<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended: SEPTEMBER 30, 1998
------------------
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from __________ to __________
Commission File Number: 0-16937
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SUMMIT TECHNOLOGY, INC.
(Exact name of registrant as specified in its charter)
Massachusetts 04-2897945
- - ------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
21 Hickory Drive, Waltham, Massachusetts 02451
- - --------------------------------------------------------------------------------
(Address of principal executive officer) (Zip Code)
(781) 890-1234
----------------------------------------------------
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Common Stock and Common Share Purchase Rights
---------------------------------------------
(Title of Class)
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.
[X] YES [ ] NO
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
stock, as of the latest practicable date.
On October 30, 1998, 31,153,765 shares of common stock, par value $0.01 per
share were outstanding.
<PAGE> 2
PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
SUMMIT TECHNOLOGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS; UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1998 1997
- - ------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 33,445 $ 33,720
Short-term investments 36,754 26,770
Receivables, net of allowances 13,571 8,896
Inventories 14,121 14,494
Prepaid expenses and other current assets 3,891 2,533
Due from related party 11 4
Restricted cash -- 1,264
------------------------
Total current assets 101,793 87,681
Long-term investments 27,851 13,583
Property and equipment, net 9,155 8,593
Patents, net 4,422 4,769
Other assets 1,138 477
- - ------------------------------------------------------------------------------------------
TOTAL ASSETS $144,359 $115,103
==========================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 5,209 $ 4,482
Accrued expenses 9,367 7,197
Current maturities of long-term debt 5,193 5,142
Deferred revenue 1,931 2,937
Due to related party -- 28
------------------------
Total current liabilities 21,700 19,786
Long-term debt, less current maturities 1,445 6,330
- - ------------------------------------------------------------------------------------------
Total liabilities 23,145 26,116
- - ------------------------------------------------------------------------------------------
Stockholders' equity:
Preferred stock, $.01 par value. Authorized
5,000,000 shares -- --
Common stock, $.01 par value. Authorized 60,000,000
shares; Issued 31,322,880 shares in 1998
and 31,299,803 in 1997 314 313
Additional paid-in capital 152,796 153,982
Accumulated deficit (28,934) (60,313)
------------------------
124,176 93,982
Net unrealized loss on investment (2,130) (4,835)
Treasury stock, at cost, 169,115 shares
in 1998 and 6,125 shares in 1997 (832) (160)
- - ------------------------------------------------------------------------------------------
Total stockholders' equity 121,214 88,987
- - ------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $144,359 $115,103
==========================================================================================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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SUMMIT TECHNOLOGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS; UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
1998 1997 1998 1997
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<S> <C> <C> <C> <C>
Revenues:
Systems $ 2,824 $ 2,131 $11,507 $ 5,412
License fees, service and other 8,411 6,910 22,705 19,578
Contact lens and related products 11,049 11,281 33,308 34,791
-------------------------------------------------
Total revenues 22,284 20,322 67,520 59,781
Cost of revenues 12,994 12,802 40,457 37,226
-------------------------------------------------
Gross profit 9,290 7,520 27,063 22,555
-------------------------------------------------
Operating expenses:
Selling, general and administrative 7,781 6,660 22,198 18,434
Research, development and regulatory 1,806 1,447 5,405 4,683
-------------------------------------------------
Total operating expenses 9,587 8,107 27,603 23,117
-------------------------------------------------
Operating income (loss) (297) (587) (540) (562)
Litigation settlement, net of related expenses -- -- 34,386 --
Other income 1,027 632 2,485 1,887
-------------------------------------------------
Income before provision for income taxes 730 45 36,331 1,325
Provision for income taxes 32 21 4,952 129
-------------------------------------------------
Income from continuing operations 698 24 31,379 1,196
Gain on sale of discontinued operations -- 10,711 -- 10,711
Loss from discontinued operations -- (3,340) -- (3,340)
- - -----------------------------------------------------------------------------------------------------------
Net income $ 698 $ 7,395 $31,379 $ 8,567
===========================================================================================================
Basic and Diluted earnings per share:
Income from continuing operations $ 0.02 $ -- $ 1.00 $ 0.04
Gain on sale of discontinued operations -- 0.34 -- 0.34
Loss from discontinued operations -- (0.10) -- (0.10)
-------------------------------------------------
Net income $ 0.02 $ 0.24 $ 1.00 $ 0.28
- - -----------------------------------------------------------------------------------------------------------
Weighted average number of common shares used for
basic earnings per share calculation 31,243 31,256 31,199 31,146
Weighted average number of common shares and
dilutive securities used for diluted earnings
per share calculation 31,297 31,443 31,231 31,324
===========================================================================================================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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<PAGE> 4
SUMMIT TECHNOLOGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(IN THOUSANDS; UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
1998 1997 1998 1997
- - -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net income $ 698 $7,395 $31,379 $8,567
--------------------------------------------
Net unrealized gain (loss) on investment (10,210) -- 2,705 --
Provision for income tax
expense (benefit) at 39% (3,982) -- 1,055 --
--------------------------------------------
(6,228) -- 1,650 --
- - -----------------------------------------------------------------------------------------------
Comprehensive income (loss) $(5,530) $7,395 $33,029 $8,567
===============================================================================================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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SUMMIT TECHNOLOGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS; UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED SEPTEMBER 30,
1998 1997
- - ----------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 31,379 $ 8,567
Adjustments to reconcile net income to
net cash provided by operating activities:
Gain on sale of discontinued operations -- (10,711)
Depreciation and amortization 2,640 2,742
Changes in operating assets and liabilities:
Accounts receivable, net (4,675) (1,095)
Inventories, net 373 (184)
Prepaid expenses and other current assets (1,358) 952
Accounts payable 727 (1,238)
Accrued expenses 2,170 3,069
Deferred revenue (1,006) (762)
Related party, net (35) 648
Operating activities of discontinued operations -- (14,653)
