ 6,503     $ 12,620  
 
   
     
 
BASIC EARNINGS PER SHARE
               
 
Income available to common shareholders
  $ 6,503     $ 12,620  
 
Weighted average common shares outstanding
    54,509       59,522  
 
   
     
 
 
Basic Earnings Per Share
  $ 0.12     $ 0.21  
 
   
     
 
DILUTED EARNINGS PER SHARE
               
 
Income available to common shareholders
  $ 6,503     $ 12,620  
 
   
     
 
 
Weighted average common shares outstanding
    54,509       59,522  
 
Dilutive potential common shares from stock options
    1,072       1,496  
 
   
     
 
 
Weighted average common shares and dilutive potential common shares
    55,581       61,018  
 
   
     
 
 
Diluted Earnings Per Share
  $ 0.12     $ 0.21  
 
   
     
 

         Options to purchase 5,303,000 shares and 5,124,000 shares during the three month periods ended March 31, 2002 and 2001, 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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3.     Inventories (in thousands):

                 
    March 31,   December 31,
    2002   2001
   
 
    (unaudited)    
Raw materials and subassemblies
  $ 8,425     $ 8,901  
Work in process
    1,371       1,491  
Finished goods
    2,284       3,679  
 
   
     
 
 
  $ 12,080     $ 14,071  
 
   
     
 

4.     Comprehensive Income (unaudited, in thousands):

                   
      Three Months Ended
      March 31,
     
      2002   2001
     
 
NET INCOME
  $ 6,503     $ 12,620  
OTHER COMPREHENSIVE INCOME
               
 
Change in unrealized holding gains (losses) on available-for-sale securities
    (1,235 )     1,159  
 
Change in accumulated foreign currency translation adjustment
    9       126  
 
   
     
 
COMPREHENSIVE INCOME
  $ 5,277     $ 13,905  
 
   
     
 

5.     New Accounting Pronouncements

         On June 29, 2001, the Financial Accounting Standard Board (“FASB”) approved for issuance Statement of Financial Accounting Standards No. 141, “Business Combinations” (“SFAS 141”), and Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets” (“SFAS 142”). Major provisions of these statements are as follows:

  (i)   All business combinations initiated after June 30, 2001 must use the purchase method of accounting,
 
  (ii)   The pooling of interests method of accounting is prohibited except for transactions initiated before June 30, 2001,
 
  (iii)   Intangible assets acquired in a business combination must be recorded separately from goodwill if they arise from contractual or other legal rights or are separable from the acquired entity and can be sold, transferred, licensed, rented or exchanged, either individually or as part of a related contract, asset or liability,
 
  (iv)   Goodwill and intangible assets with indefinite lives are not amortized but are tested for impairment annually using a fair value approach, except in certain circumstances, and whenever there is an impairment indicator,
 
  (v)   Other intangible assets will continue to be valued and amortized over their estimated lives,
 
  (vi)   In-process research and development will continue to be written off immediately,

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  (vii)   All acquired goodwill must be assigned to reporting units for purposes of impairment testing and segment reporting, and
 
  (viii)   Effective January 1, 2002, goodwill existing as of June 30, 2001 will no longer be subject to amortization.

         Goodwill arising between June 29, 2001 and December 31, 2001 will not be subject to amortization. Since we have no goodwill assets, adoption of these statements on January 1, 2002 had no impact on our financial statements or results of operations.

         In August 2001, the FASB issued Statement of Financial Accounting Standards No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS 144”). An impairment loss must be recognized if the net book value of long-lived assets exceeds:

  (i)   The future cash flows to be generated by these assets, whether through continued operation or sale,
 
  (ii)   The fair value of assets to be distributed to owners in a spin-off, or
 
  (iii)   The fair value of productive assets for which they are exchanged.

         This statement applies to long-term leases, certain oil and gas properties, and long-term prepaid assets. It does not apply to goodwill, intangible assets not being amortized, investments in equity securities accounted for under the cost or equity method, and certain other types of long-term assets. The provisions of SFAS 144 are effective for financial statements issued for fiscal years beginning after December 15, 2001. Adoption of this statement did not have any impact on VISX’s financial statements or results of operations.

