Filed by Advanced Medical Optics, Inc.,
Pursuant to Rule 425
Under the Securities Act of 1933
And Deemed Filed Pursuant to Rule 14a-12
Under the Securities Exchange Act of 1934
Subject Company: Advanced Medical Optics, Inc.
Commission File No. 001-31257
This filing relates to a proposed acquisition (the "Acquisition") by Advanced
Medical Optics, Inc. ("AMO") of VISX, Incorporated ("VISX") pursuant to the
terms of an Agreement and Plan of Merger, dated as of November 9, 2004 (the
"Merger Agreement"), by and among AMO, Vault Merger Corporation and VISX. The
Merger Agreement is on file with the Securities and Exchange Commission as an
exhibit to the Current Report on Form 8-K filed by AMO's on July 10, 2004, and
is incorporated by reference into this filing.
The following is the transcript from a conference call held on November 9,
2004 regarding the Merger:
FINAL TRANSCRIPT
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Conference Call Transcript
AVO - Advanced Medical Optics to Acquire VISX, Creating Comprehensive
Global Ophthalmic Medical Device Company
Event Date/Time: Nov. 09. 2004 / 5:45PM ET
Event Duration: N/A
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(C) 2004 Thomson Financial. Republished with permission. No part of this
publication may be reproduced or transmitted in any form or by any means
without the prior written consent of Thomson Financial.
FINAL TRANSCRIPT
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AVO - Advanced Medical Optics to Acquire VISX, Creating Comprehensive
Global Ophthalmic Medical Device Company
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CORPORATE PARTICIPANTS
Sheree Aronson
Advanced Medical Optics, Inc. - IR
Jim Mazzo
Advanced Medical Optics, Inc. - CEO
Liz Davila
VISX Inc. - CEO
Randy Meier
Advanced Medical Optics, Inc. - CFO
CONFERENCE CALL PARTICIPANTS
Joanne Wuensch
Harris Nesbitt - Analyst
Ted Huber
Wachovia Securities - Analyst
Peter Bye
Smith Barney Citigroup - Analyst
Michael Lachman
ThinkEquity Partners - Analyst
Jenny Hsui
RBC Capital Markets - Analyst
Lee Brown
Unidentified Company - Analyst
Larry Keusch
Goldman Sachs & Co. - Analyst
Charles Jones
Key Bank - Analyst
Steve Shofield (ph)
Unidentified Company - Analyst
David Lohman (ph)
Unidetified Company - Analyst
Jason Mills
First Albany Corporation - Analyst
Anna Cronit (ph)
Unidentified Company - Analyst
Max George
Unidentified Company - Analyst
PRESENTATION
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Operator
Good afternoon and thank you for joining Advanced Medical Optics's web
conference. An AMO press release was issued this afternoon and available by
calling 714-247-8289 or by visiting www.amo-inc.com. Slides have been created
to accompany our prepared remarks. To view the slides, please go to the
Investor's Media Session of AMO's corporate website at www.amo-inc.com. This
web conference is being recorded and replay will be available in the investor
media session of AMO's corporate web site through midnight on November 23. And
now, it is my pleasure to introduce Sheree Aronson, Vice President of
Corporate Communications and Investor Relations.
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Sheree Aronson - Advanced Medical Optics, Inc. - IR
Good afternoon welcome to Advanced Medical Optics' conference call and
webcast. Joining me on the call today are Jim Mazzo, AMO President and Chief
Executive Officer, Randy Meier, AMO chief executive-- excuse me, Executive
Vice President of Operations and Finance and Chief Financial Officer, and Liz
Davila, VISX's Chairman and Chief Executive Officer. In a few minutes I will
turn the call over to Jim, who will provide a strategic overview of our plan
to acquire VISX, which we announced earlier today. As part of this discussion,
Liz will review VISX's operating strategies, recent performance, and
perspective on the transaction. Randy will follow with the discussion on the
financial merits of the transaction, the terms of agreement and the
integration planning.
Following these prepared remarks, Jim, Randy and Liz will be happy to take
your questions. Please note that any earnings per share guidance provided on
today's call is pro forma, which excludes the unrealized gain or loss on
derivative instruments as well as the potential purchase accounting
adjustments and one-time costs associated with the proposed transaction. The
Company uses this format to measure and compare it's regional performance,
absent fluctuations and the fair value of its currency derivatives. AMO also
believes this format is useful for investors to perform meaningful comparisons
of our operating results.
During today's call, the Company may also discuss EBITDA, which we define as
operating income plus depreciation and amortization. AMO believes EBITDA
comparisons are useful to evaluate its operating results and its ability to
service debt and fund capital expenditures. Historical reconciliations to GAAP
are available on our web site at www.amo-inc.com. During this call, certain
statements, such as forecasts of financial information, the successful
completion, timing, and expected benefits of our planned acquisitions of VISX
to benefit of our reorganization, our successful integration of the Pfizer
ophthalmic surgical business and any other statements that refer to AMO's
estimated future results are forward-looking statements.
All forward-looking statements made on this call reflect AMO's current
analysis of existing trends and information and represent AMO's judgment only
as of the date of this call. Actual results may differ from current
expectations based on a number of factors affecting AMO's businesses. Please
review today's press release and AMO's recent public periodic filings with the
SEC for more information concerning these risk factors, specifically, the
discussion under the headings "Certain Factors and Trends Affecting AMO and
Its Businesses" in our 2004 Form 10-K and third quarter 2004 10-Q.
Additional information about AMO is available at www.amo-inc.com under the
heading "Investor Index," or by calling 714-247-8289. And now, I'll turn the
call over to AMO President and CEO Jim Mazzo.
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Jim Mazzo - Advanced Medical Optics, Inc. - CEO
Good afternoon and thank you all for joining us. We are extremely pleased to
be announcing our plan to acquire VISX, Inc. and join forces with the global
leader in laser vision correction. This is truly an industry transforming
event which creates in AMO the world's leading refractive ophthalmic medical
device company. We expect our combined annual revenues in excess of 1 billion,
with a combined market capitalization of more than 2.5 billion. This
transaction strengthens AMO's leadership in the high-growth refractive
surgical sector by marrying the VISX leading install base of Excimer laser
technology with AMO's refractive IOL technologies and microkeratomes, we
create a comprehensive product set that is truly unique.
Combining this expanded leadership position in the refractive surgical sector
with our already strong global positions in the cataract and eye care arenas
will transform AMO into a company with three large, robust opthalmic device
franchises and numerous competitive advantages. Each of these franchises will
benefit from the increased coverage of our vast, global infrastructure and
distribution network, our shared focus on innovation and technical expertise,
our expanded manufacturer capabilities, and our commitment to superior
customer service. The financial merits are also substantial, providing
opportunities to accelerate revenues, generate increased cash flow, and
strengthen the balance sheet.
I would like to acknowledge the VISX and AMO board of directors for their
vision and support. Our commonality of thought regarding leadership in the
refractive sector, customer service, culture and commitment to technology
contributed to unanimous Director support by both companies. Upon completion
of the transaction, VISX's Chairman and CEO, Liz Davila, will join AMO's board
of directors. I am pleased to welcome her and look forward to her industry
knowledge, guidance, and insights as we take this company forward.
Turning to Slide 5, this transaction is entirely consistent with AMO's
strategic plan to build shareholder value. As you know, the key components of
this plan are to strengthen our leading positions in the cataract and eye care
segments while leading in the development of the global refractive eye wall
sector where we see substantial growth opportunity. Continuous innovation is
our mantra, and as we are committed to dedicating significant resources and
energies to delivering clinically relevant innovations to practitioners and
patients. Our aim is to improve the growth and profitability profile of our
businesses by continuing to build a highly efficient, scalable global
infrastructure. And finally, our plan is to retain the financial flexibility
to support future growth.
As we walk through the rationale for the VISX acquisition, I believe you will
see clearly how this advances our strategic plan in virtually every key area.
Put the acquisition in context; I want to spend a few minutes reviewing
quickly how AMO has progressed this far in our vision for the future. Since
our spin-off from Allergan just two and a half years ago, we have focused our
energies and resources on executing our plan and positioning AMO for
industry-leading performance. The major phases are depicted here: transition,
transform and transcend.
As this slide indicates, we began by transitioning AMO after the spin-off,
putting the essential building blocks in place that created a foundation for
growth. We stabilized the organization and returned AMO to growth. We
re-prioritized our pipeline, launched new products, solidified our
manufacturing strategy, and strengthened our balance sheet. These early
critical moves allowed us to progress quickly to the next phase of our plan,
and in 2004 we took bold steps to transform AMO into a robust engine for
long-term success. We adopted a new, centralized operating model designed to
maximize the efficiency and scalability of our worldwide operations.
We then acquired the Pfizer ophthalmic surgical business, which fortified our
cataract franchise, expanding our offering of refractive IOLs and enhanced
utilization of our efficient global infrastructure. The integration of Pfizer
is being accomplished in a manner that has, to date, been virtually seamless
to our customers and ahead of our internal time schedule. We are ready to
forge ahead with our plan by acquiring VISX , which establishes our position
as a global leader in the high-growth refractive surgical industry and adds
further scale to our global footprint. Through these decisive steps, we plan
to transcend AMO to new heights and position our company for sustained,
industry-leading performance that will enhance shareholder value.
Once again, we expect that our technological leadership, commitment to
innovation, customer service, global scale and ability to execute with vision
and focus are the principle forces that contribute to our success. The essence
of our plan is the continual delivery of new technologies that improve
practitioner productivity and patient outcomes. Our vision care life cycle
identifies the patient populations we target, from teens wearing contacts to
baby boomers looking for refractive options to senior citizens seeking
treatment for cataracts. Our goal is to proliferate each of these patient
categories with safe and efficacious technologies that address their needs.
