UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
☑ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended: September 27, 2019April 3, 2020
Or
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission file number: 0-11634
STAAR SURGICAL COMPANY
(Exact Name of Registrant as Specified in its Charter)
Delaware | 95-3797439 |
(State or Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification No.) |
25651 Atlantic Ocean Drive |
92630 |
(Address of Principal Executive Offices) | (Zip Code) |
(626) 303-7902
(Registrant’s Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common | STAA | NASDAQ |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☑ |
| Accelerated filer | ☐ |
Non-accelerated filer | ☐ |
| Smaller reporting company | ☐ |
Emerging growth company | ☐ |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑
The registrant has 44,609,38745,109,006 shares of common stock, par value $0.01 per share, issued and outstanding as of October 25, 2019.May 1, 2020.
STAAR SURGICAL COMPANY
INDEX
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| PAGE NUMBER |
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ITEM 1 |
| 1 | |
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ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
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ITEM 3. |
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ITEM 4. |
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ITEM 1. |
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ITEM 1A. |
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ITEM 4. |
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ITEM 5. |
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ITEM 6. |
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PART I – FINANCIAL INFORMATION
ITEM 1. | FINANCIAL STATEMENTS |
STAAR SURGICAL COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except par value amounts)
(Unaudited)
|
| September 27, 2019 |
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| December 28, 2018 |
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| April 3, 2020 |
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| January 3, 2020 |
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
| $ | 112,327 |
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| $ | 103,877 |
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| $ | 110,851 |
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| $ | 119,968 |
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Accounts receivable trade, net of allowance of doubtful accounts of $75 and $550, respectively |
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| 30,789 |
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| 25,946 |
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Accounts receivable trade, net of allowance of doubtful accounts of $49 and $88, respectively |
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| 34,492 |
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| 30,996 |
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Inventories, net |
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| 16,440 |
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| 16,704 |
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| 17,565 |
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| 17,142 |
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Prepayments, deposits and other current assets |
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| 5,406 |
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| 5,045 |
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| 9,168 |
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| 6,560 |
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Total current assets |
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| 164,962 |
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| 151,572 |
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| 172,076 |
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| 174,666 |
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Property, plant and equipment, net |
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| 14,846 |
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| 11,451 |
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| 20,184 |
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| 17,065 |
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Finance lease right-of-use assets, net |
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| 2,006 |
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|
| — |
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|
| 717 |
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| 1,867 |
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Operating lease right-of-use assets, net |
|
| 6,677 |
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|
| — |
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| 6,038 |
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| 6,684 |
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Intangible assets, net |
|
| 252 |
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| 243 |
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|
| 287 |
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| 296 |
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Goodwill |
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| 1,786 |
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| 1,786 |
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| 1,786 |
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|
| 1,786 |
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Deferred income taxes |
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| 1,460 |
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| 1,278 |
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| 5,112 |
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| 3,750 |
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Other assets |
|
| 752 |
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| 1,009 |
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|
| 588 |
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|
| 751 |
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Total assets |
| $ | 192,741 |
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| $ | 167,339 |
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| $ | 206,788 |
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| $ | 206,865 |
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LIABILITIES AND STOCKHOLDERS’ EQUITY |
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Current liabilities: |
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Line of credit |
| $ | 2,340 |
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| $ | 3,780 |
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| $ | 1,316 |
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| $ | 1,827 |
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Accounts payable |
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| 7,535 |
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| 6,524 |
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| 9,507 |
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| 8,050 |
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Obligations under finance leases |
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| 752 |
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| 1,098 |
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| 557 |
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| 560 |
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Obligations under operating leases |
|
| 2,789 |
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| — |
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| 2,531 |
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| 2,700 |
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Allowance for sales returns |
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| 3,691 |
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| 2,895 |
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| 3,761 |
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| 3,644 |
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Other current liabilities |
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| 12,865 |
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| 13,431 |
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| 12,230 |
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| 17,697 |
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Total current liabilities |
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| 29,972 |
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| 27,728 |
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| 29,902 |
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| 34,478 |
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Obligations under finance leases |
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| 471 |
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| 459 |
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| 132 |
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| 366 |
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Obligations under operating leases |
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| 4,003 |
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| — |
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| 3,612 |
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| 4,086 |
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Deferred income taxes |
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| 1,539 |
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| 1,022 |
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Asset retirement obligations |
|
| 211 |
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| 206 |
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| 210 |
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| 211 |
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Deferred rent |
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| — |
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| 188 |
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Pension liability |
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| 7,205 |
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| 5,310 |
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| 7,965 |
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| 7,840 |
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Total liabilities |
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| 43,401 |
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| 34,913 |
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| 41,821 |
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| 46,981 |
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Commitments and contingencies |
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Stockholders’ equity: |
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Common stock, $0.01 par value; 60,000 shares authorized: 44,606 and 44,195 shares issued and outstanding at September 27, 2019 and December 28, 2018, respectively |
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| 446 |
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| 442 |
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Common stock, $0.01 par value; 60,000 shares authorized: 45,105 and 44,822 shares issued and outstanding at April 3, 2020 and January 3, 2020, respectively |
|
| 451 |
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| 448 |
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Additional paid-in capital |
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| 299,597 |
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| 289,584 |
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| 309,480 |
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| 304,288 |
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Accumulated other comprehensive loss |
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| (2,520 | ) |
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| (1,320 | ) |
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| (3,026 | ) |
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| (3,048 | ) |
Accumulated deficit |
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| (148,183 | ) |
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| (156,280 | ) |
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| (141,938 | ) |
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| (141,804 | ) |
Total stockholders’ equity |
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| 149,340 |
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| 132,426 |
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| 164,967 |
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| 159,884 |
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Total liabilities and stockholders’ equity |
| $ | 192,741 |
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| $ | 167,339 |
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| $ | 206,788 |
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| $ | 206,865 |
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See accompanying notes to the condensed consolidated financial statements.
1
STAAR SURGICAL COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF INCOMEOPERATIONS
(In thousands, except per share amounts)
(Unaudited)
|
| Three Months Ended |
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| Nine Months Ended |
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| Three Months Ended |
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| September 27, 2019 |
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| September 28, 2018 |
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| September 27, 2019 |
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| September 28, 2018 |
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| April 3, 2020 |
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| March 29, 2019 |
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Net sales |
| $ | 39,055 |
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| $ | 31,770 |
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| $ | 111,302 |
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| $ | 92,768 |
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| $ | 35,187 |
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| $ | 32,583 |
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Cost of sales |
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| 10,004 |
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| 7,910 |
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| 28,172 |
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| 24,250 |
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| 10,427 |
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| 8,403 |
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Gross profit |
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| 29,051 |
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| 23,860 |
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| 83,130 |
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| 68,518 |
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| 24,760 |
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| 24,180 |
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Selling, general and administrative expenses: |
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General and administrative |
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| 7,098 |
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| 6,087 |
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| 21,443 |
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| 18,054 |
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| 7,969 |
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| 6,837 |
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Marketing and selling |
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| 12,463 |
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| 10,620 |
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| 34,288 |
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| 28,733 |
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| 11,028 |
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| 10,143 |
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Research and development |
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| 6,156 |
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| 5,570 |
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| 17,889 |
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| 16,323 |
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| 6,898 |
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| 5,635 |
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Total selling, general and administrative expenses |
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| 25,717 |
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| 22,277 |
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| 73,620 |
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| 63,110 |
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| 25,895 |
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| 22,615 |
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Operating income |
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| 3,334 |
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| 1,583 |
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| 9,510 |
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| 5,408 |
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Operating income (loss) |
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| (1,135 | ) |
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| 1,565 |
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Other income (expense), net: |
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Interest income (expense), net |
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| 266 |
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| (29 | ) |
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| 796 |
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| (65 | ) | ||||||||
Gain (loss) on foreign currency transactions |
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| (584 | ) |
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| 52 |
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| (821 | ) |
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| (545 | ) | ||||||||
Interest income, net |
|
| 216 |
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| 271 |
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Loss on foreign currency transactions |
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| (468 | ) |
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| (248 | ) | ||||||||||||||||
Royalty income |
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| 106 |
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| 159 |
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|
| 440 |
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| 465 |
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| 94 |
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| 171 |
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Other income, net |
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| 26 |
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| 40 |
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|
| 124 |
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| 61 |
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| 1 |
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| 97 |
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Total other income (expense), net |
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| (186 | ) |
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| 222 |
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|
| 539 |
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| (84 | ) |
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| (157 | ) |
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| 291 |
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Income before income taxes |
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| 3,148 |
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| 1,805 |
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| 10,049 |
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| 5,324 |
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Provision for income taxes |
|
| 760 |
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| 346 |
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| 2,380 |
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| 1,452 |
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Net income |
| $ | 2,388 |
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| $ | 1,459 |
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| $ | 7,669 |
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| $ | 3,872 |
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Net income per share: |
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Income (loss) before income taxes |
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| (1,292 | ) |
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| 1,856 |
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Provision (benefit) for income taxes |
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| (1,158 | ) |
|
| 489 |
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Net income (loss) |
| $ | (134 | ) |
| $ | 1,367 |
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Net income (loss) per share: |
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Basic |
| $ | 0.05 |
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| $ | 0.03 |
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| $ | 0.17 |
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| $ | 0.09 |
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| $ | — |
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| $ | 0.03 |
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Diluted |
| $ | 0.05 |
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| $ | 0.03 |
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| $ | 0.16 |
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| $ | 0.09 |
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| $ | — |
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| $ | 0.03 |
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Weighted average shares outstanding: |
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Basic |
|
| 44,563 |
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| 43,054 |
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|
| 44,426 |
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|
| 42,065 |
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|
| 44,953 |
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|
| 44,235 |
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Diluted |
|
| 46,857 |
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|
| 46,025 |
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|
| 46,848 |
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|
| 44,618 |
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|
| 44,953 |
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|
| 46,913 |
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See accompanying notes to the condensed consolidated financial statements.
2
STAAR SURGICAL COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In thousands)
(Unaudited)
|
| Three Months Ended |
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| Nine Months Ended |
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|
| September 27, 2019 |
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| September 28, 2018 |
|
| September 27, 2019 |
|
| September 28, 2018 |
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Net income |
| $ | 2,388 |
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| $ | 1,459 |
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| $ | 7,669 |
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| $ | 3,872 |
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Other comprehensive loss: |
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Defined benefit plans: |
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Net change in plan assets |
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| (1,037 | ) |
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| (21 | ) |
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| (1,677 | ) |
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| (51 | ) |
Reclassification into other income, net |
|
| 26 |
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|
| 25 |
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|
| 80 |
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|
| 76 |
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Foreign currency translation gain (loss) |
|
| (22 | ) |
|
| (321 | ) |
|
| 317 |
|
|
| (114 | ) |
Tax effect |
|
| 115 |
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|
| 105 |
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|
| 80 |
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|
| 38 |
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Other comprehensive loss, net of tax |
|
| (918 | ) |
|
| (212 | ) |
|
| (1,200 | ) |
|
| (51 | ) |
Comprehensive income |
| $ | 1,470 |
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| $ | 1,247 |
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| $ | 6,469 |
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| $ | 3,821 |
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|
| Three Months Ended |
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|
| April 3, 2020 |
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| March 29, 2019 |
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Net income (loss) |
| $ | (134 | ) |
| $ | 1,367 |
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Other comprehensive income (loss): |
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Defined benefit plans: |
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Net change in plan assets |
|
| (25 | ) |
|
| (26 | ) |
Reclassification into other income, net |
|
| 70 |
|
|
| 26 |
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Foreign currency translation loss |
|
| (27 | ) |
|
| (43 | ) |
Tax effect |
|
| 4 |
|
|
| 20 |
|
Other comprehensive income (loss), net of tax |
|
| 22 |
|
|
| (23 | ) |
Comprehensive income (loss) |
| $ | (112 | ) |
| $ | 1,344 |
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See accompanying notes to the condensed consolidated financial statements.
3
STAAR SURGICAL COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In thousands)
(Unaudited)
|
| Three Months Ended |
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| Common Stock Shares |
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| Common Stock Par Value |
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| Additional Paid-In Capital |
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| Accumulated Other Compre- hensive Income (Loss) |
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| Accumulated Deficit |
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| Total |
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Balance, at June 28, 2019 |
|
| 44,534 |
|
| $ | 445 |
|
| $ | 296,063 |
|
| $ | (1,602 | ) |
| $ | (150,571 | ) |
| $ | 144,335 |
|
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2,388 |
|
|
| 2,388 |
|
Other comprehensive loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (918 | ) |
|
| — |
|
|
| (918 | ) |
Common stock issued upon exercise of options |
|
| 64 |
|
|
| 1 |
|
|
| 718 |
|
|
| — |
|
|
| — |
|
|
| 719 |
|
Stock-based compensation |
|
| — |
|
|
| — |
|
|
| 2,816 |
|
|
| — |
|
|
| — |
|
|
| 2,816 |
|
Vested restricted stock |
|
| 8 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Balance, at September 27, 2019 |
|
| 44,606 |
|
| $ | 446 |
|
| $ | 299,597 |
|
| $ | (2,520 | ) |
| $ | (148,183 | ) |
| $ | 149,340 |
|
Balance, at June 29, 2018 |
|
| 41,877 |
|
| $ | 419 |
|
| $ | 210,488 |
|
| $ | (989 | ) |
| $ | (158,835 | ) |
| $ | 51,083 |
|
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,459 |
|
|
| 1,459 |
|
Other comprehensive loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (212 | ) |
|
| — |
|
|
| (212 | ) |
Proceeds from public stock offering |
|
| 2,000 |
|
|
| 20 |
|
|
| 72,130 |
|
|
| — |
|
|
| — |
|
|
| 72,150 |
|
Common stock issued upon exercise of options |
|
| 219 |
|
|
| 2 |
|
|
| 2,173 |
|
|
| — |
|
|
| — |
|
|
| 2,175 |
|
Stock-based compensation |
|
| — |
|
|
| — |
|
|
| 2,209 |
|
|
| — |
|
|
| — |
|
|
| 2,209 |
|
Vested restricted stock |
|
| 8 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Balance, at September 28, 2018 |
|
| 44,104 |
|
| $ | 441 |
|
| $ | 287,000 |
|
| $ | (1,201 | ) |
| $ | (157,376 | ) |
| $ | 128,864 |
|
See accompanying notes to the condensed consolidated financial statements.