         In July 2001, the FASB Emerging Issues Task Force (“EITF”) reached final consensus on EITF No. 00-25, “Vendor Income Statement Characterization of Consideration Paid to a Reseller of the Vendor’s Products” (“EITF 00-25”). EITF 00-25 generally requires that consideration, including equity instruments, given to a customer be classified in a vendor’s financial statements not as an expense, but as a reduction to revenue up to the amount of cumulative revenue recognized or to be recognized. In November 2001, the EITF reached consensus on EITF No. 01-09, “Accounting for Consideration Given by a Vendor to a Customer or Reseller of the Vendor’s Products” (“EITF 01-09”). EITF 01-09 clarifies and modifies certain items discussed in EITF 00-25. We adopted these new standards in the quarter ended March 31, 2002.

         In accordance with EITF 00-25 and EITF 01-09, we have reclassified consideration provided to customers in our statements of operations. This consideration was previously reported as marketing, general and administrative expense. Beginning with the quarter ended March 31, 2002, this consideration will be reported as a reduction to license, service and other revenue. The prior year comparative amounts will be reclassified to be consistent with the current year presentation. The amounts reclassified for the first, second, third and fourth quarters of 2001 are $1.1 million, $1.1 million, $1.5 million and $0.8 million, respectively. These reclassifications do not change the amount of net income reported for each period; however, revenues and expenses are reduced in equal and offsetting amounts in each period.

         Reclassifications. Certain reclassifications were made to prior year financial data to conform with current year presentation.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

         This Report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. When we use the words, “anticipate,” “estimate,” “project,” “intend,” “expect,” “plan,” “believe,” “should,” “likely” and similar expressions, we are making forward-looking statements. In addition, forward-looking statements in this report include, but are not limited to, statements about our beliefs, estimates or plans regarding the following topics: our research efforts; the outcome of various lawsuits to which we are a party; the use of our WaveScan® System; system upgrade revenues in 2002; renewed support in the U.S. laser vision correction market in 2002; the amount of our R&D and regulatory expenses in 2002. These forward-looking statements are estimates reflecting the best judgment of the senior management of VISX, and they involve a number of risks and uncertainties that could cause actual results to differ materially from those suggested by the forward-looking statements. Forward-looking statements should therefore be considered in light of various important factors, including those set forth in our 2001 annual report on Form 10-K under the caption “Risk Factors” beginning on page 26, “Legal Proceedings” beginning on page 8, and elsewhere in that report. Moreover, we caution you not to place undue reliance on these forward-looking statements, which speak only as of the date they were made. We do not undertake any obligation to publicly release any revisions to these forward-looking statements to reflect events or circumstances after the date of this report or to reflect the occurrence of unanticipated events.

         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 the 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™ 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® 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. Economic, market, and technology changes frequently affect VISX and could harm our business in the future. Please see the section of our 2001 annual report on Form 10-K entitled “Risk Factors,” beginning on page 26 of that report, for a more thorough description of the risks that our business faces. If any of the risks in that Risk Factors section materialize, orders and revenues for VISX Systems and VisionKey cards could fluctuate or 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)   2002   2001   Change

 
 
 
System sales
  $ 9,915     $ 17,096       (42 )%
 
Percent of total revenues
    27.1 %     33.9 %        
License, service & other revenues
    26,670       33,369       (20 )%
 
Percent of total revenues
    72.9 %     66.1 %        
Total
  $ 36,585     $ 50,465       (28 )%

         System sales revenue in the first quarter of 2002 was $7 million lower than in the comparable period of 2001 due to declines in sales of laser systems and upgrades of laser systems. Laser system sales revenue declined $5 million due, we believe, to the recession (both U.S. and worldwide). Laser upgrade

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revenue decreased $3 million due to the recession and the fact that approximately 60% of our U.S. customers had already upgraded their STAR S2™ laser systems to the STAR S3™ model by the end of 2001. Accordingly, we anticipate that upgrade revenue throughout 2002 will be lower than in 2001. Sales of our WaveScan system generated approximately $1 million of additional sales revenue in the first quarter of 2002 as compared to the same period in 2001.