At the time of the spin, we had a respectable offering of technologies, but we
recognized that in order to achieve our plan for growth we had to fill some
critical gaps and create new opportunities. Looking at the vision care life
cycle today, you can see that we've made substantial progress. We've
strengthened our offering in virtually every area and added some important new
growth drivers such as phakic IOLs, novel design work in accommodating IOLs,
and contact lenses. We have also established project beachheads with
technologies for glaucoma and vitriol retinal devices. And of course with
today's announcement, we mark a major milestone with the world's leading and
most advanced excimer laser franchise.
So let's talk about this combination of VISX and AMO, which represents a
compelling, strategic, technological and cultural fit. As you can see on Slide
12, both make a powerful and high value contributions. AMO brings global
leadership, a track record of innovation, a global distribution network and an
experienced management team whose execution skills have well been tested and
proven. VISX brings leadership in laser vision correction, technological
innovation, experienced management and unsurpassed customer support. The
result is truly an exciting combination and I am extremely confident our
ability to use these strengths to better serve the global ophthalmic
community, achieve meaningful growth, and enhance value for our shareholders.
This acquisition will contribute significantly to expanding AMO's size and
scope relative to other major competitors. As this slide depicts, we expect
that our total surgical revenues in 2005 will represent about 22% of the
combined surgical sales of the market's three largest players, compared to
just 13% in 2003. The transaction also produces some significant shifts in our
revenue mix, creating a company with a comprehensive and balanced product
portfolio and broad geographic reach across all major markets. Importantly, we
believe we have spread our risk without diminishing our growth potential.
Perhaps most importantly, the transaction creates a powerful leader in the
refractive sector. AMO's existing global distribution will open up new
opportunities for expansion of the laser business into new international
markets, and VISX's outstanding field service capabilities can be utilized
across the AMO organization. We see numerous opportunities to enhance our
value to ophthalmic surgeons around the world by being able to offer them a
full complement of refractive options from lasers to microkeratomes to phakic
and multifocal IOLs, to viscoelastics used in refractive procedures, and we
expect to be a driving force in educating doctors on how to use these
refractive options to build their practices and better serve the needs of
their patients.
I am extremely pleased to announce that Doug Post, currently VISX's President
and Chief Operating Officer, will be guiding this effort in the United States,
the country with the largest refractive demand. Doug will become President of
AMO's Americas region following completion of the transaction. With over 20
years of industry experience, he will be an important addition to AMO's
executive leadership team. He will oversee sales for the cataract, refractive
and eye care franchise in the U.S., Latin America, and Canadian marketplaces
and we will be pleased to welcome him to the AMO executive leadership team.
And now I would like to ask Liz to provide a brief overview of VISX and its
strong commitment to innovation, customer support, and superior clinical
outcomes.
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Liz Davila - VISX Inc. - CEO
Thank you, Jim. I am pleased to be here today to highlight VISX's leadership
in the laser vision correction market. Since its first commercial sales of
excimer lasers in 1989, VISX has been the global leader in laser refractive
surgery. Today, in a field of many competitors, VISX is number one, with 29%
of the installed laser base. In the United States, the largest laser vision
correction market, VISX has been the leader in procedures performed since
1997, and today holds 60% of the U.S. procedure market. VISX is highly
profitable, driven by our pro procedure revenue business model. Gross profits
on procedures exceed 95%. Through three quarters of 2004, operating profits
are 38% of sales.
Our profitability also derives from our market leadership position. VISX is
the leader for three reasons. The first is the excellent clinical results
which we helped delivered since the first Commercial laser vision correction
procedures in 1989. Millions of patients treated on VISX lasers can now see
clearly without glasses or contact lenses. Happy patients make happy
customers. Second is our exemplary customer support, including our in-house
customer service team, our field service engineers and trainers, and our
business development majors helping customers develop their refractive surgery
practices.
And the foundation of our success is our ongoing technology leadership. Using
wave scan wavefront technology to comprehensively measure visual error, VISX
CustomVue leads the market in custom laser vision correction, which now offers
patients the possibility of vision better than they ever achieved with glasses
or contacts. We are currently launching the new Fourier Software, which
delivers an even more precise custom treatment. VISX also leads in introducing
iris registration technology, which further enhances accuracy by adjusting for
cyclotortional rotation. And VISX is the first to launch outside the United
States a laser treatment for hyperopic presbyopia.
The merger of VISX and AMO brings together two companies with an absolute
dedication to technological innovation. Together, we will bring to customers
around the globe a whole menu of refractive surgery options.
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Jim Mazzo - Advanced Medical Optics, Inc. - CEO
Thanks, Liz. I think it is apparent to everyone that this union creates a
powerful competitive enterprise. Let me emphasize, again, just a few of the
reasons we are so excited about our future. First, we expand our presence in
the growing refractive marketplace. Currently, AMO participates in only a
small fraction of the Lasik sector with our Amadeus microkeratome. The
addition of the VISX business will proved us leadership in that segment and
enhance our overall competitive position.
We also will have the most complete line of innovative surgical products in
the industry across cataract, refractive, and other categories. As the chart
on Slide 24 depicts, no other company can offer surgeons as wide a choice of
premium IOLs, viscoelastics, lasers, microkeratomes or phacoemulsification
equipment. Our broad product offering will include well known brands, brands
that practitioners and patients around the world rely on for their outstanding
performance and the science that backs them up. Looking at this collection, it
is clear why AMO is well-positioned to grow. Anyone familiar with the AMO
story knows that one of our fundamental strategies it to seize opportunities
in the refractive segment.
The chart on Slide 26 illustrates the various refractive conditions. Looking
first at the pre-presbyopia patients, laser vision correction is a clear
standard of care for low to moderate myopes and hyperopes. And among high
myopes and hyperopes, phakic IOLs, such as Verisyse, and multifocal IOLs, such
as the Array, Resume, and Tecnis, provide excellent options. Moving to
presbyopic patients, as Liz described earlier, laser vision correction is now
beginning to address patient needs in certain hyperopic ranges, and multifocal
eye walls are alternatives for moderate to high hyperopes. The red highlights
indicates those areas where AMO or VISX already have technologies on the
market in the world that address these needs.
We see tremendous growth potential in continuing to improve our existing
technologies, both lasers and refractive IOLs, while deploying new innovations
that address the full range of patients' needs. Slide 27 demonstrates why we
are excited about this market. It is particularly evident when looking at the
incidence of presbyopia. All of us gradually lose our ability to accommodate,
to change focus from far to near, and today, few options exist between
bifocals and readers. For many, especially for the millions of aging baby
boomers who want to look and feel like they did when they were 20, eyeglasses
simply aren't an acceptable option.
The combination of AMO and VISX creates a player much better positioned than
anyone to lead the way, and we intend to dedicate significant energies and
resources to seize this enormous opportunity. Through an AMO-VISX combination,
we see multiple opportunities to use our technological and brand strength in
order to grow sales and profits. Our customers will benefit from an expanded
range of choices, more broad-based training programs, and greater access to
technologies.
Our R&D efforts will be enhanced by pooling our resources and skills to
deliver new refractive technologies and tackle the huge, unmet need from
presbyopia. We expect to benefit from expanded manufacturing capabilities and
technical know-how. We intend to create distribution efficiencies through an
enlarged field service organization. And an increasingly efficient supply
chain. And our expanded customer base. Cross-selling opportunities and ability
to reach out to practitioners around the world will bolster our sales effort.
So as you can see, we have many reasons to be extremely enthusiastic about
this transaction. It places us in the lead in the growing refractive
marketplace, complementing our already strong positions in cataract and eye
care. It underscores our singular focus on ophthalmic medical devices, it
strengthens our commitment to innovation, and expands our portfolio of global,
well-recognized brands. It offers new opportunities to use our worldwide
distribution network and positions AMO with financial strength to support
future growth. AMO has proven itself to be a high-performance organization
that delivers results.
I am looking forward to welcoming Liz, Doug, and all other members of the VISX
team to AMO. We have long admired VISX's breakthrough technologies, superior
customer service and loyal customer base, which has been the bedrock of their
significant success. As we move forward together, I am highly confident in our
new team's ability to maximize our combined strengths and execute the
excellence. Creating an organization that can better serve the vision care
needs of the practitioners and patients around the world while delivering
enhanced value for our shareholders.
And now I would like to turn the call over to Randy, who will discuss in more
detail our plans for integration success, the financial merits of the
transaction, the terms, and timeline for completion. Randy?
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Randy Meier - Advanced Medical Optics, Inc. - CFO
Thanks, Jim. As Jim has just outlined, there are compelling strategic,
operational, and financial rationales for this transaction. It brings together
two highly complementary businesses that creates a leader in the global
ophthalmic medical device industry and well positions AMO in the growth
oriented refractive market. This exciting combination of recognizable brands,
innovative technologies and global infrastructure provides a compelling
opportunity to create value for our shareholders. We believe we are well
prepared to take on this new opportunity.
AMO has made remarkable progress since the spin-off from Allergan in June 2002
through the completion of the integration of the Pfizer transaction. As this
slide depicts, we have successfully completed numerous key initiatives, all
designed to build AMO's strong platform for growth. Subsequent to the
spin-off, we have stabilized our operations and returned to growth while
continuing to re-prioritize our R&D pipeline and solidifying our eye care
manufacturing strategy. We have also continued to take steps to improve
productivity and profitability by executing our reorganization and
recapitalizing our balance sheet, enabling AMO to acquire and integrate the
Pfizer surgical business which has broadened both our technology and product
offerings in capturing greater global scale.
In doing so, we have achieved a number of important milestones by following a
clearly defined strategy. As a result, we have experienced substantial
increase in AMO's market capitalization from just 318 million following the
spin-off to about $1.4 billion today. And combining AMO and VISX creates a
company with the market capitalization approaching 3 billion, by all accounts,
providing exceptional returns to our shareholders.
