<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- ---
EXCHANGE ACT OF 1934
OR
___ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Year Ended December 31, 1997 Commission File Number: 0-16937
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 02154
-----------------------------------------------------------
(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
___ ___
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
Based on the closing price for the registrant's voting stock on February 28,
1998, the aggregate market value of such voting stock held by non-affiliates of
the registrant was approximately $168.8 million on said date. The number of
shares of the registrant's Common Stock, $.01 par value, outstanding on February
28, 1998 was 31,044,627.
DOCUMENTS INCORPORATED IN TEXT BY REFERENCE
Certain portions of the Company's Proxy Statement for the 1998 Annual Meeting of
Stockholders (the "Proxy Statement") are incorporated by reference into Part III
of this Report.
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
(in thousands, except for per share amounts)
YEARS ENDED DECEMBER 31 1997 1996 1995 1994 1993
(As Restated) (2)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA
Total revenues (3) $ 79,650 $ 73,912 $ 95,258 $ 71,410 $ 68,549
Income (loss) from continuing
operations 828 (13,491) 1,575 (14,433) (6,487)
Income (loss) per share
from continuing operations (1) $ .03 $ (.43) $ .06 $ (.54) $ (.26)
Weighted average number of
common shares outstanding (1) 31,400 31,174 27,892 26,593 25,305
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Working capital $ 67,404 $ 73,085 $108,374 $ 23,560 $ 28,830
Total assets 115,103 133,660 161,661 54,288 55,230
Long-term debt,
less current maturities 6,330 11,472 537 503 400
Stockholders' equity 88,987 101,947 138,239 38,692 42,611
</TABLE>
(1) All per share data and weighted average share amounts have been restated to
reflect the 3-for-2 stock dividend with a payment date of December 1, 1995. All
per share amounts are the same for both basic and diluted earnings (loss) per
share.
(2) The financial data as of and for the year ended December 31, 1997
has been restated as described in Note 16 to the 1997 consolidated financial
statements.
(3) The financial data for 1997-1993 has been reclassified as described in
Note 16.
Selected Financial Data for 1995-1993 has been restated to reflect the
acquisition of Lens Express which has been accounted for as a pooling of
interests and the divestiture of the Company's vision center business which has
been reported as a discontinued operation.
3
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
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
royalties from users of its systems and participating in per procedure royalties
from its ownership in Pillar Point Partners ("Pillar Point Partners"), a
partnership jointly formed by the Company (50%) and VISX, Incorporated
("VISX")(50%) in 1992; 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 August 18, 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.
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.
RESULTS OF OPERATIONS
1997 AS COMPARED WITH 1996
Revenues: Revenues in 1997 increased 8% to $79.7 million from $73.9 million
in 1996, primarily as a result of increased revenues from royalties, service and
other revenues. Royalties, service and other revenues increased 76% from $14.5
million in 1996 to $25.5 million in 1997. Royalties, including the Company's
equity in the income of PPP, more than doubled due to the substantial growth of
laser vision correction procedures performed in the U.S. In 1997, sales of laser
systems decreased to $7.6 million from $11.5 million in 1996, a 34% decrease.
Sales of contact lenses and related products decreased slightly to $46.6 million
in 1997 from $48.0 million in 1996.
Cost Of Revenues: Cost of revenues as a percentage of revenues decreased to 63%
in 1997 from 76% in 1996. This decrease was primarily attributable to lower
costs of revenues associated with royalty revenues and leasing programs. The
cost of revenues of systems as a percentage of system revenues decreased to
112% in 1997 from 120% in 1996. In 1997 and 1996, cost of revenues of systems
exceeded system revenues primarily due to unabsorbed manufacturing costs.
Selling, General and Administrative Expenses: Selling, general and
administrative expenses for 1997 decreased 11% to $22.8 million from $25.6
million for 1996. This decrease reflects lower spending in both sales and
marketing as well as general and administrative costs. Selling, general and
administrative expenses as a percentage of revenues were 29% and 35% in 1997 and
1996, respectively. Sales and marketing expenses decreased in 1997 compared to
1996 due to lower payroll and benefit costs and lower marketing costs associated
with the Company's contact lens business.
Research and Development Expenses: Research and development expenses for 1997
increased 5% to $6.2 million from $5.9 million for 1996. This increase was
primarily related to increased spending on the Company's regulatory efforts to
obtain FDA approval for use of the Apex Plus laser to treat astigmatism and
hyperopia as well as a wider range of myopia.
Legal Expenses: Legal expenses were $1.4 million in 1997 and $4.8 million in
1996. In 1997, the Company recorded a $4.7 million reduction in legal expenses
resulting from the settlement of patent litigations and recovery of certain
legal costs due from the Company's insurance carrier. Legal expense in 1996 were
offset by a $.8 million settlement of a patent litigation. Legal expenses in
1997 and 1996 were primarily related to patent litigation initiated by the
Company to defend its intellectual property and in defense of shareholder
litigation.
4
<PAGE>
Discontinued Operations: In January 1997, the Company announced its plan to
discontinue its Vision Center business owned and operated by Refractive Centers
International, Inc., (RCII) a wholly owned subsidiary of the Company.
Accordingly, the results of operations for this business were classified as
discontinued operations as of December 31, 1996. On August 18, 1997, the Company
sold RCII to LCA-Vision Inc. (LCA) in exchange for 16,164,361 newly issued
shares of LCA common stock. On December 29, 1997, the Company distributed
9,000,000 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. Due to the
distribution, the Company recorded a loss on investment of $.7 million,
representing the difference between the fair market value of LCA common stock on
the dividend declaration date of $23.6 million and its cost basis of $24.3
million. The remaining shares, which represent approximately 19.5 percent of
LCA's outstanding shares, will be held by the Company and may not be sold
prior to May 17, 1998. Accordingly, these shares have been classified as a
long-term investment.
Net Income (Loss): Income from continuing operations for 1997 was $.8 million,
or $.03 per basic and diluted share, as compared to a loss from continuing
operations of $13.5 million, or $.43 per basic and diluted share, for 1996. The
increase in income from continuing operations is primarily attributable to
increased revenues and lower operating expenses. In 1997, the sale of the
discontinued operation resulted in a net gain of $23.9 million, or $.76 per
basic and diluted share 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. Losses
from discontinued operations for 1997 were $3.3 million, or $.11 per basic and
diluted share, as compared to $23.4 million, or $.75 per basic and diluted share
for 1996. Net income for 1997 was $21.4 million, or $.68 per basic and diluted
share as compared to a net loss of $36.9 million, or $1.18 per basic and diluted
share for 1996.
Income Taxes: Due to the uncertainties noted above, 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.
1996 AS COMPARED WITH 1995
Revenues: Revenues in 1996 decreased 22% to $73.9 million from $95.3 million in
1995. This decrease was primarily attributable to lower sales of laser systems
and a decrease in the average selling price of laser systems. Sales of laser
systems were $11.5 million in 1996 compared to $37.8 million in 1995. This
decrease in system sales was offset in part by an increase in royalties, service
and other revenues. Royalties, service and other revenues increased to $21.0
million in 1996 from $6.5 million in 1995. Revenues from royalties began in
October 1995 upon FDA approval of the Company's laser system to treat myopia in
the U.S. During 1996 the Company introduced several per procedure leasing
programs, revenue from which will be recognized over the lease term.
Cost of revenues: Cost of revenues as a percentage of revenues increased to 76%
in 1996 from 64% in 1995. The cost of revenues of systems as a percentage of
system revenues increased to 120% in 1996 from 44% in 1995 due to unabsorbed
manufacturing costs, and lower average selling price of laser systems. These
increases were partially offset by lower cost of revenues associated with
royalty revenues which began in October 1995. In 1995, cost of revenues of
royalties, service and other exceeded revenues primarily due to substantial
costs incurred in development of the customer service organization.
Selling, General and Administrative Expenses: Selling, general and
administrative expenses for 1996 and 1995 was $25.6 million and $25.4 million
respectively. Lower spending in selling, general and administrative costs was
offset in part by one-time costs incurred in the acquisition of Lens Express,
Inc.
5
<PAGE>
Research and Development Expenses: Research and Development expenses for 1996
increased 6% to $5.9 million from $5.6 million for 1995. This increase was
primarily related to increased spending on the Company's regulatory efforts to
obtain FDA approval for use of the Apex Plus laser to treat astigmatism and
hyperopia as well as a wider range of myopia.
Legal Expenses: Legal expenses for 1996 increased to $4.8 million from $2.3
million for 1995. This increase is primarily related to patent litigation
initiated by the Company to defend its intellectual property and in defense of
shareholder litigation.
Net Income (Loss): The loss from continuing operations for 1996 was $13.5
million, or $.43 per share, as compared to income from continuing operations of
$1.6 million, or $.06 per share for 1995. The loss for 1996 was primarily due to
lower revenues and higher legal expenses. The loss from discontinued operations
for 1996 increased to $23.4 million, or $.75 per share from $4.5 million, or
$.17 per share, for 1995. The net loss for 1996 was $36.9 million, or $1.18 per
share and $3.0 million, or $.11 per share for 1995. All per share amounts are
the same for both basic and diluted earnings (loss) per share.