4
STAAR SURGICAL COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (CONTINUED)
(In thousands)
(Unaudited)
|
| Nine Months Ended |
|
| Three Months Ended |
| ||||||||||||||||||||||||||||||||||||||||||
|
| Common Stock Shares |
|
| Common Stock Par Value |
|
| Additional Paid-In Capital |
|
| Accumulated Other Compre- hensive Income (Loss) |
|
| Accumulated Deficit |
|
| Total |
|
| Common Stock Shares |
|
| Common Stock Par Value |
|
| Additional Paid-In Capital |
|
| Accumulated Other Compre- hensive Income (Loss) |
|
| Accumulated Deficit |
|
| Total |
| ||||||||||||
Balance, at January 3, 2020 |
|
| 44,822 |
|
| $ | 448 |
|
| $ | 304,288 |
|
| $ | (3,048 | ) |
| $ | (141,804 | ) |
| $ | 159,884 |
| ||||||||||||||||||||||||
Net loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (134 | ) |
|
| (134 | ) | ||||||||||||||||||||||||
Other comprehensive income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 22 |
|
|
| — |
|
|
| 22 |
| ||||||||||||||||||||||||
Common stock issued upon exercise of options |
|
| 196 |
|
|
| 2 |
|
|
| 2,002 |
|
|
| — |
|
|
| — |
|
|
| 2,004 |
| ||||||||||||||||||||||||
Stock-based compensation |
|
| — |
|
|
| — |
|
|
| 3,190 |
|
|
| — |
|
|
| — |
|
|
| 3,190 |
| ||||||||||||||||||||||||
Vested restricted stock |
|
| 87 |
|
|
| 1 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1 |
| ||||||||||||||||||||||||
Balance, at April 3, 2020 |
|
| 45,105 |
|
| $ | 451 |
|
| $ | 309,480 |
|
| $ | (3,026 | ) |
| $ | (141,938 | ) |
| $ | 164,967 |
| ||||||||||||||||||||||||
Balance, at December 28, 2018 |
|
| 44,195 |
|
| $ | 442 |
|
| $ | 289,584 |
|
| $ | (1,320 | ) |
| $ | (156,280 | ) |
| $ | 132,426 |
|
|
| 44,195 |
|
| $ | 442 |
|
| $ | 289,584 |
|
| $ | (1,320 | ) |
| $ | (156,280 | ) |
| $ | 132,426 |
|
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 7,669 |
|
|
| 7,669 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,367 |
|
|
| 1,367 |
|
Adoption of ASC 842 |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 113 |
|
|
| 113 |
| ||||||||||||||||||||||||
Adoption of ASU 2018-07 |
|
| — |
|
|
| — |
|
|
| (315 | ) |
|
| — |
|
|
| 315 |
|
|
| — |
| ||||||||||||||||||||||||
Impact of the adoption of lease accounting standard |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 113 |
|
|
| 113 |
| ||||||||||||||||||||||||
Impact of adoption of nonemployee share-based payment standard |
|
| — |
|
|
| — |
|
|
| (315 | ) |
|
| — |
|
|
| 315 |
|
|
| — |
| ||||||||||||||||||||||||
Other comprehensive loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1,200 | ) |
|
| — |
|
|
| (1,200 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (23 | ) |
|
| — |
|
|
| (23 | ) |
Common stock issued upon exercise of options |
|
| 190 |
|
|
| 2 |
|
|
| 1,827 |
|
|
| — |
|
|
| — |
|
|
| 1,829 |
|
|
| 74 |
|
|
| — |
|
|
| 623 |
|
|
| — |
|
|
| — |
|
|
| 623 |
|
Stock-based compensation |
|
| — |
|
|
| — |
|
|
| 8,501 |
|
|
| — |
|
|
| — |
|
|
| 8,501 |
|
|
| — |
|
|
| — |
|
|
| 2,830 |
|
|
| — |
|
|
| — |
|
|
| 2,830 |
|
Unvested restricted stock |
|
| 11 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
| ||||||||||||||||||||||||
Vested restricted stock |
|
| 210 |
|
|
| 2 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2 |
|
|
| 178 |
|
|
| 2 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2 |
|
Balance, at September 27, 2019 |
|
| 44,606 |
|
| $ | 446 |
|
| $ | 299,597 |
|
| $ | (2,520 | ) |
| $ | (148,183 | ) |
| $ | 149,340 |
| ||||||||||||||||||||||||
Balance, at December 29, 2017 |
|
| 41,383 |
|
| $ | 414 |
|
| $ | 204,920 |
|
| $ | (1,150 | ) |
| $ | (161,248 | ) |
| $ | 42,936 |
| ||||||||||||||||||||||||
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 3,872 |
|
|
| 3,872 |
| ||||||||||||||||||||||||
Other comprehensive loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (51 | ) |
|
| — |
|
|
| (51 | ) | ||||||||||||||||||||||||
Proceeds from public offering of stock |
|
| 2,000 |
|
|
| 20 |
|
|
| 72,130 |
|
|
| — |
|
|
| — |
|
|
| 72,150 |
| ||||||||||||||||||||||||
Common stock issued upon exercise of options |
|
| 525 |
|
|
| 5 |
|
|
| 4,575 |
|
|
| — |
|
|
| — |
|
|
| 4,580 |
| ||||||||||||||||||||||||
Stock-based compensation |
|
| — |
|
|
| — |
|
|
| 5,375 |
|
|
| — |
|
|
| — |
|
|
| 5,375 |
| ||||||||||||||||||||||||
Unvested restricted stock |
|
| 11 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
| ||||||||||||||||||||||||
Vested restricted stock |
|
| 185 |
|
|
| 2 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2 |
| ||||||||||||||||||||||||
Balance, at September 28, 2018 |
|
| 44,104 |
|
| $ | 441 |
|
| $ | 287,000 |
|
| $ | (1,201 | ) |
| $ | (157,376 | ) |
| $ | 128,864 |
| ||||||||||||||||||||||||
Balance, at March 29, 2019 |
|
| 44,447 |
|
| $ | 444 |
|
| $ | 292,722 |
|
| $ | (1,343 | ) |
| $ | (154,485 | ) |
| $ | 137,338 |
|
See accompanying notes to the condensed consolidated financial statements.
5
4
STAAR SURGICAL COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
|
| Nine Months Ended |
|
| Three Months Ended |
| ||||||||||
|
| September 27, 2019 |
|
| September 28, 2018 |
|
| April 3, 2020 |
|
| March 29, 2019 |
| ||||
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
| $ | 7,669 |
|
| $ | 3,872 |
| ||||||||
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
|
| ||||||||
Net income (loss) |
| $ | (134 | ) |
| $ | 1,367 |
| ||||||||
Adjustments to reconcile net income (loss) to net cash provided by operating activities: |
|
|
|
|
|
|
|
| ||||||||
Depreciation of property, plant, and equipment |
|
| 2,853 |
|
|
| 1,792 |
|
|
| 766 |
|
|
| 1,222 |
|
Amortization of intangibles |
|
| 26 |
|
|
| 26 |
|
|
| 9 |
|
|
| 8 |
|
Deferred income taxes |
|
| 526 |
|
|
| 363 |
|
|
| (1,369 | ) |
|
| 79 |
|
Change in net pension liability |
|
| 264 |
|
|
| 233 |
|
|
| 173 |
|
|
| 119 |
|
Loss on disposal of property and equipment |
|
| 14 |
|
|
| 8 |
|
|
| 3 |
|
|
| — |
|
Stock-based compensation expense |
|
| 7,778 |
|
|
| 4,926 |
|
|
| 2,921 |
|
|
| 2,641 |
|
Provision for sales returns and bad debts |
|
| 309 |
|
|
| 892 |
|
|
| 80 |
|
|
| (34 | ) |
Inventory provision |
|
| 1,222 |
|
|
| 1,181 |
|
|
| 336 |
|
|
| 455 |
|
Changes in working capital: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable |
|
| (4,260 | ) |
|
| (3,989 | ) |
|
| (3,462 | ) |
|
| (554 | ) |
Inventories |
|
| (179 | ) |
|
| (3,625 | ) |
|
| (491 | ) |
|
| (7 | ) |
Prepayments, deposits, and other current assets |
|
| (230 | ) |
|
| (1,021 | ) |
|
| (2,446 | ) |
|
| (2,317 | ) |
Accounts payable |
|
| 546 |
|
|
| 2,121 |
|
|
| 907 |
|
|
| (185 | ) |
Other current liabilities |
|
| (536 | ) |
|
| 3,643 |
|
|
| (5,464 | ) |
|
| (2,063 | ) |
Net cash provided by operating activities |
|
| 16,002 |
|
|
| 10,422 |
| ||||||||
Net cash provided by (used in) operating activities |
|
| (8,171 | ) |
|
| 731 |
| ||||||||
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition of property and equipment |
|
| (7,169 | ) |
|
| (1,721 | ) |
|
| (2,185 | ) |
|
| (2,203 | ) |
Acquisition of patents and licenses |
|
| (30 | ) |
|
| — |
|
|
| — |
|
|
| (30 | ) |
Net cash used in investing activities |
|
| (7,199 | ) |
|
| (1,721 | ) |
|
| (2,185 | ) |
|
| (2,233 | ) |
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from public offering of stock |
|
| — |
|
|
| 72,150 |
| ||||||||
Repayment of finance lease obligations |
|
| (998 | ) |
|
| (1,396 | ) |
|
| (236 | ) |
|
| (365 | ) |
Repayment on line of credit |
|
| (1,512 | ) |
|
| (251 | ) |
|
| (505 | ) |
|
| (499 | ) |
Proceeds from the exercise of stock options |
|
| 1,829 |
|
|
| 4,580 |
|
|
| 2,004 |
|
|
| 622 |
|
Proceeds from vested restricted stock |
|
| 2 |
|
|
| 2 |
|
|
| 1 |
|
|
| 2 |
|
Net cash provided by (used in) financing activities |
|
| (679 | ) |
|
| 75,085 |
|
|
| 1,264 |
|
|
| (240 | ) |
Effect of exchange rate changes on cash, cash equivalents and restricted cash |
|
| 204 |
|
|
| (111 | ) |
|
| (25 | ) |
|
| (24 | ) |
Increase in cash, cash equivalents and restricted cash |
|
| 8,328 |
|
|
| 83,675 |
| ||||||||
Decrease in cash, cash equivalents and restricted cash |
|
| (9,117 | ) |
|
| (1,766 | ) | ||||||||
Cash, cash equivalents and restricted cash, at beginning of the period |
|
| 103,999 |
|
|
| 18,641 |
|
|
| 119,968 |
|
|
| 103,999 |
|
Cash, cash equivalents and restricted cash, at end of the period |
| $ | 112,327 |
|
| $ | 102,316 |
|
| $ | 110,851 |
|
| $ | 102,233 |
|
See accompanying notes to the condensed consolidated financial statements.
65
STAAR SURGICAL COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
Note 1 — Basis of Presentation and Significant Accounting Policies
The Condensed Consolidated Financial Statements of the Company present the financial position, results of operations, and cash flows of STAAR Surgical Company and its wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated. The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X of the Securities Exchange Commission. In accordance with those rules and regulations certain information and footnote disclosures normally included in the Comprehensive Financial Statements have been condensed or omitted pursuant to such rules and regulations. The Consolidated Balance Sheet as of December 28, 2018January 3, 2020 was derived from the audited financial statements at that date, but does not include all the information and footnotes required by GAAP. These financial statements should be read in conjunction with the audited financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 28, 2018.January 3, 2020.
The Condensed Consolidated Financial Statements for the three and nine months ended September 27,April 3, 2020 and March 29, 2019, and September 28, 2018, in the opinion of management, include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the Company’s financial condition and results of operations. The results of operations for the three and nine months ended September 27,April 3, 2020 and March 29, 2019, and September 28, 2018, are not necessarily indicative of the results to be expected for any other interim period or for the entire year.
Each of the Company’s fiscal reporting periods ends on the Friday nearest to the quarter ending date and generally consists of 13 weeks. Unless the context indicates otherwise “we,” “us,” the “Company,” and “STAAR” refer to STAAR Surgical Company and its consolidated subsidiaries.
Cash, Cash Equivalents and Restricted Cash
The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the Condensed Consolidated Balance Sheets that sum to the total of the same such amounts shown in the Condensed Consolidated Statements of Cash Flows (in 000’s):
|
| September 27, 2019 |
|
| December 28, 2018 |
|
| September 28, 2018 |
|
| April 3, 2020 |
|
| January 3, 2020 |
|
| March 29, 2019 |
| ||||||
Cash and cash equivalents |
| $ | 112,327 |
|
| $ | 103,877 |
|
| $ | 102,195 |
|
| $ | 110,851 |
|
| $ | 119,968 |
|
| $ | 102,111 |
|
Restricted cash(1) |
|
| — |
|
|
| 122 |
|
|
| 121 |
|
|
| — |
|
|
| — |
|
|
| 122 |
|
Total cash, cash equivalents and restricted cash |
| $ | 112,327 |
|
| $ | 103,999 |
|
| $ | 102,316 |
|
| $ | 110,851 |
|
| $ | 119,968 |
|
| $ | 102,233 |
|
(1) | Included in other assets on the Condensed Consolidated Balance Sheets. |
The Company had restricted cash set aside as collateral for a standby letter of credit required by the California Department of Public Health for unforeseen future regulatory costs related to the decommissioning of certain manufacturing equipment. Since the quarter ended June 28, 2019, the Company was no longer required to set aside collateral for this standby letter of credit.
AllowanceVendor Concentration
There were no vendors which accounted for Doubtful Accounts
The allowance for doubtful accounts decreased during the nine months ended September 27, 2019 due to specific past due receivables that were previously reserved and subsequently collected.
Lease Accounting
On December 29, 2018 (beginningover 10% of fiscal year 2019), the Company adopted Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) 2016-02, “Leases (Topic 842)” and its subsequent amendments affecting the Company: (i) ASU 2018-10, “Codification Improvements to Topic 842, Leases,” and (ii) ASU 2018-11, “Leases (Topic 842): Targeted improvements,” using the modified retrospective method. Upon adoption of ASU 2016-02, the Company recognized a cumulative adjustment of $113,000 which decreased the accumulated deficit and recognized right-of-use (“ROU”) assets and lease liabilities for operating leases, whereby the Company’s accounting finance leases remained substantially unchanged.consolidated accounts payable as of April 3, 2020. There was one vendor which accounted for over 11% of the Company’s consolidated accounts payable as of January 3, 2020.
76
STAAR SURGICAL COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
Note 1 — Basis of Presentation and Significant Accounting Policies (Continued)
Lease Accounting (Continued)Use of Estimates
TheDuring the COVID-19 pandemic, the Company recognizes ROUbelieves it has used reasonable estimates and assumptions in determining valuation allowances for uncollectible trade receivables, sales returns reserves, obsolete and excess inventory reserves, deferred income taxes, and tax reserves, including valuation allowances for deferred tax assets, pension liabilities, evaluation of asset impairment, in determining the useful life of depreciable and definite-lived intangible assets, and lease liabilities for leases with terms greater than twelve months in the Condensed Consolidated Balance Sheets. Leases are classified as either finance or operating, with classification affectingvariables and assumptions used to calculate and record stock-based compensation. Toward the patternend of expense recognitionthe quarter ended April 3, 2020, the Company’s customers began experiencing delays in the Condensed Consolidated Statement of Income.
A contract contains a lease if the contract conveys the right to control an identified asset for a period ofcustomer payments. At this time, in exchange for consideration. An asset is either explicitly identified or implicitly identified and must be physically distinct. In addition, the Company mustis not aware of any impairment of customer receivables. The Company’s sales representatives throughout the world remain engaged with customers conducting online training and other educational courses which have both the right to obtain substantially all of the economic benefits from use of the identified asset and has the right to direct the use of the identified asset.
Certain leases may have non-lease components such as common area maintenance expense for building leases and maintenance expenses for automobile leases. In general,been very well attended. This activity gives the Company separates common area maintenance expense component from the value of the ROU asset and lease liability when evaluating rental properties under ASU 2016-02, whereas, the Company includes the maintenance and service components in the value of the ROU asset and lease liability while evaluating automobile leases under ASU 2016-02.
When determining whether a lease is a finance lease or an operating lease, ASU 2016-02 does not specifically define criteria to determine “major part of remaining economic life of the underlying asset” and “substantially all of the fair value of the underlying asset.” For lease classification determination, the Company continues to use (i) greater to or equal to 75% to determine whether the lease term is a major part of the remaining economic life of the underlying asset and (ii) greater to or equal to 90% to determine whether the present value of the sum of lease payments is substantially all of the fair value of the underlying asset.
The Company uses either the rate implicit in the lease or its incremental borrowing rateinsight as the discount rate in lease accounting.
When adopting ASU 2016-02, the Company did not reassess any expired or existing contracts, reassess the lease classification for any expired or existing leases and reassess initial direct costs for exiting leases. The Company also elected not to capitalize leases that have terms of twelve months or less.
The Company reviews ROU assets, for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. The Company measures recoverability of these assets by comparing the carrying value of such assets to the estimated undiscounted future cash flows the assets are expectedimpact to generate. When the estimated undiscounted future cash flows are less than their carrying amount, ancustomers of COVID-19 and potential impairment loss is recognized equal to the difference between the assets’ fair value and their carrying value.
