<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended: JUNE 30, 2000
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from __________ to __________
Commission File Number: 0-16937
SUMMIT AUTONOMOUS INC.
(Exact name of registrant as specified in its charter)
Massachusetts 04-2897945
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
21 Hickory Drive, Waltham, Massachusetts 02451
(Address of principal executive offices) (Zip Code)
(781) 890-1234
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Common Stock and Common Share Purchase Rights
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
[X] YES [ ] NO
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
stock, as of the latest practicable date.
On June 30, 2000, 47,102,411 shares of common stock, par value $0.01 per share
were outstanding.
<PAGE> 2
PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
SUMMIT AUTONOMOUS INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
2000 1999
==================================================================================================================
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 70,539 $ 69,303
Short-term investments 2,744 5,730
Receivables, net of allowances 30,723 18,391
Inventories 26,314 20,869
Other current assets 2,832 3,204
-----------------------------------------------------------------------------------------------------------------
Total current assets 133,152 117,497
Long-term investments 16,093 30,948
Property and equipment, net 21,706 19,122
Patents and other intangibles, net 7,704 8,502
Purchased technologies, net 25,914 26,851
Goodwill, net 52,280 53,859
Other assets 3,737 5,139
Deferred tax asset 859 --
Net assets of discontinued operations -- 470
-----------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 261,445 $ 262,388
=================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 4,217 $ 6,353
Accrued expenses 19,076 8,062
Current maturities of long-term debt 1,150 1,093
Deferred revenue 3,567 3,291
-----------------------------------------------------------------------------------------------------------------
Total current liabilities 28,010 18,799
Deferred revenue - noncurrent 999 677
Deferred tax liabilities - noncurrent -- 4,786
Long-term debt, less current maturities 2,095 1,958
-----------------------------------------------------------------------------------------------------------------
Total liabilities 31,104 26,220
-----------------------------------------------------------------------------------------------------------------
Commitments and contingencies -- --
Stockholders' equity:
Preferred stock, $.01 par value. Authorized 5,000,000 shares; none issued -- --
Common stock, $.01 par value. Authorized 100,000,000 shares;
issued 47,102,411 shares in 2000 and 46,992,169 shares in 1999;
Outstanding 46,937,748 shares in 2000 and 46,827,454 shares in 1999 471 470
Additional paid-in capital 272,046 271,414
Accumulated deficit (40,494) (43,244)
Accumulated other comprehensive income (loss) (874) 8,336
Treasury stock, at cost, 164,715 shares
in 2000 and 1999 (808) (808)
-----------------------------------------------------------------------------------------------------------------
Total stockholders' equity 230,341 236,168
-----------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 261,445 $ 262,388
=================================================================================================================
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
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SUMMIT AUTONOMOUS INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
2000 1999 2000 1999
==============================================================================================================================
<S> <C> <C> <C> <C>
Revenues:
Systems $ 10,800 $ 4,394 $ 19,840 $ 7,729
License fees, service and other 9,159 11,300 20,838 21,485
------------------------------------------------------------------------------------------------------------------------------
Total revenues 19,959 15,694 40,678 29,214
------------------------------------------------------------------------------------------------------------------------------
Cost of revenues:
Systems 5,877 3,595 11,412 6,895
License fees, service and other 9,428 4,068 14,608 6,785
Inventory write-down 3,439 2,800 3,439 2,800
------------------------------------------------------------------------------------------------------------------------------
Total cost of revenues 18,744 10,463 29,459 16,480
------------------------------------------------------------------------------------------------------------------------------
Gross profit 1,215 5,231 11,219 12,734
Operating expenses:
Selling, general and administrative 12,051 7,305 21,389 12,043
Research, development and regulatory 4,705 3,844 8,876 5,930
Restructuring costs -- -- 2,992 --
Acquired in-process research & development -- 19,800 -- 19,800
Termination of strategic alliance -- -- 8,103 --
------------------------------------------------------------------------------------------------------------------------------
Total operating expenses 16,756 30,949 41,360 37,773
------------------------------------------------------------------------------------------------------------------------------
Operating loss from continuing operations (15,541) (25,718) (30,141) (25,039)
Interest income 908 554 1,926 1,592
Interest expense 18 (80) (173) (186)
Other income (expense) 71 (83) 92 (181)
------------------------------------------------------------------------------------------------------------------------------
Loss from continuing operations before benefit for income
taxes (14,544) (25,327) (28,296) (23,814)
Provision for income taxes 258 92 328 157
-------------------------------------------------------------------------------------------------------------------------------
Loss from continuing operations (14,802) (25,419) (28,624) (23,971)
Income from discontinued operations 1,101 1,484 2,541 2,422
Gain on disposal of discontinued operations, net of taxes 28,833 -- 28,833 --
==============================================================================================================================
Net income (loss) $ 15,132 $(23,935) $ 2,750 $(21,549)
==============================================================================================================================
Basic and diluted earnings (loss) per share:
Loss per share from continuing operations $ (0.31) $ (0.65) $ (0.61) $ (0.68)
Income per share from discontinued operations 0.02 0.04 0.05 0.07
Gain per share on disposal of discontinued operations 0.61 -- 0.62 --
==============================================================================================================================
Net income (loss) per share $ 0.32 $ (0.61) $ 0.06 $ (0.61)
==============================================================================================================================
Weighted average number of common shares:
Basic 46,894 39,362 46,865 35,219
Effect of dilutive securities outstanding -- -- -- --
------------------------------------------------------------------------------------------------------------------------------
Diluted 46,894 39,362 46,865 35,219
==============================================================================================================================
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
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<PAGE> 4
SUMMIT AUTONOMOUS INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
2000 1999 2000 1999
===================================================================================================================
<S> <C> <C> <C> <C>
Net income (loss) $ 15,132 $(23,935) $ 2,750 $(21,549)
Net unrealized (loss) gain on investment, net of tax $(10,872) $(20,100) $ (9,209) $ 38,744
-------------------------------------------------------------------------------------------------------------------
Comprehensive income (loss) $ 4,260 $ (3,835) $ (6,459) $ 17,195
===================================================================================================================