Income Taxes: Due to the uncertainties noted above, the Company has continued to
provide a 100% valuation allowance against its net deferred tax asset of
approximately $19.7 million as of December 31, 1996.
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity requirements have been met through external
debt and equity financing. As of December 31, 1997, the Company's cash and cash
equivalent balances and short and long-term investments increased to $74.1
million from $72.1 million as of December 31, 1996. Shares of LCA common stock
valued at $8.1 million were included in long-term investments as of December 31,
1997. Working capital decreased to $67.9 million as of December 31, 1997 from
$73.1 million as of December 31, 1996. In 1997, net cash used by operating
activities of $10.8 million resulted primarily from net cash used by
discontinued operations of $14.7 million. In 1996, net cash used by operating
activities of $28.0 million resulted primarily from the net loss of $36.9
million. Excluding the gain on sale of discontinued operations, net income
before depreciation and amortization was $.8 million in 1997 compared to a net
loss before depreciation and amortization of $33.3 million for 1996.
In 1997, net cash provided by investing activities of $5.1 million
resulted primarily from investing activities of discontinued operations of $9.9
million offset by a net increase in short and long-term investments of $4.2
million and capital expenditures of $1.8 million. In 1996, net cash used by
investing activities of $14.8 million resulted primarily from investing
activities of discontinued operations of $16.4 million and capital expenditures
of $5.6 million offset by a decrease in short and long-term investments of $7.0
million.
In 1997, net cash used by financing activities of $4.6 million were
primarily attributable to repayments of long-term debt of $5.0 million. In
1996, net cash provided by financing activities of $12.6 million were primarily
attributable to net proceeds from the issuance long-term debt of $16.3 million
and repayments of $3.0 million under a line of credit.
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 December 31, 1997, 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 December 31, 1997, $11.3 million of
borrowings were outstanding under this loan. This obligation is included in the
Company's consolidated balance sheet as of December 31, 1997.
New Accounting Standards
In June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") No. 130, Reporting Comprehensive
Income and SFAS No. 131, Disclosure about Segments of an Enterprise and Related
Information. SFAS No. 130 establishes standards for reporting and display of
comprehensive income and its components in a full-set of general purpose
financial statements. 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. Both statements, which are effective for the Company in its year
ending December 31, 1998, are not expected to have a material impact on the
Company's financial position or results of operations.
Year 2000
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 has been performed to identify the
systems and software that could be affected by this issue. The Company
currently believes that with the conversion to new software and modifications
to existing systems, the Year 2000 problem will not pose a significant
operational problem to the Company. However, there can be no assurance that the
Company will not experience unexpected costs and delays in achieving Year 2000
compliance for its computer systems, which could result in a material adverse
effect on the operations and financial position of the Company.
6
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
SUMMIT TECHNOLOGY, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
----
Independent Auditors' Report ....................................... F-2
Consolidated Balance Sheet as of December 31, 1997 and 1996......... F-3
Consolidated Statement of Operations for the Years Ended
December 31, 1997, 1996 and 1995 .................................. F-4
Consolidated Statement of Changes in Stockholders' Equity
for the Years Ended December 31, 1997, 1996 and 1995 .............. F-5
Consolidated Statement of Cash Flows for the Years Ended
December 31, 1997, 1996 and 1995 .................................. F-6
Notes to Consolidated Financial Statements ......................... F-7
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Summit Technology, Inc.:
We have audited the accompanying consolidated balance sheets of Summit
Technology, Inc. and subsidiaries as of December 31, 1997 and 1996, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the years in the three-year period ended December 31, 1997.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Summit Technology,
Inc. and subsidiaries at December 31, 1997 and 1996, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1997, in conformity with generally accepted accounting
principles.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Boston, Massachusetts
March 6, 1998, except as to Note 10, which is as
of March 27, 1998, and except for the restatement
referred to in Note 16, as to which the date is
March 9, 1999
F-2
<PAGE>
SUMMIT TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1997 AND 1996
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1996
-------- ---------
<S> <C> <C>
ASSETS (As restated,
see Note 16)
Current assets:
Cash and cash equivalents $ 33,720 $ 44,013
Short-term investments (Note 15) 26,770 19,393
Receivables, net of allowances of $758 in
1997 and $897 in 1996 8,896 8,553
Inventories (Note 4) 14,494 15,848
Prepaid expenses and other current assets 2,042 2,222
Due from related party (Note 13) 4 1,726
Restricted cash 1,264 1,502
-------- --------
Total current assets 87,190 93,257
Long-term investments (Note 15) 13,583 8,718
Property and equipment, net (Note 5) 8,593 9,381
Patents, net (Note 6) 4,769 6,747
Other assets 968 529
Net assets held for discontinued operations
(Note 3) - 15,028
-------- --------
TOTAL ASSETS $115,103 $133,660
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 4,482 $ 3,771
Accrued expenses (Note 7) 7,197 5,974
Current maturities of long-term debt (Note 8) 5,142 5,246
Deferred revenue 2,937 3,634
Due to related party (Note 13) 28 1,547
-------- --------
Total current liabilities 19,786 20,172
Long-term debt, less current maturities (Note 8) 6,330 11,472
Deferred taxes - 69
-------- --------
Total liabilities 26,116 31,713
-------- --------
Stockholders' equity (Note 9):
Preferred stock, $.01 par value.
Authorized 5,000,000 shares - -
Common stock, $.01 par value. Authorized
60,000,000 shares; Issued 31,299,803 shares
in 1997 and 31,024,709 in 1996 313 311
Additional paid-in capital 147,907 170,983
Accumulated deficit (47,789) (69,187)
-------- --------
100,431 102,107
Net unrealized loss on investment (Note 15) (11,284) -
Treasury stock, at cost, 6,125 shares in 1997
and 1996 (160) (160)
-------- --------
Total stockholders' equity 88,987 101,947
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $115,103 $133,660
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
SUMMIT TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1997 1996 1995
------- -------- --------
(As restated,
see Note 16)
<S> <C> <C> <C>
Revenues:
Systems $ 7,589 $ 11,484 $ 37,834
Royalties, service and other 25,486 14,465 5,837
Contact lens and related products 46,575 47,963 51,587
------- -------- --------
Total revenues 79,650 73,912 95,258
Cost of revenues:
Systems 8,490 13,776 16,523
Royalties, service and other 9,788 9,366 9,739
Contact lens and related products 31,721 33,173 34,794
------- -------- --------
Total cost of revenues 49,999 56,315 61,056
Gross profit 29,651 17,597 34,202
------- -------- --------
Operating expenses:
Selling, general and administrative expenses 22,762 25,564 25,443
Research and development expenses 6,213 5,892 5,579
Legal expenses 1,369 4,776 2,295
------- -------- --------
Total operating expenses 30,344 36,232 33,317
------- -------- --------
Operating income (loss) from continuing operations (693) (18,635) 885
Other income 1,658 5,188 1,467
------- -------- --------
Income (loss) from continuing operations
before provision for income taxes 965 (13,447) 2,352
Provision for income taxes 137 44 777
------- -------- --------
Income (loss) from continuing operations 828 (13,491) 1,575
Gain on sale of discontinued operations 23,910 - -
Loss from discontinued operations (3,340) (23,366) (4,542)
------- -------- --------
Net income (loss) $21,398 $(36,857) $ (2,967)
======= ======== ========
Basic earnings (loss) per share
- -------------------------------------------------------
Income (loss) per share from continuing operations $ 0.03 $ (0.43) $ 0.06
Gain per share on sale of discontinued operations 0.76 - -
Loss per share from discontinued operations (0.11) (0.75) (0.17)
------- -------- --------
Net income (loss) per share $ 0.68 $ (1.18) $ (0.11)
======= ======== ========
Diluted earnings (loss) per share
- -------------------------------------------------------
Income (loss) per share from continuing operations $ 0.03 $ (0.43) $ 0.06
Gain per share on sale of discontinued operations 0.76 - -
Loss per share from discontinued operations (0.11) (0.75) (0.17)
------- -------- --------
Net income (loss) per share $ 0.68 $ (1.18) $ (0.11)
======= ======== ========
Weighted average number of common shares outstanding 31,400 31,174 27,892
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
SUMMIT TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS EQUITY
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK ADDITIONAL NET UNREALIZED
----------------- ------------------- PAID-IN ACCUMULATED LOSS ON
SHARES PAR VALUE SHARES PAR VALUE CAPITAL DEFICIT INVESTMENT
------ --------- ------ ---------- ----------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at
December 31, 1994 - $ - 26,895 $269 $ 67,839 $ (29,363) $ -
Sale of common stock,
net of issuance costs - - 3,795 38 99,819 -
Exercise of stock options - - 248 2 2,734 -
Shares canceled - - (3) - - -
Net loss - - - - - (2,967)
---- ----- ------ ---- -------- ---------
Balance at
December 31, 1995 - - 30,935 309 170,392 (32,330) -
Exercise of stock options - - 184 2 1,396 -
Other shares issued 9 1 94 -
Shares canceled - - (103) (1) (899) -
Net loss - - - - - (36,857)
---- ----- ------ ---- -------- --------- --------
Balance at
December 31, 1996 - - 31,025 311 170,983 (69,187) -
Exercise of stock options - - 40 - 214 -
Other shares issued - - 235 2 335 -
Dividend* - - - - (23,625) -
Net unrealized loss
on investment* - - - - - - (11,284)
Net income* - - - - - 21,398
---- ----- ------ ---- -------- --------- --------
Balance at
December 31, 1997 - $ - 31,300 $313 $147,907 $ (47,789) $(11,284)
==== ===== ====== ==== ======== ========= ========
</TABLE>
<TABLE>
<CAPTION>
TREASURY STOCK TOTAL
--------------- SHAREHOLDERS'
SHARES AT COST EQUITY
------ ------- -------------
<S> <C> <C> <C>
Balance at
December 31, 1994 2 $ (43) $ 38,702
Sale of common stock,
net of issuance costs - - 99,857
Exercise of stock options 3 (89) 2,647
Shares canceled - - -
Net loss - - (2,967)
------ ------ --------
Balance at
December 31, 1995 5 (132) 138,239
Exercise of stock options 1 (28) 1,370
Other shares issued - - 95
Shares canceled - - (900)
Net loss - - (36,857)
------ ------ --------
Balance at
December 31, 1996 6 (160) 101,947
Exercise of stock options - - 214
Other shares issued - - 337
Dividend* - - (23,625)
Net unrealized loss
on investment* (11,284)
Net income* - - 21,398
------ ------ --------
Balance at
December 31, 1997 (as restated) 6 $ (160) $ 88,987
====== ====== ========
</TABLE>
See accompanying notes to consolidated financial statements.