Vendor Concentration
As of September 27, 2019, there was one vendor which accounted for 13% of the Company’s consolidated accounts payable. As of December 28, 2018, there were no vendors which accounted for over 10% of the Company’s consolidated accounts payable.receivables.
Recently Adopted Accounting Pronouncements and Recent Accounting Pronouncements Not Yet Adopted
On December 29, 2018January 4, 2020 (beginning of fiscal year 2019)2020), the Company adopted Accounting Standards Update (“ASU”) 2016‑13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,” which (i) significantly changes the impairment model for most financial assets that are measured at amortized cost and certain other instruments from an incurred loss model to an expected loss model; and (ii) provides for recording credit losses on available-for-sale debt securities through an allowance account. ASU 2018-02, “Income Statement – Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income,” provides an option2016-13 also requires certain incremental disclosures. Subsequently, the FASB issued ASU 2018-19, ASU 2019-04, ASU 2019-05, ASU 2020-02 and ASU 2020-03 to reclassify stranded tax effects within Accumulated Other Comprehensive Income to retained earnings in each period in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Cutsclarify and Jobs Act is recorded.improve ASU 2016-13. The adoption of ASU 2018‑022016-13 did not have a material impact on the Condensed Consolidated Financial Statements.
On December 29, 2018January 4, 2020 (beginning of fiscal year 2019)2020), the Company adopted ASU 2018-07, “Compensation-Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting,” aligns the accounting for share-based payments to nonemployees similar to employees. Upon the adoption of ASU 2018-07, the Company recognized a cumulative adjustment of $315,000 which decreased the accumulated deficit.
8
STAAR SURGICAL COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
Note 1 — Basis of Presentation and Significant Accounting Policies (Continued)
Recently Adopted Accounting Pronouncements and Recent Accounting Pronouncements Not Yet Adopted (Continued)
In August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement,” which modifies certain disclosures requirements for reporting fair value measurements. This is effective for fiscal years ending after December 15, 2019. EarlyThe adoption is permitted. The Company will adopt this standard as of ASU 2018-13 did not have a material impact on the Condensed Consolidated Financial Statements.
On January 4, 2020 (beginning of fiscal year 2020) and is currently evaluating, the disclosure requirements and its effect on the Condensed Consolidated Financial Statements.
In August 2018, the FASB issuedCompany adopted ASU 2018-14, “Compensation – Retirement Benefits – Defined Benefit Plans – General (Subtopic 715-20); Disclosure Framework – Changes in the Disclosure Requirement for Defined Benefit Plans,” which modifies disclosure requirements for employers that sponsor defined benefit pension or other post retirement plans. ThisThe adoption of ASU 2018-14 did not have a material impact on the Condensed Consolidated Financial Statements.
In December 2019, the FASB issued ASU 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes.” ASU 2019-12 removes the following exceptions: exception to the incremental approach for intra period tax allocation; exception to accounting for basis differences when there are ownership changes in foreign investments; and exception to interim period tax accounting for year to date losses that exceed anticipated losses. ASU 2019-12 also improves financial reporting for franchise taxes that are partially based on income; transactions with a government that result in a step up in the tax basis of goodwill; separate financial statements of legal entities that are not subject to tax; and enacted changes in tax laws in interim periods. ASU 2019-12 is effective for fiscal years endingbeginning after December 15, 2020.2020 and interim periods within those fiscal years. Early adoption is permitted. The Company will adopt this standard as of January 2, 2021 (beginning of fiscal year 2021) and is currently evaluating the disclosure requirements and its effect on the Condensed Consolidated Financial Statements.
7
STAAR SURGICAL COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
Note 2 — Inventories
Inventories, net are stated at the lower of cost and net realizable value, determined on a first-in, first-out basis and consisted of the following (in thousands):
|
| September 27, 2019 |
|
| December 28, 2018 |
|
| April 3, 2020 |
|
| January 3, 2020 |
| ||||
Raw materials and purchased parts |
| $ | 1,374 |
|
| $ | 2,678 |
|
| $ | 4,252 |
|
| $ | 3,334 |
|
Work in process |
|
| 724 |
|
|
| 2,195 |
|
|
| 2,079 |
|
|
| 1,870 |
|
Finished goods |
|
| 15,596 |
|
|
| 13,214 |
|
|
| 12,316 |
|
|
| 12,976 |
|
Total inventories, gross |
|
| 17,694 |
|
|
| 18,087 |
|
|
| 18,647 |
|
|
| 18,180 |
|
Less inventory reserves |
|
| 1,254 |
|
|
| 1,383 |
|
|
| 1,082 |
|
|
| 1,038 |
|
Total inventories, net |
| $ | 16,440 |
|
| $ | 16,704 |
|
| $ | 17,565 |
|
| $ | 17,142 |
|
Note 3 — Prepayments, Deposits, and Other Current Assets
Prepayments, deposits, and other current assets consisted of the following (in thousands):
|
| September 27, 2019 |
|
| December 28, 2018 |
|
| April 3, 2020 |
|
| January 3, 2020 |
| ||||
Prepayments and deposits |
| $ | 2,630 |
|
| $ | 1,707 |
|
| $ | 4,382 |
|
| $ | 3,031 |
|
Prepaid insurance |
|
| 585 |
|
|
| 1,271 |
|
|
| 1,079 |
|
|
| 1,488 |
|
Consumption tax receivable |
|
| 549 |
|
|
| 912 |
|
|
| 1,192 |
|
|
| 875 |
|
Value added tax (VAT) receivable |
|
| 587 |
|
|
| 565 |
|
|
| 1,355 |
|
|
| 713 |
|
Income tax receivable |
|
| 523 |
|
|
| 285 |
| ||||||||
Other(1) |
|
| 532 |
|
|
| 305 |
|
|
| 1,160 |
|
|
| 453 |
|
Total prepayments, deposits and other current assets |
| $ | 5,406 |
|
| $ | 5,045 |
|
| $ | 9,168 |
|
| $ | 6,560 |
|
(1) | No individual item in “other current assets” exceeds 5% of the total prepayments, deposits and other current assets. |
9
STAAR SURGICAL COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
Note 4 — Property, Plant and Equipment
Property, plant and equipment, net consisted of the following (in thousands):
|
| September 27, 2019 |
|
| December 28, 2018 |
|
| April 3, 2020 |
|
| January 3, 2020 |
| ||||
Machinery and equipment |
| $ | 17,027 |
|
| $ | 16,905 |
|
| $ | 20,431 |
|
| $ | 17,173 |
|
Computer equipment and software |
|
| 6,074 |
|
|
| 5,992 |
|
|
| 6,475 |
|
|
| 6,244 |
|
Furniture and fixtures |
|
| 4,157 |
|
|
| 3,868 |
|
|
| 4,523 |
|
|
| 4,169 |
|
Leasehold improvements |
|
| 10,118 |
|
|
| 10,045 |
|
|
| 10,912 |
|
|
| 10,151 |
|
Construction in process |
|
| 5,952 |
|
|
| 2,095 |
|
|
| 7,742 |
|
|
| 8,477 |
|
Total property, plant and equipment, gross |
|
| 43,328 |
|
|
| 38,905 |
|
|
| 50,083 |
|
|
| 46,214 |
|
Less accumulated depreciation |
|
| 28,482 |
|
|
| 27,454 |
|
|
| 29,899 |
|
|
| 29,149 |
|
Total property, plant and equipment, net |
| $ | 14,846 |
|
| $ | 11,451 |
|
| $ | 20,184 |
|
| $ | 17,065 |
|
Construction in process includes the cost of design plans and build out of facilities and the cost of equipment, as well as the direct costs incurred in the testing and validation of machinery and equipment and facilities before they are ready for productive use. Upon placement in service, costs are reclassified into the appropriate asset category and depreciation commences.
Note 5 –Intangible Assets
Intangible assets, net consisted of the following (in thousands):
|
| September 27, 2019 |
|
| December 28, 2018 |
|
| April 3, 2020 |
|
| January 3, 2020 |
| ||||||||||||||||||||||||||||||||||||
Long-lived amortized intangible assets |
| Gross Carrying Amount |
|
| Accumulated Amortization |
|
| Net |
|
| Gross Carrying Amount |
|
| Accumulated Amortization |
|
| Net |
|
| Gross Carrying Amount |
|
| Accumulated Amortization |
|
| Net |
|
| Gross Carrying Amount |
|
| Accumulated Amortization |
|
| Net |
| ||||||||||||
Patents and licenses |
| $ | 9,301 |
|
| $ | (9,049 | ) |
| $ | 252 |
|
| $ | 9,257 |
|
| $ | (9,014 | ) |
| $ | 243 |
|
| $ | 9,352 |
|
| $ | (9,065 | ) |
| $ | 287 |
|
| $ | 9,353 |
|
| $ | (9,057 | ) |
| $ | 296 |
|
8
STAAR SURGICAL COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
Note 6 – Other Current Liabilities
Other current liabilities consisted of the following (in thousands):
|
| September 27, 2019 |
|
| December 28, 2018 |
|
| April 3, 2020 |
|
| January 3, 2020 |
| ||||
Accrued salaries and wages |
| $ | 4,209 |
|
| $ | 3,172 |
|
| $ | 3,769 |
|
| $ | 4,400 |
|
Accrued bonuses |
|
| 123 |
|
|
| 4,184 |
| ||||||||
Accrued insurance |
|
| 43 |
|
|
| 1,061 |
|
|
| 890 |
|
|
| 1,346 |
|
Income taxes payable |
|
| 2,087 |
|
|
| 2,710 |
| ||||||||
Accrued consumption tax |
|
| 771 |
|
|
| 995 |
|
|
| 1,456 |
|
|
| 1,164 |
|
Accrued bonuses |
|
| 2,354 |
|
|
| 5,113 |
| ||||||||
Income taxes payable |
|
| 2,464 |
|
|
| 1,105 |
| ||||||||
Accrued professional fees for clinical trials |
|
| 751 |
|
|
| 567 |
| ||||||||
Marketing obligations |
|
| 747 |
|
|
| 361 |
|
|
| 692 |
|
|
| 633 |
|
Other(1) |
|
| 2,277 |
|
|
| 1,624 |
|
|
| 2,462 |
|
|
| 2,693 |
|
Total other current liabilities |
| $ | 12,865 |
|
| $ | 13,431 |
|
| $ | 12,230 |
|
| $ | 17,697 |
|
(1) | No individual item in “Other” exceeds 5% of the other current liabilities. |
10
STAAR SURGICAL COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
Note 7 – Lines of Credit
Since 1998, the Company’s wholly owned Japanese subsidiary, STAAR Japan, has had an agreement with Mizuho Bank which provides for borrowings of up to 500,000,000 Yen, at an interest rate equal to the uncollateralized overnight call rate (approximately 0.06% as of September 27, 2019)April 3, 2020) plus a 0.50% spread, and may be renewed quarterly (the current line expires on NovemberMay 21, 2019)2020). The credit facility is not collateralized. The Company had 252,500,000142,500,000 Yen and 417,500,000197,500,000 Yen outstanding on the line of credit as of September 27, 2019April 3, 2020 and December 28, 2018,January 3, 2020, respectively (approximately $2,340,000$1,316,000 and $3,780,000$1,827,000 based on the foreign exchange rates on September 27, 2019April 3, 2020 and December 28, 2018,January 3, 2020, respectively), which approximates fair value due to the short-term maturity and market interest rates of the line of credit. In case of default, the interest rate will be increased to 14% per annum. There was 247,500,000357,500,000 Yen and 82,500,000302,500,000 Yen available for borrowing as of September 27, 2019April 3, 2020 and December 28, 2018,January 3, 2020, respectively (approximately $2,293,000$3,300,000 and $747,000$2,798,000 based on the foreign exchange rate on September 27, 2019April 3, 2020 and December 28, 2018,January 3, 2020, respectively). At maturity on NovemberMay 21, 2019,2020, the Company expects to renew this line of credit for an additional three months, with similar terms.
In September 2013, the Company’s wholly owned Swiss subsidiary, STAAR Surgical AG, entered into a framework agreement for loans (“framework agreement”) with Credit Suisse (the “Bank”). The framework agreement provides for borrowings of up to 1,000,000 CHF (Swiss Francs) (approximately $1,000,000 at the rate of exchange on September 27, 2019April 3, 2020 and December 28, 2018)January 3, 2020), to be used for working capital purposes. Accrued interest and 0.25% commissions on average outstanding borrowings is payable quarterly and the interest rate will be determined by the Bank based on the then prevailing market conditions at the time of borrowing. The framework agreement is automatically renewed on an annual basis based on the same terms assuming there is no default. The framework agreement may be terminated by either party at any time in accordance with its general terms and conditions. The framework agreement is not collateralized and contains certain conditions such as providing the Bank with audited financial statements annually and notice of significant events or conditions, as defined in the framework agreement. The Bank may also declare all amounts outstanding to be immediately due and payable upon a change of control or a “material qualification” in STAAR Surgical independent auditors’ report, as defined. There were 0 borrowings outstanding as of September 27, 2019April 3, 2020 and December 28, 2018.January 3, 2020.
The Company is in compliance with covenants of its credit facilities and lines of credit as of September 27, 2019.April 3, 2020.