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
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<PAGE> 5
SUMMIT AUTONOMOUS INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30,
2000 1999
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 2,750 $(21,549)
Income from discontinued operations (2,541) (1,502)
-------- --------
Loss from continuing operations 209 (23,051)
Acquired in-process research and development -- 19,800
Inventory write-down 3,439 2,800
Other non-cash items -- 24
Adjustments to reconcile net loss to
Net cash provided (used) by operating activities:
Depreciation and amortization 6,795 3,366
Provision for losses on accounts receivables 500 13
Changes in operating assets and liabilities:
Receivables (12,832) (3,594)
Inventories (8,884) (1,387)
Prepaid and other assets 1,774 (1,063)
Accounts payable (2,136) 3,905
Accrued expenses (11,014) (2,305)
Deferred revenue (598) (106)
Change in net assets of discontinued operations -- 1,714
-------- --------
Net cash provided by (used for) operating activities (22,747) 116
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of short-term investments -- (754)
Purchases of long-term investments -- (1,797)
Maturities of short-term investments -- 3,781
Maturities of long-term investments -- 5,669
Sales of short-term investments 2,986 14,720
Sales of long-term investments -- 11,616
Additions to property and equipment (8,191) (3,088)
Purchase of patents and other intangibles -- (375)
Cost of acquisition, net -- (46,344)
Notes receivable and other -- (299)
-------- --------
Net cash used for investing activities (5,205) (16,871)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of disposition disc. Operations, net 28,361 --
Repayments of long-term debt 194 (3,750)
Payments of capital lease obligations -- (102)
Proceeds from exercise of stock options 633 1,138
-------- --------
Net cash provided by (used for) financing activities 29,188 (2,714)
-------- --------
Increase (decrease) in cash and cash equivalents 1,236 (19,469)
Cash and cash equivalents, beginning of year 69,303 31,314
-------- --------
Cash and cash equivalents, end of period $ 70,539 $ 11,845
======== ========
Supplemental cash flow information:
Interest paid $ 173 $ 187
Income taxes paid 21 49
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
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<PAGE> 6
SUMMIT AUTONOMOUS INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
1. NATURE OF BUSINESS
The operations of Summit Autonomous Inc. and subsidiaries (the
"Company" or "Summit"), formerly known as Summit Technology, Inc., presently
consist of one operating segment: laser vision correction which includes
manufacturing, selling and servicing laser systems and related products to
correct vision disorders and collecting per procedure license fees from users of
its systems. On April 29, 1999, the Company completed its acquisition of
Autonomous Technologies Corporation ("Autonomous"). Results of operations
include the effects of operations of Autonomous from the date of the
acquisition.
In May 2000 the Company committed to a formal plan to sell its mail
order contact lens business operated by its wholly-owned subsidiary, Lens
Express, Inc. ("Lens"). Accordingly, the results of operations for this business
were classified as discontinued operations. On June 16, 2000, the Company sold
Lens Express to Strategic Optical ("SAH") for $31 million cash, plus an
ownership interest in SAH of approximately 10%.
On May 26, 2000, the Company entered into a definitive agreement under
which Alcon Holdings Inc. ("Alcon") will acquire the Company for $19.00 per
share in cash. Pursuant to the agreement Alcon began a tender offer for all the
outstanding shares of the Company on June 5, 2000. On June 30, 2000, the tender
offer expired. On July 3, 2000 Alcon accepted for payment all the Shares that
were validly tendered and not withdrawn pursuant to the tender offer. As of July
7, 2000, a total of 41,944,555 shares, representing approximately 88.9% of the
outstanding shares, had been validly tendered and not withdrawn.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation: The accompanying unaudited condensed
consolidated financial statements have been prepared by the Company pursuant to
the rules and regulations of the Securities and Exchange Commission. In the
opinion of the Company, these unaudited condensed consolidated financial
statements contain all adjustments (consisting of only normal, recurring
adjustments) necessary to present fairly the consolidated financial position,
results of operations, comprehensive income (loss) and cash flows of the Company
for the interim periods. The Company has been advised by Deloitte & Touche LLP
("Deloitte") that, due to the acquisition of a controlling interest in the
Company by Alcon Acquisition Corp. (a wholly owned subsidiary of Alcon Holdings
Inc., an indirect wholly owned subsidiary of Nestle S.A.) on July 7, 2000,
Deloitte may not be independent with respect to the Company. Accordingly,
Deloitte has advised the Company that, at this time, it is unable to complete a
review of the Company's unaudited condensed consolidated financial statements
as of and for the three and six month periods ended June 30, 2000 included in
this Quarterly Report on Form 10-Q.
The accompanying consolidated financial statements and related notes
should be read in conjunction with the Company's Annual Report on Form 10-K for
the year ended December 31, 1999. The results of operations for the three and
six months ended June 30, 2000 are not necessarily indicative of the results to
be expected for the full year.
Earnings Per Share: Basic earnings per share amounts are based on the
weighted-average number of common shares outstanding during the period. Diluted
earnings per share amounts include the effect of all potential common shares, if
dilutive, that were outstanding during the period.
Reclassifications: Certain prior period information has been
reclassified to conform to current period presentation of data.
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<PAGE> 7
3. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
------------------------------------------------------------------
<S> <C> <C>
Raw materials and subassemblies $ 13,783 $11,444
Work in process 6,090 5,666
Finished goods 6,441 3,759
------------------------------------------------------------------
Total $ 26,314 $20,869
==================================================================
</TABLE>
4. RESTRUCTURING AND TERMINATION OF STRATEGIC ALLIANCE
On March 28, 2000, the Company's Board of Directors voted to approve a
restructuring of the Company to fully integrate its laser vision correction
businesses. In the first quarter of 2000, the Company recorded a pretax
restructuring charge of $2,992 for involuntary employee severance payments for
approximately 20 personnel. In a separate matter, the Company also recorded a
one-time charge of $8,103 to terminate a strategic alliance agreement with Ciba
Vision Group Management, Inc. which was assumed as part of the acquisition of
Autonomous. During the second quarter, approximately $.4 million of payments
were made to terminated employees and the remaining portion of these payments is
expected to be finalized by the end of 2000. The payment to Ciba Vision was made
during the second quarter of 2000.
5. CONTINGENCIES
The Company is a party to various litigation matters as described
below. The Company has denied, or will deny, the substantive allegations in each
of these actions, and intends to defend them vigorously. The Company may be
served with additional complaints of a similar nature in the future. The Company
may not prevail in the pending or any possible additional actions, and the
resolutions of the actions, individually or in the aggregate, may have a
material adverse effect on the Company's financial position, results of
operations, or cash flows. The Company has not made any provision for any loss
that may result upon resolution of these matters in the accompanying
consolidated financial statements. Dollar amounts below are in thousands.