*As restated, see Note 16
F-5
<PAGE>
SUMMIT TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1997 1996 1995
-------- --------- --------
(As restated,
see Note 16)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 21,398 $ (36,857) $ (2,967)
Gain on sale of discontinued operations (23,910) - -
Loss on investment 675 - -
Adjustments to reconcile net income (loss) to
net cash used by operating activities:
Depreciation and amortization 3,301 3,605 2,437
Recovery for losses on accounts receivables (139) (78) (75)
Changes in operating assets and liabilities:
Receivables (204) 7,671 (5,991)
Inventories 1,354 (145) (6,119)
Prepaid expenses and other current assets 79 (844) (240)
Accounts payable 711 (2,603) 1,667
Accrued expenses 1,083 (3,314) 2,772
Deferred revenue (697) 209 279
Related party, net 203 (524) 345
Operating activities of discontinued operations (14,653) 4,858 117
-------- --------- --------
Net cash used by operating activities (10,799) (28,022) (7,775)
-------- --------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of short-term investments (46,196) (109,185) (20,974)
Purchases of long-term investments (9,686) (9,718) (15,565)
Maturities of short-term investments 26,557 37,050 7,670
Maturities of long-term investments 7,715 12,021 1,534
Sales of short-term investments 12,262 74,349 192
Sales of long-term investments 5,166 2,510 500
Additions to property and equipment (1,834) (5,593) (2,282)
Purchase of patents and application costs - (553) (245)
(Increase) decrease in restricted cash 238 33 (1,535)
Other 892 666 1,656
Investing activities of discontinued operations 9,948 (16,403) (2,188)
-------- --------- --------
Net cash provided (used) by investing activities 5,062 (14,823) (31,237)
-------- --------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Advances under line of credit - - 3,000
Repayments under line of credit - (3,000) -
Proceeds from issuance of long-term debt - 20,000 -
Repayments of long-term debt (5,000) (3,750) -
Payments of capital lease obligations (246) (266) (517)
Proceeds from sale of common stock - - 99,857
Proceeds from exercise of stock options 214 480 2,629
Proceeds from other shares issued 337 85 18
Financing activities of discontinued operations 139 (994) (259)
-------- --------- --------
Net cash provided (used) by financing activities (4,556) 12,555 104,728
-------- --------- --------
Increase (decrease) in cash and cash equivalents (10,293) (30,290) 65,716
Cash and cash equivalents at beginning of period 44,013 74,303 8,587
-------- --------- --------
Cash and cash equivalents at end of period $ 33,720 $ 44,013 $ 74,303
======== ========= ========
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ 1,108 $ 272 $ 427
Income taxes paid $ 106 $ 57 $ 863
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
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 royalties from users of its systems and
participates in per procedure royalties payable to Pillar Point Partners, a
partnership, formed by the Company (50%) and VISX, Inc. ("VISX")(50%) to hold
certain U.S. patents covering excimer laser systems and procedures. Through its
wholly-owned subsidiary, Lens Express, Inc., the Company primarily sells contact
lenses and related products.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Principles of Consolidation
The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries after elimination of material
intercompany accounts and transactions.
Revenue Recognition
The Company recognizes revenue on product sales when the products are
shipped and the customer takes ownership. The Company records any advance
payments for products or services as deferred revenue. The Company accrues the
cost of warranty and product upgrade obligations when the product is shipped.
The Company recognizes service contract revenue ratably over the length of the
contract. The Company recognizes revenue under laser equipment operating leases
per the terms of the contract. The Company recognizes revenue on the sale of
contact lenses and related products upon shipment. Non-refundable per procedure
royalty fees are recognized upon shipment of Omnicards which are required to
perform laser vision correction procedures with the Company's equipment in the
U.S. The Company accounted for its interest in Pillar Point Partners ("PPP")
using the equity method of accounting and recorded its equity in the net
income of PPP as "license fees, service and other revenues." (See Notes 13
and 16).
Cash Equivalents
Cash equivalents consist of certificates of deposit and highly liquid
debt instruments with original maturities of three months or less.
Short and Long-term Investments
Short-term investments consist of investments that will mature within
twelve months of the balance sheet date. Long-term investments consist primarily
of investments that will mature greater than twelve months from the balance
sheet date. The Company considers its investments as available-for-sale and
carries the investments at market, which approximates cost plus accrued
interest. Unrealized holding gains and losses, net of the related tax effect, on
available-for-sale securities are excluded from earnings and are reported as a
separate component of stockholders' equity until realized. Realized gains and
losses from the sale of available-for-sale securities are determined on a
specific identification basis. These investments primarily consist of U.S.
Government Securities, mortgage-backed securities, equity securities and
investment grade corporate bonds.
Financial Instruments
The carrying amount of cash and cash equivalents, accounts receivable,
accounts payable and accrued expenses approximates fair value because of the
short-term maturity of these items. The fair market value of long term debt
approximates the carrying value due to the floating interest rate.
F-7
<PAGE>
Concentration of Credit Risk
The Company's trade receivables can potentially subject it to credit
risk. The Company limits its credit risk of U.S. receivables by obtaining
advance deposits and commitments from customers and third-party leasing
companies. The Company limits its credit risk of international receivables by
using distributors with proven credit history or by requiring irrevocable
letters of credit.
Inventories
Inventories are stated at the lower of cost or market, cost being
determined using the first-in, first-out method.
Property and Equipment
Property and equipment is stated at cost. Property and equipment under
capital leases is stated at the lower of the present value of future minimum
lease payments or fair market value at the beginning of the lease term.
Depreciation on property and equipment is calculated using the straight-line
method over the estimated useful lives of the assets ranging from three to ten
years. Amortization on property and equipment held under capital leases and
leasehold improvements is calculated using the straight-line method over the
shorter of the lease term or estimated useful life of the asset.
Patents and Organization costs
Patents consist of patents and patent application costs. Patents are
amortized over the patent's economic life using the straight-line method. Other
assets include deposits, organization costs, and long-term receivables.
Organization costs are amortized over five years using the straight-line method.
Income taxes
Deferred tax assets and liabilities have been established for the
expected future tax consequences of events that have been recognized in the
Company's consolidated financial statements and tax returns. These deferred tax
assets and liabilities are determined based on the difference between the
financial statement carrying amounts and tax basis of assets and liabilities
using currently enacted tax rates that are expected to be in effect during the
years in which the differences are anticipated to reverse. Deferred tax
provision (benefit) represents the change in the deferred tax asset balance. Tax
credits are treated as reductions of income taxes in the year in which the
credits become available for income tax purposes.
Foreign Currency Translation
The functional currency of the Company's foreign operations is the U.S.
dollar. Assets, liabilities and expenses related to foreign operations are
remeasured in U.S. dollars at the appropriate exchange rates. Gains and losses
resulting from remeasurement are included in other income and expense.
Advertising Expense
The Company expenses the production costs of advertising when the
advertising takes place. For the years ended December 31, 1997, 1996 and 1995
the Company expensed $3,683, $6,346 and $4,126, respectively.