- - ----------------------------------------------------------------------------------------------
Net cash provided (used) by operating activities 30,215 (12,665)
- - ----------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Increase in short-term investments (9,984) (14,546)
(Increase) decrease in long-term investments (11,675) 4,191
Additions to property and equipment (2,855) (1,405)
Decrease in restricted cash 1,264 240
Other (661) 982
Investing activities of discontinued operations -- 9,948
- - ----------------------------------------------------------------------------------------------
Net cash used by investing activities (23,911) (590)
- - ----------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net repayments of long-term debt (4,834) (3,939)
Proceeds from exercise of stock options 37 304
Proceeds from other shares issued 73 112
Purchases of treasury stock (1,855) --
Financing activities of discontinued operations -- 139
- - ----------------------------------------------------------------------------------------------
Net cash used by financing activities (6,579) (3,384)
- - ----------------------------------------------------------------------------------------------
Decrease in cash and cash equivalents (275) (16,639)
Cash and cash equivalents at beginning of period 33,720 44,013
- - ----------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 33,445 $ 27,374
==============================================================================================
Supplemental cash flow information:
Interest paid $ 734 $ 839
Income taxes paid $ 1,965 $ 94
==============================================================================================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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<PAGE> 6
SUMMIT TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF BUSINESS
Summit Technology, Inc. and subsidiaries (the "Company") develops, manufactures
and markets ophthalmic laser systems designed to correct common vision disorders
such as nearsightedness, farsightedness and astigmatism. The Company also
collects per procedure license fees from users of its systems and participated
in per procedure license fees payable to Pillar Point Partners, a partnership,
formed by the Company and VISX, Inc. ("VISX") to hold certain U.S. patents
covering excimer laser systems and procedures. On June 4, 1998, the Company and
VISX dissolved Pillar Point Partners and have granted to each other worldwide,
royalty-free cross-licenses to all of their respective U.S. and foreign patents
in the field of laser ablation of corneal tissue, including all patents
presently included or includable in Pillar Point Partners. Through its
wholly-owned subsidiary, Lens Express, Inc., the Company primarily sells contact
lenses and related products.
Recent Developments: On October 1, 1998, the Company announced it had entered
into a definitive agreement with Orlando, FL-based Autonomous Technologies
Corporation ("Autonomous")to acquire all of Autonomous' outstanding shares in
exchange for 11.7 million shares of Summit common stock and an equal value of
cash, not to exceed $50.0 million. The Company filed a registration statement
on Form S-4 with the Securities and Exchange Commission on November 6, 1998 in
connection with the transaction. The actual value of the transaction will not
be determinable until closing, which is currently expected to be in the first
quarter of 1999. On October 28, 1998, the Company also announced that it had
acquired from EyeTech Vision A.G., a Liechtenstein Corporation and EyeTech
Vision, Inc., a Delaware Corporation, the German-made Krumeich-Barraquer
microkeratome product line.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation: The accompanying condensed consolidated financial
statements have been prepared by the Company pursuant to the rules and
regulations of the Securities and Exchange Commission. In the opinion of the
Company, these condensed consolidated financial statements contain all
adjustments (consisting of only normal, recurring adjustments) necessary to
present fairly the consolidated financial position, results of operations and
cash flows of the Company for the interim periods.
The accompanying consolidated financial statements and related notes should be
read in conjunction with the Company's Annual Report on Form 10-K for the year
ended December 31, 1997. The results of operations for the nine months ended
September 30, 1998 are not necessarily indicative of the results to be expected
for the full year.
Net Income Per Share: Basic earnings per share are computed by dividing net
income by the weighted-average number of common shares outstanding during the
year. Diluted earnings per share includes the effect of all dilutive potential
common shares that were outstanding during the period. Diluted earnings per
share are computed by dividing net income by the weighted-average number of
common shares and dilutive securities.
New Accounting Standards: The Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 130, Reporting Comprehensive Income at the beginning of
fiscal 1998. SFAS No. 130 establishes standards for reporting and display of
comprehensive income and its components.
The Company will adopt SFAS No. 131, Disclosure about Segments of an Enterprise
and Related information in the fourth quarter of 1998. SFAS No. 131 establishes
standards for the way that public business enterprises report selected
information about operating segments in annual financial statements and requires
that those enterprises report selected information about operating segments in
interim financial statements. SFAS No. 131 is not expected to have a material
impact on the Company's financial position or results of operations.
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<PAGE> 7
Reclassifications: Before 1998, the Company recorded in its net revenues the
gross license fee revenues from Pillar Point Partners and recorded the net
license fee liability owed to Pillar Point Partners in its cost of revenues.
Administrative expenses allocated to the Company from Pillar Point Partners were
recorded as operating expenses as incurred. Effective January 1, 1998, the
Company began recording as net revenues the license fee revenues of Pillar Point
Partners net of license fees payable to Pillar Point Partners and net of
administrative expense allocations. Certain prior year information has been
reclassified to conform with present year presentation of data.
3. DISCONTINUED OPERATIONS
In August 1997, the Company sold Refractive Centers International, Inc., (RCII)
a wholly owned subsidiary of the Company , to LCA-Vision Inc. (LCA) in exchange
for 16,164,361 newly issued shares of LCA common stock. RCII owned and operated
the Company's vision center business. The sale of the discontinued operation
resulted in a net gain of $10.7 million in 1997, which includes a gain on the
sale of net assets held for discontinued operation and accruals for other
estimated costs to be incurred in connection with the sale of RCII and
distribution of LCA common stock. On December 29, 1997, the Company distributed
9.0 million shares of LCA common stock to its shareholders in the form of a
dividend. A dividend of one share of common stock of LCA was issued for every
3.5 (approximate) shares of the Company's common stock outstanding. The
remaining shares, which represent approximately 19.5 percent of LCA's
outstanding shares have been classified as a long-term investment. The operating
loss from discontinued operations for the year ended December 31, 1997 was $3.3
million.
4. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
SEPT. 30, DEC. 31,
(in thousands) 1998 1997
-------------------------------------------------------------------
<S> <C> <C>
Raw materials and subassemblies $ 3,769 $ 3,195
Work in process 2,315 2,147
Finished goods 8,037 9,152
-------------------------------------------------------------------
Total $14,121 $14,494
===================================================================
</TABLE>
5. CONTINGENCIES
Pillar Point Partners Antitrust And Patent Litigation. Pillar Point Partners,
the Company, VISX, Inc. ("VISX") and certain affiliates of the Company and VISX
are presently involved in a series of patent and antitrust lawsuits which have
been administratively consolidated for pretrial purposes in the United States
District Court for the District of Arizona by the Federal Judicial Panel on
Multidistrict Litigation ("MDL Panel"). These cases are presently pending as IN
RE: PILLAR POINT PARTNERS ANTITRUST AND PATENT LITIGATION (CIVIL ACTION NO. MDL
1202) and are described below.
Patent Litigation. Pillar Point Partners commenced patent infringement
litigation against certain ophthalmologists believed to have used or be using
homemade laser systems not licensed under patents held by Pillar Point Partners,
as well as one alleged manufacturer of such laser systems. These actions were
originally pending as PILLAR POINT PARTNERS, et al. v. DAVID DULANEY, et al.
(U.S. DISTRICT COURT, DISTRICT OF ARIZONA, CIVIL ACTION NO. 96-2051PHXPGR),
PILLAR POINT PARTNERS, et al. v. JON G. DISHLER, et al. (U.S. DISTRICT COURT,
DISTRICT OF COLORADO, CIVIL ACTION NO. 96-N-2351), and PILLAR POINT PARTNERS, et
al. v. JUI-TENG LIN, et al. (U.S. DISTRICT COURT, MIDDLE DISTRICT OF FLORIDA,
CIVIL ACTION NO. 97-54-CV-ORL-22). The defendants in the Dulaney and Dishler
actions have asserted counterclaims seeking declarations that the patents in
suit are invalid and unenforceable. Those defendants have also raised antitrust
and Lanham Act counterclaims. A settlement has been reached in the Dulaney
action, and a stipulation of dismissal has been lodged with the court.
Antitrust Litigation. In June, 1996, a Texas ophthalmologist, Robert G.
Burlingame, sued Pillar Point, VISX, the Company and certain affiliates of VISX
and the Company in the Federal District Court for the Northern District of
California alleging that the defendants have violated and are violating federal
and state antitrust laws and alleging fraud in connection with certain of the
Company's sales and marketing activities. The plaintiff seeks, among other
things, antitrust damages of at least $30,000 plus $2,500 to $3,000 per month
until the date of judgment, trebling of those damages, compensatory and punitive
damages on the fraud claim against the Company of at least $500,000 plus $2,500
to $3,000 per month until the date of judgment, attorney's fees, and a permanent
injunction against future violations. On September 5, 1996, a Nevada
ophthalmologist, John R. Shepherd, through his professional corporation,
commenced a similar lawsuit against the same parties, in the same court,
alleging substantially similar antitrust claims and seeking substantially
similar relief, including damages before trebling of at least $125,000 plus
$12,500 per month until the date of judgment. The Company has denied the
substantive allegations in these actions. Plaintiff's counsel in the Shepherd
case has indicated that he intends to seek certification of the case as a class
action.
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<PAGE> 8
On November 5, 1997, Antoine Garabet, M.D., Inc. and Abraham Shammas, M.D.,
d/b/a Laser Eye Center, sued Pillar Point, VISX, the Company and certain
affiliates of VISX and the Company in the Federal District Court for the
Northern District of California seeking a declaratory judgment that the patents
held by Pillar Point are invalid and unenforceable on account of alleged
antitrust violations and alleging fraud in connection with certain of the
Company's sales and marketing activities. The plaintiffs seek compensatory
damages of at least $48,585.69, disgorgement of revenues and profits, punitive
damages of an unspecified amount, injunctions against enforcement of the Pillar
Point patents and against alleged continuing violations of the antitrust laws,
attorneys' fees and costs. A magistrate judge has recommended that defendants'
motion to dismiss this case be granted. Plaintiffs' objections to that
recommendation are pending with the court.
In May, 1998, The Eye Professionals, P.A. of Millville, New Jersey commenced an
action in the Federal District Court for the District of New Jersey against the
Company and VISX. The case purports to be a class action on behalf of all
individuals or entities that have paid a per-procedure fee directly to either
defendant for use of a Summit or VISX laser to perform laser vision correction
surgery. The complaint alleges, inter alia, price-fixing in violation of Section
1 of the Sherman Act. The action seeks, inter alia, treble damages, costs of
suit, attorneys' fees, and various forms of declaratory and injunctive relief.
Similar actions were also filed in May, 1998 by Metropolitan Eye Center and
Outpatient Surgical Facility, Inc. in the U.S. District Court for the Northern
District of California against the Company, VISX, Summit Partner, Inc., and VISX
Partner, Inc., and by New England Laser Vision, Inc. in the U.S. District Court
for the District of New Jersey against the Company and VISX. In August, 1998,
David R. Shapiro, M.D., filed another similar purported class action against the
Company and VISX in the United States District Court for the District of
Arizona. Plaintiffs in each of these cases have agreed to consolidation of the
four purported class actions and filed a single consolidated amended complaint.
The Company has been served with the Consolidated Amended Class Action Complaint
in these actions. It purports to be a class action on behalf of all persons and
entities (excluding governmental entities, defendants, subsidiaries and
affiliates of defendants) in the United States who paid a per-procedure royalty
to any defendant or any alleged co-conspirator or any subsidiary or affiliate
thereof, at any time after September 1995. The Consolidated Amended Complaint
seeks, among other things, unspecified treble damages on behalf of plaintiffs
and the alleged class, along with injunctive and declaratory relief.