To enable the continued creation of value for our shareholders, we are
approaching this transaction with the same sense of focus and attention to
detail that has contributed to our past success. Today's announcement is the
culmination of extensive due diligence on the business and discussions between
functional counterparts at AMO and VISX. While actual integration activities
will not take place until the merger closes, our integration planning is well
under way.
We are using the same fundamental principles and priorities that AMO employed
in successfully integrating the Pfizer transaction. These include: focus on
the customer to ensure seemless continuity of service and preserving our
technological leadership by making any transitional activities entirely
transparent to the surgeons; review relevant processes from both VISX and AMO
to determine best practices that will improve productivity and efficiencies to
best serve the new combined organization; develop a marketing message enabling
us to move swiftly to cross sell lasers, microkeratome and refractive IOL
offerings; explore parallel R&D activities to leverage all viable angles for
finding solutions to presbyopia, and continue to operate our laser franchise
from its current Santa Clara, California location. While this acquisition is a
bit different from the Pfizer transaction, from an integration perspective,
AMO and VISX are even more complementary and there is less need to rapidly
coalesce sales and service acquisitions. Therefore, we expect the integration
to be relatively straightforward.
As part of our initial planning, we have mapped out a fairly tight timeline.
We expect to complete the detailed integration plan by year-end, as well as a
detailed strategy to expand our leadership in the global refractive market
that takes advantage of our expanded product line. More importantly, within
the first 30 days following the close, we will work closely with VISX
management to combine certain operations and implement cost savings of
approximately $10 million. We will also expect to be ready to launch new sales
and marketing efforts in the U.S. and begin to expand our field service
operations immediately following the closing.
Beyond that time period, we will expect to generate additional cost savings as
well as expand the revenue opportunities in both the U.S. and international
markets leveraging our worldwide infrastructure. While the strategic benefits
of this transaction are obvious and create an operating platform for growth,
improved profitability, value creation, innovative product development and
continued management focus, the financial rationale is equally compelling. As
Jim and Liz have discussed, the combination of AMO and VISX clearly creates a
leader in the ophthalmic medical device industry.
The AMO-VISX platform is an opportunity for this management team to
demonstrate that one and one equals three. This combination provides an
enhanced revenue growth through an expanded offering of technologies and
products. It established improved competitive positions in growth markets and
provides broad global presence. It also continues to focus management on
higher, more value-added sectors of the ophthalmic market and it enhances
financial flexibility and profitability of the combined companies.
Now, let's look more carefully at the terms of the transaction. AMO will
acquire VISX in a merger for stock and cash at a value of $26.93 per share of
VISX common stock. Based on today's closing price of AMO's common stock, VISX
shareholders will receive .552 shares of AMO and $3.50 in cash for each VISX
share they own, or approximately 87% in AMO stock and 13% in cash. We expect
the exchange of shares to be tax-free. The total transaction is valued at
about $1.27 billion, and upon completion of the transaction, AMO shareholders
will own 58.5% of the combined company and VISX shareholders will own 41.5%.
Sales and growth and margin expansion is one of the primary drivers that will
position AMO to command attractive valuation multiple. With this transaction,
we balance our operating performance with the addition of a third franchise.
We also increased our U.S.-based business, which reduces our exposure to
foreign currency fluctuations. We have a plan in place to achieve significant
revenue and cost synergies that I will review in more detail in a few minutes,
and with the significant cash flow we will be generating we will continue to
deleverage the balance sheet to ensure we have the financial flexibility to
invest in our future growth.
VISX is a high-growth business with attractive margins. This transaction will
enhance both our top and bottom-line growth and improve our operating margin.
VISX's leading install base of lasers and cutting-edge technology and a
pipeline of new indications creates attractive future margin opportunities,
and we expect there to be significant opportunities to leverage our global
infrastructure to sustain growth in the future. With the opportunity for
enhanced growth and improved margins, we expect to continue to releverage our
balance sheet aggressively.
The transaction also improves our financial profile in 2006 and beyond. As
such, we are increasing our pro forma operating targets through revenue
synergies and enhanced sales potential, we expect to take our top-line growth
rate to the mid- to high-single digit range and expand our gross margins to
between 66 and 67%. Similarly, operating margins move up to the 20% mark,
putting AMO at the high end of the range among the ophthalmic medical device
peers. All this translates into substantial earnings power with growth rates
climbing into the low- to mid-20% level.
Turning to cash flow and the balance sheet, we expect the combined
organization to achieve strong cash flows which will enhance the balance
sheets as highlighted in this slide. Looking first at EBITDA, the EBITDA
calculation here is an annualizing third-quarter 2003 number for AMO and for
the combined AMO-VISX entity. As you can see, we will experience a substantial
rise. The VISX business requires little incremental capital, so we can use the
incremental cash flow for rapid debt repayment, which is consistent with AMO's
past track record and will allow us to improve our leverage ratios, and,
again, continue to invest in our growth in the future.
As I mentioned earlier, we expect to realize quickly revenue and cost
synergies. In the first 30 days following the close, we are targeting
approximately 10 million in annualized savings by reducing administrative
costs and redundant operations. We also expect to capitalize on VISX's
equipment manufacturing expertise to reduce some of the costs related with
some of our equipment manufacturing. On the revenue side, leveraging our
global distribution network will fuel increased revenue from lasers outside
the United States and cross selling AMO's refractive IOLs, microkeratome and
cataract products to VISX customers will contribute to an improved top-line
performance. Lastly, we expect to achieve revenue synergies by broadening the
use of VISX's field service sales force to improve our position in the
equipment markets.
In terms of our guidance, we are reaffirming our 2005 pro forma EPS of $1.65
to $1.75. In doing so, we are realizing strength in our core business as well
as significant synergies from this transaction. In 2005, this transaction will
be neutral to our pro forma EPS guidance, and will turn accretive in our 2006
pro forma EPS. As a result, we are providing 2006 pro forma guidance of $2.20
to $2.30. As part of our overall transformation of AMO, we will begin to give
cash EPS guidance.
This guidance will exclude intangible amortization, both from this transaction
and the Pfizer transaction. Though we will provide both pro forma GAAP and
cash EPS guidance in future, we believe that cash EPS is an alternative way to
analyze our performance going forward, given a significant amortization from
both Pfizer and the VISX transaction. In addition, we believe in the future
that the potential to begin to expensing options will also provide a relevant
benchmark for cash EPS.
To reduce any confusion, I would like you take you through a bridge analysis,
walking you through the changes from our current 2005 EPS guidance to our new
2005 EPS guidance.. We start from our current pretax income guidance to give
you a sense that the base business is performing well and that the Pfizer
integration is well ahead of schedule. In addition to the upside in our
existing business, we add back intangible amortization from the Pfizer and
VISX transaction to arrive at our 2005 cash EPS guidance of $2.05 to $2.15.
Reducing this cash EPS, once again, by the intangible amortization from this
transaction, we arrive back at our current pro forma GAAP guidance of $1.65 to
$1.75.
Effectively, the upside in AMO and the cost savings in revenue synergies from
this transaction provide sufficient upside to offset any increase in
amortizations. Hopefully this analysis will be helpful in illustrating how we
feel comfortable in reaffirming our 2005 pro forma GAAP guidance. Once again,
this transaction is accretive in 2006, pro forma, GAAP, EPS, and accretive on
a cash basis in 2005 and 2006. So we are moving aggressively to bring this
transaction to a successful close.
We begin preparation for a joint proxy statement and file for any trust
clearance under Hart Scott Rodino immediately. Our plan will be to initiate a
shareholder mailing to both AMO and VISX shareholders and to hold special
shareholder meetings in December, with the plan to close the transaction
during the first quarter of next year.
And with that, I will pass the call back to Jim.
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Jim Mazzo - Advanced Medical Optics, Inc. - CEO
Thanks, Randy. I am sure you are all eager to ask us questions so I will wrap
up quickly with this final slide. By now, hopefully you will see the potential
for this transaction to strengthen AMO's platform for growth, profitability,
cash flow, and value creation. We expand our leadership in the global
ophthalmic industry by becoming a leading player in the refractive sector,
with the most complete line-up of refractive products available.
We are expanding our portfolio of well-respected brands and increasing the
size of our customer mix. We will pick up an exceptional field service
organization and use our existing global distribution capabilities to extend
the laser franchise to new regions. We are confident in our ability to
execute, drawing upon the experience of both organizations. We will be
stronger than ever from a financial point, with new opportunities in
high-growth segments and a healthy balance sheet. We are transforming AMO for
industry-leading performance in the years ahead.
And now, Liz, myself and Randy will be happy to take your questions. Operator?
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Operator
[Operator instructions.] And your first question comes from Joanne Wuensch.
QUESTION AND ANSWER
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Joanne Wuensch - Harris Nesbitt - Analyst
Hi, guys. Congratulations. So much to ask. It sounds like you have been in the
works on this for quite some time and that your integration plan is well
established. Could you give us a little bit of background on how the two of
you came to the table to work this through?
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Jim Mazzo - Advanced Medical Optics, Inc. - CEO
Well, I will start off and let Liz build on it. You know, I think this is one
of those ones where -- at least when I looked at the opportunities from the
refractive segment, Joanne, as you know, it's quite apparent that as we can
continuously support our customer base, and we believe in technology, it was
quite easy for me, because VISX has the best laser vision correction outfit
out there. So this isn't one of those ones that just -- that has been in the
works for a long period of time. But it is quite obvious for us that they are
the leaders, and we wanted to capitalize on that opportunity. Liz?
------------------------------------------------------------------------------
Liz Davila - VISX Inc. - CEO
Let me add to that, Joanne, that as you know, VISX has been a strong cash
generator for many, many years. And people have asked us what are we going to
do to expand our business to find other products to bring into our refractive
business. And as we looked around at a variety of opportunities, short-term
and long-term, it became very apparent to us that we had a perfect match with
AMO. As Jim had said, there is little or no overlap. We complement each other
in so many ways, and we both have a passion for technology leadership. We have
a strong cultural similarities, and so over the last few months we went at it
with intensive energy and were able to put it together in a pretty short time
period.