Antitrust Litigation
The Company, VISX, and certain of their affiliates (including Pillar
Point Partners, a partnership between affiliates of the Company and VISX) are
involved in a number of antitrust lawsuits which, among other things, allege
price-fixing in connection with per-procedure patent royalties charged by the
Company and VISX. These suits are pending in both federal and state court, on
behalf of both direct purchasers from the Company and VISX and
patients/consumers, and include both purported class actions and individual
actions. Most of the federal lawsuits have been transferred for pretrial
purposes to the U.S. District Court for the District of Arizona by the Judicial
Panel on Multidistrict Litigation as In re: Pillar Point Partners Antitrust and
Patent Litigation.
Federal Antitrust Litigation
Cases Consolidated for Pre-Trial Proceedings
In April 1998, The Eye Professionals, P.A. commenced an action in the
U.S. District Court for the District of New Jersey against the Company and VISX.
The case purported to be a class action on behalf of all individuals or entities
that have paid a per-procedure
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<PAGE> 8
fee directly to either defendant for use of a Summit or VISX laser to perform
laser vision correction surgery at any time after November 1, 1995. The
complaint alleged, inter alia, price-fixing in violation of Section 1 of the
Sherman Act. The action sought treble damages, costs of suit, attorneys' fees,
and various forms of declaratory and injunctive relief. Similar actions were
also filed in May 1998 by Metropolitan Eye Center and Outpatient Surgical
Facility, Inc. in the U.S. District Court for the Northern District of
California against the Company, VISX, Summit Partner and VISX Partner and by New
England Laser Vision, Inc. in the U.S. District Court for the District of New
Jersey against the Company and VISX. In August 1998, David R. Shapiro, M.D.,
filed another similar purported class action against the Company and VISX in the
U.S. District Court for the District of Arizona. Plaintiffs in these cases have
agreed to consolidation of the four purported class actions and filed a single
consolidated amended complaint in the U.S. District Court for the District of
Arizona. It purports to be a class action on behalf of all persons and entities
(excluding governmental entities, defendants subsidiaries and affiliates of
defendants) in the United States who paid a per-procedure royalty to any
defendant or any alleged co-conspirator or any subsidiary or affiliate thereof,
at any time after September 1995. The Consolidated Amended Class Action
Complaint seeks, among other things, unspecified treble damages on behalf of
plaintiffs and the alleged class, along with attorneys' fees, costs, and
injunctive and declaratory relief.
In September 1998, Laser Eye Center of Texas, L.L.P. and Warren D. Cross,
M.D., filed a purported class action against the Company, Summit Partner, VISX,
VISX Partner and Pillar Point Partners in the U.S. District Court for the
Southern District of Texas. The suit purports to be a class action on behalf of
all persons and entities who have paid money to defendants, or any of their
subsidiaries, on a per-procedure basis for the ability to use defendants' laser
equipment or technology to perform laser vision correction surgery. Plaintiffs
allege, among other things, price-fixing and monopolization in violation of
Sections 1 and 2 of the Sherman Act. They seek, among other things, treble
damages on behalf of the alleged class, costs of suit, including attorneys'
fees, and declaratory and injunctive relief. This case was transferred to the
District of Arizona for consolidated pre-trial proceedings.
In February 1999, Carolina Eye Associates, P.A. and Carolina-South Eye
Associates filed suit against VISX and the Company in the U.S. District Court
for the District of New Jersey. This action, like the consolidated federal
actions described above, purports to be a class action on behalf of all persons
and entities (excluding governmental entities, defendants, subsidiaries and
affiliates of defendants) in the United States who paid a per-procedure royalty
to any defendant or any alleged co-conspirator or any subsidiary or affiliate
thereof, at any time after September 1995. The complaint alleges, among other
things, price-fixing in violation of Section 1 of the Sherman Act and seeks,
among other things, compensatory damages of at least $100,000 plus $8,300 per
month from the filing of the complaint until the date of judgment, trebling of
those damages, attorneys' fees, costs, and declaratory and injunctive relief.
This case was transferred to the District of Arizona for consolidated pre-trial
proceedings.
Plaintiffs in the various class actions described above have now moved
for certification of a class including all persons in the United States who paid
a per-use royalty to any defendant or any co-conspirator or any subsidiary or
affiliate thereof, at any time after September 1995.
In June 1996, a Texas ophthalmologist, Robert G. Burlingame, sued the
Company, Summit Partner, VISX, VISX Partner and Pillar Point Partners in U.S.
District Court for the Northern District of California alleging price-fixing in
violation of Section 1 of the Sherman Act and state antitrust laws and fraud and
deceit in connection with certain of the Company's sales and marketing
activities. The plaintiff seeks, among other things, compensatory damages of at
least $30 plus $2 to $3 per month until the date of judgment, trebling of those
damages, compensatory and punitive damages on the fraud claim against the
Company of at least $500 plus $2 to $3 per month until the date of judgment,
attorneys' fees, costs and declaratory and injunctive relief. This case was
transferred to the District of Arizona for consolidated pre-trial proceedings.
In September 1996, a Nevada ophthalmologist, John R. Shepherd, through
his professional corporation, commenced a similar lawsuit against the same
parties, in the
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<PAGE> 9
same court, alleging substantially similar antitrust claims and seeking
substantially similar relief, including damages before trebling of at least $125
plus $13 per month until the date of judgment. This case was transferred to the
District of Arizona for consolidated pre-trial proceedings.
In May 1999, Freedom Vision Laser Center, L.P. filed suit in the United
States District Court for the Central District of California against the
Company, Autonomous, Summit Partner, VISX, VISX Partner and Pillar Point
Partners. The complaint alleges, among other things, price-fixing,
monopolization, attempted monopolization, and conspiracy to monopolize, in
violation of Sections 1 and 2 of the Sherman Act, as well as violations of the
California Business and Professions Code. Plaintiff seeks, among other things,
damages that are alleged to be more than $1,000 before trebling, disgorgement of
alleged illegal and ill-gotten gains, declaratory and injunctive relief, and
attorneys' fees and costs. This case has been transferred to the District of
Arizona for consolidated pre-trial proceedings.
Cases Not Consolidated for Pre-Trial Proceedings
In April 1999, Antoine L. Garabet, M.D., Inc. and Abraham V. Shammas,
M.D., Inc., d/b/a The Laser Eye Center, filed suit in the U.S. District Court
for the Central District of California against the Company and Autonomous. The
suit alleges, among other things, that the Company's acquisition of Autonomous
may substantially lessen competition or tend to create a monopoly in violation
of Section 7 of the Clayton Act, Section 1 of the Sherman Act, and the
California Business and Professions Code. The complaint seeks, among other
things, unspecified compensatory damages, trebling of those damages, declaratory
and injunctive relief, divestiture in the event that the acquisition of
Autonomous is consummated, restitutionary relief, including disgorgement of
alleged unlawful profits and the imposition of a constructive trust over alleged
ill-gotten gains, and attorneys' fees and costs. Plaintiffs also threatened to
seek a temporary restraining order, preliminary injunction, and other
unspecified preliminary injunctive relief directed at the acquisition. The
Company filed a counterclaim for copyright infringement and unfair competition
against the plaintiffs and Antoine L. Garabet, M.D. and Abraham V. Shammas,
M.D., individually. The parties have agreed to a dismissal of this counterclaim,
without prejudice.