Stock Based Compensation
Prior to January 1, 1996, the Company accounted for its stock option
plan in accordance with the provisions of Accounting Principles Board ("APB")
Opinion No. 25, Accounting for Stock Issued to Employees, and related
interpretations. As such, compensation expense would be recorded on the date of
grant only if the current market price of the underlying stock exceeded the
exercise price. On January 1, 1996, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 123, Accounting for Stock-Based Compensation,
which permits entities to recognize as expense over the vesting period the fair
value of all stock-based awards on the date of grant. Alternatively, SFAS No.
123 also allows entities to continue to apply the provisions of APB Opinion No.
25 and provide pro forma net income (loss) and pro forma earnings (loss) per
share disclosures for employee stock option grants made in 1995 and future years
as if the fair-value-based method defined in SFAS No. 123 had been applied. The
Company has elected to continue to apply the provisions of APB Opinion No. 25
and provide the pro forma disclosure provisions of SFAS No. 123.
F-8
<PAGE>
Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of
The Company adopted the provisions of SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, on
January 1, 1996. This Statement requires that long-lived assets and certain
identifiable intangibles be reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows expected
to be generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceed the fair value of the assets. Assets to be disposed
of are reported at the lower of the carrying amount or fair value less costs to
sell. Adoption of this Statement did not have a material impact on the Company's
financial position, results of operations, or liquidity. Future operations of
the Company may be impacted by the various legal proceedings related to the
patents associated with the Company's product discussed in Note 10.
Net Income (loss) Per Share
The Company adopted the provisions of SFAS No. 128, Earnings per Share,
effective for fiscal 1997. This Statement requires the presentation of basic
earnings per share and diluted earnings per share. Basic earnings (loss) per
share are computed by dividing net income (loss) by the weighted-average number
of common shares outstanding during the year. The number of shares used to
compute basic earnings (loss) per share were (in thousands) 31,400 in 1997,
31,174 in 1996 and 27,892 in 1995. Diluted earnings (loss) per share includes
the effect of all dilutive potential common shares that were outstanding during
the year. Diluted earnings (loss) per share are computed by dividing net income
(loss) by the weighted-average number of common shares and dilutive securities.
The number of shares used to compute diluted earnings (loss) per share were (in
thousands) 31,591 in 1997. Diluted loss per share was not reported in 1996 and
1995 because the results produce an antidilutive result. Prior year earnings per
share amounts have been restated to conform to the provisions of this Statement.
All per share amounts for 1997, 1996 and 1995 are the same for both basic and
diluted earnings (loss) per share.
Reclassifications
Certain prior year information has been reclassified to conform with
current year presentation of data.
3. DISCONTINUED OPERATIONS
In January 1997, the Company announced its plan to discontinue its
Vision Center business owned and operated by Refractive Centers International,
Inc., (RCII) a wholly owned subsidiary of the Company. Accordingly, the results
of operations for this business were classified as discontinued operations at
December 31, 1996. At December 31, 1996, the net assets held for discontinued
operations of 15.0 million included $10.0 million of short-term investments
allocated to RCII, $8.1 million of net property and equipment and a $4.6 million
provision for operating losses during the phase-out period.
On August 18, 1997, the Company sold RCII to LCA-Vision Inc. (LCA) in
exchange for 16,164,361 newly issued shares of LCA common stock. The sale of the
discontinued operation resulted in a net gain of $23.9 million, 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
9,000,000 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, will be held by the Company and may not sold prior to May
17, 1998. Accordingly, the remaining shares have been classified as a long-term
investment. The operating loss from discontinued operations for the year ended
December 31, 1997, 1996 and 1995 was $3.3 million, $23.4 million, $4.5 million,
respectively.
F-9
<PAGE>
4. INVENTORIES
Inventories consist of the following:
DECEMBER 31,
----------------
1997 1996
------- -------
Raw materials and subassemblies $ 3,195 $ 2,243
Work in process 2,147 728
Finished goods 9,152 12,877
------- -------
Total $14,494 $15,848
======= =======
5. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
DECEMBER 31,
----------------
1997 1996
------- -------
Leasehold improvements $ 1,611 $ 1,625
Manufacturing and test equipment 8,360 8,552
Furniture, fixtures and office
equipment 6,896 6,455
Laser equipment held for leases 5,093 3,494
------- -------
21,960 20,126
Less accumulated depreciation 13,367 10,745
------- -------
Net property and equipment $ 8,593 $ 9,381
======= =======
Laser equipment held for leases is held under operating leases with customers.
Accumulated depreciation on such leased equipment as of December 31, 1997 and
1996 was $2.0 million and $1.0 million, respectively. At December 31, 1997, $2.4
million of future minimum lease payments were due to the Company pursuant to its
operating lease agreements.
6. PATENTS
Patents consist of the following:
DECEMBER 31,
----------------
1997 1996
------- -------
Patents $ 6,617 $ 7,934
Less accumulated amortization 1,848 1,187
------- -------
Net patents $ 4,769 $ 6,747
======= =======
7. ACCRUED EXPENSES
Accrued expenses consist of the following:
DECEMBER 31,
----------------
1997 1996
------- -------
Accrued payroll and vacation $ 1,427 $ 1,115
Accrued warranty costs 342 932
Other accrued expenses 3,575 3,927
Accrued costs related to sale
of discontinued operations 1,853 -
------- -------
Total $ 7,197 $ 5,974
======= =======
F-10
<PAGE>
8. FINANCING AND LEASING ARRANGEMENTS
Leases
Capital lease obligations consist of amounts due under equipment lease
agreements. At December 31, 1997, the cost and accumulated depreciation of the
related equipment was $1,299 and $689, respectively. The Company leases its
office and manufacturing facilities in the U.S. under operating leases expiring
in 2000. The Company leases an office and manufacturing facility in Ireland
under an operating lease expiring in 2026. Rent expense was approximately $751,
$898 and $655 for the years ended December 31, 1997, 1996, and 1995,
respectively.
Financing Arrangements
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 December 31, 1997, 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 December 31, 1997, $11.3 million of
borrowings were outstanding under this loan and the interest rate was 8.5%.
At December 31, 1997, future payments of long term debt and capital
leases and minimum rental payments under noncancellable operating leases of
continuing operations were as follows:
<TABLE>
<CAPTION>
LONG TERM DEBT CAPITAL LEASES OPERATING LEASES
-------------- ---------------- ----------------
<S> <C> <C> <C>
Year ending December 31:
1998 $ 5,000 $ 160 $ 864
1999 5,000 74 675
2000 1,250 12 410
2001 - - 136
2002 - - 136
Thereafter - - 3,316
------- ----- ------
Minimum future debt payments 11,250 246 $5,537
Less amounts representing interest - 24 ======
------- -----
Present value of minimum future debt payments 11,250 222
Less current maturities of long term debt 5,000 142
------- ----
Long term debt, less current maturities $ 6,250 $ 80
======= ====
</TABLE>
9. STOCKHOLDERS' EQUITY
Common and Preferred Stock
The Company has authorized 5,000,000 shares of preferred stock at $.01
par value and 60,000,000 shares of common stock at $.01 par value. The terms and
conditions of the preferred stock, including any preferences and dividends, will
not be established until such time, if ever, as such shares are in fact issued
by the Company.
Stock Option Plans
In March 1987, the Company adopted a Stock Option Plan (the "1987
Plan") which permitted the Company to grant both incentive and nonincentive
stock options to employees. The 1987 Plan expired by its terms in March 1997 and
the Company adopted the 1997 Stock Option Plan (the "1997 Plan"). A total of
3,107,415 shares of Common Stock were authorized by the Board of Directors for
issuance under the 1987 Plan and a total of 1,500,000 shares have been
authorized for issuance under the 1997 Plan. The 1997 Plan permits the Company
to grant stock options (incentive and nonincentive) and stock appreciation
rights to employees, members of the Board of Directors, consultants and
advisors. Options generally vest within 3 years of grant date and must be
exercised not later than 10 years from the date of grant.
F-11
<PAGE>
The Company also has a Stock Option Plan for Outside Directors (the
"Directors' Plan") under which a total of 75,000 shares of common stock have
been authorized for issuance. Options granted under the Directors' Plan vest one
year from grant date and must be exercised not later than 10 years from the date
of grant.