------------------------------------------------------------------------------
Joanne Wuensch - Harris Nesbitt - Analyst
Should we look for this deal to close in the first quarter then?
------------------------------------------------------------------------------
Jim Mazzo - Advanced Medical Optics, Inc. - CEO
That's our intention. Obviously, we are up to certain things outside of our
control, but that's what we are planning on, Joanne.
------------------------------------------------------------------------------
Joanne Wuensch - Harris Nesbitt - Analyst
Any concern that you are integrating both Pfizer and VISX at the same time?
------------------------------------------------------------------------------
Jim Mazzo - Advanced Medical Optics, Inc. - CEO
Well, Joanne, as I illustrated, we are actually -- there isn't a concern
because, as I stated on our last earnings call, we are pretty well-done with
that integration. There is a couple TSAs, one in Japan, which we should have
done by the first of the next year. So we're already in; that's already
integrated into the company's overall philosophy and tactical plans.
------------------------------------------------------------------------------
Joanne Wuensch - Harris Nesbitt - Analyst
Okay. My last question is could you comment on the price. It is a nice
healthy premium to today's close.
------------------------------------------------------------------------------
Randy Meier - Advanced Medical Optics, Inc. - CFO
Joanne, I think when looking at this transaction, you have got to look back
not just at today's premium but look back over the last two, three months at
where the valuations have been for VISX. But also look at cash flow multiples
for not only VISX, where it's trading today, but also within the industry. So
at about 14 times next year's cash flow, that is certainly in a reasonable
range for an acquisition of a company like this and certainly looking at some
of the other metrics associated. Clearly, I think we've paid a fair price for
the Company. And I think this has positioned us well for the future to take
advantage of growth opportunities I think we're very comfortable with where we
ended up.
------------------------------------------------------------------------------
Jim Mazzo - Advanced Medical Optics, Inc. - CEO
And Joanne, the strategic nature of this deal makes so much sense; I think
that's pretty apparent as you look at it.
------------------------------------------------------------------------------
Joanne Wuensch - Harris Nesbitt - Analyst
Thanks, I will go back in queue. Congratulations
------------------------------------------------------------------------------
Operator
And your next question comes from Ted Huber.
------------------------------------------------------------------------------
Ted Huber - Wachovia Securities - Analyst
Thanks and congratulations from me as well. Could you just detail a little
bit about the business assumptions behind the accretion numbers you put out
there? In other words, what kind of top-line and profit growth do you expect
out of the VISX franchise in '05 and '06?
------------------------------------------------------------------------------
Randy Meier - Advanced Medical Optics, Inc. - CFO
Sure. I think looking at where we are in '05, we are looking at very modest
procedure growth; probably somewhat less than what is explained in the current
consensus among analysts. So we are looking in that, sort of, 7% range. We are
looking for conversion rates that are consistent with where people have
targeted for the end of 2004 and seeing some modest rises in that in 2005 and
2006. So we aren't looking for anything terribly aggressive, and we are very
comfortable with where the current fundamental analysis is by most of the
analysts out there for both '05 and '06.
------------------------------------------------------------------------------
Ted Huber - Wachovia Securities - Analyst
So the -- just to clarify, Randy, I think the consensus and guidance from
VISX has been for 25% operating profit growth. It sounds as if your plan would
target something a bit more modest than that. Is that fair to say? Or can you
give us a number on that metric?
--------------------------------------------------------------------------------
Randy Meier - Advanced Medical Optics, Inc. - CFO
I think where we came to was something slightly a little bit under that in
our own evaluation, although, I think we respect where the VISX's management
team was coming from and the ability to hit that. But as you know, we've
consistently gave fairly consistent or conservative guidance, and we took a
fairly conservative approach in our evaluation of this franchise and we were
coming up with a acquisition valuation. So we are pretty comfortable with
where the VISX team has positioned it and the opportunity for growth in the
future.
And hopefully, we think we can leverage that by taking it not only adding that
into our own franchise but expanding some of the international franchise as
well. But, again, to your question in 2005 and looking out to 2006, we are
very comfortable with where the analysts have the business right now, which is
probably a little bit more conservative than where VISX management has guided.
--------------------------------------------------------------------------------
Ted Huber - Wachovia Securities - Analyst
Okay and then just as a follow-up, I think you are talking about 10 to 15
million in annualized cost synergies in '05, Randy; is that right?
------------------------------------------------------------------------------
Randy Meier - Advanced Medical Optics, Inc. - CFO
That's correct.
------------------------------------------------------------------------------
Ted Huber - Wachovia Securities - Analyst
And does that number go up in you're 06 math or do you just annualize at that
level?
-------------------------------------------------------------------------------
Randy Meier - Advanced Medical Optics, Inc. - CFO
Yes, we would expect to see slightly more than that in '06.
-------------------------------------------------------------------------------
Ted Huber - Wachovia Securities - Analyst
Can you give us a number on that?
-------------------------------------------------------------------------------
Randy Meier - Advanced Medical Optics, Inc. - CFO
Right now, I think where we are, what we are going to try to do is in the
first 30 days hit our annualized $10 million number, and that would be
something that I would think you all can benchmark us against.
-------------------------------------------------------------------------------
Ted Huber - Wachovia Securities - Analyst
Okay. And then last question. I apologize if this is in the slides, I don't
have them in front of me. Do you have a specific number on your estimate that,
again, that goes into these targets for the amortization that you would be
adding into the P&L with this transaction?
-------------------------------------------------------------------------------
Randy Meier - Advanced Medical Optics, Inc. - CFO
Well, as you know, the purchase price allocation is always subject to a lot
of consternation, not only by us but by some of the people at the SEC. So to
speculate on where that is going to be is probably something that I don't want
to get into right now. But we took a fairly conservative approach that about
-- somewhere in the range of about a third of the acquisition price would be
allocated to that. But I think the range, on both the upper end and the low
end, is fairly expansive. So I think we took a fairly conservative approach in
how we addressed the presentation right here, and if you get a chance to look
back at the slide, you'll see the range that we've got it in.
-------------------------------------------------------------------------------
Ted Huber - Wachovia Securities - Analyst
Could you just remind us how the accounting came out on the Pfizer deal?
Again, in that same metric, percent of the overall purchase price?
-------------------------------------------------------------------------------
Randy Meier - Advanced Medical Optics, Inc. - CFO
Sure. We ended up with about -- just bear with me for a second, I have to
think -- probably about 30% of the overall purchase price went into intangible
--
-------------------------------------------------------------------------------
Ted Huber - Wachovia Securities - Analyst
Okay.
-------------------------------------------------------------------------------
Randy Meier - Advanced Medical Optics, Inc. - CFO
-- to give you a relative measure.
-------------------------------------------------------------------------------
Ted Huber - Wachovia Securities - Analyst
All right. Super. All right, that's it for me. Thanks very much.
-------------------------------------------------------------------------------
Jim Mazzo - Advanced Medical Optics, Inc. - CEO
Thanks, Ted.
-------------------------------------------------------------------------------
Operator
Your next question comes from Peter Bye.
-------------------------------------------------------------------------------
Peter Bye - Smith Barney Citigroup - Analyst
Thanks, guys. Just curious, obviously a bigger step than I think most people
were looking for from you guys, at least in the near term on the acquisition
front. It's quite a different business mix and profile than what your
traditional base business is. Can you comment on that a little bit? I mean,
there's certainly another large franchise out there on the contact lens side;
it also improves your organic growth rate if you did it, but it certainly has
a lot more visibility, potentially an upside, but more visibility than
entering into a refractive market that has been highly fluctuating over the
past three, five years.
-------------------------------------------------------------------------------
Jim Mazzo - Advanced Medical Optics, Inc. - CEO
Let me kind of dissect that, Peter. First off, we know capital equipment.
We're not shy of things that plug into the wall. We have a very good knowledge
of phacoemulsification equipment, and I think you create a mind-set. I think
that's part of the rationale for the spin; you have to have a mind-set for
capital equipment, you have to have a mind-set for medical devices. So we do
understand that.
I think then as we look back, and going back to the overall strategic nature,
this is a complementary. I don't see it as separate because when you go into
the customer today, he or she is looking for opportunities where they can
leverage across various product lines. Think about where we were prior to this
spin. We had individual products; now we have complementary products.
You can provide the surgeon the state-of-the-art laser, the microkeratome, the
intraocular lens, the viscoelastic. So really, I don't see that as a separate
mind-set. And going back to our last call, as I said, the business now for us,
the huge opportunity, is this refractive segment, which would have created a
different mind-set for us with our refractive IOLs, where we were going to
utilize more of the office support to get to that end user. So actually, I see
this just following in our overall path of mentality shift that complements
both doctor as well as patient.
And I would like to let you know that as we looked at the customer base, you
have pure refractive specialist doctors, but the predominant physician base
out there does both refractive and cataracts, and thus, we can now take our
cataract physicians, move them greater to the refractive opportunity. And what
Liz and her team have done, taken that refractive specialist, we can now move
them into the cataract AMO franchise.
-------------------------------------------------------------------------------
Peter Bye - Smith Barney Citigroup - Analyst
Do you have -- during your due diligence -- do you have an estimate of how
much of VISX's customers use -- do cataract procedures? How many procedures
they might do, and then how many of those actually use your product as opposed
to Bausch or Star or [Alco]?
-------------------------------------------------------------------------------
Jim Mazzo - Advanced Medical Optics, Inc. - CEO
Well, first of all, I tell you, we have done our own due diligence because of
our refractive IOLs. Because again, this is not a different customer base than
refractive IOLs and this is not a different customer base that does Amadeus.