Counterclaims
The Company is the subject of additional Federal antitrust litigation as a
result of counterclaims to patent litigation initiated by Pillar Point Partners
and the Company. A discussion of those counterclaims is presented below under
"Patent Litigation."
State Antitrust Litigation
Beginning in March 1998, a number of actions brought by individuals under
the Cartwright Act and the California Business and Professions Code were
commenced against the Company, Summit Partner, VISX and VISX Partner in Superior
Court of Santa Clara County. In May 1998, these actions were consolidated as In
re PRK/LASIK Consumer Litigation. In June 1998, plaintiffs B.J. Snyder, Donna
McMahan, Paula Mobsby, Helen Thomas, Carmen Ocariz, Martin Hermans, Ken
Bartlett, Jackie Kirk, Grace Geniusz, Jocelyn Joseph, Andrew Stoddard, and
Cynthia Brubecker filed an Amended Consolidated Master Complaint for Damages
("Amended Complaint") in this matter against the Company, Summit Partner, VISX,
and VISX Partner. The Amended Complaint purports to be filed on behalf of all
natural persons in the United States who underwent excimer laser surgery with a
laser manufactured by the Company or VISX during the period beginning October
1995, and paid a per-procedure fee indirectly to a defendant, excluding
defendants, any unnamed co-conspirators of defendants, defendants' predecessors,
successors, parents, subsidiaries, affiliates, officers and directors,
governmental entities, and any and all judges and justices assigned to hear any
aspect of the litigation. The Amended Complaint seeks unspecified compensatory
damages, restitution and/or disgorgement of alleged ill-gotten gains,
prejudgment and postjudgment interest, costs of suit, and attorneys' fees, as
well as various forms of declaratory and injunctive relief, including an order
permitting any person or entity with which the Company or VISX or both have
entered into any agreement
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<PAGE> 10
since June 3, 1992, for the purchase, license, or use of any of the Pillar Point
Patents to withdraw from such agreement without penalty or obligation. James
Ballard filed a similar suit against the Company, Summit Partner, VISX, VISX
Partner, Pillar Point Partners, and other individual defendants in Superior
Court of San Diego County. This suit has been transferred to Santa Clara County
and consolidated as part of In re PRK/LASIK Consumer Litigation. The parties
have stipulated to the conditional certification of a class of natural persons
in California, Alabama, Arizona, the District of Columbia, Florida, Kansas,
Maine, Michigan, Minnesota, Mississippi, New Mexico, New York, North Carolina,
North Dakota, South Dakota, Tennessee, West Virginia, and Wisconsin who have
undergone ophthalmic refractive surgery with an excimer laser manufactured by
the Company or VISX.
In April 1998, Penny S. Marks, an individual who allegedly has had laser
vision correction surgery performed, commenced an action in Florida state court
against the Company and VISX. The case purports to be a class action on behalf
of all persons who have had a PRK procedure in the State of Florida from October
20, 1995 up to and including the date the class certification hearing begins.
The complaint alleges various violations of the Florida Deceptive and Unfair
Trade Practices Act, the Florida Antitrust Act and Section 5 of the Federal
Trade Commission Act. The complaint seeks unspecified compensatory damages,
costs and attorneys' fees, as well as declaratory and injunctive relief.
Plaintiff filed a motion seeking class certification. Thereafter, the parties
filed a joint motion to stay this action pending resolution of In re PRK/LASIK
Consumer Litigation, the consolidated class action litigation described
immediately above. The court has granted this motion to stay.
In June 1998, Barbara Worcester, an individual who allegedly has had
laser vision correction surgery performed, filed an action in Wisconsin state
court against the Company, Summit Partner, VISX, VISX Partner and Pillar Point
Partners. The case purports to be a class action on behalf of all Wisconsin
purchasers of refractive laser surgery procedures. The complaint alleges
violations of the antitrust laws of the State of Wisconsin. The complaint seeks
unspecified damages, trebling of those damages, attorneys' fees and costs, and
declaratory and injunctive relief. Defendants removed this action to federal
court, and it has been transferred to the District of Arizona. Plaintiff has
filed a motion seeking class certification.
In January 1999, Karen Frankson, Virginia Harmes, and Beth Luetschwager,
three individuals who allegedly have had laser vision correction surgery
performed, filed a similar purported class action in Wisconsin state court.
Defendants removed this action to federal district court in Wisconsin, and it
was transferred to the District of Arizona. The parties recently agreed to a
dismissal of this action, without prejudice.
In May 1999, Linda Brisson, an individual who allegedly has had laser
vision correction surgery performed, commenced an action in Minnesota state
court against the Company, Summit Partner, VISX, VISX Partner and Pillar Point
Partners. The case purports to be a class action on behalf of all Minnesota
purchasers of refractive laser surgery procedures. The complaint alleges, among
other things, price-fixing in violation of Minnesota antitrust law. The
complaint seeks, among other things, compensatory damages alleged to be at least
in the millions of dollars, trebling of those damages, attorneys' fees and
costs, and injunctive and other relief. The court has granted defendants' motion
to stay this action pending resolution of In re PRK/LASIK Consumer Litigation,
discussed above.
In January 2000, Antoine L. Garabet, M.D. and Abraham V. Shammas, M.D.
filed an action individually and on behalf of the general public against the
Company and VISX in Superior Court of the State of California, Santa Clara
County. The suit alleges violations of the California Unfair Business Practices
Act in connection with, among other things, per procedure fees charged by the
Company and VISX. The action seeks, among other things, disgorgement of alleged
ill-gotten gains and monies that defendants have earned by means of alleged
unlawful, unfair, and fraudulent business practices (with defendants' per
procedure revenues elsewhere alleged to be in the millions of dollars annually),
a constructive trust over such gains and monies, declaratory and injunctive
relief, and attorneys' fees and costs.