The following table summarizes activity under all Plans for each of the
three years in the period ended December 31, 1997:
<TABLE>
<CAPTION>
NUMBER OF WEIGHTED AVERAGE
SHARES PRICE PER SHARE PRICE PER SHARE
--------- --------------- ----------------
<S> <C> <C> <C>
Options outstanding, December 31, 1994 894,705 $ 12.13
Options granted at market price 68,102 $19.17 - 33.75 23.31
Options granted below market price 36,938 20.00 20.00
Options lapsed or canceled (48,356) 13.33 - 29.33 18.17
Options exercised (248,314) .67 - 22.83 9.48
---------
Options outstanding, December 31, 1995 703,075 14.14
Options granted at market price 832,161 5.375 - 31.13 6.23
Options lapsed or canceled (329,012) 5.38 - 33.75 17.76
Options exercised (184,308) 4.33 - 22.83 7.58
---------
Options outstanding, December 31, 1996 1,021,916 7.72
Options granted at market price 697,684 4.53 - 9.13 6.81
Options lapsed or canceled (195,355) 5.38 - 29.33 9.25
Options exercised (39,822) 5.38 - 5.50 5.39
--------- ------
Options outstanding, December 31, 1997 1,484,423 $ 7.16
========= ======
</TABLE>
Options on 622,879 shares, 482,324 shares and 409,326 shares were
exercisable under the Plans at December 31, 1997, 1996 and 1995, with a weighted
exercise price per share of $7.92, $7.82 and $11.52, respectively. In addition,
options on 225,000 shares, which were granted in 1989 under a separate executive
stock option agreement, were exercised in 1997. In September 1996, options to
purchase 130,342 shares were repriced through cancellation and reissuance. The
number of shares of Common Stock reserved for granting of future options under
all Plans was 829,635, 210,256 and 435,287 shares at December 31, 1997, 1996 and
1995, respectively. The weighted average fair value of options granted during
1997, 1996 and 1995 was $3.94, $3.43 and $12.33 per option, respectively.
The following table summarizes significant ranges of outstanding and
exercisable options under the Plans at December 31, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- ------------------------------------------------------ -----------------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
RANGES OF NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
EXERCISE PRICES OUTSTANDING LIFE PRICE EXERCISABLE PRICE
- --------------- ----------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
$4.33 to $5.38 606,728 8.2 $ 5.32 424,389 $ 5.33
5.50 to 6.50 421,456 9.4 5.78 55,766 5.62
6.75 to 25.31 456,239 8.5 10.86 142,724 16.53
</TABLE>
F-12
<PAGE>
The fair value of options at date of grant was estimated using the
Black-Scholes model with the following weighted average assumptions:
1997 1996 1995
---- ---- ----
Expected life 4 years 4 years 4 years
Interest rate 6.19% 6.18% 6.38%
Volatility 70.5% 65.3% 51.5%
Dividend yield 0% 0% 0%
If the Company had recorded compensation costs for its stock option
plans and its stock purchase plan under the provisions of SFAS 123, the pretax
loss would have increased by $1.2 million, $1.5 million and $.7 million in 1997,
1996 and 1995, respectively, ($.04, $.05 and $.03 per share, respectively). The
fair values of the options granted are recognized as compensation expense on a
straight-line basis over the vesting period of the grant. The pro forma effect
on net income for 1997, 1996 and 1995 is not representative of the pro forma
effect on net income in future years because it does not take into consideration
pro forma compensation expense related to grants made prior to 1995.
Employee Stock Purchase Plan
In May 1991, the Company adopted an Employee Stock Purchase Plan (the
"Purchase Plan"). The Purchase Plan is available to all eligible full-time
employees, excluding those owning 5% or more of the Company's Common Stock.
Pursuant to the Purchase Plan, employees can purchase the Company's Common
Stock, at 85% of fair market value, in an amount up to 5% of the employee's
wages during the semi-annual plan purchase period. Under the Plan, the Company
sold 907 shares, 1,051 shares, and 2,250 shares in 1997, 1996 and 1995,
respectively.
Shareholder Rights Plan
In March 1990, the Board of Directors adopted a Shareholder Rights Plan
("Rights Plan") pursuant to which each stockholder of the Company holds one
currently non-exercisable right ("Right") for each share of Common Stock
beneficially held. The Rights become exercisable upon the occurrence of a
"Distribution Date," whereupon the holder is entitled to purchase from the
Company one-quarter of a share of Common Stock at the exercise price of $12.50,
subject to adjustment. Generally, a Distribution Date occurs if (a) a person or
group becomes a beneficial owner of 15% or more of the Company's outstanding
shares of Common Stock without the prior approval of the Board ("Acquiring
Person"), or (b) ten business days lapse following the commencement of, or
announcement of an intention to make, a tender or exchange offer for the Common
Stock not approved by the Board, which, if consummated, would result in a person
or group becoming a beneficial owner of 15% or more of the Company's outstanding
shares of Common Stock.
If a person or group becomes an Acquiring Person, a "Flip-In Event" thereby
occurs concurrently with the Distribution Date, with the effect that each Right
(other than those owned by such Acquiring Person) will entitle its holder to
obtain Common Stock having a market value of eight times the Right's exercise
price for a purchase price equal to four times the exercise price of the Rights,
in effect allowing a Rights holder to purchase a fixed amount of the Company's
Common Stock at a discount of 50% off the market price. If a person or group
becomes an Acquiring Person (hence triggering a Flip-In Event), and thereafter
the Company is involved in a merger or other business combination with the
Acquiring Person where the Company is not the surviving entity and the holders
of the Company's Common Stock are not the holders of all of the surviving
entity's Common Stock, or the sale of 50% or more of the Company's assets and
earning power to the Acquiring Person occurs a "Flip-Over Event", each Right
(other than those owned by the Acquiring Person) will then entitle the holder to
obtain eight times the Right's exercise price for a purchase price equal to four
times the exercise price of the Rights.
F-13
<PAGE>
10. COMMITMENTS AND CONTINGENCIES
Commitments
During 1991, the Irish Development Authority ("IDA") agreed to
reimburse the Company up to approximately $740 for rent, training and fixed
asset acquisition costs incurred in conjunction with the opening of its
manufacturing facility in Cork, Ireland. The Company may be required to repay
the grants if the facility is closed within eight years of the final grant
drawdown. As of December 31, 1997, the Company has received approximately $574
from the IDA under these agreements.
In February 1992, the Company entered into a licensing agreement with IBM
pursuant to which IBM granted the Company a license to its patent covering
excimer laser ablation of tissue and the Company agreed to pay IBM a royalty of
2% of the net selling price of its Excimer Systems sold or leased in the U.S.
and certain other countries. The Company also licenses certain laser patents
from Patlex Corporation and has agreed to pay royalties, not to exceed $100 per
year, with respect to laser sales.
Contingencies
Pillar Point Partners Antitrust And Patent Litigation. Pillar Point
Partners, the Company, 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) and
PILLAR POINT PARTNERS, ET AL. V. JON G. DISHLER, ET AL. (U.S. DISTRICT COURT,
DISTRICT OF COLORADO, CIVIL ACTION NO. 96-N-2351). 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.
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. Taboada is
opposing the MDL Panel's transfer of his case to the District of Arizona.
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. The plaintiff seeks damages of an unspecified amount,
treble damages, attorneys' 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 claims and
seeking substantially similar relief. Pillar Point Partners has stated that it
believes these California lawsuits are without merit and is contesting the suits
vigorously. Plaintiff's counsel in the Shephard case has indicated that he
intends to seek certification of the case as a class action.
On November 5, 1997, Antoine Garabet, M.D., Inc. and Abraham Shammas,
M.D., d/b/a The 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, 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.
Unconsolidated Cases. Two patent infringement cases commenced by Pillar
Point, one against an illegal manufacturer of homemade laser systems not
licensed under the Pillar Point patents and one against an individual believed
to be inducing infringement of such patents, have not been consolidated by the
MDL Panel. These cases are presently as 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); and PILLAR POINT PARTNERS, ET AL. V. WILLIAM D.
APPLER (U.S. DISTRICT COURT, DISTRICT OF COLUMBIA, CIVIL ACTION NO.
1:96CV02082). The APPLER case has been settled.
On March 26, 1998, Janice Camp, an individual who claims to have
received laser vision correction surgery, commenced a lawsuit, purporting to be
a class action, against the Company and VISX in the United States District Court
for the District of Massachusetts. The complaint alleges that the defendants
jointly conspired to monopolize, and did monopolize, the nationwide market for
the licensing of laser vision correction technology, in violation of various
antitrust laws, consumer protection statutes, and the Racketeer Influenced and
Corrupt Organizations Act. The complaint seeks, inter alia, treble damages,
costs of suit and various forms of equitable relief. This case is presently
pending as Camp v. Summit Technology, Inc. and VISX, Inc., United States
District Court, District of Massachusetts, Case No. 98CV10544DPW. The Company is
presently studying the complaint, which was served on the Company on March 27,
1998.
In October, 1996, Autonomous Technologies Corporation ("ATC") sued
Pillar Point Partners, the Company and VISX (and certain affiliates of the
Company and VISX) in the Federal District Court for the District of Delaware. In
this action, Autonomous seeks, INTER ALIA, a declaratory judgment that it does
not infringe a certain United States Patent held by Pillar Point Partners, or,
alternatively, a judgment ordering that all U.S. patents held by Pillar Point
Partners, together with their foreign counterparts, be deemed unenforceable
and/or be licensed to Autonomous.
VISX Royalty Action. On August 28, 1996, an affiliate of VISX,
purporting to act on behalf of Pillar Point Partners, commenced a lawsuit
against the Company in the United States District Court for the District of
Massachusetts. The suit alleges that the Company owes equipment royalties to
Pillar Point Partners of not less than $4.5 million together with interest,
costs and attorneys' fees. The Company denies these allegations and is
contesting them vigorously. However, there can be no assurance that the lawsuit
will be resolved in the Company's favor or that an adverse judgment or
settlement would not have a material adverse effect on the results of operations
of the Company in the period in which it occurs.