During the nine months ended September 27, 2019, the Company converted the lease line of credit schedule 011 with Farnam Street Financial, Inc. into a finance lease liability of approximately $500,000.9
STAAR SURGICAL COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
Note 8 – Leases
Finance Leases
The Company entered into finance leases primarily related to purchases of equipment used for manufacturing or computer-related equipment. These finance leases are two to five years in length and have fixed payment amounts for the term of the contract and have options to purchase the assets at the end of the lease term. Supplemental balance sheet information related to finance leases consisted of the following (dollars in thousands):
|
| September 27, 2019 |
|
| April 3, 2020 |
|
| January 3, 2020 |
| |||
Machinery and equipment |
| $ | 1,885 |
|
| $ | 568 |
|
| $ | 1,885 |
|
Computer equipment and software |
|
| 923 |
|
|
| 883 |
|
|
| 912 |
|
Furniture and fixtures |
|
| 102 |
|
|
| — |
|
|
| 102 |
|
Leasehold improvements |
|
| 27 |
|
|
| — |
|
|
| 27 |
|
Finance lease right-of-use assets, gross |
|
| 2,937 |
|
|
| 1,451 |
|
|
| 2,926 |
|
Less accumulated depreciation |
|
| 931 |
|
|
| 734 |
|
|
| 1,059 |
|
Finance lease right-of-use assets, net |
| $ | 2,006 |
|
| $ | 717 |
|
| $ | 1,867 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total finance lease liability |
| $ | 1,223 |
|
| $ | 689 |
|
| $ | 926 |
|
Weighted-average remaining lease term (in years) |
|
| 1.4 |
|
|
| 1.0 |
|
|
| 1.1 |
|
Weighted-average discount rate |
|
| 6.27 | % |
|
| 6.02 | % |
|
| 6.17 | % |
11
STAAR SURGICAL COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
Note 8 – Leases (Continued)
Finance Leases (Continued)
Supplemental cash flow information related to finance leases consisted of the following (dollars in thousands):
|
| Three Months Ended |
| Nine Months Ended |
|
| Three Months Ended |
| |||||||
|
| September 27, 2019 |
| September 27, 2019 |
|
| April 3, 2020 |
|
| March 29, 2019 |
| ||||
Amortization of finance lease right-of-use asset |
| $ | 141 |
| $ | 447 |
|
| $ | 117 |
|
| $ | 161 |
|
Interest on finance lease liabilities |
|
| 17 |
|
| 58 |
|
|
| 10 |
|
|
| 19 |
|
Cash paid for amounts included in the measurement of finance lease liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating cash flows |
|
| 17 |
|
| 58 |
|
|
| 10 |
|
|
| 19 |
|
Financing cash flows |
|
| 317 |
|
| 998 |
|
|
| 236 |
|
|
| 365 |
|
Right-of-use assets obtained in exchange for new finance lease liabilities |
|
| — |
|
| 679 |
|
|
| — |
|
|
| 642 |
|
Operating Leases
The Company entered into operating leases primarily related to real property (office, manufacturing and warehouse facilities), automobiles and copiers. These operating leases are two to five years in length with options to extend. The Company did not include any lease extensions in the initial valuation unless the Company was reasonably certain to extend the lease. Depending on the lease, there are those with fixed payment amounts for the entire length of the contract or payments which increase periodically as noted in the contract or increased at an inflation rate indicator. For operating leases that increase using an inflation rate indicator, the Company used the inflation rate at the time the lease was entered into for the length of the lease term. Supplemental balance sheet information related to operating leases consisted of the following (dollars in thousands):
| September 27, 2019 |
| |
Machinery and equipment | $ | 813 |
|
Computer equipment and software |
| 462 |
|
Real property |
| 10,634 |
|
Operating lease right-of-use assets, gross |
| 11,909 |
|
Less accumulated depreciation |
| 5,232 |
|
Operating lease right-of-use assets, net | $ | 6,677 |
|
|
|
|
|
Total operating lease liability | $ | 6,792 |
|
Weighted-average remaining lease term (in years) |
| 2.4 |
|
Weighted-average discount rate |
| 1.79 | % |
Supplemental cash flow information related to operating leases was as follows (dollars in thousands):
|
| Three Months Ended |
|
| Nine Months Ended |
| ||
|
| September 27, 2019 |
|
| September 27, 2019 |
| ||
Operating lease cost |
| $ | 726 |
|
| $ | 2,020 |
|
Cash paid for amounts included in the measurement of operating lease liabilities: |
|
|
|
|
|
|
|
|
Operating cash flows |
|
| 739 |
|
|
| 2,031 |
|
Right-of-use assets obtained in exchange for new operating lease liabilities |
|
| 140 |
|
|
| 2,797 |
|
1210
STAAR SURGICAL COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
Note 8 – Leases (Continued)
Operating Leases (Continued)
|
| April 3, 2020 |
|
| January 3, 2020 |
| ||
Machinery and equipment |
| $ | 781 |
|
| $ | 765 |
|
Computer equipment and software |
|
| 462 |
|
|
| 462 |
|
Real property |
|
| 11,089 |
|
|
| 11,116 |
|
Operating lease right-of-use assets, gross |
|
| 12,332 |
|
|
| 12,343 |
|
Less accumulated depreciation |
|
| 6,294 |
|
|
| 5,659 |
|
Operating lease right-of-use assets, net |
| $ | 6,038 |
|
| $ | 6,684 |
|
|
|
|
|
|
|
|
|
|
Total operating lease liability |
| $ | 6,143 |
|
| $ | 6,786 |
|
Weighted-average remaining lease term (in years) |
|
| 2.1 |
|
|
| 2.3 |
|
Weighted-average discount rate |
|
| 1.63 | % |
|
| 1.82 | % |
Supplemental cash flow information related to operating leases was as follows (dollars in thousands):
|
| Three Months Ended |
| |||||
|
| April 3, 2020 |
|
| March 29, 2019 |
| ||
Operating lease cost |
| $ | 740 |
|
| $ | 611 |
|
Cash paid for amounts included in the measurement of operating lease liabilities: |
|
|
|
|
|
|
|
|
Operating cash flows |
|
| 738 |
|
|
| 601 |
|
Right-of-use assets obtained in exchange for new operating lease liabilities |
|
| 69 |
|
|
| 1,464 |
|
Future Minimum Lease Commitments
Estimated future minimum lease payments under operating and finance leases having initial or remaining non-cancelable lease terms more than one year as of September 27, 2019 and December 28, 2018 areApril 3, 2020 is as follows (in thousands):
As of September 27, 2019 12 Months Ended |
| Operating Leases |
|
| Finance Leases |
| ||
September 2020 |
| $ | 2,920 |
|
| $ | 790 |
|
September 2021 |
|
| 1,833 |
|
|
| 426 |
|
September 2022 |
|
| 1,082 |
|
|
| 45 |
|
September 2023 |
|
| 867 |
|
|
| 8 |
|
September 2024 |
|
| 319 |
|
|
| 4 |
|
Thereafter |
|
| — |
|
|
| — |
|
Total minimum lease payments, including interest |
| $ | 7,021 |
|
| $ | 1,273 |
|
Less amounts representing interest |
|
| 229 |
|
|
| 50 |
|
Total minimum lease payments |
| $ | 6,792 |
|
| $ | 1,223 |
|
As of December 28, 2018 12 Months Ended |
| Operating Leases |
|
| Finance Leases |
| ||
December 2019 |
| $ | 2,606 |
|
| $ | 1,153 |
|
December 2020 |
|
| 2,202 |
|
|
| 332 |
|
December 2021 |
|
| 980 |
|
|
| 143 |
|
December 2022 |
|
| 507 |
|
|
| 4 |
|
December 2023 |
|
| 202 |
|
|
| — |
|
Thereafter |
|
| 12 |
|
|
| — |
|
Total minimum lease payments, including interest |
|
| 6,509 |
|
|
| 1,632 |
|
Less amounts representing interest |
|
| — |
|
|
| 75 |
|
Total minimum lease payments |
| $ | 6,509 |
|
| $ | 1,557 |
|
As of April 3, 2020 12 Months Ended |
| Operating Leases |
|
| Finance Leases |
| ||
March 2021 |
| $ | 2,660 |
|
| $ | 580 |
|
March 2022 |
|
| 1,480 |
|
|
| 119 |
|
March 2023 |
|
| 1,219 |
|
|
| 8 |
|
March 2024 |
|
| 792 |
|
|
| 8 |
|
March 2025 |
|
| 236 |
|
|
| — |
|
Thereafter |
|
| 29 |
|
|
| — |
|
Total minimum lease payments, including interest |
| $ | 6,416 |
|
| $ | 715 |
|
Less amounts representing interest |
|
| 273 |
|
|
| 26 |
|
Total minimum lease payments |
| $ | 6,143 |
|
| $ | 689 |
|
1311
STAAR SURGICAL COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
Note 9 — Income Taxes
The Company recorded an income tax provision (benefit) as follows (in thousands):
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||
|
| September 27, 2019 |
|
| September 28, 2018 |
|
| September 27, 2019 |
|
| September 28, 2018 |
| ||||
Provision for income taxes |
| $ | 760 |
|
| $ | 346 |
|
| $ | 2,380 |
|
| $ | 1,452 |
|
|
| Three Months Ended |
| |||||
|
| April 3, 2020 |
|
| March 29, 2019 |
| ||
Provision (benefit) for income taxes |
| $ | (1,158 | ) |
| $ | 489 |
|
The Company recorded an income tax provision isbenefit of $1,158,000 for the three months ended April 3, 2020 due to the income tax benefit from the release of its U.S. valuation allowance, offset by income tax expense from profits generated from its foreign operations. The Company recorded income taxes of $489,000 for the three months ended March 29, 2019, primarily due to pre-tax income generated in certain foreign jurisdictions.jurisdictions and withholding taxes on foreign operations. The Company’s quarterly provision for income taxes is determined by estimating an annual effective tax rate. This estimate may fluctuate throughout the year as new information becomes available affecting its underlying assumptions. In the fourth quarter of fiscal year 2019, the Company reversed all previously recorded withholding taxes recorded for 2019, at which time the Company formed STAAR Surgical UK Limited as a holding company for its foreign operations. Based on the current tax treaties between the U.S., United Kingdom and Switzerland, the Company will no longer accrue for Switzerland withholding taxes on foreign earnings after fiscal 2018 (see also Note 10 in its fiscal 2019 Form 10-K for more information). There are no0 unrecognized tax benefits related to uncertain tax positions taken by the Company.
All earnings from the Company’s subsidiaries are not considered to be permanently reinvested. Accordingly, the Company provides withholding and U.S. taxes on all unremitted foreign earnings.
The 2017 Tax Act subjects a U.S. shareholder to tax on Global Intangible Low Tax Income (“GILTI”) earned by certain foreign subsidiaries. In general, GILTI is the excess of a U.S. shareholder’s total net foreign income over a deemed return on tangible assets. The provision further allows a deduction of 50 percent of GILTI, however this deduction is limited toby the Company’s U.S. taxable income. The Company has elected to account for GILTI as a current period expense when incurred.
ForThe ultimate realization of deferred tax assets is dependent upon future generation of income during the nine months ended September 27,periods in which temporary differences representing net future deductible amounts become deductible. Management considers the projected future income and tax planning strategies in making this assessment. As of fiscal year end 2019, the Company included GILTIhad three years of $12,084,000accumulated profits for federal income tax purposes as a result of GILTI. However, the three-year income position is not solely determinative and, accordingly, management considers all other available positive and negative evidence in U.S. gross income, which was fully offset with net operating loss carryforwards. The Company was not able to utilize the deductionits analysis. This includes existing profits in foreign jurisdiction as well as projected future profits. As further described in Notes 1 and 10 of 50 percent of GILTI, as this deduction is limited to the Company’s U.S. taxable income.
fiscal 2019 Form 10-K, under the “incremental cash tax savings approach,” the Company recorded a valuation allowance release of $3,003,000 and $373,000 against the federal and certain states deferred tax assets, respectively. During the three months ended April 3, 2020, the Company revised its global forecasts as a result of COVID-19, and released an additional $1,369,000 of valuation allowance. As of September 27, 2019, April 3, 2020, the Company established a fullreleased approximately $4,745,000 of valuation allowance on its deferred tax assets in the U.S. for all periods presented due tojurisdiction utilizing the significant uncertaintyincremental cash tax savings approach.
Under the incremental cash tax savings approach, the U.S. valuation allowances of realizing future tax benefits from its$36,272,000, will remain as the usage of the remaining net operating loss carryforwardslosses and other deferred tax assets with will not result in cash tax savings and therefore provide no additional benefit. As of April 3, 2020, the exceptionCompany had net deferred tax assets in the U.S. of $4,881,000, which consisted of the federal and state valuation allowance release of $4,439,000 and $306,000, respectively, and the refundable alternative minimum tax credit of $273,000. Management will continue$136,000.
On March 27, 2020, the Coronavirus Aid, Relief and Economic Security (“CARES”) Act was enacted and signed into law. The Company reviewed the provisions of the CARES Act, but does not expect it to monitor and evaluate all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, impact of GILTI in the U.S., tax-planning strategies, and results of recent operations.
In projecting future taxable income, the Company begins with historical results and incorporates assumptions including overall current and projected business and industry conditions, the amount of future federal, state, and foreign pretax operating income, the reversal of temporary differences and the feasible and prudent tax-planning strategies. These assumptions require significant judgment about the forecasts of future taxable income and are consistent with the plans and estimates the Company uses to manage the underlying businesses. In evaluating the objective evidence, the Company considers, among other financial information, three years of cumulative operating results. Valuation allowances, or reductions to deferred tax assets, are recognized if, based on the weight of all the available evidence, it is more likely than not that some portion or all the deferred tax asset may not be realized. As the Company experiences continued growth and profits the need for a valuation allowance will be evaluated each reporting period by Management to determine whether it is more likely than not that the Company’s deferred tax assets will be realizable in a later period. Any such changes in the assessment of a full or partial valuation allowance could have a material impact on earnings.to its tax provision (also see note 15).
1412
STAAR SURGICAL COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
Note 10 – Defined Benefit Pension Plans
The Company has defined benefit plans covering employees of its Switzerland and Japan operations. The following table summarizes the components of net periodic pension cost recorded for the Company’s defined benefit pension plans (in thousands):
|
| Three Months Ended |
|
| Nine Months Ended |
|
| Three Months Ended |
| |||||||||||||||
|
| September 27, 2019 |
|
| September 28, 2018 |
|
| September 27, 2019 |
|
| September 28, 2018 |
|
| April 3, 2020 |
|
| March 29, 2019 |
| ||||||
Service cost(1) |
| $ | 240 |
|
| $ | 137 |
|
| $ | 720 |
|
| $ | 414 |
|
| $ | 319 |
|
| $ | 232 |
|
Interest cost(2) |
|
| 20 |
|
|
| 15 |
|
|
| 60 |
|
|
| 44 |
|
|
| 11 |
|
|
| 20 |
|
Expected return on plan assets(2) |
|
| (36 | ) |
|
| (28 | ) |
|
| (103 | ) |
|
| (82 | ) |
|
| (43 | ) |
|
| (33 | ) |
Net amortization of transitional obligation(2),(3) |
|
| — |
|
|
| 3 |
|
|
| — |
|
|
| 8 |
| ||||||||
Prior service credit(2),(3) |
|
| (6 | ) |
|
| (6 | ) |
|
| (17 | ) |
|
| (17 | ) |
|
| (9 | ) |
|
| (6 | ) |
Actuarial loss recognized in current period(2),(3) |
|
| 32 |
|
|
| 28 |
|
|
| 97 |
|
|
| 85 |
|
|
| 79 |
|
|
| 32 |
|
Net periodic pension cost |
| $ | 250 |
|
| $ | 149 |
|
| $ | 757 |
|
| $ | 452 |
|
| $ | 357 |
|
| $ | 245 |
|
(1) | Recognized in selling general and administrative expenses on the Condensed Consolidated Statements of Income. |
(2) | Recognized in other income (expense), net on the Condensed Consolidated Statements of Income. |
(3) | Amounts reclassified from accumulated other comprehensive income (loss). |
The Company currently is not required to and does not make contributions to its Japan pension plan. The Company’s contributions to its Swiss pension plan are as follows (in thousands):
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||
|
| September 27, 2019 |
|
| September 28, 2018 |
|
| September 27, 2019 |
|
| September 28, 2018 |
| ||||
Employer contribution |
| $ | 141 |
|
| $ | 80 |
|
| $ | 404 |
|
| $ | 225 |
|
|
| Three Months Ended |
| |||||
|
| April 3, 2020 |
|
| March 29, 2019 |
| ||
Employer contribution |
| $ | 175 |
|
| $ | 126 |
|
Note 11 — Stockholders’ Equity
Stock-Based Compensation
The cost that has been charged against income for stock-based compensation is set forth below (in thousands):
|
| Three Months Ended |
|
| Nine Months Ended |
|
| Three Months Ended |
| |||||||||||||||
|
| September 27, 2019 |
|
| September 28, 2018 |
|
| September 27, 2019 |
|
| September 28, 2018 |
|
| April 3, 2020 |
|
| March 29, 2019 |
| ||||||
Employee stock options |
| $ | 2,178 |
|
| $ | 1,197 |
|
| $ | 5,770 |
|
| $ | 2,713 |
|
| $ | 2,232 |
|
| $ | 1,430 |
|
Restricted stock |
|
| 77 |
|
|
| 82 |
|
|
| 236 |
|
|
| 192 |
|
|
| 78 |
|
|
| 82 |
|
Restricted stock units |
|
| 246 |
|
|
| 501 |
|
|
| 1,661 |
|
|
| 1,593 |
|
|
| 549 |
|
|
| 1,104 |
|
Nonemployee stock options |
|
| 57 |
|
|
| 247 |
|
|
| 111 |
|
|
| 428 |
|
|
| 62 |
|
|
| 25 |
|
Total stock-based compensation expense |
| $ | 2,558 |
|
| $ | 2,027 |
|
| $ | 7,778 |
|
| $ | 4,926 |
|
| $ | 2,921 |
|
| $ | 2,641 |
|
The Company recorded stock-based compensation costs in the following categories (in thousands):
|
| Three Months Ended |
|
| Nine Months Ended |
|
| Three Months Ended |
| |||||||||||||||
|
| September 27, 2019 |
|
| September 28, 2018 |
|
| September 27, 2019 |
|
| September 28, 2018 |
|
| April 3, 2020 |
|
| March 29, 2019 |
| ||||||
Cost of sales |
| $ | 7 |
|
| $ | 4 |
|
| $ | 43 |
|
| $ | 11 |
|
| $ | 22 |
|
| $ | 14 |
|
General and administrative |
|
| 1,082 |
|
|
| 701 |
|
|
| 2,878 |
|
|
| 1,875 |
|
|
| 1,085 |
|
|
| 778 |
|
Marketing and selling |
|
| 692 |
|
|
| 471 |
|
|
| 2,553 |
|
|
| 1,297 |
|
|
| 1,055 |
|
|
| 1,171 |
|
Research and development |
|
| 777 |
|
|
| 851 |
|
|
| 2,304 |
|
|
| 1,743 |
|
|
| 759 |
|
|
| 678 |
|
Total stock-based compensation expense, net |
|
| 2,558 |
|
|
| 2,027 |
|
|
| 7,778 |
|
|
| 4,926 |
|
|
| 2,921 |
|
|
| 2,641 |
|
Amounts capitalized as part of inventory |
|
| 258 |
|
|
| 182 |
|
|
| 723 |
|
|
| 449 |
|
|
| 269 |
|
|
| 189 |
|
Total stock-based compensation expense, gross |
| $ | 2,816 |
|
| $ | 2,209 |
|
| $ | 8,501 |
|
| $ | 5,375 |
|
| $ | 3,190 |
|
| $ | 2,830 |
|
1513
STAAR SURGICAL COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
Note 11 — Stockholders’ Equity (Continued)
Incentive Plan
The Amended and Restated Omnibus Equity Incentive Plan (“the Plan”) provides for various forms of stock-based incentives. To date, of the available forms of awards under the Plan, the Company has granted only stock options, restricted stock, unrestricted share grants, and restricted stock units (“RSUs”). Options under the Plan are granted at fair market value on the date of grant, become exercisable generally over a three-year period, or as determined by the Board of Directors, and expire over periods not exceeding 10 years from the date of grant. Certain option and share awards provide for accelerated vesting if there is a change in control and pre-established financial metrics are met (as defined in the Plan). Grants of restricted stock outstanding under the Plan generally vest over periods of one to three years. Grants of RSUs outstanding under the Plan generally vest based on service, performance, or a combination of both. As of September 27, 2019,April 3, 2020, there were 1,629,976844,399 shares available for grant under the Plan
Assumptions
The fair value of each option award is estimated on the date of grant using a Black-Scholes option valuation model applying the weighted-average assumptions noted in the following table. Expected volatilities are based on historical volatility of the Company’s stock. The expected term of options granted is derived from the historical exercises and post-vesting cancellations and represents the period of time that options granted are expected to be outstanding. The Company has calculated an 8%6% estimated forfeiture rate based on historical forfeiture experience. The risk-free rate is based on the U.S. Treasury yield curve corresponding to the expected term at the time of the grant.