In September, 1998, Laser Eye Center of Texas, L.L.P. and Warren D. Cross,
M.D., filed a purported class action against the Company, Summit Partner, Inc.,
VISX, VISX, Partner, Inc., and Pillar Point Partners in the U.S. District Court
for the Southern District of Texas. The suit purports to be a class action on
behalf of all persons and entities who have paid money to defendants, or any of
their subsidiaries, on a per procedure basis for the ability to use defendants'
laser equipment or technology to perform laser vision correction surgery.
Plaintiffs allege, among other things, violations of Sections 1 and 2 of the
Sherman Act. They seek, among other things, treble damages on behalf of the
alleged class, costs of suit, including attorneys' fees, and declaratory and
injunctive relief. This case has now been transferred to the District of
Arizona.
In June, 1998, Leslie L. Chisholm, Jr., M.D. filed another similar action in
the Federal District Court for the District of Arizona against the Company,
VISX, Summit Partner, Inc., VISX Partner, Inc., and Pillar Point Partners. In
addition to price-fixing claims, the CHISHOLM action also asserts, inter alia,
claims for monopolization, attempted monopolization, and conspiracy to
monopolize in violation of Section 2 of the Sherman Act, as well as claims
under the California Cartwright Act and other California statutes, for which
disgorgement of alleged illegal profits and ill-gotten gains is sought. The
parties have stipulated to the dismissal of this action without prejudice.
In late March, 1998, Janice Camp of Atlanta, Georgia commenced an action in
Federal District Court for the District of Massachusetts against the Company
and VISX. As amended in April, 1998, the complaint adds as a named plaintiff
Jon Singer of Congers, New York. The case has been transferred to Federal
District Court for the District of Arizona for consolidated pretrial
proceedings. The case purports to be a class action on behalf of all similarly
situated individuals who have undergone laser vision correction surgery. The
complaint alleges, inter alia, price-fixing, monopolization, conspiracy to
monopolize, violations of the Clayton Act, violations of the RICO Act, and
violations of state consumer protection statutes. The action seeks, inter alia,
treble damages, punitive or exemplary damages, costs of suit, attorneys' fees,
and various forms of equitable relief, including disgorgement of ill-gotten
gains and restitution. In response to defendants' motion to dismiss, plaintiffs
have abandoned their federal antitrust claims. Defendants' motion to dismiss
the RICO and state law claims is pending.
There can be no assurance that the federal antitrust actions pending as part of
IN RE PILLAR POINT PARTNERS ANTITRUST AND PATENT LITIGATION will be resolved in
the Company's favor or that an adverse judgment or settlement would not have a
material adverse effect on the Company.
Consolidated California State Litigation. Beginning in late March, 1998, a
number of actions brought by individuals under the Cartwright Act and California
unfair competition laws were commenced against the Company, VISX, and related
defendants in Superior Court of Santa Clara County. In May, 1998, these actions
were consolidated as IN RE PRK/LASIK CONSUMER LITIGATION. In June, 1998,
plaintiffs B.J. Snyder, Donna McMahan, Paula Mobsby, Helen Thomas, Carmen
Ocariz, Martin Hermans, Ken Bartlett, Grace Geniusz, Jocelyn Joseph, Andrew
Stoddard, and Cynthia Brubecker filed an Amended Consolidated Master Complaint
for Damages ("Amended Complaint") in this matter against the Company, Summit
Partner, Inc., VISX, and VISX Partner, Inc. The Amended Complaint purports to be
filed on behalf of a nationwide class of persons who have undergone excimer
laser surgery with a laser manufactured by the Company or VISX. The Amended
Complaint seeks, inter alia, unspecified compensatory damages, restitution
and/or disgorgement of alleged ill-gotten gains, prejudgment and postjudgment
interest, costs of suit, and attorneys' fees, as well as various forms of
declaratory and injunctive relief, including an order permitting any person or
entity with which the Company or VISX or both have entered into any agreement
since June 3, 1992, for the purchase, license, or use of any of the Pillar Point
Patents to withdraw from such agreement without penalty or obligation. The
Company and Summit Partner, Inc. have filed an answer denying generally the
allegations of the Amended Complaint in this litigation. James Ballard filed a
similar suit against the Company, Summit Partner, Inc., VISX, VISX Partner,
Inc., Pillar Point Partners, and other individual defendants in Superior Court
of San Diego County. This suit has been transferred to Santa Clara County and
consolidated as part of IN RE PRK/LASIK CONSUMER LITIGATION.
There can be no assurance that the actions described above will be resolved in
the Company's favor or that an adverse judgment or settlement would not have a
material adverse effect on the Company.
-8-
<PAGE> 9
Unconsolidated Antitrust and Patent Cases. In April, 1998, Penny Marks, an
individual who allegedly has had laser vision correction surgery performed,
commenced an action in Florida state court against the Company and VISX. The
case purports to be a class action on behalf of all individuals similarly
situated in the State of Florida. The complaint alleges various violations of
the Florida Deceptive Trade and Unfair Practices Act. The complaint seeks
unspecified damages, costs, expenses, and attorneys' fees, as well as
declaratory and injunctive relief. Plaintiff has filed a motion seeking class
certification.
In June, 1998, Barbara Worcester, an individual who allegedly has had laser
vision correction surgery performed, filed an action in Wisconsin state court
against the Company, Summit Partner, Inc., VISX, VISX Partner, Inc., and Pillar
Point Partners. The case purports to be a class action on behalf of all
Wisconsin purchasers of refractive laser surgery procedures. The complaint
alleges violations of Chapter 133 of the Wisconsin Statutes. The complaint seeks
unspecified treble damages, attorneys' fees and costs, and declaratory and
injunctive relief. Defendants have removed this action to Federal District Court
in Wisconsin and are seeking to have it transferred to Federal District Court in
Arizona.
There can be no assurance that these actions will be resolved in the Company's
favor or that an adverse judgment or settlement would not have a material
adverse effect on the Company.