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<PAGE> 11
Shareholder Litigation
Between August 1996 and February 1997 various shareholder actions were
commenced against the Company and certain of its present or former officers in
the U.S. District Court for 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 and violations of
Section 20A of the Securities Exchange Act of 1934 arising out of alleged
insider trading by certain defendants. The actions were consolidated, by order
of the Court entered December 2, 1996, as In re Summit Technology Securities
Litigation. By order dated August 11, 1998, the Court certified the action as a
class action on behalf of all purchasers of Summit common stock, other than
defendants and certain affiliated persons and entities, between March 31, 1995
and July 3, 1996. Plaintiffs seek unspecified damages, interest, costs and
expenses, attorneys' fees and extraordinary and/or injunctive relief. Discovery
was completed in February 2000. Defendants have filed motions for summary
judgment on certain claims.
In October 1996, an additional class action was commenced in the U.S.
District Court for the District of Massachusetts against the Company, its
directors, certain of the Company's present or former 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. By order dated August 11, 1998, the
Court certified the action as a class action on behalf of all purchasers of
Summit stock in the offering other than defendants and certain affiliates. The
action was coordinated with the securities litigation by order of the court
dated December 2, 1996. The action seeks unspecified compensatory damages,
interest, costs and expenses, attorneys' fees and extraordinary and/or
injunctive relief. Cross motions for summary judgment were filed in November
1999 and February 2000 with respect to certain claims. Additional motions for
summary judgment may be filed as well.
In December 1996, one of the Company's shareholders filed in the U.S.
District Court for the District of Massachusetts a derivative action,
purportedly on behalf of the Company, against the Company as nominal defendant,
directors of the Company and certain present or former officers of the Company.
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 liability, expense and
inconvenience of the securities litigation and has harmed the Company's
reputation, thereby limiting its access to capital markets. It also alleges
breach of fiduciary duty, gross negligence and insider trading against
individual defendants. It seeks damages, interest, costs and expenses and
attorneys' fees.
Patent Litigation
In December 1998, the Company filed a patent infringement lawsuit in the
U.S. District Court for the District of Massachusetts against Nidek, whose laser
system received FDA approval in December, 1998. The suit alleges that Nidek's
excimer laser system infringes certain of the Company's U.S. patents and seeks
damages and injunctive relief. On January 29, 1999, a district court in Tokyo,
Japan ruled against the Company in a patent infringement lawsuit which the
Company initiated against Nidek in 1996. The Japanese lawsuit involved the
Japanese counterpart of one of the two U.S. patents which the Company has
alleged Nidek infringes in the U.S.
lawsuit. The Tokyo district court's decision was upheld on appeal.
In June 1999, the Company commenced a patent infringement lawsuit against
George I. Bekov in the U.S. District Court for the District of Massachusetts.
The suit alleges that Bekov has induced infringement of certain of the Company's
patents, including by disabling card readers and maintaining systems which are
not licensed by the Company, and seeks damages and injunctive relief. This case
has been transferred to the District of Arizona for consolidated pre-trial
proceedings.
In February 1999, the Company asserted patent infringement claims against
Antoine L. Garabet, M.D., Antoine L. Garabet, M.D., Inc., Abraham V. Shammas,
M.D., Abraham V. Shammas, M.D., Inc., and the Laser Eye Center in a case then
pending in the District of
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<PAGE> 12
Arizona. The suit alleges that these parties have infringed certain of the
Company's patents by using excimer laser systems manufactured by the Company
without having a license to do so, and seeks damages and injunctive relief. In
June 1999, the Company commenced a similar patent infringement lawsuit against
Robert T. Lin, Ferzaad Moosa, and Randa M.R. Garrana in the U.S. District Court
for the Central District of California. This case has been transferred to the
District of Arizona, and the parties have stipulated to consolidation of these
two cases. In November 1999, the parties opposing the Company in these two
actions filed a counterclaim against the Company for declaratory relief and for
fraud and deceit. The counterclaim seeks, among other things, judgment that the
patents in suit are not infringed and, in any event, not enforceable as a result
of the Company's alleged inequitable conduct, unclean hands, and patent misuse;
judgment enjoining the Company from attempting to enforce the Pillar Point
patents, including the patents in suit; attorneys' fees and costs; judgment that
the Company has committed fraud and deceit in connection with the sale of a
Summit laser system; compensatory damages on the fraud claim of at least $49,
plus prejudgment interest; and punitive damages.
In October 1999, the Company commenced a patent infringement lawsuit
against Icon Laser Centers (U.S.), Inc. in the U.S. District Court for the
District of Delaware. The suit alleges that the defendant has infringed and/or
contributed to and/or induced infringement of certain of the Company's patents
by using the Nidek EC-5000 Excimer Laser System without having a license to do
so, and seeks damages and injunctive relief.
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<PAGE> 13
PART I: FINANCIAL INFORMATION (CONTINUED)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
We currently operate in one principal segment: laser vision correction
which includes manufacturing, selling and servicing laser systems and related
products to correct vision disorders and collecting per procedure license fees
from users of our systems.
On May 26, 2000, the Company entered into a definitive agreement under
which Alcon Holdings Inc. ("Alcon") will acquire the Company for $19.00 per
share in cash. Pursuant to the agreement Alcon began a tender offer for all the
outstanding shares of the Company on June 5, 2000. On June 30, 2000, the tender
offer expired. On July 3, 2000 Alcon accepted for payment all the Shares that
were validly tendered and not withdrawn pursuant to the tender offer. As of July
7, 2000, a total of 41,944,555 shares, representing approximately 88.9% of the
outstanding shares, had been validly tendered and not withdrawn.
In May 2000 the Company committed to a formal plan to sell its mail
order contact lens business operated by its wholly-owned subsidiary, Lens
Express, Inc. ("Lens"). Accordingly, the results of operations for this business
were classified as discontinued operations. On June 16, 2000, the Company sold
Lens Express to Strategic Optical ("SAH") for $31 million cash, plus an
ownership interest in SAH of approximately 10%.
On April 29, 1999, we completed our acquisition of Autonomous
Technologies Corporation ("Autonomous"). Results of operations discussed in this
section include the effects of operations of Autonomous from the date of the
acquisition.
On February 22, 2000, our competitor, VISX, Inc. ("VISX") announced
that it was lowering its U.S. per procedure licensing fee to $100. For obvious
competitive reasons, we responded by lowering our own U.S. per procedure
licensing fee. Effective February 23, 2000, we instituted a tiered pricing
program for our customers. Our Apex Plus(TM)/Infinity(TM) excimer laser system
will be value priced and will carry a per procedure licensing fee of $100. Prior
to February 23, 2000, the list price of the licensing fee for the Apex
Plus(TM)/Infinity(TM) System was $250 per procedure, with actual pricing
variable based on factors including volume discounts and promotions,
participation in one of our innovative bundled pricing programs which combine
license fees with other products and services, and whether the customer is or
was one of our clinical investigators. The emphasis(R) disc used in conjunction
with the Apex Plus(TM)/Infinity(TM) System for astigmatism and farsightedness
corrections will be priced at $25 in the U.S. and $75 in international markets.