FTC Proceedings. On March 24, 1998, the Federal Trade Commission
("FTC") commenced an administrative enforcement proceeding against the Company
and VISX alleging antitrust violations in connection with Pillar Point Partners'
patent arrangements. The FTC also alleged that certain of the patents licensed
by VISX to Pillar Point were fraudulently obtained by VISX. The FTC has not,
however, challenged the validity of any of the Company's patents. The FTC is
seeking, inter alia, an order, dissolving Pillar Point Partners, requiring the
Company and VISX to allow their users to withdraw from their license agreements
with the Company and VISX and requiring that VISX cease charging royalties on
the patents alleged by the FTC to have been fraudulently obtained. The FTC does
not seek monetary damages. This action is presently pending before the FTC as
In the Matter of Summit Technology, Inc., a Corporation, and VISX, Inc., a
corporation, Docket No. 9286. The Company believes that the FTC's antitrust
allegations are without merit and intends to contest them. However, there can
be no assurance that this action will be resolved in the Company's favor or that
an adverse judgment or settlement would not have a material adverse affect on
the Company.
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 has answered each complaint, denying the
allegations. While Lens believes the claims 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, 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
employees have denied the allegations; the former employees apparently have
never been served with the complaint. After the Court sua sponte dismissed the
complaint for improper pleading and Lens moved to dismiss the second amended
complaint, plaintiffs filed a third amended complaint, which alleges the same
causes of action. 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 intends to move to
dismiss the third amended complaint as well. 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.
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.
Lens Express Action. Certain former shareholders of Lens (the "Lens
Shareholders") commenced an action against the Company in the United States
District Court for the Southern District of Florida captioned GOLAN ET AL. V.
SUMMIT TECHNOLOGY, et al., Case No. 97-6589-Ferguson, alleging causes of action
under Section 12 of the Securities Act of 1933 and Sections 10(b) and 20(a) of
the Securities Exchange Act of 1934 and the common law. The Complaint alleges
that material misrepresentations and non-disclosures by the Company caused the
Lens Shareholders to enter into a Merger Agreement with the Company, pursuant to
which the Company acquired all of the outstanding shares of common stock of Lens
Express and that the Company breached the Merger Agreement by failing to
disclose alleged material adverse financial information about the Company and by
failing to take actions which the Lens Shareholders allege was necessary to make
the shares of Summit stock they received in the merger tradeable in the stock
market. Plaintiffs ask that the Merger Agreement be rescinded, that Lens Express
be restored to them and that they be awarded unspecified compensatory and
punitive damages, interest, costs and expenses. By order of the MDL Panel dated
October 9, 1997, the action was transferred to the District of Massachusetts and
consolidated for pretrial purposes with the Securities Litigation.
The Company believes that the allegations in the Complaint are without
merit, and it intends to defend the action vigorously. There can be no assurance
that the Company will ultimately prevail in the action, or that the action will
not have a material adverse effect on the Company.
VISX LASIK Action. On November 12, 1997, VISX commenced a lawsuit
against the Company and Pillar Point Partners in the Santa Clara, California
Superior Court seeking a declaratory judgment that VISX was not obligated to pay
royalties to Pillar Point for LASIK procedures performed using VISX equipment.
VISX claims no royalties are due for these procedures because VISX has not
received pre-market approval from the FDA to market its devices for LASIK. The
Company disagrees with VISX's position and has brought a countersuit on behalf
of itself and Pillar Point Partners to recover the royalties which it alleges
VISX is wrongfully withholding. The Company believes that if it prevails in its
counterclaim, applicable provisions of the Pillar Point agreements mandate that
all royalties recovered from VISX will be allocated 100% to the Company rather
than divided between VISX and the Company. In response to the Company's
counterclaim, VISX has asserted a further claim that the Company's sales
activities dating to 1992 constituted unfair and deceptive trade practices. The
Company believes VISX's countersuit is wholly without merit and will contest it
vigorously.
VISX Dissolution Action. On February 17, 1998, an affiliate of VISX
commenced an action in the Santa Clara California Superior Court against an
affiliate of the Company seeking an order dissolving Pillar Point Partners and
appointment of a receiver to wind up its affairs. The Company and its affiliate
have counterclaimed, alleging that the VISX action violates the prohibition
against voluntary dissolution set forth in the Pillar Point agreements. The VISX
complaint and the Company's answer and counterclaim have been filed under seal.
The Company believes that if it prevails on its counterclaims, applicable
provisions of the Pillar Point agreements will entitle it to obtain sole rights
to all of Pillar Point's patents and other assets and to continue the business
of Pillar Point without VISX.
11. INCOME TAXES
The appropriate tax effect of each type of temporary difference and carryforward
that gives rise to significant portions of the deferred tax assets and
liabilities are as follows:
DECEMBER 31,
--------------------
1997 1996
--------- ---------
Deferred tax asset:
Net operating loss and other carryforwards $ 19,926 $ 18,595
Unrealized loss or marketable securities 4,514 -
Research and development credit 684 721
Inventory adjustments 145 349
Warranty/other reserves 526 509
Other temporary differences 252 250
-------- --------
Subtotal 26,047 20,424
Valuation allowance (25,078) (19,695)
-------- --------
969 729
-------- --------
Deferred tax liability:
Patent costs 441 534
Other temporary differences 528 195
-------- --------
969 729
-------- --------
Net deferred tax asset $ 0 $ 0
======== ========
Due to the uncertainty of future taxable income being generated, the Company has
recorded a valuation allowance against its deferred tax assets which more than
likely will not be realized. The valuation allowance for deferred tax assets as
of December 31, 1995, was $14,413. The net change in the total valuation
allowance for the years ended December 31, 1997 and 1996 was $5,383 and $5,282,
respectively.
F-14
<PAGE>
The provision for income taxes differs from the amount computed by applying the
federal income tax rate of 35% as a result of the following:
December 31,
-------------------------------
1997 1996 1995
-------------------------------
Expected expense (benefit) at federal $ 338 $(4,706) $ 823
income tax rate
Foreign, state, and other taxes, net of
federal benefit 53 46 126
Change in valuation allowance for
deferred tax assets allocated to
income tax expense (254) 4,704 (172)
----- ------- -----
Provision for income tax $ 137 $ 44 $ 777
===== ======= =====
At December 31, 1997, the Company had an operating loss carryforward of
approximately $49,293 available to offset future federal taxable income from
continuing operations. The net operating loss amount includes approximately
$6,164 of employee stock option compensation deductions which will be credited
to additional paid-in capital when realized. The Company divested RCII in 1997
(see Note 3) and has reported RCII as a discontinued operation. The operating
loss carryforward attributed to RCII of $18,929 remains with the divested
entity. As a result, the Company will not be able to utilize that portion of the
operating loss carryforward to offset future federal taxable income from
continued operations. This amount has been removed from the deferred tax asset
and operating loss carryforward as stated above.
In addition, the Company has research and experimentation credit carryforwards
of approximately $684. The operating loss and tax credit carryforwards expire
as follows:
YEAR OF NET OPERATING RESEARCH & DEVELOPMENT
EXPIRATION LOSSES TAX CREDIT
------------------------------------------------------------------------
2001 $ - $ 8
2002 - 31
2003 - 41
2004 - 64
2005 - 111
2006 - 165
2007 7,417 188
2008 8,740 76
2009 10,102 -
2010 - -
2011 15,303 -
2012 7,731 -
------------------------------------------------------------------------
$49,293 $684
========================================================================
Pursuant to Section 382 of the Internal revenue Code, if there is a change in
stock ownership of the Company exceeding 50% during a three-year period, the
utilization of the Company's net operating loss may be limited. As of December
31, 1997, utilization of the Company's net operating loss carryforward is not
limited by Section 382.
There are no unremitted earnings in the Company's foreign subsidiaries.
The Internal Revenue Service is currently in the process of an Income Tax
Examination of Lens Express for the years ended June 30, 1994 and June 30, 1995.
The Company has no other income tax examinations pending.
12. RETIREMENT PLANS
The Company sponsors defined contribution retirement plans ("the
plans"). Employees may contribute various percentages of their salary subject to
contribution limits defined by the Internal Revenue Code. The Company may, at
its discretion, match in cash or its Common Stock the employee's contributions.
For the years ended December 31, 1997, 1996 and 1995, the Company contributed
cash and common stock valued at $63, $127 and $91, respectively representing its
matching contribution to the Plan.
13. PILLAR POINT PARTNERSHIP
Pursuant to a partnership and licensing arrangement with VISX, the Company
and VISX are obligated to pay royalties on U.S. equipment sales and procedures
performed with such equipment in the U.S. to Pillar Point Partners. Pillar Point
Partners is jointly owned by the Company (50%) and VISX (50%). The Company
records as royalties, service and other revenues its equity (approximately 44%)
in the net income of Pillar Point Partners. (Also see Notes 2 and 16)
F-15
<PAGE>
14. SUPPLEMENTAL CASH FLOW INFORMATION
For the year ended December 31, 1997, other non-cash transactions include
proceeds of 16.2 million shares of LCA common stock valued at $30.4 million from
the sale of discontinued operations and dividend distribution of 9.0 million
shares of LCA common stock valued at $17.6 million. (see Note 3) Non-cash
investing and financing activities were $49 thousand and $0.3 million in 1996
and 1995, respectively for capital lease obligations incurred.