|
| Three Months Ended |
|
| Nine Months Ended |
|
| Three Months Ended |
| |||||||||||||||
|
| September 27, 2019 |
|
| September 28, 2018 |
|
| September 27, 2019 |
|
| September 28, 2018 |
|
| April 3, 2020 |
|
| March 29, 2019 |
| ||||||
Expected dividend yield |
|
| 0 | % |
|
| 0 | % |
|
| 0 | % |
|
| 0 | % |
|
| 0 | % |
|
| 0 | % |
Expected volatility |
|
| 53 | % |
|
| 53 | % |
|
| 53 | % |
|
| 53 | % |
|
| 53 | % |
|
| 53 | % |
Risk-free interest rate |
|
| 1.55 | % |
|
| 2.84 | % |
|
| 2.40 | % |
|
| 2.71 | % |
|
| 0.54 | % |
|
| 2.43 | % |
Expected term (in years) |
|
| 5.67 |
|
|
| 5.72 |
|
|
| 5.67 |
|
|
| 5.72 |
|
|
| 5.72 |
|
|
| 5.67 |
|
Stock Options
A summary of stock option activity under the Plan for the ninethree months ended September 27, 2019April 3, 2020 is presented below:
|
| Stock Options (in 000’s) |
|
| Minimum Exercise Price |
|
| Maximum Exercise Price |
|
| Stock Options (in 000’s) |
|
| Minimum Exercise Price |
|
| Maximum Exercise Price |
| ||||||
Outstanding at December 28, 2018 |
|
| 3,920 |
|
|
|
|
|
|
|
|
| ||||||||||||
Outstanding at January 3, 2020 |
|
| 4,326 |
|
|
|
|
|
|
|
|
| ||||||||||||
Granted |
|
| 818 |
|
|
|
|
|
|
|
|
|
|
| 603 |
|
|
|
|
|
|
|
|
|
Exercised |
|
| (190 | ) |
|
|
|
|
|
|
|
|
|
| (196 | ) |
|
|
|
|
|
|
|
|
Forfeited or expired |
|
| (23 | ) |
|
|
|
|
|
|
|
|
|
| (6 | ) |
|
|
|
|
|
|
|
|
Outstanding at September 27, 2019 |
|
| 4,525 |
|
| $ | 3.50 |
|
| $ | 43.84 |
| ||||||||||||
Exercisable at September 27, 2019 |
|
| 3,104 |
|
|
|
|
|
|
|
|
| ||||||||||||
Outstanding at April 3, 2020 |
|
| 4,727 |
|
| $ | 4.73 |
|
| $ | 43.84 |
| ||||||||||||
Exercisable at April 3, 2020 |
|
| 3,231 |
|
|
|
|
|
|
|
|
|
1614
STAAR SURGICAL COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
Note 11 — Stockholders’ Equity (Continued)
Restricted Stock and Restricted Stock Units
A summary of restricted stock and RSU activity under the Plan for the ninethree months ended September 27, 2019April 3, 2020 is presented below:
|
| Restricted Stock (in 000’s) |
|
| Restricted Stock Units (in 000’s) |
|
| Restricted Stock (in 000’s) |
|
| Restricted Stock Units (in 000’s) |
| ||||
Unvested at December 28, 2018 |
|
| 11 |
|
|
| 322 |
| ||||||||
Unvested at January 3, 2020 |
|
| 11 |
|
|
| 104 |
| ||||||||
Granted |
|
| 11 |
|
|
| 19 |
|
|
| — |
|
|
| 97 |
|
Vested |
|
| (11 | ) |
|
| (210 | ) |
|
| — |
|
|
| (87 | ) |
Forfeited or expired |
|
| — |
|
|
| (6 | ) |
|
| — |
|
|
| (1 | ) |
Unvested at September 27, 2019 |
|
| 11 |
|
|
| 125 |
| ||||||||
Unvested at April 3, 2020 |
|
| 11 |
|
|
| 113 |
|
Note 12 - Commitments and Contingencies
Litigation and Claims
From time to time, the Company is involved in various legal proceedings and other matters arising in the normal course of business. These legal proceedings and other matters may relate to, among other things, contractual rights and obligations, employment matters, or claims of product liability. STAAR maintains insurance coverage for various matters, including product liability and certain securities claims. While the Company does not believe that any of the claims known is likely to have a material adverse effect on the Company’s financial condition or results of operations, new claims or unexpected results of existing claims could lead to significant financial harm.
Employment Agreements
The Company’s Chief Executive Officer entered into an employment agreement with the Company, effective March 1, 2015. She and certain officers have as provisions of their agreements certain rights, including continuance of cash compensation and benefits, upon a “change in control,” which may include an acquisition of substantially all its assets, or termination “without cause or for good reason” as defined in the employment agreements.
1715
STAAR SURGICAL COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
Note 13 — Basic and Diluted Net Income (Loss) Per Share
The following table sets forth the computation of basic and diluted net income (loss) per share (in thousands except per share amounts):
|
| Three Months Ended |
|
| Nine Months Ended |
|
| Three Months Ended |
| |||||||||||||||
|
| September 27, 2019 |
|
| September 28, 2018 |
|
| September 27, 2019 |
|
| September 28, 2018 |
|
| April 3, 2020 |
|
| March 29, 2019 |
| ||||||
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
| $ | 2,388 |
|
| $ | 1,459 |
|
| $ | 7,669 |
|
| $ | 3,872 |
| ||||||||
Net income (loss) |
| $ | (134 | ) |
| $ | 1,367 |
| ||||||||||||||||
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares outstanding |
|
| 44,573 |
|
|
| 43,065 |
|
|
| 44,436 |
|
|
| 42,076 |
|
|
| 44,964 |
|
|
| 44,246 |
|
Less: Unvested restricted stock |
|
| (10 | ) |
|
| (11 | ) |
|
| (10 | ) |
|
| (11 | ) |
|
| (11 | ) |
|
| (11 | ) |
Denominator for basic calculation |
|
| 44,563 |
|
|
| 43,054 |
|
|
| 44,426 |
|
|
| 42,065 |
|
|
| 44,953 |
|
|
| 44,235 |
|
Weighted average effects of potentially diluted common stock: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options |
|
| 2,194 |
|
|
| 2,686 |
|
|
| 2,260 |
|
|
| 2,245 |
|
|
| — |
|
|
| 2,418 |
|
Unvested restricted stock |
|
| 2 |
|
|
| 4 |
|
|
| 6 |
|
|
| 12 |
|
|
| — |
|
|
| 252 |
|
Restricted stock units |
|
| 98 |
|
|
| 281 |
|
|
| 156 |
|
|
| 296 |
|
|
| — |
|
|
| 8 |
|
Denominator for diluted calculation |
|
| 46,857 |
|
|
| 46,025 |
|
|
| 46,848 |
|
|
| 44,618 |
|
|
| 44,953 |
|
|
| 46,913 |
|
Net income per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Net income (loss) per share: |
|
|
|
|
|
|
|
| ||||||||||||||||
Basic |
| $ | 0.05 |
|
| $ | 0.03 |
|
| $ | 0.17 |
|
| $ | 0.09 |
|
| $ | (0.00 | ) |
| $ | 0.03 |
|
Diluted |
| $ | 0.05 |
|
| $ | 0.03 |
|
| $ | 0.16 |
|
| $ | 0.09 |
|
| $ | (0.00 | ) |
| $ | 0.03 |
|
Because the Company had a net loss for the three months ended April 3, 2020, the number of diluted shares is equal to the number of basic shares. The following table sets forth (in thousands) the weighted average number of options to purchase shares of common stock, restricted stock, and restricted stock units with either exercise prices or unrecognized compensation cost per share greater than the average market price per share of the Company’s common stock, which were not included in the calculation of diluted per share amounts because the effects would be anti-dilutive.
|
| Three Months Ended |
|
| Nine Months Ended |
|
| Three Months Ended |
| |||||||||||||||
|
| September 27, 2019 |
|
| September 28, 2018 |
|
| September 27, 2019 |
|
| September 28, 2018 |
|
| April 3, 2020 |
|
| March 29, 2019 |
| ||||||
Stock options |
|
| 1,836 |
|
|
| 389 |
|
|
| 1,446 |
|
|
| 278 |
|
|
| 3,771 |
|
|
| 672 |
|
Restricted stock and restricted stock units |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1 |
|
|
| 88 |
|
|
| — |
|
Total |
|
| 1,836 |
|
|
| 389 |
|
|
| 1,446 |
|
|
| 279 |
|
|
| 3,859 |
|
|
| 672 |
|
Note 14 — Disaggregation of Sales, Geographic Sales and Product Sales
In the following tables, sales are disaggregated by category, sales by geographic market and sales by product data. The following breaks down sales into the following categories (in thousands):
|
| Three Months Ended |
|
| Nine Months Ended |
|
| Three Months Ended |
| |||||||||||||||
|
| September 27, 2019 |
|
| September 28, 2018 |
|
| September 27, 2019 |
|
| September 28, 2018 |
|
| April 3, 2020 |
|
| March 29, 2019 |
| ||||||
Non-consignment sales |
| $ | 34,696 |
|
| $ | 27,503 |
|
| $ | 98,518 |
|
| $ | 79,345 |
|
| $ | 30,400 |
|
| $ | 28,266 |
|
Consignment sales |
|
| 4,359 |
|
|
| 4,267 |
|
|
| 12,784 |
|
|
| 13,423 |
|
|
| 4,787 |
|
|
| 4,317 |
|
Total net sales |
| $ | 39,055 |
|
| $ | 31,770 |
|
| $ | 111,302 |
|
| $ | 92,768 |
|
| $ | 35,187 |
|
| $ | 32,583 |
|
18
STAAR SURGICAL COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
Note 14 — Disaggregation of Sales, Geographic Sales and Product Sales (Continued)
The Company markets and sells its products in over 75 countries and conducts its manufacturing in the United States. Other than China and Japan, the Company does not conduct business in any country in which its sales exceed 10% of worldwide consolidated net sales. Sales are attributed to countries based on location of customers. The composition of the Company’s net sales to unaffiliated customers is set forth belowwas as follows (in thousands):
16
STAAR SURGICAL COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
Note 14 — Disaggregation of Sales, Geographic Sales and Product Sales (Continued)
|
| Three Months Ended |
|
| Nine Months Ended |
|
| Three Months Ended |
| |||||||||||||||
|
| September 27, 2019 |
|
| September 28, 2018 |
|
| September 27, 2019 |
|
| September 28, 2018 |
|
| April 3, 2020 |
|
| March 29, 2019 |
| ||||||
Domestic |
| $ | 1,739 |
|
| $ | 1,952 |
| ||||||||||||||||
Foreign: |
|
|
|
|
|
|
|
| ||||||||||||||||
China |
| $ | 18,361 |
|
| $ | 13,349 |
|
| $ | 49,526 |
|
| $ | 35,224 |
|
| $ | 11,715 |
|
| $ | 11,771 |
|
Japan |
|
| 7,345 |
|
|
| 6,006 |
|
|
| 19,139 |
|
|
| 17,781 |
|
|
| 8,302 |
|
|
| 5,519 |
|
Other(1) |
|
| 13,349 |
|
|
| 12,415 |
|
|
| 42,637 |
|
|
| 39,763 |
|
|
| 13,431 |
|
|
| 13,341 |
|
Total foreign sales |
|
| 33,448 |
|
|
| 30,631 |
| ||||||||||||||||
Total net sales |
| $ | 39,055 |
|
| $ | 31,770 |
|
| $ | 111,302 |
|
| $ | 92,768 |
|
| $ | 35,187 |
|
| $ | 32,583 |
|
(1) | No other location individually exceeds 10% of the total sales. |
In addition, domestic and foreign sales are as follows (in thousands):
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||
|
| September 27, 2019 |
|
| September 28, 2018 |
|
| September 27, 2019 |
|
| September 28, 2018 |
| ||||
Domestic |
| $ | 1,783 |
|
| $ | 1,676 |
|
| $ | 5,849 |
|
| $ | 5,327 |
|
Foreign |
|
| 37,272 |
|
|
| 30,094 |
|
|
| 105,453 |
|
|
| 87,441 |
|
Total net sales |
| $ | 39,055 |
|
| $ | 31,770 |
|
| $ | 111,302 |
|
| $ | 92,768 |
|
100% of the Company’s sales are generated from the ophthalmic surgical product segment and the chief operating decision maker makes operating decisions and allocates resources based upon the consolidated operating results, and therefore the Company operates as 1 operating segment for financial reporting purposes. The Company’s principal products are implantable Collamer lenses (“ICLs”) used in refractive surgery and intraocular lenses (“IOLs”) used in cataract surgery. The composition of the Company’s net sales by product line iswas as follows (in thousands):
|
| Three Months Ended |
|
| Nine Months Ended |
|
| Three Months Ended |
| |||||||||||||||
|
| September 27, 2019 |
|
| September 28, 2018 |
|
| September 27, 2019 |
|
| September 28, 2018 |
|
| April 3, 2020 |
|
| March 29, 2019 |
| ||||||
ICLs |
| $ | 33,815 |
|
| $ | 26,418 |
|
| $ | 96,033 |
|
| $ | 74,868 |
|
| $ | 29,340 |
|
| $ | 27,786 |
|
Other product sales |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IOLs |
|
| 4,093 |
|
|
| 3,824 |
|
|
| 11,984 |
|
|
| 12,068 |
|
|
| 3,994 |
|
|
| 4,017 |
|
Other surgical products |
|
| 1,147 |
|
|
| 1,528 |
|
|
| 3,285 |
|
|
| 5,832 |
|
|
| 1,853 |
|
|
| 780 |
|
Total other product sales |
|
| 5,240 |
|
|
| 5,352 |
|
|
| 15,269 |
|
|
| 17,900 |
|
|
| 5,847 |
|
|
| 4,797 |
|
Total net sales |
| $ | 39,055 |
|
| $ | 31,770 |
|
| $ | 111,302 |
|
| $ | 92,768 |
|
| $ | 35,187 |
|
| $ | 32,583 |
|
One customer, the Company’s distributor in China, accounted for 47%33% and 44%36% of net sales for the three and nine months ended September 27,April 3, 2020 and March 29, 2019, respectively, and the same customer accounted for 42% and 38% of net sales for the three and nine months ended September 28, 2018, respectively. As of September 27, 2019April 3, 2020 and December 28, 2018,January 3, 2020, respectively, one customer, the Company’s distributor in China, accounted for 40%48% and 37%43% of consolidated trade receivables.