LADARVision(R) system procedures will be premium priced at $150 per procedure
for purchased units. Customers who have acquired Apex Plus(TM)/Infinity(TM)
and/or LADARVision(R) Systems utilizing a program which bundles the licensing
fee with other products and services will receive adjustments to their programs
to reflect the reduced pricing. As part of the new pricing structure, the
Company also adopted a new retreatment policy. Prior to February 23, 2000, the
Company did not charge for bona fide retreatments. Under the new program, there
will be no charge for retreatments related to procedures originally performed
before February 23, 2000. Retreatments related to procedures performed after
that date will be charged at the same rate as other procedures. Actual pricing
for procedures and retreatments may continue to vary based on factors such as
volume discounts and promotions, and participation in one of our bundled pricing
programs which combine license fees with other products and services. We expect
that these reductions in per procedure pricing will materially reduce our
revenues and revenue growth in 2000.
Information about U.S. procedure volume is based on our sale of
OmniCards to U.S. customers and procedures performed on the LADARVision(R)
excimer laser system and includes retreatments under our new retreatment program
described above. OmniCards are credit card-sized, data encrypted plastic cards
that must be inserted into the Apex
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<PAGE> 14
Plus(TM)/Infinity(TM) excimer laser system to enable customers to perform a
procedure. OmniCards may be encoded with a single procedure or with several
procedures, and they are priced based on the number of procedures they permit.
We may bundle the OmniCard price with other products and services, and/or offer
volume discounts to our customers that cause them to purchase an inventory of
procedures in advance. As a result, our per procedure pricing can vary and
procedure volume data do not necessarily reflect the actual number of procedures
performed during a particular period. Procedures are tracked on the
LADARVision(R) system by internal software that enables billing information to
be processed via modem, and are thus likely to offer a more direct correlation
to actual procedure volume in any given period.
SECOND QUARTER RESULTS OF OPERATIONS
Revenues: Revenues for the three months ended June 30, 2000 increased
27.4% to $20.0 million from $ 15.7 million for the three months ended June 30,
1999. Revenues from system sales increased 145.8% in the second quarter of 2000
compared to the same period a year ago. We placed 41 laser systems in the second
quarter of 2000 compared to 25 laser systems in the second quarter of 1999.
Revenues from license fees, service and other decreased 18.9% in the second
quarter of 2000 compared to the second quarter of 1999.
On February 23, 2000, we reduced our per procedure licensing fee to
$100 on the Apex Plus(TM)/Infinity(TM) system and $150 on the LADARVision(R)
system. In connection with the price reduction, we introduced a new program for
retreatments. This program provides that the new pricing will apply to
retreatments if the original procedure was after February 23, 2000, and that
free retreatments will continue to be provided for cases originally performed
before that date. Our second quarter procedure volume, exclusive of OmniCard
shipments after February 23, 2000 for retreatments under our new retreatment
program, increased 9% over the first quarter of 2000 and 49% over the second
quarter of 1999.
Cost of Revenues: Cost of revenues as a percentage of revenues
increased to 93.9% in the second quarter of 2000 from 66.7% in the second
quarter of 1999. This increase was primarily attributable to the increase in the
infrastruture of the customer service organization partially offset by the
favorable impact from lower cost of revenues associated with license fee
revenues. Cost of revenues in the second quarter of 2000 include a $1.5 million
reserve for the upgrade of installed LADARVision(R) system to the new
LADARVision(R) 4000 system and a $3.4 million write-down against the Company's
Apex Plus(TM) and Infinity(TM) system inventory to its net realizable value due
to a reduction in future requirements
Operating Expenses: Selling, general and administrative expenses as a
percentage of revenues were 60.4% in the second quarter of 2000 and 46.5% in the
second quarter of 1999. Selling, general and administrative expenses in the
second quarter of 2000 were $12.1 million compared to $7.3 million in the second
quarter of 1999, a 65.0% increase. The expenses in the second quarter of 2000
reflect the effects of the Autonomous acquisition, increased sales and marketing
costs to grow laser vision correction procedure volume and increased legal fees.
The effects of the Autonomous acquisition includes Autonomous' operations and
amortization of goodwill and other intangible assets.
Research, development and regulatory expenses in the second quarter of
2000 increased to $4.7 million from $3.8 million in the second quarter of 1999.
The increased spending is primarily related to the development of our
CustomCornea(TM) wavefront measurement device and engineering improvements on
our LADARVision(R) and Infinity laser systems and SKBM microkeratome.
Other Income (Expense): Interest income was $.9 million in the second
quarter of 2000 and $.6 million in the second quarter of 1999. Interest expense
was $18 thousand in the second quarter of 2000 compared to interest income of
$80 thousand in the second quarter of 1999.
Net Income (Loss): The loss from continuing operations for the second
quarter of 2000 was $14.8 million, or $0.31 per diluted share compared to a loss
from continuing operations of $25.4 million, or $0.65 per diluted share for
second quarter of 1999. Income from discontinued operations was $1.1 million, or
$0.02 per diluted share in the
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<PAGE> 15
second quarter of 2000 compared to $1.5 million in the second quarter of 1999,
or $0.04 per diluted share. The net income for the second quarter of 2000 was
$15.1 million, or $0.32 per diluted share compared to net loss of $23.9 million,
or $0.61 per diluted share, for the second quarter of 1999.
Income Taxes: The provision for income taxes in the second quarter of
2000 was $.3 million and $92 thousand for the second quarter of 1999. We have
continued to provide a 100% valuation allowance against our net deferred tax
asset as of June 30, 2000.
FIRST HALF RESULTS OF OPERATIONS
Revenues: Revenues for the six months ended June 30, 2000 increased
39.2% to $40.7 million from $ 29.2 million for the six months ended June 30,
1999. Revenues from system sales increased 156.7% in the first half of 2000
compared to the same period a year ago. Revenues from license fees, service and
other decreased 3.0% in the second quarter of 2000 compared to the second
quarter of 1999.
Cost of Revenues: Cost of revenues as a percentage of revenues
increased to 72.4% in the second half of 2000 from 56.4% in the second half of
1999. This increase was primarily attributable to the increase in the
infrastruture of the customer service organization partially offset by the
favorable impact from lower cost of revenues associated with license fee
revenues. Cost of revenues in the second half of 2000 includes a $1.5 million
reserve for the upgrade of installed LADARVision(R) system to the new
LADARVision(R) 4000 system and a $3.4 million write-down against the Company's
Apex Plus(TM) and Infinity(TM) system inventory to its net realizable value due
to a reduction in future requirements.