15. INVESTMENT SECURITIES
Short and long term investment securities consists of the following at
December 31, 1997 and 1996:
FAIR VALUE
----------
At December 31, 1997
U.S. Government securities $ 983
Mortgage-backed securities 2,248
Corporate bonds 29,062
----------
Total debt securities 32,293
Equity security 8,060
----------
$ 40,353
==========
At December 31, 1996
U.S. Government securities $ 14,512
Mortgage-backed securities 5,759
Corporate bonds 7,840
----------
Total debt securities $ 28,111
==========
At December 31, 1997, the cost of the equity security was $19,344 and
the related unrealized loss of $11,284 was included as a separate component of
stockholders' equity. The amortized cost of debt securities at December 31, 1997
and 1996 approximates fair value and as a result the Company has no unrealized
holding gains or losses related to these securities.
As of December 31, 1997, the Company had $31,543 of debt securities due
within five years of the balance sheet date and had $750 of debt securities due
after five years of the balance sheet date. As of December 31, 1996, the Company
had $26,611 of debt securities due within five years of the balance sheet date
and had $1.5 million of debt securities due after five years of the balance
sheet date.
Gross realized gains included in other income in 1997 and 1996 were
$185 and $104, respectively, and gross realized losses included in other income
in 1997 was $721 and 1996 was $70.
F-16
<PAGE>
16. RESTATEMENT AND RECLASSIFICATION
Restatement:
In response to a review by the Staff of the Securities and Exchange
Commission, the Company has restated its previously consolidated financial
statements as of December 31, 1997 and for the year then ended, for transactions
related to the sale of the Company's discontinued operations (see Note 3). With
guidance from the Staff, the 16,164,361 newly issued shares of LCA common stock,
representing the proceeds from the sale, were valued at a 10% discount from the
market price of LCA common stock which resulted in a gain on the sale of
discontinued operations of $23,910 in the third quarter of 1997, compared to a
gain of $10,771 that the Company had previously recognized. In connection with
the distribution of 9,000,000 shares of LCA common stock, the Company recorded a
one-time non-cash loss on investment of $675 in the fourth quarter of 1997,
representing the difference between the fair market value of LCA common stock on
the dividend declaration date of $23,625 and its cost basis of $24,300.
Previously, the distribution of LCA common stock was recorded at cost.
The impact of the restatement is summarized as follows:
<TABLE>
<CAPTION>
Year Ended
December 31, 1997
---------------------------------
As Previously
As Restated Reported
------------- -------------
<S> <C> <C>
STATEMENT OF OPERATIONS:
Other income $ 1,738 $ 2,333*
Income from continuing operations 828 1,503
Gain on sale of discontinued operations 23,910 10,711
Net income 21,398 8,874
Basic earnings per share:
- ------------------------
Income per share from continuing
operations $ 0.03 $ 0.05
Gain on sale of discontinued operations 0.77 0.34
Net income 0.69 0.28
Diluted earnings per share:
- --------------------------
Income from continuing operations $ 0.03 $ 0.05
Gain on sale of discontinued operations 0.76 0.34
Net income 0.68 0.28
</TABLE>
*Amount has been reclassified to conform with 1998 presentation as indicated
below
<TABLE>
<CAPTION>
Year Ended
December 31, 1997
---------------------------------
As Previously
As Restated Reported
------------- -------------
<S> <C> <C>
BALANCE SHEET:
Additional paid-in capital $ 147,907 $ 153,982
Accumulated deficit (47,789) (60,313)
Unrealized loss on investment (11,284) (4,835)
</TABLE>
Reclassification:
Effective January 1, 1998, the Company began recording as royalties,
service and other revenues its equity (approximately 44%) in the net income
(loss) of Pillar Point Partners, which was $10,682, $6,674 and $(100) for
the years ended December 31, 1997, 1996 and 1995, respectively. The Staff of the
Securities and Exchange Commission has requested that information in the 1997
consolidated financial statements be reclassified to conform with the 1998
presentation. These reclassifications did not have any impact on net income
(loss) for the years ended December 31, 1997, 1996 and 1995 and were as
follows:
<TABLE>
<CAPTION>
1997 1996 1995
--------------------------- ---------------------------- ----------------------------
Current As Previously Current As Previously Current As Previously
Presentation Reported Presentation Reported Presentation Reported
------------ ------------- ------------ ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Revenues $ 79,650 $ 88,791 $ 73,912 $ 80,477 $ 95,258 $ 95,898
Cost of revenues 49,999 55,902 56,315 62,438 61,056 61,358
------------ ------------- ------------ ------------- ------------ -------------
Gross profit 29,651 32,889 17,597 18,039 34,202 34,540
Operating expenses 30,344 33,662 36,232 36,703 33,317 33,655
------------ ------------- ------------ ------------- ------------ -------------
Operating loss from continuing operations (693) (773) (18,635) (18,664) 885 885
Other income 1,658 1,738 5,188 5,217 1,467 1,467
------------ ------------- ------------ ------------- ------------ -------------
Income (loss) from continuing operations
before provision for income taxes $ 965 $ 965 $(13,447) $(13,447) $ 2,352 $ 2,352
============ ============= ============ ============= ============ ============
</TABLE>
17. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
Quarter
----------------------------------------------------------------------------------------
Third (1) Fourth (1)
--------------------------- ------------------------
As As
As Previously As Previously
1997 First Second Restated Reported Restated Reported
------- ------- -------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Revenues $18,353 $21,106 $ 20,322 $ 20,322 $ 19,869 $ 19,869
Gross profit 6,372 8,663 7,520 7,520 7,096 7,096
Income (loss) from (1,400) 2,572 24 24 (368) 307
continuing operations
Gain on sale of - 23,910 10,711 - -
discontinued
operations
Loss from discontinued - - (3,340) (3,340) - -
operations
Net income (loss) (1,400) 2,572 20,594 7,395 (368) 307
Basic and diluted earnings
- --------------------------
per share:
- ----------
Income (loss) from $ (0.04) $ 0.08 $ - $ - $ (0.01) $ 0.01
continuing operations
Gain on sale of - - 0.76 0.34 - -
discontinued
operations
Loss from discontinued - - (0.11) (0.11) - -
operations
Net income (loss) (0.04) 0.08 0.65 0.23 (0.01) 0.01
</TABLE>
<TABLE>
<CAPTION>
Quarter
----------------------------------------------------------------
First Second Third Fourth
1996
<S> <C> <C> <C> <C>
Revenues $23,921 $ 15,684 $18,247 $ 16,060
Gross profit 7,933 3,180 6,379 105
Income (loss) from continuing operations (84) (5,608) 584 (8,383)
Loss from discontinued operations (3,470) (6,373) (4,524) (8,999)
Net income (loss) (3,554) (11,981) (3,940) (17,382)
Basic and diluted earnings per share:
- ------------------------------------
Income (loss) from continuing operations $ - $ (0.18) $ 0.02 (0.27)
Loss from discontinued operations (0.11) (0.20) (0.15) (0.29)
Net income (loss) (0.11) (0.38) (0.13) (0.56)
</TABLE>
(1) The 1997 third quarter and 1997 fourth quarter results have been
restated for transactions related to the sale of the Company's
discontinued operations and distribution of LCA common stock (see
Note 16).
F-17
<PAGE>
INDEPENDENT AUDITOR'S REPORT
The Board of Directors and Stockholders
Summit Technology, Inc.:
Under date of March 6, 1998, except as to Note 10, which is as of March 27, 1998
and except for the restatement referred to in Note 16, as to which the date is
March 9, 1999, we reported on the consolidated balance sheets of Summit
Technology, Inc. as of December 31, 1997 and 1996, and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of the
years in the three-year period ended December 31, 1997, as contained in the 1997
annual report to stockholders. In connection with our audits of the
aforementioned consolidated financial statements, we also audited financial
statement Schedule II. This financial statement schedule is the responsibility
of the Company's management. Our responsibility is to express an opinion on this
financial statement schedule based on our audits .