In July, 1997, John Taboada filed a complaint in the United States District
Court for the Western District of Texas against Stephen L. Trokel, VISX, VISX
Partner, Inc., Summit Partner, Inc., and Pillar Point Partners. In December,
1997, Taboada amended his complaint to include the Company as an additional
defendant. Taboada seeks a declaration that he is either the sole inventor or a
joint inventor of U.S. Patent No. 5,108,388 (the " `388 Patent") which names Dr.
Trokel as the inventor. The `388 Patent has been assigned to VISX and is
licensed to Pillar Point Partners. Taboada also seeks to recover royalties paid
to one or more of the defendants for licenses granted under `388 Patent, charges
defendants with infringement of the `388 Patent, alleges Lanham Act claims, and
seeks monetary damages and injunctive relief.
Seriani Litigation. On October 26, 1992, Joseph Seriani brought suit against
Lens and certain of its former shareholders in the Florida Circuit Court. The
suit alleged violations of the Florida Civil Remedies for Criminal Practices Act
- - - - the Florida civil RICO statute -- based on events which allegedly occurred
in the mid-1980s. Seriani's claims against Lens were dismissed several times for
failure to state a viable claim, but in each instance with leave to amend and
refile. On May 15, 1996, the date of the Company's acquisition of Lens, Seriani
and his wife Rhonda Seriani filed an amended complaint which included the
Company as an additional defendant. On November 25, 1996, the Serianis
voluntarily dismissed their action against the Company and on March 7, 1997
voluntarily dismissed their action against the remaining defendants, in each
case without prejudice. On March 24, 1997, the Serianis commenced a new lawsuit
against Lens and others in the United States District Court for the Southern
District of Illinois, alleging substantially similar claims. The Company
believes that the Serianis' suits against the Company and Lens are and were
without merit.
Lens Express Employee Litigation. On or about February, 1997, a former employee
allegedly filed an administrative complaint with the Florida Commission on Human
Relations against Lens and a former employee of Lens, alleging sexual
discrimination and harassment by the former employee, retaliatory demotion, and
constructive discharge. On or about May, 1997, a current employee filed an
administrative complaint with the same Florida agency, also alleging sexual
discrimination and harassment by the same former employee. The Florida
Commission referred both complaints to the U.S. Equal Employment Opportunity
Commission for investigation. No investigations were completed before each
complainant, represented by the same counsel, sued Lens and the former employee
in Florida Circuit Court on or about September, 1997. Each complaint alleges
sexual discrimination and harassment under the Florida Civil Rights Act and
various other state common law claims; the former employee also alleges
retaliatory demotion under the Florida Civil Rights Act. Each plaintiff seeks a
court order prohibiting such alleged discrimination as well as unspecified
compensatory and punitive damages. Lens answered each complaint, denying the
allegations. On or about June 15, 1998, Lens settled all claims of the current
employee for a nominal amount and without admitting any wrongdoing or liability.
On or about October 30, 1998, another current employee filed an administrative
complaint with the same Florida agency against Lens, alleging sexual
discrimination by the same former employee and retaliation. Soon thereafter,
this current employee filed a complaint in Florida state court against Lens and
the former employee alleging battery, intentional infliction of emotional
distress, invasion of privacy, negligent infliction of emotional distress, and
false imprisonment against both Lens and the former employee, and negligent
retention and supervision and negligent investigation against Lens. While Lens
believes the claims of both the current and former employee to be without
merit, there can be no assurance that it will prevail in either litigation.
Lens cannot predict the range of possible compensatory damages, if any, or
whether punitive damages may be assessed.
Lens Express Woodstock Litigation. On or about April, 1997, three current and
two former employees sued Lens, ten employees and four former employees of Lens,
alleging racial discrimination under 42 USC ss. 1981. The plaintiffs seek an
unspecified amount of compensatory damages, punitive damages, lost wages and a
court order declaring the alleged conduct unlawful. Lens and the other
-9-
<PAGE> 10
employees have denied the allegations; the former employees apparently have
never been served with the complaint. After the Court dismissed most claims in
plaintiffs' third amended complaint, plaintiffs filed a fourth amended
complaint in which they appear to have dropped claims against most of the
individual defendants. Lens moved to dismiss the fourth amended complaint, and
plaintiffs requested leave to file yet another amendment. Those motions are
pending. This case is presently pending as WOODSTOCK, et al. v. LENS EXPRESS,
INC., et al., In the United States District Court for the Southern District of
Florida, Case No. 97-6529-Civ-Hurley. Lens made offers of judgement for $750 to
each plaintiff; one plaintiff accepted the offer. While Lens believes the
claims to be without merit, there can be no assurance that it will prevail.
Lens cannot predict the range of possible compensatory damages, if any, or
whether punitive damages may be assessed.
Lester Swartz Litigation. On or about June 23, 1998, a former Lens customer
service representative filed a pro se complaint in federal court asserting
eleven counts against Lens, the Company and numerous individual officers and
employees of both corporations. The claims asserted are conspiracy, violation of
Florida's Whisleblower Act, civil theft, fraud and deceit, breach of contract,
breach of duty, gross negligence, negligent representations, negligent
supervision, negligent infliction of emotional distress, and intentional
infliction of emotional distress. Mr. Swartz alleges he suffered an "emotional
explosion" as a result of the customer complaints he received in his position as
a customer service representative at Lens. Mr. Swartz claims that Lens' sales
department engaged in unlawful activities that, in turn, resulted in the
customer complaints that caused this event. Mr. Swartz claims Lens promised him
an indefinite leave of absence from work until he recovered and was fired when
he did not return to work after two months. The complaint seeks unspecified
compensatory damages for financial and emotional injury. Lens Express and the
Company moved to dismiss the complaint on October 27, 1998 and served Mr. Swartz
with a copy of a motion seeking sanctions for filing a frivolous lawsuit. At
this juncture, it is not possible to say with certainty what is the likelihood
of an outcome adverse to the Company or Lens in the event the lawsuit proceeds
to trial. However, the Company believes the allegations of the complaint to be
without merit and that meritorious defenses to liability and damages, if any,
exist as a matter of fact and law.