Note 15 — ReclassificationsCOVID-19 and CARES Act Developments
Computer equipmentIn December 2019, COVID-19 surfaced and software was reclassified intoin March 2020, the World Health Organization declared a separate line itempandemic related to the rapid spread of COVID-19 around the world. The impact of the COVID-19 outbreak on the businesses and the economy in the U.S. and the rest of the world is, and is expected to continue to be, uncertain and may be significant. Accordingly, the Company cannot predict the extent to which its financial condition and results of operation will be affected. On March 17, 2020, the Company suspended most of its production and non-essential business locations where employees can work from furniturehome. A very limited number of manufacturing personnel remained at work for critical late staged processes, until the end of March 2020. Manufacturing resumed on April 27, 2020. The Company’s revenues have been adversely impacted, as customers in China were not able to carry out procedures during the month of February and fixturesthe Company experienced a substantial slowdown in Note 4sales beginning March 20, 2020 in global geographies characterized as “hot spots” for the fiscal year ended 2018COVID 19 virus, including parts of Europe and North America. In certain of these markets, sales have paused as elective surgeries are discouraged to conform withsupport COVID-19 related needs. The Company expects this decrease in sales in certain geographies, such as parts of Europe and North America, to continue through the 2019 presentation.second quarter of 2020 and possibly beyond as different geographies resume business activities on differing timelines.
The CARES Act, among other things, includes provisions relating to refundable payroll tax credits, deferment of employer side social security payments, net operating loss carryback periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitations, increased limitations on qualified charitable contributions, and technical corrections to tax depreciation methods for qualified improvement property. The Company did not apply for or require financing available under the CARES Act and does not expect to do so given the strength of our balance sheet. The Company will continue to monitor the impact that the CARES Act may have on its business, financial condition, results of operations, or liquidity.
ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
The matters addressed in this Item 2 that are not historical information constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Readers can recognize forward-looking statements by the use of words like “anticipate,” “estimate,” “expect,” “intend,” “plan,” “believe,” “will,” “should,” “forecast” and similar expressions in connection with any discussion of future operating or financial performance. In particular, these include statements about any of the following: any projections of or guidance as to earnings, revenue, sales, profit margins, expense rate, cash, effective tax rate, capital expense or any other financial items; the expected impact of the COVID-19 pandemic and related public health measures (including but not limited to their impact on sales, operations or clinical trials globally),the plans, strategies, and objectives of management for future operations or prospects for achieving such plans; statements regarding new, existing, or improved products, including but not limited to, expectations for success of new, existing, and improved products in the U.S. or international markets or government approval of a new or improved products (including the EVO family of lenses in the U.S. and the EDOF ICL for presbyopia internationally); commercialization of new or improved products; future economic conditions or size of market opportunities; expected costs of operations; statements of belief, including as to achieving 20192020 business plans; expected regulatory activities and approvals, product launches, and any statements of assumptions underlying any of the foregoing.
Although we believe that the expectations reflected in these forward-looking statements are reasonable, such statements are inherently subject to risks and we can give no assurance that our expectations will prove to be correct. Actual results could differ from those described in this report because of numerous factors, many of which are beyond our control. These factors include, without limitation, risks and uncertainties related to the COVID-19 pandemic and related public health measures,and those described in in our Annual Report on Form 10-K in “Item 1A. Risk Factors” filed on February 21, 2019.26, 2020, as well as the updated risk factor disclosed herein. We undertake no obligation to update these forward-looking statements after the date of this report to reflect future events or circumstances or to reflect actual outcomes.
The following discussion should be read in conjunction with the audited consolidated financial statements of STAAR, including the related notes, provided in this report.
Overview
STAAR Surgical Company designs, develops, manufactures, and sells implantable lenses for the eye and companion delivery systems used to deliver the lenses into the eye. We are the world’s leading manufacturer of intraocular lenses for patients seeking refractive vision correction, and we also make lenses for use in surgery to treat cataracts. All the lenses we make are foldable, which allows the surgeon to insert them into the eye through a small incision during minimally invasive surgery. Refractive surgery is performed to treat the type of visual disorders that have traditionally been corrected using eyeglasses or contact lenses. We refer to our lenses used in refractive surgery as “implantable Collamer® lenses” or “ICLs.” The field of refractive surgery includes both lens-based procedures, using products like our ICL family of products, and laser-based procedures like LASIK. Successful refractive surgery can correct common vision disorders such as myopia, hyperopia, and astigmatism. Cataract surgery is a common outpatient procedure where the eye’s natural lens that has become cloudy with age is removed and replaced with an artificial lens called an intraocular lens (IOL) to restore the patient’s vision. STAAR employs a commercialization strategy that strives for sustainable profitable growth. Our goal is to position our refractive lenses throughout the world as primary and premium solutions for patients seeking visual freedom from wearing eyeglasses or contact lenses while achieving excellent visual acuity through refractive vision correction. We position our IOL lenses used in surgery that treats cataracts based on quality and value.
Recent Developments
Net Sales increased 8% over the prior year quarter despite COVID-19 headwinds causing a pause in elective procedures across different markets and of various durations, commencing in February in China. ICL units increased 9% over the prior year quarter, including growth in Japan of 79%, growth in Korea of 14%, growth in Canada of 10%, growth in China of 7% and growth in Germany of 5%. We achieved recordexpect the decrease in sales in certain geographies, such as parts of Europe and North America, to continue through the second quarter of 2020 and possibly beyond as governments and other organizations impose or recommend, and businesses and individuals implement, restrictions on various activities or other actions to combat this pandemic’s spread. We also expect business to resume in various global geographies as pandemic concerns subside, such as the current experience in China and the nascent experience in Germany. At this point, the extent to which the coronavirus may impact our business remains uncertain.
To date, we have not experienced any significant COVID-19 related supply chain challenges. Current levels of customer demand in the quarter, coupled with our temporary manufacturing closure, will lead to modestly longer lead times for certain “made to order” lenses. We resumed production on April 27, 2020, at our Monrovia and Aliso Viejo, California manufacturing
facilities. As previously disclosed, we continued to pay all of our employees’ salaries, commissions, wages and benefits throughout the pandemic. We implemented enhanced safety measures intended to keep our employees safe, and our business continuity plans anticipate those measures remaining for some time, as well as potentially new measures identified as “best practices” in the future. In addition, we continue to monitor our customer’s return to work efforts, patient interest in refractive procedures in our larger markets, and our operational ability to meet expected customer demand. We gained valuable experience honing our digital communication strategies for providing customer educational and marketing support activities previously provided in person. We will continue to leverage and further improve these strategies for use into the foreseeable future as circumstances dictate. We remain confident that the future of refractive surgery is lens-based, and that our ICLs offer an exceptional solution for patients seeking visual freedom from contact lenses and eyeglasses.
With respect to our U.S. EVO clinical trial, our contract research organization is providing clinical-study support to the EVO principal investigators, including the restart of patient enrollment following a pause associated with recommendations from states and medical societies with respect to elective procedures and clinical trials. Several of our principal investigator sites have already reopened, and resumed patient recruiting, screening and implantation. At this time, we expect all of our principal investigator sites to reopen by May 15, 2020. Our EVO EDOF lens for presbyopia remains under review by DEKRA, our Notified Body. The pandemic may cause a delay in DEKRA’s response to our submission. Still, we remain optimistic our EDOF lens will be approved and introduced, in a staged rollout, to CE Mark countries either in the second or third quarter of this year. In early April 2020, we learned that Brazil’s Health Regulatory Agency, Anvisa, renewed the approval of the EVO Visian ICL for promotion and all-time record cash generationsale in Brazil after a protracted review. We expect to resume sales in Brazil in the third quarter. We believe the results through the first three quarterssecond quarter of 2019 put us on track to achieve the growth targets of 20% annual top line revenue growth, 30% ICL unit growth, positive cash flow, and higher GAAP net income than 2018, as we disclosed earlier this year for fiscal 2019. Subsequent2020, subject to the endpotential impact of the quarter we received a letter from FDA dated October 25, 2019 approving our supplement seeking approval for the clinical trial for our EVO family of lenses in the U.S. The letter included a few additional study design recommendations which we are working to include in the study protocol. We are responding to FDA within a weekCOVID-19 on surgeons or so. We continue to qualify study sites and expect our timelines will not be impacted as we work to close out the study design including FDA’s recommendations.patients.
Critical Accounting Policies
This Management’s Discussion and Analysis of Financial Condition and Results of Operations discusses and analyzes data in our unaudited Condensed Consolidated Financial Statements provided in this report, which we have prepared in accordance with U.S. generally accepted accounting principles. Preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses,
and related disclosure of contingent assets and liabilities. Management bases its estimates on historical experience and on various other assumptions that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Senior management has discussed the development, selection and disclosure of these estimates with the Audit Committee of our Board of Directors. Actual conditions may differ from our assumptions and actual results may differ from our estimates.
An accounting policy is deemed critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made, if different estimates reasonably could have been used, or if changes in the estimate that are reasonably likely to occur could materially impact the financial statements. On December 29, 2018 (beginning of fiscal year 2019), the Company adopted Accounting Standards Update 2016-02, “Leases (Topic 842)” and its subsequent amendments, the impact of this new accounting standard are discussed in Notes 1 and 8 of the Condensed Consolidated Financial Statements. Other than the adoption of Topic 842, managementManagement believes that there have been no significant changes during the ninethree months ended September 27April 3, 2020 , 2019 to the items that we disclosed as our critical accounting policies and estimates in Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the fiscal year ended December 28, 2018.January 3, 2020.
Results of Operations
The following table shows the percentage of our total sales represented by certain items reflected in our Condensed Consolidated Statements of IncomeOperations for the periods indicated.
|
| Percentage of Net Sales for Three Months |
|
| Percentage of Net Sales for Six Months |
|
| Percentage of Net Sales for Three Months |
| |||||||||||||||
|
| September 27, 2019 |
|
| September 28, 2018 |
|
| September 27, 2019 |
|
| September 28, 2018 |
|
| April 3, 2020 |
|
| March 29, 2019 |
| ||||||
Net sales |
|
| 100.0 | % |
|
| 100.0 | % |
|
| 100.0 | % |
|
| 100.0 | % |
|
| 100.0 | % |
|
| 100.0 | % |
Cost of sales |
|
| 25.6 | % |
|
| 24.9 | % |
|
| 25.3 | % |
|
| 26.1 | % |
|
| 29.6 | % |
|
| 25.8 | % |
Gross profit |
|
| 74.4 | % |
|
| 75.1 | % |
|
| 74.7 | % |
|
| 73.9 | % |
|
| 70.4 | % |
|
| 74.2 | % |
General and administrative |
|
| 18.2 | % |
|
| 19.2 | % |
|
| 19.3 | % |
|
| 19.5 | % |
|
| 22.6 | % |
|
| 21.0 | % |
Marketing and selling |
|
| 31.9 | % |
|
| 33.4 | % |
|
| 30.8 | % |
|
| 31.0 | % |
|
| 31.4 | % |
|
| 31.1 | % |
Research and development |
|
| 15.8 | % |
|
| 17.5 | % |
|
| 16.1 | % |
|
| 17.6 | % |
|
| 19.6 | % |
|
| 17.3 | % |
Total selling, general and administrative |
|
| 65.9 | % |
|
| 70.1 | % |
|
| 66.2 | % |
|
| 68.1 | % |
|
| 73.6 | % |
|
| 69.4 | % |
Operating income |
|
| 8.5 | % |
|
| 5.0 | % |
|
| 8.5 | % |
|
| 5.8 | % | ||||||||
Operating income (loss) |
|
| (3.2 | )% |
|
| 4.8 | % | ||||||||||||||||
Total other income (expense), net |
|
| (0.5 | )% |
|
| 0.7 | % |
|
| 0.5 | % |
|
| (0.1 | )% |
|
| (0.5 | )% |
|
| 0.9 | % |
Income before income taxes |
|
| 8.0 | % |
|
| 5.7 | % |
|
| 9.0 | % |
|
| 5.7 | % | ||||||||
Provision for income taxes |
|
| 1.9 | % |
|
| 1.1 | % |
|
| 2.1 | % |
|
| 1.6 | % | ||||||||
Net income |
|
| 6.1 | % |
|
| 4.6 | % |
|
| 6.9 | % |
|
| 4.1 | % | ||||||||
Income (loss) before income taxes |
|
| (3.7 | )% |
|
| 5.7 | % | ||||||||||||||||
Provision (benefit) for income taxes |
|
| (3.3 | )% |
|
| 1.5 | % | ||||||||||||||||
Net income (loss) |
|
| (0.4 | )% |
|
| 4.2 | % |
Net Sales
|
| Three Months Ended |
|
| Percentage Change |
|
| Nine Months Ended |
|
| Percentage Change |
|
| Three Months Ended |
|
| Percentage Change |
| ||||||||||||||||||
|
| September 27, 2019 |
|
| September 28, 2018 |
|
| 2019 vs. 2018 |
|
| September 27, 2019 |
|
| September 28, 2018 |
|
| 2019 vs. 2018 |
|
| April 3, 2020 |
|
| March 29, 2019 |
|
| 2020 vs. 2019 |
| |||||||||
ICLs |
| $ | 33,815 |
|
| $ | 26,418 |
|
|
| 28.0 | % |
| $ | 96,033 |
|
| $ | 74,868 |
|
|
| 28.3 | % |
| $ | 29,340 |
|
| $ | 27,786 |
|
|
| 5.6 | % |
Other product sales |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IOLs |
|
| 4,093 |
|
|
| 3,824 |
|
|
| 7.0 | % |
|
| 11,984 |
|
|
| 12,068 |
|
|
| (0.7 | )% |
|
| 3,994 |
|
|
| 4,017 |
|
|
| (0.6 | )% |
Other surgical products |
|
| 1,147 |
|
|
| 1,528 |
|
|
| (24.9 | )% |
|
| 3,285 |
|
|
| 5,832 |
|
|
| (43.7 | )% |
|
| 1,853 |
|
|
| 780 |
|
|
| 137.6 | % |
Total other product sales |
|
| 5,240 |
|
|
| 5,352 |
|
|
| (2.1 | )% |
|
| 15,269 |
|
|
| 17,900 |
|
|
| (14.7 | )% |
|
| 5,847 |
|
|
| 4,797 |
|
|
| 21.9 | % |
Net sales |
| $ | 39,055 |
|
| $ | 31,770 |
|
|
| 22.9 | % |
| $ | 111,302 |
|
| $ | 92,768 |
|
|
| 20.0 | % |
| $ | 35,187 |
|
| $ | 32,583 |
|
|
| 8.0 | % |
Net sales for the three months ended September 27, 2019April 3, 2020 were $39.1$35.2 million, an increase of 23%8% from $31.8$32.6 million reported during the same period of 2018.2019. The increase in net sales was due to an increase in ICL sales of $7.4 million.