So we already know, based on our own customers, who does what. Now, of course,
as we move down, we will spend more time with the VISX senior management to
understand where their stronghold is, et cetera, in the U.S. market and across
the globe. But I think this is not a customer that is new to us, because we
have products that they would be using, such as the Amadeus, already.
-------------------------------------------------------------------------------
Randy Meier - Advanced Medical Optics, Inc. - CFO
Peter, again to amplify that, I think as you well know, we are in the process
of undergoing some extensive training programs with a lot of the refractive
surgeons for the Verisyse lens right now, which is very much opening up this
market and really giving us direct, one-on-one contact with, customers that
are really operating on both sides of the fence. So we feel very strongly that
we can capitalize on this cost-selling opportunity.
-------------------------------------------------------------------------------
Jim Mazzo - Advanced Medical Optics, Inc. - CEO
And one just last thing to build on that. Remember when I said we got into
the Amadeus franchise was to learn the refractive specialist, to learn him or
her from their mentality, what their customer segmentation is required, and
now what we have been able to do is not only learn it from the Amadeus and
refractive IOL, but obviously, we're bringing a tremendous franchise with
VISX.
Okay, Peter? Hello? Operator?
-------------------------------------------------------------------------------
Operator
Yes, sir. Your next question comes from Michael Lachman.
-------------------------------------------------------------------------------
Michael Lachman - ThinkEquity Partners - Analyst
Good afternoon. Good afternoon. Just a couple of things here. With regard to
management integration and the organization and how it all fits together, you
know, one of the things that has helped make VISX so successful within its
market is its focus. It is going up against a couple of more diversified
players, and that focus has allowed it to execute well in terms of service and
product development, et cetera. What are your thoughts with regard to that? Do
you see VISX remaining a fully integrated organization within the rest of AMO?
Is it going to remain as an operating division? How are you going to keep that
focus going?
-------------------------------------------------------------------------------
Jim Mazzo - Advanced Medical Optics, Inc. - CEO
I think that is a great question, Michael, and in my conversations with Liz,
we -- that was, really, probably one of top topics. And I think you can see by
having Doug Post join our senior management team immediately, he will stay in
Santa Clara. We will continue to have the Santa Clara facility because we see
one of the greatest strengths that VISX had was ability to manage everything
under one roof. Now what we will do is to complement our distribution efforts
outside the United States where, really, we have a lot more direct operations
than VISX had. But we're not going to interrupt, we're just simply going to
supplement. And these are different units from a standpoint of execution, but
you do have commonalities in marketing, et cetera. Liz, do you have anything
else to add to that?
-------------------------------------------------------------------------------
Liz Davila - VISX Inc. - CEO
Yes, I would say, Mike, that as we have gotten to know the AMO organization,
we see an exciting opportunities for cross fertilization and for best
practices, as Randy said. We have things to offer one another, and while
maintaining the operation as Randy and Jim have described, we will be taking
advantage of opportunities to make, as Jim said, one and one equal three.
-------------------------------------------------------------------------------
Michael Lachman - ThinkEquity Partners - Analyst
Great. And then with regard to Doug -- I just want to make sure I understand
-- he is going to be staying in Santa Clara but his responsibility will be
beyond just the VISX products, right? It will be sales responsibility across
the entire cataract and refractive line?
-------------------------------------------------------------------------------
Jim Mazzo - Advanced Medical Optics, Inc. - CEO
Yes. As you probably recall, I've had an opening for the president of the
Americas. Doug will take that role, which is a senior management position
reporting directly to myself, running the Americas region, which includes the
U.S., Canada, and Latin America, for all three franchises. But we also were
able to have Doug stay in Santa Clara, which, really, addresses your overall
first question. So it is a win-win for all because we will keep Doug in his
experienced level, but it, of course, will now be able to expand because we
will have Doug managing our other cataract and eye care franchises. Again,
Michael, further leveraging the opportunity across the franchises as well as
the customer base of ophthalmology and optometry.
-------------------------------------------------------------------------------
Michael Lachman - ThinkEquity Partners - Analyst
And beyond Liz and Doug, is it too soon to talk about any other individual
management responsibilities, either -- for individuals from either company?
-------------------------------------------------------------------------------
Jim Mazzo - Advanced Medical Optics, Inc. - CEO
Yeah, most definitely. But again, let's make sure we all understand what we
see is, again, this is a separate operating unit with very little crossover
today, but it is too early to tell because I think it is important now that
once we have announced this, we'll work with Doug and Liz and the senior
management team to fully understand how we can complement our efforts going
forward.
-------------------------------------------------------------------------------
Michael Lachman - ThinkEquity Partners - Analyst
Great. And just one other thing. You now, sort of, near a little bit more
both Alcon and Bausch & Lomb in terms of if you look at the three largest
laser franchises, excimer laser franchises, all in more diversified marketing
oriented organizations. Do you see any opportunity to leverage your consumer
product franchises and experience there with a more of a direct-to-consumer
focus? It hasn't made a whole lot of sense for either of the other two
companies to do a lot in the area given the fact they are smaller players. But
with a 60% share, do you see a different way of marketing Lasik?
-------------------------------------------------------------------------------
Jim Mazzo - Advanced Medical Optics, Inc. - CEO
Well, first off, I tell you, I can't remember slide number but I think now we
are -- we have the broadest range. Not everybody has the microkeratome, not
everybody has the refractive IOL, so we now are the leader when it comes to
that. I think what is important is VISX has already done a tremendous job of
understanding the practitioner and the consumer. If you go back and look at
their materials, we have been very impressed on how they attract the consumer
today and how they leverage those two audiences. I think the other thing we
bring now is understanding of all the ophthalmic communities, ophthalmometry
and ophthalmology, which can be further leveraged. So I think the consumer is
going to play a much more important role in this refractive category, because,
again, the patient goes in to the doctor. But let's remember that the doctor
is the end user; he or she is the one that drives this franchise. But we were
already looking at the consumer when it comes to our refractive IOLs, so I
think what Liz and her team has already done is going to help us further
accelerate an avenue that we identified, but the doctor is still our most
important person because he or she makes the decision on the technologies.
-------------------------------------------------------------------------------
Michael Lachman - ThinkEquity Partners - Analyst
Great. Thanks and congratulations.
-------------------------------------------------------------------------------
Jim Mazzo - Advanced Medical Optics, Inc. - CEO
Thank you, Michael.
-------------------------------------------------------------------------------
Operator
Your next question comes from Jenny Hsui.
-------------------------------------------------------------------------------
Jenny Hsui - RBC Capital Markets - Analyst
Hi. Good afternoon. Just a couple questions. You mentioned a little bit about
your intentions to launch an increased marketing effort in the refractive
space and I just was wondering if you could talk a little bit more about this,
what this will consist of?
-------------------------------------------------------------------------------
Jim Mazzo - Advanced Medical Optics, Inc. - CEO
Well, I think it goes back, Jenny, to what we have said, is now that this
customer base is an attractive one because there ones that are -- their needs
are being unmet. Today, VISX has done a tremendous job of complementing their
opportunities for Lasik, but as they get outside of that range or as they get
older, you know they have little opportunities outside of bifocals or readers.
So we're going to be beefing up our efforts to directly get to those patients
to drive them through the practitioner base. But we're also going to be
beefing up our efforts to train the physician, because, again, as I stated
when we launched the Verisyse, there are certain practitioners that have the
mentality to be able to drive this type of practice. We are going to work with
those physicians, train them, utilize the marketing programs that VISX had,
and implement training programs for the doctors and their administrative
staff. This is something already been in our plans, but we're just going to
accelerate it now by adding this strong laser franchise.
-------------------------------------------------------------------------------
Jenny Hsui - RBC Capital Markets - Analyst
Okay. And so will VISX's sales reps be folded in with AMO's sales force, and
then, essentially, all of the reps will serve across the entire surgical
product portfolio, or -- ?
-------------------------------------------------------------------------------
Jim Mazzo - Advanced Medical Optics, Inc. - CEO
Well, again, Liz and I and Doug are going to spend more time, but, again,
this is a different mentality. So I would tell you that my thoughts would see,
if anything, maybe the microkeratome would move over to the laser franchise,
but what we don't want to do is interrupt the specialist. And there is a
specialist within each of our businesses; we have a phaco specialist, we have
an IOL specialist, and now, we have, obviously, a laser specialist. So I don't
want to interrupt that because I think that's what's led to the hallmark of
our success.
What you sometimes do, companies make a mistake, is you try to create a
hybrid. And the worse thing do you is have a rep walk in and just open up the
coat and say, "How can I help you, doctor?"
-------------------------------------------------------------------------------
Jenny Hsui - RBC Capital Markets - Analyst
Right.
-------------------------------------------------------------------------------
Jim Mazzo - Advanced Medical Optics, Inc. - CEO
This is not what we are going to do.
-------------------------------------------------------------------------------
Jenny Hsui - RBC Capital Markets - Analyst
So do you think, perhaps, you will separate it and have a refractive sales
force and then also the cataract sales force?
-------------------------------------------------------------------------------
Jim Mazzo - Advanced Medical Optics, Inc. - CEO
Well, we've already got a refractive sales force who's been handling the
Verisyse lens, the Array lens, the Resume lens across the world. And I think
what you get are synergistic effects now, between the laser and the
[inaudible]. Now, I'll give you an excellent analogy. We have a separate phaco
rep and a separate IOL rep. But, of course, they do things synergistically
together, and we see it the same way today in the refractive segment, with the
laser rep and the refractive IOL rep.
-------------------------------------------------------------------------------
Jenny Hsui - RBC Capital Markets - Analyst
Sure, sure. And then, you had mentioned the revenue synergies. Where will
that primarily going to come from? Is it, kind of, a combination of equipment
due to VISX's experience in the capital equipment market, so will that help
your phaco sales as well? Or is it mostly just the refractive market, like
microkeratome,Verisyse?