Shareholder Actions. Between August, 1996 and February, 1997 various shareholder
actions were commenced against the Company and certain of its officers in the
United States District Court for the District of Massachusetts (the "District of
Massachusetts") claiming, among other things, violations of Sections 10(b) and
20(a) of the Securities Exchange Act of 1934 arising out of public statements
made by defendants. The actions were consolidated, by order of the Court entered
December 2, 1996, as IN RE SUMMIT TECHNOLOGY SECURITIES LITIGATION, Civil Action
No. 96-11589-JCT (the "Securities Litigation"). Plaintiffs seek certification of
the action as a class action on behalf of all purchasers of the Company's common
stock, other than defendants and certain affiliated persons and entities,
between March 31, 1995 and July 3, 1996. They seek unspecified damages,
interest, costs and expenses.
On October 1, 1996 an additional action was commenced in the District of
Massachusetts against the Company, its directors, certain of its officers and
the four underwriters of the Company's October, 1995 Common Stock offering
claiming violations of Sections 11, 12(2) and 15 of the Securities Act of 1933
arising out of alleged material misstatements of fact in the Registration
Statement issued in connection with the offering. The action was coordinated
with the Securities Litigation by order of the Court dated December 2, 1996. It
also seeks unspecified damages, interest, costs and expenses.
On December 20, 1996, a shareholder of the Company filed in the District of
Massachusetts a derivative action, purportedly on behalf of the Company, against
the Company as nominal defendant, its directors and certain of its present or
former officers. This action was consolidated with the Securities Litigation by
order of the Court entered July 22, 1997. The complaint alleges that the conduct
of the individual defendants has exposed the Company to the expense and
inconvenience of defending the Securities Litigation and has harmed the
Company's reputation, thereby limiting its access to capital markets. It also
alleges that the individual defendants improperly traded in the Company's Common
Stock based upon material non-public information.
The Company believes that the allegations in all of the complaints in the
actions described herein are without merit, and it intends to defend the actions
vigorously. There can be no assurance that the Company will not be served with
additional complaints of a similar nature in the future, that the Company will
ultimately prevail in the pending or any possible additional actions, or that
the actions, individually or in the aggregate, will not have a material adverse
effect on the Company.
-10-
<PAGE> 11
PART I: FINANCIAL INFORMATION (CONTINUED)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
The operations of Summit Technology, Inc. and subsidiaries (the "Company")
presently consist of (i) manufacturing, selling and servicing laser systems and
related products to correct vision disorders; (ii) collecting per procedure
license fees from users of its systems and (iii) selling contact lenses and
related products by mail order through its wholly-owned subsidiary Lens Express,
Inc. ("Lens"), which the Company acquired on May 15, 1996. On June 4, 1998, the
Company and VISX Inc. ("VISX") dissolved Pillar Point Partners and have granted
to each other worldwide, royalty-free cross-licenses to all of their respective
U.S. and foreign patents in the field of laser ablation of corneal tissue,
including all patents presently included or includable in Pillar Point Partners.
In August 1997, the Company sold its wholly-owned subsidiary Refractive Centers
International, Inc. ("RCII") to LCA-Vision Inc. ("LCA") for 16,164,361 shares of
LCA common stock. Prior to the sale, RCII owned and operated the Company's
vision center business, which was accounted for as a discontinued operation in
1996.
On October 1, 1998, the Company announced it had entered into a definitive
agreement with Orlando, FL-based Autonomous Technologies ("Autonomous") to
acquire all of Autonomous' outstanding shares in exchange for 11.7 million
shares of Summit common stock and an equal value of cash, not to exceed $50.0
million. The actual value of the transaction will not be determinable until
closing, which is currently expected to be in the first quarter of 1999.
Autonomous is also in the business of manufacturing, selling and servicing laser
systems to correct vision disorders. The Autonomous LADARVison system offers
small spot scanning and high performance eye tracking to eliminate errors
caused by patient eye movement. Additional features, still under development,
include the ability to perform highly customized ablations. On October 28,
1998, the Company acquired from EyeTech Vision A.G., a Liechtenstein
Corporation and EyeTech Vision, Inc., a Delaware Corporation, the German made
Krumeich-Barraquer microkeratome product line.
The Company is continuing to evaluate its operations and strategies, which may
result in the acquisition by the Company of one or more additional businesses,
or additional dispositions of all or part of one or more of the Company's
businesses.
THIRD QUARTER RESULTS OF OPERATIONS
Revenues: Revenues for the three months ended September 30, 1998 increased 10%
to $22.3 million from $20.3 million for the three months ended September 30,
1997. Revenues from the Company's vision correction business increased 24% to
$11.2 million in the third quarter of 1998 compared to $9.0 million in the same
period a year ago. In the third quarter of 1998, sales of contact lens and
related products decreased to $11.0 million from $11.3 million in the third
quarter of 1997.
Cost of Revenues: Cost of revenues as a percentage of revenues decreased to 58%
in third quarter of 1998 from 63% in the third quarter of 1997. This decrease
was primarily attributable to the favorable impact from increased manufacturing
levels, increased license fee revenues and lower cost of revenues associated
with contact lens and related products.
Operating Expenses: Selling, general and administrative expenses in the third
quarter of 1998 were $7.8 million compared to $6.7 million in the same period a
year ago, a 17% increase. Selling, general and administrative expenses as a
percentage of revenues were 35% and 33% in the third quarter of 1998 and 1997,
respectively. The Company has been making significant investments in the sales
and marketing areas in order to grow laser vision correction procedure volume.
Research, development and regulatory expenses in the third quarter of 1998
increased to $1.8 million from $1.4 million in the third quarter of 1997,
primarily as a result of increased spending on the Company's research and
development efforts.