         License, service and other revenue in the first quarter of 2002 was $7 million lower than in the comparable period of 2001 due to a decline in license and other procedure fees (“procedure fees”) from U.S. customers. Procedure fees declined due to a lower volume of procedures for which VISX earned procedure fees. We believe the economic recession and the decline in consumer confidence that occurred in 2001 were the principal reasons why our procedure volume, and the U.S. laser vision correction market as a whole, were lower in the first quarter of 2002 than in the same period of 2001. We believe that the rebound of the U.S. economy and consumer confidence that began in the first quarter of 2002 will provide renewed support for the U.S. laser vision correction market, though the timing and extent of the rebound through the remainder of 2002 is difficult to predict.

                           
      Three Months Ended March 31,
     
COSTS & EXPENSES (000's)   2002   2001   Change

 
 
 
Cost of revenues
  $ 12,604     $ 17,828       (29 )%
 
Percent of total revenues
    34.5 %     35.3 %        
Marketing, gen’l and admin
    10,518       10,669       (1 )%
 
Percent of total revenues
    28.7 %     21.1 %        
R&D and regulatory
    4,245       4,550       (7 )%
 
Percent of total revenues
    11.6 %     9.0 %        

         Cost of revenues declined $5 million due to lower unit sales of laser systems and laser upgrades, with each accounting for approximately one half of the decline. Our gross profit margin has remained relatively constant at approximately 65%. Marketing, general and administrative expenses declined slightly from the same period in the prior year due to a decrease in marketing spending. Our research and development expenses were lower in the first quarter of 2002 than in the same period of the prior year due to the timing of development of our projects. As these projects progress, we anticipate that our R&D and regulatory expenses will increase in future quarters and will total approximately $18 to $19 million for 2002.

Liquidity and Capital Resources

         Cash, cash equivalents and short-term investments (“cash”) and working capital were as follows:

                 
    (000's)
    March 31,   December 31,
    2002   2001
   
 
Cash
  $ 128,851     $ 123,807  
Working capital
    151,858       159,935  

         Cash increased by $5 million in the first quarter of 2002 due mainly to $22 million of cash provided by operations offset by $16 million paid to repurchase 1 million shares of VISX stock on the open market.

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         Operating activities provided $22 million of cash in the first quarter of 2002, up from $18 million provided in the same period of 2001. The following factors that impact cash flow from operations changed between 2002 and 2001.

    Net income declined $6.1 million due mainly to lower sales.
 
    Accounts payable and accrued liabilities each increased in the first quarter of 2002 and 2001, but the increases were lower in 2002 than in the prior year by a total of $7.4 million. The timing of payments of U.S. income taxes accounted for approximately $6 million of this difference.
 
    Deferred tax assets decreased by $4.4 million in 2002 as we benefited from prepaid taxes carried forward from 2001.
 
    Accounts receivable (net of reserves) declined by $2.8 million in 2002 whereas it increased by $6.2 million in 2001. This contributed $9.0 million to the improvement in cash flow.
 
    Long-term deferred tax and other assets declined by $1.2 million due to a reduction in the long-term portion of equipment financing outstanding with customers.
 
    Inventory continued to decline in the first quarter of 2002 as we made progress balancing inventory and production needs. This contributed $2.0 million to the increase in cash flow.

         Interest income was lower in 2002 than in 2001 due mainly to the decrease in cash available for investment in interest bearing securities.

         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. In accordance with the April 4, 2001 authorization and applicable securities laws, through purchases on the open market we repurchased 1,002,800 shares during the first quarter of 2002 and have repurchased 4,105,200 shares cumulatively through March 31, 2002 at a total cost of $16.2 million and $63.9 million, respectively. Accordingly, 5.9 million shares remain available as of March 31, 2002 for repurchase under the Board of Directors’ April 2001 authorization.

         Purchases of short-term investments represent reinvestment of the proceeds from short-term investments that matured and investment of cash and cash equivalents. As of March 31, 2002, we did not have any borrowings outstanding or any credit agreements.

         Our normal credit terms granted to customers are net 30 to 60 days. In an effort to promote the growth of the laser vision correction industry and the use of VISX® Systems, in certain markets we provide long-term financing to customers for their purchase of VISX® Systems. We consider a number of factors including industry practice, competition and our evaluation of customers’ credit worthiness in determining when to offer such financing. We believe that our operations will provide sufficient cash flow to meet our working capital and capital equipment needs during the coming twelve months. In addition, we have $129 million of cash as of March 31, 2002 to provide for unforeseen contingencies and to support strategic objectives including the development or acquisition of new technologies and our Stock Repurchase Program.