Net sales for the nine months ended September 27, 2019 were $111.3$1.6 million and an increase of 20% from $92.8 million reported during the same period of 2018. The increase in net sales was due to an increase in ICL sales of $21.2 million, partially offset by a decrease in other product sales of $2.6$1.0 million. Foreign currency, primarily the euro, negatively impacted net sales by approximately $1.3 million for the nine months ended September 27, 2019.
Total ICL sales for the three months ended September 27, 2019April 3, 2020 were $33.8$29.3 million, a 28%6% increase from $26.4$27.8 million reported for the same period of 2018,2019, with unit growth up 35%9%. The sales increase was driven by the APAC region, which grew 37%10% with unit growth of 43%13%, primarily due to salesunit growth in China up 38%, Japan up 63%79%, Korea up 33%14% and other APAC distributors up 19%, partially offset by decreased37%. China sales, although essentially flat during the quarter, resumed in IndiaMarch 2020 after a country wide shut down in February 2020 as a result of 14%.the COVID-19 pandemic. The Europe, Middle East, Africa and Latin America region grew 5%sales decreased 4% with unit growth up 8%decrease of 3%. The North America region sales decreased 5%, with unit decrease of 4%, primarily due to sales growtha unit decrease of 6% in Spain up 12%, Distributor Operations up 7% and Germany up 5%the U.S., partially offset by decreased sales in Latin America of 9%. The North America region grew 19%, witha 10% unit growth of 2%, primarily due to sales growth of 24% in the U.S., as a result of sales of Toric ICL in 2019 (none in 2018), partially offset by decreased salesincrease in Canada. ICL sales represented 86.6%83.4% and 83.2%85.3% of our total sales for the three months ended September 27,April 3, 2020 and March 29, 2019, and September 28, 2018, respectively.
Total ICLOther product sales, including IOLs were $5.8 million for the ninethree months ended September 27, 2019 were $96.0 million, a 28%April 3, 2020, an increase of 22% from $74.9$4.8 million reported for the same period of 2018, with unit growth up 36%.2019. The sales increase was driven by the APAC region, which grew 41% with unit growth of 47%, primarily due to sales growth in Japan up 58%, China up 41%, Korea up 41%, other APAC distributors up 23% and India up 9%. The Europe, Middle East, Africa and Latin America region increased 1% with unit growth up 6%, due primarily to sales growth in UK up 30%, Germany up 6% and Spain up 3%, partially offset by decreased sales in the Middle East and Latin America of 8%. The North America region grew 17%, with unit growth of 2%, primarily due to sales growth of 25% in the U.S., as a result of sales of Toric ICL in 2019 (none in 2018), partially offset by decreased sales in Canada. ICL sales represented 86.3% and 80.7% of our total sales for the nine months ended September 27, 2019 and September 28, 2018, respectively.
Other product sales, including IOLs were $5.2 million for the three months ended September 27, 2019, a decrease of 2% from $5.4 million reported for the same period of 2018. Other product sales, including IOLs were $15.3 million for the nine months ended September 27, 2019, a decrease of 15% from $17.9 million reported for the same period of 2018. The decrease for both periods is primarily due to the decreaseincrease in preloaded injector part sales to a third-party manufacturer for product they sell to their customers and for the three months ended September 27, 2019, partially offset by an increase in IOL sales.April 3, 2020. Other product sales represented 13.4%16.6% and 16.8%14.7% of our total sales for the three months ended September 27,April 3, 2020 and March 29, 2019, and September 28, 2018respectively, respectively and represented 13.7% and 19.3% of our total sales for the nine months ended .
September 27, 2019 and September 28, 2018, respectively.
Gross Profit
|
| Three Months Ended |
|
| Percentage Change |
|
| Nine Months Ended |
|
| Percentage Change |
|
| Three Months Ended |
|
| Percentage Change |
| ||||||||||||||||||
|
| September 27, 2019 |
|
| September 28, 2018 |
|
| 2019 vs. 2018 |
|
| September 27, 2019 |
|
| September 28, 2018 |
|
| 2019 vs. 2018 |
|
| April 3, 2020 |
|
| March 29, 2019 |
|
| 2020 vs. 2019 |
| |||||||||
Gross profit |
| $ | 29,051 |
|
| $ | 23,860 |
|
|
| 21.8 | % |
| $ | 83,130 |
|
| $ | 68,518 |
|
|
| 21.3 | % |
| $ | 24,760 |
|
| $ | 24,180 |
|
|
| 2.4 | % |
Gross margin |
|
| 74.4 | % |
|
| 75.1 | % |
|
|
|
|
|
| 74.7 | % |
|
| 73.9 | % |
|
|
|
|
|
| 70.4 | % |
|
| 74.2 | % |
|
|
|
|
Gross profit for the three months ended September 27, 2019April 3, 2020 was $29.1$24.8 million, a 21.8%2.4% increase compared to the $23.9$24.2 million reported for the same period of 2018.2019. Gross profit margin decreased to 74.4%70.4% of revenue for the three months ended September 27, 2019April 3, 2020 compared to 75.1%74.2% of revenue for the three months ended September 28, 2018,March 29, 2019, due primarily to period expenses incurredcosts associated with manufacturing expansion projects and increased mix of injector part sales which carry a lower margin. Also impacting gross profit were $150,000 in period costs recorded as a result of COVID-19 and the resulting manufacturing pause which began on March 17, 2020. It is anticipated, gross profit in the constructionsecond quarter of new manufacturing2020 will be negatively impacted by approximately $1.4 million in additional period costs. Future gross profit will also likely be impacted by additional investments in safety-related modifications to our facilities, intendedpurchases of personal protective equipment (PPE) and other costs to satisfy growing demand for existing products and products currently under review by regulatory agencies. The gross marginprotect against COVID-19, although the financial impact of lower average selling prices was more than offset by the favorable impact of improved product mix.this cannot yet be quantified. We resumed manufacturing on April
Gross profit for the nine months ended September 27, 2019 was $83.1 million, a 21.3% increase compared to the $68.5 million reported for the same period of 2018. Gross profit margin increased to 74.7% of revenue for the nine months ended September 27, 2019 compared to 73.9% of revenue for the nine months ended September 28, 2018, due to increased sales of ICLs and decreased sales of injector parts resulting in favorable product mix, partially offset by the effect of lower average selling prices and period expenses incurred in the construction of new manufacturing facilities, as discussed above.2020.
General and Administrative Expense
|
| Three Months Ended |
|
| Percentage Change |
|
| Nine Months Ended |
|
| Percentage Change |
|
| Three Months Ended |
|
| Percentage Change |
| ||||||||||||||||||
|
| September 27, 2019 |
|
| September 28, 2018 |
|
| 2019 vs. 2018 |
|
| September 27, 2019 |
|
| September 28, 2018 |
|
| 2019 vs. 2018 |
|
| April 3, 2020 |
|
| March 29, 2019 |
|
| 2020 vs. 2019 |
| |||||||||
General and administrative expense |
| $ | 7,098 |
|
| $ | 6,087 |
|
|
| 16.6 | % |
| $ | 21,443 |
|
| $ | 18,054 |
|
|
| 18.8 | % |
| $ | 7,969 |
|
| $ | 6,837 |
|
|
| 16.6 | % |
Percentage of sales |
|
| 18.2 | % |
|
| 19.2 | % |
|
|
|
|
|
| 19.3 | % |
|
| 19.5 | % |
|
|
|
|
|
| 22.6 | % |
|
| 21.0 | % |
|
|
|
|
General and administrative expenses for the three months ended September 27, 2019April 3, 2020 were $7.1$8.0 million, ana 16.6% increase of 16.6% when compared with $6.1to the $6.8 million reported for the same period of 2018. General and administrative expenses for the nine months ended September 27, 2019 were $21.4 million, an increase of 18.8% when compared with $18.1 million reported for same period of 2018.2019. The increase in general and administrative expenses for both periods was due to an increase in headcount and salary-related expenses including stock-based compensation,, increased tax consulting costs and increased facility costs and professional fees.facilities costs.
Marketing and Selling Expense
|
| Three Months Ended |
|
| Percentage Change |
|
| Nine Months Ended |
|
| Percentage Change |
|
| Three Months Ended |
|
| Percentage Change |
| ||||||||||||||||||
|
| September 27, 2019 |
|
| September 28, 2018 |
|
| 2019 vs. 2018 |
|
| September 27, 2019 |
|
| September 28, 2018 |
|
| 2019 vs. 2018 |
|
| April 3, 2020 |
|
| March 29, 2019 |
|
| 2020 vs. 2019 |
| |||||||||
Marketing and selling expense |
| $ | 12,463 |
|
| $ | 10,620 |
|
|
| 17.4 | % |
| $ | 34,288 |
|
| $ | 28,733 |
|
|
| 19.3 | % |
| $ | 11,028 |
|
| $ | 10,143 |
|
|
| 8.7 | % |
Percentage of sales |
|
| 31.9 | % |
|
| 33.4 | % |
|
|
|
|
|
| 30.8 | % |
|
| 31.0 | % |
|
|
|
|
|
| 31.3 | % |
|
| 31.1 | % |
|
|
|
|
Marketing and selling expenses for the three months ended September 27, 2019April 3, 2020 were $12.5$11.0 million, an 8.7% increase of 17.4% when compared with $10.6to the $10.1 million reported for the same period of 2018. Marketing and selling expenses for the nine months ended September 27, 2019 were $34.3 million, an increase of 19.3% when compared with $28.7 million reported for same period of 2018.2019. The increase in marketing and selling expenses for both periods wasis due our continued investments in digital, strategicto increased advertising and consumer marketing,promotional activities and for the nine months ended September 27, 2019, also includes increases inincreased headcount and salary-related expenses, including stock-based compensation, andpartially offset by a decrease in travel expenses.
Research and Development Expense
|
| Three Months Ended |
|
| Percentage Change |
|
| Nine Months Ended |
|
| Percentage Change |
|
| Three Months Ended |
|
| Percentage Change |
| ||||||||||||||||||
|
| September 27, 2019 |
|
| September 28, 2018 |
|
| 2019 vs. 2018 |
|
| September 27, 2019 |
|
| September 28, 2018 |
|
| 2019 vs. 2018 |
|
| April 3, 2020 |
|
| March 29, 2019 |
|
| 2020 vs. 2019 |
| |||||||||
Research and development expense |
| $ | 6,156 |
|
| $ | 5,570 |
|
|
| 10.5 | % |
| $ | 17,889 |
|
| $ | 16,323 |
|
|
| 9.6 | % |
| $ | 6,898 |
|
| $ | 5,635 |
|
|
| 22.4 | % |
Percentage of sales |
|
| 15.8 | % |
|
| 17.5 | % |
|
|
|
|
|
| 16.1 | % |
|
| 17.6 | % |
|
|
|
|
|
| 19.6 | % |
|
| 17.3 | % |
|
|
|
|
Research and development expenses for the three months ended September 27, 2019April 3, 2020 were $6.2$6.9 million, ana 22.4% increase of 10.5% compared to the $5.6 million reported for the for same period of 2018. Research and development expenses for the nine months ended September 27, 2019 were $17.9 million, an increase of 9.6% compared to $16.3 million for the for same period of 2018.2019. The increase for the three months ended September 27, 2019 was primarily due to an increase in in expenses related to clinical expenses associated with our EVO clinical trial activities. The increase forin the nine months ended September 27, 2019 was mainly due to increases inU.S., increased quality validation expenses and increased headcount and salary-related expenses including stock-based compensation, and expenses related to clinical trial activities.expenses.
Other Income (Expense), Net
|
| Three Months Ended |
|
| Percentage Change |
|
| Nine Months Ended |
|
| Percentage Change |
|
| Three Months Ended |
|
| Percentage Change |
| ||||||||||||||||||
|
| September 27, 2019 |
|
| September 28, 2018 |
|
| 2019 vs. 2018 |
|
| September 27, 2019 |
|
| September 28, 2018 |
|
| 2019 vs. 2018 |
|
| April 3, 2020 |
|
| March 29, 2019 |
|
| 2020 vs. 2019 |
| |||||||||
Other income (expense), net |
| $ | (186 | ) |
| $ | 222 |
|
|
| —* |
|
| $ | 539 |
|
| $ | (84 | ) |
|
| —* |
|
| $ | (157 | ) |
| $ | 291 |
|
|
| —* |
|
Percentage of sales |
|
| -0.5 | % |
|
| 0.7 | % |
|
|
|
|
|
| 0.5 | % |
|
| -0.1 | % |
|
|
|
|
|
| (0.5 | )% |
|
| 0.9 | % |
|
|
|
|
* | Denotes change is greater than +100%. |
Other expense, net for the three months ended September 27, 2019April 3, 2020 was $0.2 million compared to other income of $0.2$0.3 million reported for the same period of 2018.2019. The decreasechange in other expense,income (expense), net was mainly due to the increase in foreign exchange losses (primarily the euro), offset by an increase in interest income earned on cash and cash equivalents. Other income, net for the nine months ended September 27, 2019 was $0.5 million, an increase from other expense, net of $0.1 million reported for the same period of 2018. The increase in other income, net was due to an increase in interest income earned on cash and cash equivalents, offset by an increase in foreign exchange losses (primarily the euro).
Income Taxes
|
| Three Months Ended |
|
| Percentage Change |
|
| Nine Months Ended |
|
| Percentage Change |
| ||||||||||||
|
| September 27, 2019 |
|
| September 28, 2018 |
|
| 2019 vs. 2018 |
|
| September 27, 2019 |
|
| September 28, 2018 |
|
| 2019 vs. 2018 |
| ||||||
Income tax provision |
| $ | 760 |
|
| $ | 346 |
|
|
| —* |
|
| $ | 2,380 |
|
| $ | 1,452 |
|
|
| 63.9 | % |
|
| Three Months Ended |
|
| Percentage Change |
| ||||||
|
| April 3, 2020 |
|
| March 29, 2019 |
|
| 2020 vs. 2019 |
| |||
Income tax provision (benefit) |
| $ | (1,158 | ) |
| $ | 489 |
|
|
| —* |
|
* | Denotes change is greater than +100%. |
The provision for income taxes is determined using an estimated annual effective tax rate. We recorded an income taxestax benefit of $0.8 million and $2.4$1.2 million for the three and nine months ended September 27, 2019, respectively and $0.3 million and $1.5April 3, 2020 due to the income tax benefit from the release of our U.S. valuation allowances, offset by income tax expense from profits generated by our foreign operations. We recorded income taxes of $0.5 million for the three and nine months ended September 28, 2018, respectively. The income tax provision wasMarch 29, 2019 primarily due primarily to pre-tax income generated in certain foreign jurisdictions.jurisdictions and withholding taxes on foreign operations. In the fourth quarter of fiscal year 2019, we reversed all previously recorded withholding taxes recorded for 2019, at which time we formed STAAR Surgical UK Limited as a holding company for our foreign operations. Based on the current tax treaties between the U.S., United Kingdom and Switzerland, we will no longer accrue for Switzerland withholding taxes on foreign earnings after fiscal 2018 (see also Note 10 in our fiscal 2019 Form 10-K for more information). We have no unrecognized tax benefits pertaining to any uncertain tax positions as of any period presented.