-------------------------------------------------------------------------------
Jim Mazzo - Advanced Medical Optics, Inc. - CEO
Well, let's -- I can break it up into several categories. One is you've got
such a large install base of VISX machinery you obviously now can see the
Amadeus even a greater opportunity. Number two, think outside the United
States where we have been extremely strong, part of -- out of the spin, that
was where we had our strongest presence. We go direct. VISX primarily uses a
lot of distributors. We can take full advantage of our strong relationships
there is for revenue. And then, of course, go back to the overall strategic
rationale.
If we can now surround the practitioner with more opportunities and leading
brands, it is more likely that he or she will go to us. It is kind of the
point that you put to me when we came out of the spin: How do you compete
against the large company who can provide various products. Go and look at our
slide now. Who provides the greatest breadth of products? It's AMO.
-------------------------------------------------------------------------------
Jenny Hsui - RBC Capital Markets - Analyst
Absolutely. And, again, congratulations.
-------------------------------------------------------------------------------
Jim Mazzo - Advanced Medical Optics, Inc. - CEO
Thank you.
-------------------------------------------------------------------------------
Operator
Your next question comes from Lee Brown.
-------------------------------------------------------------------------------
Lee Brown - Unidentified Company - Analyst
Hi, gentlemen. How are you?
-------------------------------------------------------------------------------
Jim Mazzo - Advanced Medical Optics, Inc. - CEO
Fine, Lee.
-------------------------------------------------------------------------------
Lee Brown - Unidentified Company - Analyst
Just a quick question. I thought I saw on a slide that the pro forma '05
revenues for VISX of 184 had gross margins attached to it of about 22%; is
that correct?
-------------------------------------------------------------------------------
Randy Meier - Advanced Medical Optics, Inc. - CFO
No, that's incorrect Lee.
-------------------------------------------------------------------------------
Lee Brown - Unidentified Company - Analyst
Okay, good. I would like some clarification on that. What was that margin,
since I don't have the slides available to me?
-------------------------------------------------------------------------------
Randy Meier - Advanced Medical Optics, Inc. - CFO
We haven't provided any specific margin on anything. What we provided was
updated guidance on the combined entity over what the guidance had previously
been And just to sort of run that down again, AMO, on a stand-alone basis, had
revenue targets in mid-single digits; we're raising that up to about 6% to 8%
for 2006.
We had gross margin guidance of that ,sort of, 64 to 65 area; we think we can
push that to about 66, 67%. And then operating margins for AMO had been about
17, 18% in '06, and we think the combined entity will be in that 19% to 21%
range. So that was what we referred to in terms of operating margins.
-------------------------------------------------------------------------------
Lee Brown - Unidentified Company - Analyst
I appreciate it, thanks. I was scribbling the notes as fast as I could and
didn't make sense, because it looks like nine months to-date, their gross
margin's kind of in the range of 75%; so just slightly lower. The other thing
is, obviously, the stock sold off quite a bit after Q3. It looked -- a lot of
analysts were speculating that they were losing quite a bit of market share,
specifically to Bausch & Lomb. And I just thought maybe you could comment on
that and how you think the synergies with the cross selling are possibly going
to turn that around?
-------------------------------------------------------------------------------
Liz Davila - VISX Inc. - CEO
This is Liz. I will respond, first of all, by saying VISX does not believe,
in Q3, that it lost market share to Bausch & Lomb, sequentially. So we'd like
to put that one to rest, if we could. And I think, though, the other part of
your question, clearly, as Jim said, a company with multiple products has a
chance to get in there and get more business from more customers across all
the product lines, and we are excited about that.
-------------------------------------------------------------------------------
Jim Mazzo - Advanced Medical Optics, Inc. - CEO
And, Lee, I tell ya, there's some great reports coming out from the academy
that shows you exactly why we are so excited. You've got new indications
coming from VISX. They have an extremely strong base of business today. They
have the best customer service out there, you ask any physicians. And as they
grow, there are overall new product indications and we can surround the
practitioner with refractive IOLs. I think that this is going to be writeups
of how things are moving forward for both companies extremely well.
-------------------------------------------------------------------------------
Lee Brown - Unidentified Company - Analyst
That sounds great. One last question. Is the VISX acquisition going to
possibly create potential for any sort of obstacles with regard to the Pfizer
acquisition? I guess bottom line, does this take away from possibly the
manifestation of synergies that were associated with the Pfizer acquisition?
-------------------------------------------------------------------------------
Jim Mazzo - Advanced Medical Optics, Inc. - CEO
No. As I stated earlier, we have already integrated that. We are moving
forward. Everything is in place, so actually, there is no interruption to the
overall Pfizer acquisition. We are extremely pleased.
-------------------------------------------------------------------------------
Lee Brown - Unidentified Company - Analyst
Okay. Thanks, Jim.
-------------------------------------------------------------------------------
Jim Mazzo - Advanced Medical Optics, Inc. - CEO
Thank you, Lee.
-------------------------------------------------------------------------------
Operator
Your next question comes from Larry Keusch.
-------------------------------------------------------------------------------
Larry Keusch - Goldman Sachs & Co. - Analyst
Hi. Good afternoon. Couple quick questions. First of all, if I just do the
math, and you're going to need about 175 to 200 million dollars in cash for
the cash component, and I think VISX has roughly 110 million. Could you just
discuss what financing instruments you have in place for that remainder that
you will have to advance? Secondly, are there any break-up fees associated
with the deal if it does not go through?
And then third, I guess for Jim, how did you get comfortable with CustomVue
mix increasing over the coming years? Because clearly it has been somewhat
sticky around 35%, and I have to believe that that was one of the things that
you looked at in terms of the increasing profitability of the overall VISX
business.
-------------------------------------------------------------------------------
Randy Meier - Advanced Medical Optics, Inc. - CFO
Sure. We got -- from a financing perspective, you are absolutely correct.
It's about 190 to 200 million dollars we will need for closing this
transaction, in terms of the cash component of it. We have gotten commitment
letters from Morgan Stanley to ensure the fact and create certainty around
closings. So we have no qualms with that. My expectation is we will probably
go back to our existing credit group and banking group, looking for a waiver
to move forward and explore the opportunities, either to increase some of the
existing facilities or go out and look for opportunities to raise the money.
However, you did bring up an interesting point between our two companies. We
do have a fairly significant amount of cash on our balance sheet; we do expect
that to rise toward year-end. So there is an opportunity that there will be,
subsequent to closing, minimal needs for increased leverage on behalf of the
combined entities. Your second question, with regard to break-up fees, there
are break-up fees included in the merger agreement. They are reasonable and
customary. It's not something we want to get into at this point, but there are
certainly incentives on both sides of the transaction to see this forward to a
successful conclusion of closing in early next year.
-------------------------------------------------------------------------------
Jim Mazzo - Advanced Medical Optics, Inc. - CEO
Larry, to field your third question, we are quite comfortable with what we
have been able to see from the CustomVue mix. You have got around 35% this
year; we see that definitely increasing somewhere in the 40-plus range next
year. I think you have to be careful is that some analysts, I think, got ahead
of what VISX was doing, and I think they are well entrenched to what they said
and they have been meeting the expectations to the conversion rates.
You've got strong market share. You've got the custom, and let's not forget,
you've got the new indications that are coming around for hyperopia, et
cetera, and the iris registration. So you put all those together, you have a
extremely healthy business model.
-------------------------------------------------------------------------------
Larry Keusch - Goldman Sachs & Co. - Analyst
Okay. Great. Thanks very much and congratulations.
-------------------------------------------------------------------------------
Jim Mazzo - Advanced Medical Optics, Inc. - CEO
Thank you.
-------------------------------------------------------------------------------
Operator
Your next question comes from Charles Jones.
-------------------------------------------------------------------------------
Charles Jones - Key Bank - Analyst
Good evening. Well, this is the -- could you give me a little bit of the
details on the transaction, please? I'm sorry, I apologize for the repeat.
-------------------------------------------------------------------------------
Randy Meier - Advanced Medical Optics, Inc. - CFO
Sure. Basically, we are, based on today's close, the transaction is valued at
about $26.93. We expect to pay that at the time of closing, a combination of
stock and cash. The VISX shareholder will receive approximately .552 shares of
AMO and approximately $3.50 in cash for each VISX share that they own. Is
there any other details that you want of the transaction?
-------------------------------------------------------------------------------
Charles Jones - Key Bank - Analyst
So that was .552?
-------------------------------------------------------------------------------
Randy Meier - Advanced Medical Optics, Inc. - CFO
Yes.
-------------------------------------------------------------------------------
Charles Jones - Key Bank - Analyst
Okay, great. Hi, Liz. This is Charlie Jones, Key Bank. And I just -- I also
wanted to ask about the iris registration and how much of your business that
is, Liz? How much you expect it to be in a couple of years, because this is
the first I have heard about that.
-------------------------------------------------------------------------------
Liz Davila - VISX Inc. - CEO
Well, the iris registration is a software upgrade for the Star laser. And
since you haven't heard about it, what it will do is bring yet another degree
of safety and efficacy to the procedure by assuring that [inaudible] rotation
is identified and adjusted for. So it will be a one-time per laser capital
sale, and but it will stimulate more CustomVue procedures. It will be a
feature that is only used with CustomVue procedures.
-------------------------------------------------------------------------------
Charles Jones - Key Bank - Analyst
Well, that's an exciting transaction. Congratulations, Liz, and AMO. Just to
remind -- could you explain, Liz, to people, what you've seen in the custom
transition for certain segments of your lasers and how 35% probably isn't an
accurate picture of a lot of your business. And that's it. Good night.
-------------------------------------------------------------------------------
Liz Davila - VISX Inc. - CEO
Well, Charlie, yes, you are right. We have customers at various degrees of
CustomVue conversion. As we said in Q3 call, over 200 of them are already
above 50% and we are focusing our attention now at the next tier, to bring
them along, too, in terms of marketing training and technical training, so we
that we will see that continue to rise.