Operating Expenses: Selling, general and administrative expenses as a
percentage of revenues were 52.3% in the second half of 2000 and 41.2% in the
second half of 1999. Selling, general and administrative expenses in the first
half of 2000 were $21.4 million compared to $12.0 million in the first half of
1999, a 78.3% increase. The expenses in the first half of 2000 reflect the
effects of the Autonomous acquisition, increased sales and marketing costs to
grow laser vision correction procedure volume and increased legal fees.
Research, development and regulatory expenses in the first half of 2000
increased to $8.9 million from $5.9 million in the first half of 1999. The
increased spending is primarily related to the development of our
CustomCornea(TM) wavefront measurement device and engineering improvements on
our LADARVision(R) and Infinity laser systems and SKBM microkeratome.
On March 28, 2000, our Board of Directors voted to approve a
restructuring to fully integrate our laser vision correction businesses. In the
first quarter of 2000, we recorded a pretax restructuring charge of $3.0 million
for involuntary employee severance payments for approximately 20 personnel. Of
this $3.0 million, $2.7 million relates to severance payments and related
benefits in selling, general and administrative departments. The annualized
benefit of the restructuring is expected to be $3.0 million. In a separate
matter, we also recorded a one-time charge of $8.1 million to terminate a
strategic alliance agreement with Ciba Vision Group Management, Inc. ("Ciba")
which was assumed as part of last year's acquisition of Autonomous. The payment
was made late in the second quarter of 2000.
After weighing the impact of recent changes that have taken place in
the laser vision correction industry, the Board of Directors decided to
accelerate the integration of the Summit and Autonomous operations. This process
began in January when we consolidated our sales operation into our facility in
Cork, Ireland in 1999.
Under the restructuring, we have been realigned into three operational
groups: (1) the commercial organization encompassing sales, marketing, after
sales support and clinical education; (2) the operations organization comprised
of research and development, quality, regulatory, clinical affairs and
operations; and (3) the administrative organization encompassing finance, human
resources, information technology, corporate communications and investor
relations.
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<PAGE> 16
Other Income (Expense): Interest income was $1.9 million in the first
half of 2000 and $1.6 million in the first half of 1999. Interest income was
$173 thousand in the first half of 2000 compared to $186 thousand in the first
half of 1999.
Net Income (Loss): Excluding one-time charges related to the
restructuring, the termination of the strategic alliance with Ciba, the
inventory write-down and the acquired in-process research & development, the
loss from continuing operations for the first half of 2000 was $13.8 million, or
$0.29 per diluted share compared to loss from continuing operations of $1.4
million, or $0.04 per diluted share for the first half of 1999. Including these
one-time charges, the loss from continuing operations for the first half of 2000
was $28.6 million, or $0.61 per diluted share compared to $24.0 million or $.68
per diluted share in the first half of 1999. Income from discontinued operations
was $2.5 million, or $0.05 per diluted share in the first half of 2000 compared
to $2.4 million in the first half of 1999, or $0.07 per diluted share. The net
income for the first half of 2000 was $2.8 million, or $0.06 per diluted share
compared to net loss of $21.5 million, or $0.61 per diluted share, for the first
half of 1999.
Income Taxes: The provision for income taxes in the first half of 2000
was $.3 million versus $.2 million in the first half of 1999. We have continued
to provide a 100% valuation allowance against our net deferred tax asset as of
June 30, 2000.
LIQUIDITY AND CAPITAL RESOURCES
Our liquidity requirements have been met through external debt and
equity financing. As of June 30, 2000, our cash and cash equivalent balances and
short and long-term investments decreased to $89.3 million from $106.0 million
as of December 31, 1999. Shares of LCA Vision Inc. common stock included in
long-term investments as of June 30, 2000 and December 31, 1999 were valued at
$16.1 million and $30.9 million, respectively. Working capital increased to
$105.1 million as of June 30, 2000 from $98.7 million as of December 31, 1999.
In the first half of 2000, net cash used by operating activities was $22.7
million compared to net cash provided by operating activities of $116 thousand
in the first half of 1999.
In the first half of 2000, net cash used by investing activities of
$5.2 million resulted from the sale of short-term investments partially offset
by capital expenditures of $8.1 million. In the first half of 1999, net cash
provided by investing activities of $16.9 million resulted primarily from a net
decrease in short and long-term investments of $26.3 million offset by capital
expenditures of $3.1 million and deferred acquisition costs of $46.3 million.
In the first half of 2000, net cash provided by financing activities of
$29.1 million was attributable to the gain recognized on Lens Express and
proceeds of $.6 million from option exercises. In the first half of 1999, net
cash used by financing activities of $2.7 million was primarily attributable to
repayments of long-term debt of $3.8 million offset by proceeds of $1.1 million
in stock option exercises. We are currently discussing with our existing and
other institutions a new line of credit of approximately $20 million to $25
million.
We believe that our existing corporate resources are adequate for at
least the next twelve months to meet working capital needs and to fund corporate
requirements.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We, in the normal course of doing business, are exposed to the risks
associated with fluctuations in the market value of our available-for-sale
investment securities, changes in foreign currency exchange rates and changes in
interest rates. Our market risk sensitive instruments are entered into for other
than trading purposes.
Our available-for-sale investment securities consist of debt
securities, primarily corporate bonds and mortgage-backed securities, and 6.6
million shares of LCA Vision Inc. common stock. The fair value of these
investment securities at June 30, 2000 was $16.1 million, which includes LCA
Vision Inc. common stock with a corresponding
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<PAGE> 17
accumulated unrealized loss of $1.7 million. Substantially all of the unrealized
gain relates to the LCA Vision Inc. common stock, which is subject to much more
market risk than our debt securities and which has been more volatile than most
market indices. A 10 percent change in the quoted market price of one share of
LCA Vision Inc. common stock as of March 31, 2000 would have a pre-tax impact of
approximately $3.4 million on the fair value of our investment in LCA Vision
Inc. common stock. This impact would be recognized net of tax in our statement
of comprehensive income. At June 30, 2000, our debt securities consist of highly
rated debt instruments. Our investment goal surrounding debt securities is to
meet liquidity needs and to preserve the principal.
In November 1999, we issued a $3.0 million secured promissory note. The
note bears interest at 10% per annum and requires a fixed monthly payment of $97
thousand over three years. The note is collateralized by certain laser equipment
leased to customers and payments due to us under these leases. Changes in
interest rates may affect the fair market value of this fixed rate debt,
however, they will not affect our cash flow or earnings.