         In August 2001 we signed a one-year research and development agreement with Medjet Inc. (“Medjet”) under which we provide funding to Medjet to pursue new ophthalmic technologies and products. In addition, we signed an agreement with Medjet that provides us with a one-year option, for which we paid $0.5 million, to acquire all outstanding Medjet common stock in a merger transaction for $2.00 per share in cash. The closing of the potential merger is subject to Medjet’s shareholder approval and is subject to other customary conditions to closing. At the same time, we paid $1.3 million to

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purchase from a third party all outstanding shares of Medjet’s Series B Convertible Preferred Stock, which are entitled to votes equivalent to 1,040,000 shares of Medjet common stock and vote together with Medjet’s common stock. These shares owned by VISX represent 21% of Medjet’s voting stock. In connection with these agreements, we also entered into a voting agreement with Dr. Eugene Gordon, founder of Medjet, under which Dr. Gordon has agreed to vote all of his shares of common stock in favor of the merger, and has agreed to sell all of his stock to VISX in the event that VISX offers to complete the merger. Dr. Gordon currently holds 1,596,787 shares, representing 32% of Medjet’s voting stock. Lastly, we now have one of seven seats on Medjet’s Board of Directors. We account for this investment under the equity method prescribed by APB 18.

         Under our R&D agreement with Medjet, we paid approximately $0.8 million to Medjet to fund research and development work they performed during the first quarter of 2002 and anticipate continuing this funding level through August 2002. We expense payments made to Medjet as research, development and regulatory expense in our financial statements. To exercise our option to acquire Medjet, we would have to pay approximately $9 million based on the $2.00 per share purchase price and the number of shares of Medjet common stock, options and warrants outstanding at March 31, 2002.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

         There were no material changes during the three months ended March 31, 2002 in our exposure to market risk for changes in interest rates and foreign currency exchange rates.

         PART II. OTHER INFORMATION

         Item 1. Legal Proceedings

         Overview

         VISX is involved in a variety of legal proceedings that affect its business. These include proceedings relating to patents and intellectual property rights, proceedings relating to claims that VISX’s activities have violated antirust laws, class actions filed under federal securities laws and other litigation proceedings. For a complete description of legal proceedings, see VISX’s annual report on Form 10-K for the year ended December 31, 2001. During the quarter ended March 31, 2002, 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: WaveLight

         In March 2002, VISX filed a lawsuit in Duesseldorf, Germany against WaveLight Laser Technologie AG and its senior manager, Max Reindl, alleging infringement of VISX’s German Patent No. P3481164.8 and seeking monetary damages and injunctive relief. WaveLight is a German manufacturer and seller of excimer laser systems for use in laser vision correction. The first court hearing in the German proceeding is scheduled for June 6, 2002 at which time the Court will set a timetable for the proceeding.

         Antitrust Class Actions And Litigation Involving Pillar Point Partners

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         In May 1999, Brisson v. Summit Technology, Inc., VISX, Inc., Summit Partner, Inc., VISX Partner, Inc. and Pillar Point Partners was filed by plaintiff in the State of Minnesota, County of Hennepin, on behalf of a purported class of Minnesota patients alleging violations of Minnesota antitrust laws and seeking unspecified damages and injunctive relief. On April 10, 2002, pursuant to the parties’ stipulation, this action was dismissed with prejudice.

         Item 6. Exhibits and Reports on Form 8-K

a)   Exhibits.
 
    None
 
b)   Reports on Form 8-K.
 
    None

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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 10, 2002 (Date)   /s/Elizabeth H. Dávila
Elizabeth H. Davila
Chairman of the Board and
Chief Executive Officer
     
May 10, 2002 (Date)   /s/Timothy R. Maier
Timothy R. Maier
Executive Vice President and
Chief Financial Officer (principal
financial officer)
     
May 10, 2002 (Date)   /s/Derek A. Bertocci
Derek A. Bertocci
Vice President, Controller (principal
accounting officer)

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