For the three and nine months ended September 27, 2019, we included Global Intangible Low Tax Income (“GILTI”) of $4.4 million and $12.1 million, respectively, in U.S. gross income, which was fully offset with net operating loss carryforwards. We were not able to utilize the deduction of 50 percent of GILTI, as this deduction is limited to the Company’s U.S. taxable income.
Due to our history of losses in the U.S., we have maintained a full valuation allowance to offset the value of our U.S. net deferred tax assets on our balance sheet as of September 27, 2019, with the exception of the remaining refundable alternative minimum tax credit of $0.3 million. However, global profit is now includable in U.S. income under GILTI and as a result we have reported income in the U.S. in fiscal year 2018. As our global profitability improves, including our ability to meet or exceed forecasts, we will continue to reassess at each reporting period the need for a full or partial valuation allowance on our U.S. net deferred tax assets. We determine the need forASC 740 requires that a valuation allowance based upon all available positive and negative evidence, including reversals of deferred tax liabilities, projected future taxable income, impact of GILTI in the U.S., tax planning strategies, and results of recent operations. Ifbe established when it is more likely than not that the deferred tax asset is realizable, we would record an income tax benefit for all or a portion of a deferred tax asset may not be realizable. As further described in Notes 1 and 10 of our fiscal 2019 Form 10-K, under the “incremental cash tax savings approach,” we recorded a valuation release of $3,003,000 and $373,000 against federal and certain states deferred tax assets, respectively. During the three months ended April 3, 2020, we revised our global forecasts as a result of COVID-19, and released an additional $1.4 million of valuation allowance. As of April 3, 2020, we released approximately $4.9 million of valuation allowance on our deferred tax assets in the periodU.S. jurisdiction utilizing the incremental cash tax savings approach. The ultimate realization of deferred tax assets is dependent upon future generation of income during the periods in which such determination is made. Any such changestemporary differences representing net future deductible amounts become deductible. We considered the projected future income, tax planning strategies and all other available evidence both positive and negative, as well as results of recent operations in making this assessment. In applying the assessment ofincremental cash tax savings approach, we will continue to maintain a full or partial valuation allowance could have a material impact on earnings. The valuation allowance was approximately $39.8 million asthe balance of September 27, 2019.the Company’s net U.S. deferred tax assets of $36.3 million.
Liquidity and Capital Resources
We believe ourthat current cash, balances coupled with cash flowsequivalents and future cash flow from operating activities is expectedwill be sufficient to meet our anticipated cash needs, including working capital needs, capital expenditures and contractual obligations for at least 12 months from the issuance date of the financial statements included in this quarterly report. We have experienced delays in payments on accounts receivable and expect this to continue to be adequatethe case during the second quarter as our customers are permitted to coverresume elective refractive surgery. This will have a temporary impact on our operationalworking capital. However, at this time we are unaware of any impairment of assets resulting from the COVID19 pandemic. The Company did not apply for or require financing available under the Coronavirus Aid, Relief, and business needs through at leastEconomic Security “CARES” Act and does not expect to do so
given the next 12 months.strength of our balance sheet. Our financial condition at September 27, 2019April 3, 2020 and December 28, 2018January 3, 2020 included the following (in millions):
|
| September 27, 2019 |
|
| December 28, 2018 |
|
| 2019 vs. 2018 |
|
| April 3, 2020 |
|
| January 3, 2020 |
|
| 2020 vs. 2019 |
| ||||||
Cash and cash equivalents |
| $ | 112.3 |
|
| $ | 103.9 |
|
| $ | 8.4 |
|
| $ | 110.9 |
|
| $ | 120.0 |
|
| $ | (9.1 | ) |
Current assets |
| $ | 165.0 |
|
| $ | 151.6 |
|
| $ | 13.4 |
|
| $ | 172.1 |
|
| $ | 174.7 |
|
| $ | (2.6 | ) |
Current liabilities |
|
| 30.0 |
|
|
| 27.7 |
|
|
| 2.3 |
|
|
| 29.9 |
|
|
| 34.5 |
|
|
| (4.6 | ) |
Working capital |
| $ | 135.0 |
|
| $ | 123.9 |
|
| $ | 11.1 |
|
| $ | 142.2 |
|
| $ | 140.2 |
|
| $ | 2.0 |
|
We invest the net proceeds in short-term interest-bearing obligations, investment-grade instruments, certificates of deposit or direct or guaranteed obligations of the U.S. government. Additionally, at September 27, 2019,April 3, 2020, we have a line of credit with a Japanese lender, in the amount of $4.6$1.3 million, with $2.3$3.3 million of availability and a line of credit with a Swiss lender, in the amount of $1.0 million, which is fully available for borrowing.
Net cash provided byused in operating activities was $16.0 million and $10.4$8.2 million for the ninethree months ended September 27, 2019 and September 28, 2018, respectively. Net cash provided by operating activities for the nine months ended September 27, 2019, consisted of $13.0 million in non-cash items and $7.7 million in net income, offset by $4.7 million in working-capital changes. The increase inApril 3, 2020 compared to net cash provided by operating activities of $0.7 million for the three months ended March 29, 2019. Net cash used in operating activities for the three months ended April 3, 2020, consisted of $11.0 million in working-capital changes and a $0.1 million net loss, offset by $2.9 in non-cash items. The change in net cash used in operating activities during the ninethree months ended September 27, 2019April 3, 2020 was due to an increase in net income of $3.8 million and an increase of $3.6 million in non-cash items offset by a decrease in net working capital of $1.8 million.$5.8 million, a decrease of $1.6 million in non-cash items and the net loss of $0.1 million during the three months ended April 3, 2020 compared to net income of $1.4 million during the three months ended March 29, 2019.
Net cash used in investing activities was $7.2 million and $1.7$2.2 million for the ninethree months ended September 27,April 3, 2020 and March 29, 2019, and September 28, 2018, respectively, and relate primarily to the acquisition of property, plant, and equipment. The increase
in investment in property, plant and equipment during 2019, relative to 2018, is primarily due to investments in manufacturing facilities intended to satisfy growing demand for our products.
Net cash used in financing activities was $0.7 million for the nine months ended September 27, 2019 and net cash provided by financing activities was $75.1$1.3 million for the ninethree months ended September 28, 2018. NetApril 3, 2020 compared to net cash used in financing activities of $0.2 million for the ninethree months ended September 27, 2019March 29, 2019. Net cash provided by financing activities for the three months ended April 3, 2020 consisted of $1.5$2.0 million of proceeds from the exercise of stock options, offset by $0.5 million repayment on the Japan line of credit and $1.0$0.2 million repayment of finance lease obligations, offset by $1.8 million of proceeds from the exercise of stock options. During the nine months ended September 28, 2018, we closed an offering of our common stock and received $72.2 million.obligations.
Credit Facilities and Commitments
Lines of Credit and Leases
See Notes 7 and 8 of the accompanying Condensed Consolidated Financial Statements.
Covenant Compliance
The Company is in compliance with the covenants of its credit facilities as of September 27, 2019.April 3, 2020.
Employment Agreements
The Company’s Chief Executive Officer entered into an employment agreement with the Company, effective March 1, 2015. She and certain officers have as provisions of their agreements certain rights, including continuance of cash compensation and benefits, upon a “change in control,” which may include an acquisition of substantially all of its assets, or termination “without cause or for good reason” as defined in the employment agreements.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements, as that term is defined in the rules of the SEC, that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.
ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
During the ninethree months ended September 27, 2019,April 3, 2020, there have been no material changes in the Company’s qualitative and quantitative market risk since the disclosure in the Company’s Annual Report on Form 10-K for the year ended December 28, 2018.January 3, 2020.
ITEM 4. | CONTROLS AND PROCEDURES |
Disclosure Controls and Procedures
As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our management, including our CEO and CFO, of the effectiveness of the design and operation of the disclosure controls and procedures of the Company. Based on that evaluation, our CEO and CFO concluded, as of the end of the period covered by this quarterly report on Form 10-Q, that our disclosure controls and procedures were effective. For purposes of this statement, the term “disclosure controls and procedures” means controls and other procedures of the Company that are designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act (15 U.S.C. 78a et seq.) is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Act is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
Our management, including the CEO and the CFO, do not expect that our disclosure controls and procedures or our internal control over financial reporting will necessarily prevent all fraud or material errors. An internal control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations on all internal control systems, our internal control system can provide only reasonable assurance of achieving its objectives and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of internal control is also based in part upon certain assumptions about the likelihood of future events, and can provide only reasonable, not absolute, assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in circumstances, or the degree of compliance with the policies and procedures may deteriorate.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting during the quarter ended September 27, 2019April 3, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II – OTHER INFORMATION
ITEM 1. | LEGAL PROCEEDINGS |
From time to time, the Company is involved in various legal proceedings and other matters arising in the normal course of business. These legal proceedings and other matters may relate to, among other things, contractual rights and obligations, employment matters, or claims of product liability. STAAR maintains insurance coverage for various matters, including product liability and certain securities claims. While we do not believe that any of the claims known is likely to have a material adverse effect on our financial condition or results of operations, new claims or unexpected results of existing claims could lead to significant financial harm.
ITEM 1A. | RISK FACTORS |
Our short and long-term success is subject to many factors that are beyond our control. Investors and prospective investors should consider carefully information contained in this report and the risks and uncertainties described in “Part I—Item 1A—Risk Factors” of the Company’s Form 10-K for the fiscal year ended December 28, 2018.January 3, 2020. Such risks and uncertainties could materially adversely affect our business, financial condition or operating results.
In light of the ongoing COVID-19 pandemic, the Company has updated the risk factor set forth below. This risk factor supplements and should be read in conjunction with the risk factors described in the 2019 Form 10-K.
As discussed below, the impact of the COVID-19 pandemic and the measures implemented by governmental authorities and other third parties in response to the pandemic remains uncertain. To the extent the pandemic adversely affects our business, financial condition and results of operations, it may also have the effect of amplifying many of the risk factors included in Part 1, Item 1A, Risk Factors of the 2019 Form 10-K.
Public health crises, political crises, and other catastrophic events or other events outside of our control may impact our business.
In 2019, we generated approximately 95% of our total sales outside the U.S. A natural disaster (such as tsunami, power shortage, or flood), public health crisis (such as a pandemic or epidemic), political crisis (such as terrorism, war, political instability or other conflict), or other events outside of our control that may occur anywhere around the world, may adversely impact our business and operating results. Moreover, these types of events could negatively impact surgeon or patient spending in the impacted region(s) or depending upon the severity, globally, which could adversely impact our operating results. For example, in December 2019, COVID-19 was reported in Wuhan, China, resulting in temporary hospital and clinic closures and a decrease in consumer traffic in China, our largest single market. Thereafter, COVID-19 spread globally becoming a pandemic, resulting in governmental authorities and other third parties implementing or recommending a number of measures to contain the spread of COVID-19, including travel restrictions, shelter-in-place orders and business limitations and shutdowns. The impact of COVID-19 and these measures implemented or recommended by governmental authorities and other third parties have had a significant impact on many businesses, including ours. We suspended most of our production on March 17, 2020 with the exception of continuation of critical late-staged processes. Moreover, our revenues have been adversely impacted, as customers in China were not able to carry out procedures during the month of February and we experienced a substantial slowdown in sales beginning March 20, 2020 in global geographies characterized as “hot spots” for the COVID-19 virus, including parts of Europe and North America. In certain of these markets, sales have paused as elective surgeries are discouraged to support COVID-19 related needs. We expect this decrease in sales in certain geographies, such as parts of Europe and North America, to continue through the second quarter of 2020 and possibly beyond as different geographies resume business activities on differing timelines. We cannot predict when different governments will permit businesses in their jurisdictions to return to business or when consumers will resume scheduling procedures. We also cannot predict COVID-19’s impact on the overall economy of various markets, including the existence or extent of a possible recession. Thus, at this point, the extent to which the coronavirus may impact delayed medical procedures and delayed lens orders, and the related impact on our full year 2020 results is uncertain; however, it could have a material adverse impact on our results of operations, cash flows and financial condition. We monitor such events and take actions that we deem reasonable given the circumstances. In the future other types of crises, may create an environment of business uncertainty around the world, which may hinder sales and/or supplies of our products nationally and internationally.
The extent to which the pandemic impacts our business, operations, and financial results, including the duration and magnitude of such effects, will depend on numerous evolving factors that are uncertain and cannot be predicted, including the following: the duration and scope of the pandemic; the impact it has on global and regional economies and economic activity, including the duration and magnitude of its impact on consumer spending; how quickly and to what extent more customary economic and operating conditions can resume; its impact on our customers’ facilities; levels of consumer confidence; whether our COVID-19 preventative measures such as remote working arrangements, changes to manufacturing work areas, such as adherence to social distancing guidelines, and other workforce changes will impact operational efficiency or inventory levels; the impact on regulatory agencies, including the review and approval process; the impact on clinical studies; the ability of our customers to successfully navigate the impacts of the pandemic such as resuming activities and growing patient interest in our lenses; actions governments, businesses and individuals take in response to the pandemic; and potential employee illness and its impact on our operations.
ITEM 4. | MINE SAFETY DISCLOSURES |
Not Applicable.
ITEM 5. | OTHER INFORMATION |
None.On May 6, 2020, we filed a universal shelf registration statement on Form S-3 with the Securities and Exchange Commission (SEC). Our existing universal shelf registration statement expires on June 9, 2020. The registration statement is subject to review by the SEC.
When declared effective by the SEC, the shelf registration will allow us the flexibility to offer and sell up to $200 million of securities, including common stock, preferred stock, debt securities, and warrants, from time to time and through various methods of distribution. Our existing universal shelf registration statement also authorized the Company to issue up to $127,387,444.40 of securities, as we issued $72,612,553.60 of securities in an August 10, 2018 offering. In accordance with SEC rules, the Company may make securities offerings under the existing shelf registration statement until the new registration statement is declared effective, subject to a maximum extension of 180 days. There are no plans to offer securities under either shelf registration statement at this time. Any future offering would be subject to market conditions and approval by the Company’s Board of Directors. Any offering of securities covered by a shelf registration statement will be made only by means of a prospectus supplement authorized and filed by the Company.
The registration statement has been filed with the SEC but has not yet become effective. The securities being registered may not be sold, nor may offers to buy be accepted, prior to the time the registration statement becomes effective.
ITEM 6. | EXHIBITS |
3.1 | |
|
|
3.2 | |
|
|
4.1 | Form of Certificate for Common Stock, par value $0.01 per share.(3) |
|
|
†4.2 | |
|
|
31.1 | |
|
|
31.2 | |
|
|
32.1 | |
|
|
101 | Financial statements from the quarterly report on Form 10-Q of STAAR Surgical Company for the quarter ended |
|
|
104 | The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended |
(1) | Incorporated by reference to Appendix 2 of the Company’s Proxy Statement on Form DEF 14A as filed with the Commission on April 13, 2018 |
(2) | Incorporated by reference to Appendix 3 of the Company’s Proxy Statement on Form DEF 14A as filed with the Commission on April 13, 2018. |
(3) | Incorporated by reference to Exhibit 4.1 to Amendment No. 1 to the Company’s Registration Statement on Form 8‑A/A as filed with the Commission on April 18, 2003. |
(4) | Incorporated by reference to Appendix 1 of the Company’s Proxy Statement on Form DEF 14A as filed with the Commission on April 13, 2018. |
* | Filed herewith. |
** | Furnished herewith. |
† | Management contract or compensatory plan. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
| STAAR SURGICAL COMPANY | ||
|
|
|
|
|
|
Dated: |
|
| By: |
| /s/ DEBORAH J. ANDREWS |
|
|
|
|
| Deborah J. Andrews |
|
|
|
|
| Chief Financial Officer |
|
|
|
|
| (on behalf of the Registrant and as its principal financial officer) |
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