Net Income: Income from continuing operations for the third quarter of 1998 was
$.7 million, or $0.02 per basic and diluted share, as compared to $24 thousand
or breakeven, for the third quarter of 1997. Net income of $7.4 million, or
$0.24 per basic and diluted share, for the third quarter of 1997 included a
one-time gain of $10.7 million, or $0.34 per basic and diluted share, on the
sale of discontinued operations and related losses of $3.3 million, or $0.10 per
basic and diluted share from discontinued operations.
Income Taxes: The Company has continued to provide a 100% valuation allowance
against its net deferred tax asset of $20.6 million as of December 31, 1997.
-11-
<PAGE> 12
FIRST NINE MONTHS RESULTS OF OPERATIONS
Revenues: Revenues for the nine months ended September 30, 1998 increased 13%
to $67.5 million from $59.8 million for the nine months ended September 30,
1997. Revenues from system sales in the first nine months of 1998 more than
doubled compared to the same period a year ago. Revenues from the Company's
vision correction business increased 37% to $34.2 million in the first nine
months of 1998 compared to $25.0 million in the same period a year ago. In the
first nine months of 1998 and 1997, sales of contact lens and related products
were $33.3 million and $34.8 million, respectively.
Cost of Revenues: Cost of revenues as a percentage of revenues decreased to 60%
in first nine months of 1998 from 62% in the first nine months of 1997. This
decrease was primarily attributable to the favorable impact from increased
manufacturing levels and lower cost of revenues associated with contact lens and
related products partially offset by higher cost of sales associated with system
sales.
Operating Expenses: Selling, general and administrative expenses in the first
nine months of 1998 were $22.2 million compared to $18.4 million in the same
period a year ago, a 20% increase. Selling, general and administrative expenses
as a percentage of revenues were 33% and 31% in the first nine months of 1998
and 1997, respectively. The Company has been making significant investments in
the sales and marketing areas in order to grow laser vision correction
procedure volume. In the first nine months of 1997, the Company received a net
payment of $4.5 million from VISX resulting from the settlement of patent
litigation. This settlement resulted in a reduction of legal costs of $0.6
million in the second quarter of 1998 and $1.7 million in the second quarter of
1997. Research, development and regulatory expenses in the first nine months of
1998 increased to $5.4 million from $4.7 million in the first nine months of
1997, primarily as a result of increased spending on the Company's research and
development efforts.
Net Income: Net income for the first nine months of 1998 was $31.4 million, or
$1.00 per basic and diluted share compared to net income of $8.6 million for the
first nine months of 1997, or $0.28 per basic and diluted share. The results for
the first nine months of 1997 include a one-time gain of $10.7 million, or $0.34
per basic and diluted share on the sale of discontinued operations and related
losses of $3.3 million, or $0.10 per basic and diluted share from discontinued
operations. During the first nine months of 1998, the Company received a $35.0
million payment from VISX, Inc. pursuant to a settlement agreement, under which
Summit and VISX agreed to dissolve Pillar Point Partners and settled all pending
litigation between the two companies. Excluding the $35.0 million settlement and
related taxes and expenses, income from continuing operations for the first nine
months of 1998 was $1.8 million, or $0.06 per basic and diluted share compared
to $1.2 million, or $.04 per basic and diluted share for the first nine months
of 1997.
Income Taxes: The Company has continued to provide a 100% valuation allowance
against its net deferred tax asset of $20.6 million as of December 31, 1997.
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity requirements have been met through external debt and
equity financing. As of September 30, 1998, the Company's cash and cash
equivalent balances and short and long-term investments increased to $98.1
million from $74.1 million as of December 31, 1997. Shares of LCA common stock
valued at $10.8 million and $8.1 million were included in long-term investments
as of September 30, 1998 and December 31, 1997, respectively. Working capital
increased to $80.1 million as of September 30, 1998 from $67.9 million as of
December 31, 1997. In the first nine months of 1998, net cash provided by
operating activities of $30.2 million was primarily due to the $35.0 million
payment the Company received in the second quarter of 1998 under a settlement
agreement with VISX. Net cash used by operating activities of $12.7 million in
the first nine months of 1997 included net cash used by discontinued operation
of $14.7 million. Excluding the gain on the sale of discontinued operations, net
income before depreciation and amortization in the first nine months of 1998 and
1997 was $34.0 million and $0.6 million, respectively.
In the first nine months of 1998, net cash used by investing activities of $23.9
million resulted primarily from an increase in short and long-term investments
of $21.7 million due to the $35.0 million litigation settlement and capital
expenditures of $2.9 million offset by a decrease in restricted cash of $1.3
million. In the first nine months of 1997, net cash used by investing activities
of $.6 million resulted primarily from a net increase in short and long term
investments of $10.4 million, additions to property and equipment of $1.4
million, a decrease in patents due to settlement of litigation of $1.3 million
and net cash provided by investing activities of discontinued operations of $9.9
million.
In the first nine months of 1998, net cash used by financing activities of $6.6
million was attributable to net repayments of long-term debt of $4.8 million and
purchases of 380,500 shares of treasury stock for $1.9 million. In the second
quarter of 1998, the Company agreed to privately place an aggregate of 217,510
shares of treasury stock with the former Lens shareholders as part of a
litigation
-12-
<PAGE> 13
settlement. In the first nine months of 1997, net cash used by financing
activities of $3.4 million primarily resulted from net repayments of long-term
debt obligations of $3.9 million.
In March 1996, the Company obtained a $20.0 million unsecured revolving credit
facility. The facility expires in March 1999 and allows the Company to borrow
at LIBOR plus 75 basis points or Prime Rate. At September 30, 1998, the Company
had no borrowings under this facility. Also in March 1996, the Company's then
wholly owned subsidiary, RCII, obtained a $20.0 million unsecured term loan,
which was guaranteed by the Company. In July 1997, the Company and RCII entered
into a Loan Modification Agreement with their lenders pursuant to which, inter
alia, RCII was released from liability and the Company became the principal
obligor under the term loan. At September 30, 1998, $6.3 million of borrowings
were outstanding under this loan. The Company believes that consummation of the
Autonomous acquisition will place the Company in technical breach of certain
of the covenants included in these loan facilities. The Company is currently
evaluating its options regarding debt and borrowing capacity.