-------------------------------------------------------------------------------
Randy Meier - Advanced Medical Optics, Inc. - CFO
And Charley, just to give you some comfort, we spent a lot of time with VISX
management trying to understand the conversion rates and are very comfortable
with where we projected them to be and with where VISX management is expecting
the new technologies to take the conversion rate over the next couple of
years.
-------------------------------------------------------------------------------
Charles Jones - Key Bank - Analyst
Yeah, I mean, I've had a chance to get to know VISX, and although I had a
couple of questions on iris registration you are getting a very great company,
and congratulations to you as well.
-------------------------------------------------------------------------------
Jim Mazzo - Advanced Medical Optics, Inc. - CEO
Thank you, Charley.
-------------------------------------------------------------------------------
Charles Jones - Key Bank - Analyst
Have a good night
-------------------------------------------------------------------------------
Operator
Your next question comes from [Steve Shofield.]
-------------------------------------------------------------------------------
Steve Shofield - Unidentified Company - Analyst
Yes, I just wanted to say congratulations as well. Is the deal just a fixed
ratio of .552 shares and 315 cash, or can VISX shareholders elect to receive
all stock or all cash?
-------------------------------------------------------------------------------
Randy Meier - Advanced Medical Optics, Inc. - CFO
Right now, this is a fixed ratio of the .552 and the cash portion of
transaction.
-------------------------------------------------------------------------------
Steve Shofield - Unidentified Company - Analyst
So there is no election?
-------------------------------------------------------------------------------
Randy Meier - Advanced Medical Optics, Inc. - CFO
No, there is not.
-------------------------------------------------------------------------------
Steve Shofield - Unidentified Company - Analyst
Thank you.
-------------------------------------------------------------------------------
Operator
Your next question comes from the line of [David Maris.]
-------------------------------------------------------------------------------
David Lohman - Unidetified Company - Analyst
Hi. Thanks for taking the question. This is David Lohman for David Maris.
Just a couple of questions. What is the return on investment or the rate their
using for the deal? And then secondly, you mentioned recognizable brands with
VISX now becoming AMO, there is obviously a lot of bred equity in the VISX
name in the refractive business. From a marketing perspective, are there any
concerns regarding the AMO name replacing the VISX name as far as excimer
lasers go?
-------------------------------------------------------------------------------
Jim Mazzo - Advanced Medical Optics, Inc. - CEO
Well, let me first say that the Company's name is AMO but we see no reason to
change the brand VISX on the machinery. I am a strong believer in brand
management. As you saw from that slide -- I believe you said your name is
David -- you saw, I believe in brands and we have no intention to break the
VISX brand to the customer base. So you will continue to see VISX across the
laser equipment and we will continue to always ensure -- and I think what is
great about this now, is that we will be taking the VISX brand even stronger
across the globe. So no plan to interrupt that.
But as we go forward, David, I will make sure that we don't separate what
really is the hallmark of this deal, and, again, this is leveraging our
customer base. Never, never, once interrupting what really is the intention of
this deal, is to build on the strong brand names across the globe. Randy, do
you want to handle the other one?
-------------------------------------------------------------------------------
Randy Meier - Advanced Medical Optics, Inc. - CFO
David, what was your first question?
-------------------------------------------------------------------------------
David Lohman - Unidetified Company - Analyst
The hurdle rate that you are using for the deal?
-------------------------------------------------------------------------------
Randy Meier - Advanced Medical Optics, Inc. - CFO
Sure. We were looking at this and we discounted -- and are discounting cash
flows, we're looking about a 14 -- we looked at a variety of different things.
But we looked in between about 14 and 18%. I think mid-range of that is where
we are comfortable.
-------------------------------------------------------------------------------
David Lohman - Unidetified Company - Analyst
Great. Thanks a lot.
-------------------------------------------------------------------------------
Randy Meier - Advanced Medical Optics, Inc. - CFO
Thank you.
-------------------------------------------------------------------------------
Operator
Your next question comes from Jason Mills.
-------------------------------------------------------------------------------
Jason Mills - First Albany Corporation - Analyst
Hi, guys. Can you hear me okay?
-------------------------------------------------------------------------------
Jim Mazzo - Advanced Medical Optics, Inc. - CEO
Yes, Jason.
-------------------------------------------------------------------------------
Jason Mills - First Albany Corporation - Analyst
Great. Sorry, I just dropped off there. If you called on me I apologize. And
thank you for the presentation. It was very detailed and helpful. I appreciate
that. I was wondering if you could go through without maybe giving exact
numerical details, Jim and Liz, sort of what your thoughts are and assumptions
longer term for VISX's business, given that we've got a fairly saturated U.S.
market on the laser side and certainly, I think, fundamentally you believe
that the laser vision correction procedure side is a growth market and
presumably think that the new indications will drive conversion to custom use.
So all in revenue growth for VISX, you have mentioned you expect it to be an
accelerated sort of catalyst for your business, Jim. Could you talk about
long-term; sort of how you see VISX's business being a catalyst for that?
-------------------------------------------------------------------------------
Jim Mazzo - Advanced Medical Optics, Inc. - CEO
Okay, Jason, let me break it up. There was a lot there, so make sure I am
answering your question. But first off, let's think about the category that we
are talking about. This is a refractive category, that although lasik is
fairly entrenched, although I will say it is growing and will continue to
grow, you now have a tremendous customer base that is walking in that doctor's
office today. We can now provide options: options with lasik, options with
refractive IOLs. And I would venture to say that by us pushing people through
by refractive IOLs, they may lend itself to improved lasik.
Let's not think every time we push somebody through for refractive IOLs they
will stay with refractive IOLs, because they may not be within that range. But
they are looking for options to bifocals and readers. So that's the North
American model, which is a real big opportunity. Thinking outside, Jason,
where really now, markets such as Europe, markets such as Asia, the
practitioners are looking for alternatives to just their cataract practice.
And this is where we can now maximize the asset. We have a strong global
distribution. You know us very well, Jason; we are direct in over 20 countries
and presence in over 60.
That is where we are going to get a lot of revenue growth, too, for the laser
franchise. But I just want to add one more point on North America. You are
going to see continued growth by us being able to leverage all the product
lines: more Amadeus sales; more custom procedures; greater growth from a new
-- the hyperopic claim, and the iris capabilities, and, of course, the
refractive IOLs. That all speaks to surrounding the practitioner with more
products; that all speaks to greater growth revenue.
-------------------------------------------------------------------------------
Jason Mills - First Albany Corporation - Analyst
Okay, Jim. That's very helpful. And just to segway on a couple of your
comments. Given what you are trying to do with the customer base and the
patient that is coming into that customer, the surgeon, are -- can we, I
guess, take out from your strategy the type of surgeon, lasik surgeon, you are
going after?
It seems to me, in going off of Peter's question earlier, that maybe you are
targeting the lower volume or the medium volume lasik surgeon who may also be
a cataract surgeon as well, to try to drive both businesses, given that VISX,
obviously, has done a phenomenal job penetrating the higher volume practices,
the higher volume laser centers and TLC and the guys that are really focused
on laser vision correction.
Can you talk about maybe where you see an opportunity with the higher volume
guys, presumably with Amadeus and maybe with Verisyse, it seems like these
guys are mostly lasik surgeons. Maybe you can help me out there. And then, if
it's maybe true, if I am reading it right, that you are sort of focusing on
the lower or medium volume lasik surgeons, but also maybe the lower or medium
volume cataract surgeons as well, if I am thinking of that correctly.
-------------------------------------------------------------------------------
Jim Mazzo - Advanced Medical Optics, Inc. - CEO
No. Let me break it down. When you look at ophthamologists today, we classify
them in three groups, and it's almost like a bell curve. You have the
physician who today says "I want to be a refractive surgeon and I am only
going to be a refractive surgeon," and a good portion of those are pretty much
just lasik surgeons today. So their mentality is there to do that type of
surgery, and their mentality there is to deal with that type of patient.
On the other end of the bell curve you have "I'm a cataract physician and I am
going to stay a cataract physician," and we understand those, and obviously
will continue to complement with what we have done from a cataract franchise.
Where I think the greatest growth opportunity is the individual in the middle
today, who is doing some refractive and some cataract, and he is looking how
or she is looking how, how do I manage that practice? How do I ensure now I
can grow both and stay focused?
And that's where I see, Jason, they are not low volume; their volume is very
high, it is just mixed between cataract and refractive. And we are going to
drive that greater growth there and I think that's where we can be a
complement to VISX, because we have a large sales force in the U.S., and thus
we can provide leads to that very strong VISX sales force where, really, they
were probably a little outmanned, but now we can drive more leads to VISX.
-------------------------------------------------------------------------------
Jason Mills - First Albany Corporation - Analyst
Okay. That makes a lot of sense to me. So would you also be -- would you also
see surgeons then, see opportunities to sell, for example, VISX Star lasers
then to surgeons that maybe currently using access centers, because they are
high-volume surgeons but not necessarily high-volume lasik surgeons. And,
therefore, maybe, does this acquisition provide a bundling opportunity for you
to make the purchase price of a laser more attractive to them so that
downstream you could realize the synergies yourself on the cataract side, as
well as the procedure side on the lasik?
-------------------------------------------------------------------------------
Jim Mazzo - Advanced Medical Optics, Inc. - CEO
Jason, first off -- and I'm not to speak for Liz and she can challenge me on
this -- you pay for technology and we will continue to support only physicians
that are willing to pay for technology. What I think this does is when you
have a practitioner who makes independent decisions around a laser, around an
IOL, around a viscoelastic, around a phacoemulsification machine, he or she
makes independent decisions for the best. But now, let's be candid. Look at
this portfolio we are providing.
We have the best in each of those segments, so it's going to be very natural
that he'd much rather deal with one company who has a broad brush. And look at
that slide that shows who has the most green dots in this refractive segment?