NEW ACCOUNTING STANDARDS
In December 1999, the Securities and Exchange Commission ("SEC")
released Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial
Statements." This bulletin summarizes certain views of the SEC staff on applying
generally accepted accounting principles to revenue recognition in financial
statements. We have not completed our assessment of the consolidated financial
statement impact of this bulletin. This bulletin is effective beginning the
fourth quarter of fiscal 2000.
In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS
133"), which establishes standards for derivative instruments and hedging
activities. It requires an entity to recognize all derivatives as either assets
or liabilities in the statement of financial position and measure those
instruments at fair value. It requires that changes in the derivative's fair
value be recognized currently in the earnings unless specific hedge accounting
criteria are met. A company must formally document, designate and assess the
effectiveness of transactions that receive hedge accounting. SFAS 133 is
currently effective for fiscal years beginning after June 15, 2000. We will
adopt SFAS 133 in the first quarter of fiscal 2001. We are currently evaluating
this statement, but do not expect the adoption of SFAS 133 to have a material
effect on our consolidated financial position or results of operations.
YEAR 2000 ISSUE
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.
Currently, we are not aware of any Year 2000 issues that have had a
significant interruption in service or delays in business operations. A review
of our internal computer systems and software packages was performed to identify
the systems and software that could be affected by this issue. Installation of
and testing of Year 2000 compliant hardware and software was completed. The
costs related to these upgrades were not material and have been incurred in the
normal course of operations. Our products, which were Year 2000 compliant, have
not experienced any Year 2000 related problems. We are not aware of any of our
supplier's inability to remediate their Year 2000 issues. However, not all
vendors have been used at this date and future problems could develop.
We will continue to monitor our internal and external sources for
delayed complications or disruptions arising from the Year 2000 issue. In the
event of unforeseen or unanticipated issues related to the Year 2000, these
issues may have material adverse effect on our results of operations, financial
position or cash flow.
EURO CONVERSION
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<PAGE> 18
On January 1, 1999, eleven of fifteen member countries of the European
Union adopted the conversion of their national currencies to the European
Union's common currency ("Euro"). A permanent fixed conversion rate between the
existing national currencies of these countries and the Euro was established on
that date. The Euro may be used in business transactions; however, national
currencies will still remain legal tender through June 30, 2002. We do not
believe that adoption of the Euro will have a material adverse effect on our
results of operations, financial position or cash flow.
CAUTIONARY STATEMENTS AND RISK FACTORS AFFECTING FUTURE OPERATING RESULTS
Cautionary Statement under "Safe harbor" Provisions of the Private
Securities Litigation Reform Act of 1995: Statements made in this filing contain
information about the Company's future business prospects. These statements may
be considered "forward looking". These statements are subject to risks and
uncertainties that could cause actual results to differ materially from those
set forth in or implied by such forward looking statements. Among these risks
and uncertainties are: competition from other manufacturers and vision
correction technologies, delays in obtaining regulatory approvals, challenges to
patents owned and licensed by the Company affecting per procedure revenues,
adverse litigation results, difficulties in commercializing the LADARVision
system and dependence on sole source suppliers. For additional information and
risks associated with the Company's business prospects and future operating
results, please refer to the Company's public filings with the Securities and
Exchange Commission.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Information relating to quantitative and qualitative disclosure about market
risk is included in Item 2 of Part I of this Report, entitled "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
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<PAGE> 19
PART II: OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS
a) See Note 5 to Notes to Condensed Consolidated Financial Statements
above (Part I, Item 1 of this filing), for description of pending
material litigation
b)
Item 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
a) The following matters were submitted to a vote of the
shareholders at the Company's annual meeting held on
May 19, 2000:
PROPOSAL 1: The shareholders re-elected Dr. C. Glen
Bradley and Richard F. Miller to the Board of
Directors, each for a three-year term with the
following votes:
<TABLE>
<CAPTION>
For Withhold Authority
--- ------------------
<S> <C> <C>
Dr. C. Glen Bradley 40,488,493 2,227,937
Richard F. Miller 40,411,807 2,304,623
</TABLE>
PROPOSAL 2: The shareholders approved the proposal to
reserve an additional two million shares of common
stock for issuance under the Company's common stock
for issuance under the Company's 1997 Stock Option
Plan.
PROPOSAL 3: The shareholders approved the proposal to
change the name of the Company to Summit Autonomous
Inc.
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
a.) Exhibits:
27 Financial Data Schedule (For EDGAR Filing Purposes Only)
b.) Reports of Form 8-K:
On May 30, 2000, the Company filed a report on Form 8-K
related to the Board of Directors of Summit Autonomous Inc.
who adopted an amendment to the Company's Rights Agreement
between the Company and Fleet National Bank. On March 28, 2000
the Board of Directors of Summit Autonomous Inc. had declared
a dividend of one right to purchase one one-thousandth
(1/1000th) of a share of Series A preferred stock, par value
$.01 per share, of the Company for each outstanding share of
common stock, $.01 par value per share, of the Company. The
dividend was made March 29, 2000 to shareholders of record at
the close of business on such date.
On May 30, 2000 the Company filed a report on Form 8-K related
to Summit Autonomous Inc., Alcon Holdings Inc. and Alcon
Acquisition Corp.,a wholly-owned subsidiary of the Alcon
Holdings, entered into an Agreement and Plan of Merger. In
connection with the Agreement, Acquisition Holdings commenced
a tender offer to purchase any and all outstanding shares of
common stock, $0.01 par value per share of the Summit
Autonomous, at a price of $19.00 per share, net to the seller
in cash, without interest thereon, and upon such terms and
conditions as will be set forth in an Offer to Purchase and
related Letter of Transmittal.
On June 30, 2000 the Company filed a report on Form 8-K
related to Summit Autonomous Inc. who entered into a
previously announced Asset Purchase Agreement by and between
the Summit Autonomous, Lens Express, Inc., and Strategic
Optical Holdings, Inc. for the sale of substantially all of
the
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<PAGE> 20
assets of the Seller to the Buyer (the "Agreement"). On June
16, 2000, the Company completed the transaction and sold
substantially all of the assets of Lens Express, Inc.
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<PAGE> 21
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SUMMIT AUTONOMOUS INC.
Date: August 21, 2000 By: /s/ Robert J. Palmisano
-----------------------------
Robert J. Palmisano
Chief Executive Officer
Date: August 21, 2000 By: /s/ Bernard Patriacca
-----------------------------
Bernard Patriacca
Vice President and Controller
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