YEAR 2000 READINESS DISCLOSURE
The Year 2000 issue is the result of computer programs that are not able to
differentiate between the year 1900 and the year 2000 because they were written
using two digits instead of four digits to define the applicable year. A review
of the Company's computer systems and software packages has been performed to
identify the systems and software that could be affected by this issue. The
Company currently believes that by upgrading its software packages to currently
available versions, the Year 2000 problem will not pose a significant
operational problem to the Company. Installation of Year 2000 compliant software
is currently expected to be completed within the next six months. The costs
related to software upgrades are not anticipated to be material and have been
incurred in the normal course of operations. The Company currently offers two
products which have the ability to process and store date/time data - the Apex
excimer laser and the Apex Plus excimer laser. These lasers meet Year 2000
compliance requirements although their capability to record date/time does not
impact clinical output. The Company has not surveyed third parties to inquire
into their Year 2000 compliance status. There can be no assurance that the
Company will not experience unexpected costs and delays in achieving Year 2000
compliance, which could result in a material adverse effect on the operations
and financial position of the Company.
CAUTIONARY STATEMENTS AND RISK FACTORS AFFECTING FUTURE OPERATING RESULTS
Statements made in this news release contain information about the Company's
future business prospects. These statements may be considered "forward
looking". These statements are subject to risks and uncertainties that could
cause actual results to differ materially from those set forth in or implied by
such forward looking statements. Among these risks and uncertainties are:
competition from other manufacturers and vision correction technologies, delays
in obtaining regulatory approvals, challenges to patents owned or licensed by
the Company affecting per procedure revenues and adverse litigation results.
For additional information and risks associated with the Company's business
prospects, and future operating results, please refer to Summit's annual report
on Form 10-K for the year ended December 31, 1997.
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<PAGE> 14
PART II: OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS
a) See Note 5 to Notes to Condensed Consolidated Financial Statements
above (Part I, Item 1 of this filing), for description of pending
material litigation
b) Material developments since June 30,1998:
(i) In August, 1998, the FTC Commissioners accepted the Company's
consent agreement with the FTC staff resolving all charges
against the Company and caused it to be published in the Federal
Register for public comment.
(ii) In November, 1998, Autonomous, the Company, an affiliate of the
Company and Pillar Point Partners stipulated to the dismissal
without prejudice of Autonomous' lawsuit against these
entities. The stipulation did not include VISX, Inc. or its
affiliate, which remain in the case.
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
a.) Exhibits:
11 Statement Re: Computation of per share earnings
27 Financial Data Schedule (For EDGAR Filing Purposes Only)
b.) Reports of Form 8-K:
The Company filed a report on Form 8-K, dated October 1,
1998 regarding the proposed merger of the Company and
Autonomous Technologies Corporation.
-14-
<PAGE> 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.
SUMMIT TECHNOLOGY, INC.
Date: November 13, 1998 By: /s/ Robert J. Palmisano
------------------------------
Robert J. Palmisano
Chief Executive Officer
Date: November 13, 1998 By: /s/ Robert J. Kelly
------------------------------
Robert J. Kelly
Executive Vice President,
Chief Financial Officer and
Treasurer
-15-
<PAGE> 1
EXHIBIT 11
SUMMIT TECHNOLOGY, INC. AND SUBSIDIARIES
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS; UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
1998 1997 1998 1997
- - ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Income from continuing operations $ 698 $ 24 $31,379 $ 1,196
Gain on sale of discontinued operations -- 10,711 -- 10,711
Loss from discontinued operations -- (3,340) -- (3,340)
-------------------------------------------------
Net income $ 698 $ 7,395 $31,379 $ 8,567
====================================================================================================
BASIC EARNINGS PER SHARE:
Weighted average common shares outstanding 31,243 31,256 31,199 31,146
-------------------------------------------------
Income from continuing operations $ 0.02 $ -- $ 1.00 $ 0.04
Gain on sale of discontinued operations -- 0.34 -- 0.34
Loss from discontinued operations -- (0.10) -- (0.10)
-------------------------------------------------
Net income $ 0.02 $ 0.24 $ 1.00 $ 0.28
====================================================================================================
DILUTED EARNINGS PER SHARE:
Weighted average common shares outstanding 31,243 31,256 31,199 31,146
Weighted average stock options outstanding 54 187 32 178
--------------------------------------------------
Total weighted average 31,297 31,443 31,231 31,324
--------------------------------------------------
Income from continuing operations $ 0.02 $ -- $ 1.00 $ 0.04
Gain on sale of discontinued operations -- 0.34 -- 0.34
Loss from discontinued operations -- (0.10) -- (0.10)
--------------------------------------------------
Net income $ 0.02 $ 0.24 $ 1.00 $ 0.28
====================================================================================================
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FORM
10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<EXCHANGE-RATE> 1
<CASH> 33,445
<SECURITIES> 36,754
<RECEIVABLES> 14,509
<ALLOWANCES> 938
<INVENTORY> 14,121
<CURRENT-ASSETS> 101,793
<PP&E> 23,693
<DEPRECIATION> 14,538
<TOTAL-ASSETS> 144,359
<CURRENT-LIABILITIES> 21,700
<BONDS> 1,445
0
0
<COMMON> 314
<OTHER-SE> 120,900
<TOTAL-LIABILITY-AND-EQUITY> 144,359
<SALES> 67,520
<TOTAL-REVENUES> 67,520
<CGS> 40,457
<TOTAL-COSTS> 68,060
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 166
<INTEREST-EXPENSE> 630
<INCOME-PRETAX> 36,331
<INCOME-TAX> 4,952
<INCOME-CONTINUING> 31,379
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 31,379
<EPS-PRIMARY> 1.00
<EPS-DILUTED> 1.00
</TABLE>