It's AMO. Nobody else can provide the same amount that we have today. Nobody
else can provide the broadest brush of refractive IOLs. Nobody else can
provide the leading growth in the mechanical microkeratome, and nobody else
can provide the type of base that you have in North America with the VISX
custom laser.
-------------------------------------------------------------------------------
Jason Mills - First Albany Corporation - Analyst
That's extremely helpful. And just lastly, Jim, and Liz as well, you guys
have been in this industry for quite some time and, obviously, have seen the
acquisitions of the laser vision correction companies by your two larger
competitors, and actually, you will be larger than one of them after this one.
But could you speak to maybe some of the lessons learned from -- for example,
the outcome purchase of someone autonomous in 2000 and also the purchase
Bausch & Lomb made -- and some of the lessons learned and what they did, maybe
right and wrong, that you are going to not do or do that should help this be a
success here?
-------------------------------------------------------------------------------
Jim Mazzo - Advanced Medical Optics, Inc. - CEO
Well, there's two very valuable lessons. One is you have to have technology,
so I think that's the most valuable lesson. We have the highest technological
laser out there, so when you buy something, make sure it is the highest
technology. And number two, the other learning is we know how to integrate. We
have a tremendous history now, we've spun it successfully. We integrated
Pharmacia successfully, and I think that's the learnings we've gotten from our
two competitors. I don't know, Liz, if you have anything else to add to that.
-------------------------------------------------------------------------------
Liz Davila - VISX Inc. - CEO
I would second everything Jim has said and from the VISX perspective, looking
at AMO, believe me, we would not have moved ahead with this combination, our
board would not have moved ahead with this, had we not been assured that the
secrets to success of VISX which made us the leader in the refractive surgery
industry would not be conserved. And I think that's the key part, and that's
why this combination is going to work so well.
-------------------------------------------------------------------------------
Jim Mazzo - Advanced Medical Optics, Inc. - CEO
And I think, you know, to add to that, Jason, we are number one today, and
that is going to allow us to continue to be. We are dealing from a position of
strength.
-------------------------------------------------------------------------------
Jason Mills - First Albany Corporation - Analyst
Okay. Great. Thanks for spending time with me. I appreciate it.
-------------------------------------------------------------------------------
Jim Mazzo - Advanced Medical Optics, Inc. - CEO
Operator, we'll take two more calls
-------------------------------------------------------------------------------
Operator
Okay. Your next question comes from [Anna Cronit.]
-------------------------------------------------------------------------------
Anna Cronit - Unidentified Company - Analyst
Hi, most of my questions have been answered. Just one quick one. Is there a
collar on this?
-------------------------------------------------------------------------------
Randy Meier - Advanced Medical Optics, Inc. - CFO
Is there a collar, basically, on the purchase price? No, there is not.
-------------------------------------------------------------------------------
Anna Cronit - Unidentified Company - Analyst
Okay. Thank you.
-------------------------------------------------------------------------------
Jim Mazzo - Advanced Medical Optics, Inc. - CEO
One more question, Operator.
-------------------------------------------------------------------------------
Operator
Yes, sir. Your next question comes from Max George.
-------------------------------------------------------------------------------
Max George - Unidentified Company - Analyst
Yeah, hi. This is a quick question for the AVO management team. Just
regarding the competitive position with Bausch & Lomb, now that you will
compete also on the refractive side as well as the on the microkeratome side,
what do you think their reaction will to be the deal?
-------------------------------------------------------------------------------
Jim Mazzo - Advanced Medical Optics, Inc. - CEO
I think the best answer to that is you need to talk to Ron, but, again, we
are number one today. We have the greatest, broadest brush of refractive IOLs.
We have what we believe, based on the science, the best mechanical
microkeratome out there. And it speaks to, again, what AVO has always said and
why I think this is a marriage made in heaven: technology will drive
practitioner recommendations. He or she who has technology wins. And that has
been proven with our Sovereign franchise, that's been proven with our IOL
franchise, and our Amadeus franchise.
-------------------------------------------------------------------------------
Max George - Unidentified Company - Analyst
Okay. And can I ask just one quick follow-up question regarding the pricing
in the lasik business and the variability in that earnings stream compared to
your sort of existing earnings stream, given that, I guess, last time
procedure slowed like they did last quarter. Pricing almost went in half. How
do you get comfortable around paying, kind of, multiple to that?
-------------------------------------------------------------------------------
Randy Meier - Advanced Medical Optics, Inc. - CFO
Well, I think there's a couple of things. One, we have a tremendous revenue
stream that diversified across a number of markets around the world that
significantly insulates us from some of the vagarities of individual markets.
But what this also does is it does give us the opportunity to exploit some of
the elective procedure markets here in the United States in terms of the
existing pricing structures.
So you not only have the regulated markets that are going to add a tremendous
amount of consistency to our earnings, we also have the potential upside of
the refractive market now, as we drive revenues up over the next couple of
years. So I don't see it as a big risk moving forward, because if you look at
the overall -- what it's bringing to our overall revenue stream, we have
enough diversification that the fluctuations at any individual market would be
offset by some of our other markets.
-------------------------------------------------------------------------------
Max George - Unidentified Company - Analyst
Got it. That's helpful. Thanks so much.
-------------------------------------------------------------------------------
Jim Mazzo - Advanced Medical Optics, Inc. - CEO
Okay, Operator, thank you.
-------------------------------------------------------------------------------
Operator
And are there any closing remarks, sir?
-------------------------------------------------------------------------------
Jim Mazzo - Advanced Medical Optics, Inc. - CEO
No.
-------------------------------------------------------------------------------
Operator
This concludes today's conference, you may now disconnect.
-------------------------------------------------------------------------------
Jim Mazzo - Advanced Medical Optics, Inc. - CEO
Thank you.
-------------------------------------------------------------------------------
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Additional Information and Where You Can Find It
Armor and Vault intend to file with the SEC a Registration Statement on Form
S-4, which will include a joint proxy statement/prospectus of Vault and Armor
and other relevant materials in connection with the proposed transaction. The
joint proxy statement/prospectus will be mailed to the stockholders of Vault
and Armor. Investors and security holders of Vault and Armor are urged to read
the joint proxy statement/prospectus and the other relevant materials when
they become available because they will contain important information about
Vault, Armor and the proposed transaction. The joint proxy
statement/prospectus and other relevant materials (when they become
available), and any other documents filed by Vault or Armor with the SEC, may
be obtained free of charge at the SEC's web site at www.sec.gov. In addition,
investors and security holders may obtain free copies of the documents filed
with the SEC by Vault by contacting Vault Investor Relations at ir@Vault.com
or via telephone at (877) 463-6847. Investors and security holders may obtain
free copies of the documents filed with the SEC by Armor at www.amo-inc.com or
via telephone at (714) 247-8348. Investors and security holders are urged to
read the joint proxy statement/prospectus and the other relevant materials
when they become available before making any voting or investment decision
with respect to the proposed transaction.
The respective directors and executive officers of Armor and Vault may be
deemed to be participants in the solicitation of proxies from the stockholders
of Vault and Armor in favor of the proposed transaction. Information about the
directors and executive officers of Armor and Vault their respective interests
in the proposed transaction will be available in the joint proxy
statement/prospectus and other relevant materials to be filed with the SEC
when they become available.
Cautionary Statement Regarding Forward-Looking Statements
Statements contained in this document that refer to Armor's estimated or
future results such as statements regarding the timing and certainty of
closing the transaction, estimated share ownership percentages, strategic and
financial benefits of the merger, statements of Jim Mazzo, Liz Davila and
Richard Meier, statements regarding director and officer positions, and
expectations regarding accretion and cost savings are forward-looking
statements within the meaning of the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995. These statements are based on
management's current expectations and beliefs and are subject to a number of
factors and uncertainties that could cause actual results to differ materially
from those described in the forward-looking statements. The forward-looking
statements contained in this document include statements about future
financial and operating results and the proposed Vault/Armor transaction.
These statements are not guarantees of future performance, involve certain
risks, uncertainties and assumptions that are difficult to predict, and are
based upon assumptions as to future events that may not prove accurate.
Therefore, actual outcomes and results may differ materially from what is
expressed herein. For example, if either of the companies does not receive
required stockholder approvals or fails to satisfy other conditions to
closing, the transaction will not be consummated. In any forward-looking
statement in which Armor or Vault expresses an expectation or belief as to
future results, such expectation or belief is expressed in good faith and
believed to have a reasonable basis, but there can be no assurance that the
statement or expectation or belief will result or be achieved or accomplished.
The following factors, among others, could cause actual results to differ
materially from those described in the forward-looking statements: risks
associated with uncertainty as to whether the transaction will be completed,
successfully integrating Armor and Vault, the failure to realize the synergies
and other perceived advantages resulting from the merger, costs and potential
litigation associated with the merger, the failure to obtain the approval of
each company's stockholders, the inability to obtain, or meet conditions
imposed for, applicable regulatory and tax requirements relating to the
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business strategies, the extent and timing of regulatory approvals, and the
extent and timing of market acceptance, of new products or product
indications, manufacturing, litigation, the procurement, maintenance,
enforcement and defense of patents and proprietary rights, competitive
conditions in the industry, business cycles affecting the markets in which any
products may be sold, fluctuations in foreign exchange rates and interest
rates, and economic conditions generally or in various geographic areas,
including those set forth in Armor's and Vault's most recent Annual Report on
Form 10-K and Quarterly Report on Form 10-Q, especially in the "Risk Factors"
and "Management's Discussion and Analysis of Financial Condition and Results
of Operations" sections, and its Current Reports on Form 8-K and other SEC
filings. Armor is under no obligation to (and expressly disclaims any such
obligation to) update or alter its forward-looking statements whether as a
result of new information, future events, or otherwise.
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(C) 2004 Thomson Financial. Republished with permission. No part of this
publication may be reproduced or transmitted in any form or by any means
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