In our opinion, such financial statement schedule, when considered in relation
to the basic consolidated financial statements taken as a whole, presents
fairly, in all material respects, the information set forth therein.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Boston, Massachusetts
March 6, 1998, except as to Note 10,
which is as of March 27, 1998 and
except for the restatement referred
to in Note 16, as to which the
date is March 9, 1999
F-18
<PAGE>
SCHEDULE II
SUMMIT TECHNOLOGY, INC. AND SUBSIDIARIES
Valuation and Qualifying Accounts
December 31, 1995, 1996 and 1997 (unaudited)
(in thousands)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
DECEMBER 31, 1995 Balance at Beginning Additions/ Amounts Balance at End
of Period (Deductions) Written Off of Period
-------------------- ----------- ----------- --------------
Allowance for Doubtful Accounts $1,049 ($75) $ - $974
DECEMBER 31, 1996 Balance at Beginning Additions/ Amounts Balance at End
of Period (Deductions) Written Off of Period
-------------------- ----------- ----------- --------------
Allowance for Doubtful Accounts $ 974 $ 186 $ 263 $897
DECEMBER 31, 1997 Balance at Beginning Additions/ Amounts Balance at End
of Period (Deductions) Written Off of Period
-------------------- ----------- ----------- --------------
Allowance for Doubtful Accounts $ 897 $ 245 $ 384 $758
</TABLE>
F-19
<PAGE>
PART IV
ITEM 14. FINANCIAL STATEMENTS, FINANCIAL STATEMENT SCHEDULES, EXHIBITS AND
REPORTS ON FORM 8-K
1. FINANCIAL STATEMENTS
The documents listed below are included in Item 8 of Part II of this Report.
Independent Auditors' Report
Consolidated Balance Sheet as of December 31, 1997 and 1996
Consolidated Statement of Operations for the Years Ended December 31, 1997,
1996 and 1995
<PAGE>
Consolidated Statement of Cash Flows for the Years Ended December 31, 1997, 1996
and 1995
Consolidated Statement of Changes in Stockholders' Equity for the Years Ended
December 31, 1997, 1996 and 1995
Notes to Consolidated Financial Statements
2. FINANCIAL STATEMENT SCHEDULES
Included in Item 8 of Part II of this report are the following:
Independent Auditors' Report regarding Schedule
Schedule II - Valuation and qualifying accounts
Other schedules are omitted because of the absence of conditions under
which they are required or because the required information is presented in the
financial statements or notes thereto.
3. EXHIBITS
The following Exhibits are either filed herewith or were filed as
exhibits to such other document filed with the Commission as is indicated:
EXHIBIT NO. DESCRIPTION
- ----------- -----------
2.1 Agreement and Plan of Merger dated April 19, 1996 among the
Company, Summit Acquisition Corporation, Lens Express, Inc.,
Mordechai Golan, Creslin Limited, Menderes Akdag and Huseyin
Kizanlikli, incorporated by reference to the Company's Form
8-K dated May 15, 1996
3.1 Articles of Organization, as amended, incorporated by
reference to the Company's Annual Report on Form 10-K for the
year ended December 31, 1992, as amended (the "1992 10-K")
3.2 Articles of Amendment to Articles of Organization dated
September 7, 1994, incorporated by reference to the Company's
Annual Report on Form 10-K for the year ended December 31,
1994
3.3 By-Laws, as amended, incorporated by reference to Exhibit 3(b)
to the Company's Annual Report on Form 10-K for the year ended
December 31, 1989
4 Rights Agreement, incorporated by reference to Exhibit 1 to
the Company's Report on Form 8-A filed with the Commission on
April 2, 1990
10.1 IBM License Agreement, incorporated by reference to Exhibit
10(b) to the Company's Annual Report on Form 10-K for the year
ended December 31, 1991 (the "1991 10-K")
10.2 Waltham Lease, incorporated by reference to Exhibit 10(c) to
the Company's Annual Report on Form 10-K for the year ended
December 31, 1990
<PAGE>
10.3 Irish facility agreement, incorporated by reference to Exhibit
10(g) to the 1991 10-K
10.4 The Industrial Development Authority grant agreements,
incorporated by reference to Exhibit 10(h) to the 1991 10-K
10.5 Formation Agreement, Summit Transfer Agreement, Summit
Contribution Agreement, Partnership Agreement and License-Back
to Summit, each dated June 3, 1992 relating to the formation
of Pillar Point Partners, Incorporated by reference to Exhibit
10(a) to the Company's Current Report on Form 8-K filed with
the Commission on June 5, 1992
10.6 Patlex License, incorporated by reference to Exhibit 10.9 to
the 1993 S-1
10.7 1992 Stock Option Plan For Outside Directors, as amended,
incorporated by reference to the Company's Annual Report on
Form 10-K for the year ended December 31, 1995*
10.8 Executive Stock Option Agreement Between the Company and David
F. Muller, incorporated by reference to Exhibit 10.9 to the
1992 10-K
11 Statement Re: Computation of Per Share Earnings
22 Subsidiaries, incorporated by reference to Exhibit 22 to the
1992 10-K
23 Consent of KPMG Peat Marwick LLP, attached hereto
27 Financial Data Schedule (For EDGAR Filing Purposes Only)
Reports on Form 8-K
None
*Management Compensation Plan
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this Amended Annual Report
on Form 10-K/A to be signed on its behalf by the undersigned, thereunto duly
authorized.
SUMMIT TECHNOLOGY, INC.
Date: March 23, 1999 By: /s/ Robert J. Palmisano
-------------- -----------------------
Robert J. Palmisano
Chief Executive Officer
<PAGE>
Exhibit 11
SUMMIT TECHNOLOGY, INC.
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
(IN THOUSANDS, EXCEPT PER SHARE AMOUNT 1997 1996 1995
(As Restated)(B)
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income (loss) from continuing operations $ 828 $(13,491) $ 1,575
Loss from discontinued operations (3,340) (23,366) (4,542)
Gain on sale of discontinued operations 23,910 -- --
------- -------- -------
Net income (loss) $21,398 $(36,857) $(2,967)
------- -------- -------
BASIC EARNINGS (LOSS) PER SHARE:
Weighted average common shares outstanding 31,400 31,174 27,892
------- -------- -------
Income (loss) per share from continuing operations $ .03 $ (.43) $ .06
Loss per share from discontinued operations (.11) (.75) (.17)
Gain on sale of discontinued operations .76 -- --
------- -------- -------
Net income (loss) per share $ .68 $ (1.18) $ (.11)
------- -------- -------
DILUTED EARNINGS (LOSS) PER SHARE:
Weighted average common shares outstanding 31,400 31,174 27,892
Weighted average stock options outstanding 191 210 423
------- -------- -------
Total weighted average common shares outstanding 31,591 31,384 28,315
------- -------- -------
Income (loss) per share from continuing operations $ .03 $ (.43) $ .06
Loss per share from discontinued operations (.11) (.74) (.16)
Gain on sale of discontinued operations .76 -- --
------- -------- -------
Net income (loss) per share $ .68 $ (1.17)(A) $ (.10)(A)
------- -------- -------
</TABLE>
(A) This computation is submitted as an exhibit to the Company's Form 10-K in
accordance with Regulation S-K Item 601(b) (11), although presenting the
computation is not in accordance with Statement of Financial Accounting
Standards No. 128, Earnings per Share, because the computation produces an
antidilutive result.
(B) Earnings per share for the year ended December 31, 1997 has been restated
as described in Note 16 to the consolidated financial statements.
<PAGE>
Exhibit 23
Consent of Independent Accountants
The Board of Directors
Summit Technology, Inc.:
We consent to incorporation by reference in the registration statements (No.33-
25169), (No.33-41451), (No.33-49162), (No. 33-79158), (No. 333-03765), (No. 333-
26142) and (No. 333-41583) on Forms S-8, S-8, S-8, S-3, S-3, S-8, and S-8,
respectively, of Summit Technology, Inc. of our report dated March 6, 1998,
except as to Note 10, which is as of March 27, 1998 and except for the
restatement referred to in Note 16, as to which the date is March 9, 1999
relating to the consolidated balance sheets of Summit Technology, Inc. and
subsidiaries as of December 31, 1997 and 1996, and the related consolidated
statements of operations, stockholders' equity, and cash flows and related
schedules for each of the years in the three-year period ended December 31,
1997, which reports appear in the December 31, 1997 annual report on Form 10-K/A
of Summit Technology, Inc.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Boston, Massachusetts
March 22, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE DECEMBER
31, 1997 FORM 10-K/A, AS RESTATED (SEE NOTE 16 TO THE 1997 CONSOLIDATED
FINANCIAL STATEMENTS) AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 33,720
<SECURITIES> 26,770
<RECEIVABLES> 9,654
<ALLOWANCES> 758
<INVENTORY> 14,494
<CURRENT-ASSETS> 87,681
<PP&E> 21,960
<DEPRECIATION> 13,367
<TOTAL-ASSETS> 115,103
<CURRENT-LIABILITIES> 19,786
<BONDS> 6,330
0
0
<COMMON> 313
<OTHER-SE> 88,674
<TOTAL-LIABILITY-AND-EQUITY> 115,103
<SALES> 79,650
<TOTAL-REVENUES> 79,650
<CGS> 49,999
<TOTAL-COSTS> 80,343
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 245
<INTEREST-EXPENSE> 1,195
<INCOME-PRETAX> 965
<INCOME-TAX> 137
<INCOME-CONTINUING> 828
<DISCONTINUED> (3,340)
<EXTRAORDINARY> 23,910
<CHANGES> 0
<NET-INCOME> 21,398
<EPS-PRIMARY> .69
<EPS-DILUTED> .68
</TABLE>
