UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended: March 31, 2000
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 (I.R.S. Employer
Incorporation or organization) Identification No.)
1911 Walker Avenue
Monrovia, California
91016
(Address of principal executive offices)
(Zip Code)
(626) 303-7902
(Registrant's telephone number including area code)
N/A
(Former name, former address and former fiscal year, if changed since last
report)
------------------
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 [X] NO [_]
The Registrant has 14,781,242 shares of common stock, par value $0.01 per share,
issued and outstanding as of May 11, 2000.
Total number of sequentially numbered pages in this document: 9
STAAR SURGICAL COMPANY
INDEX
PAGE
NUMBER
------
PART I
Item 1 - Financial Information
Condensed Consolidated Balance Sheets - March 31, 2000 and
December 31, 1999............................................ 1
Condensed Consolidated Statements of Income - Three Months Ended
March 31, 2000 and April 2, 1999.............................. 2
Condensed Consolidated Statements of Cash Flows - Three Months Ended
March 31, 2000 and April 2, 1999.............................. 3
Notes to Condensed Consolidated Financial Statements............... 4
Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations......................................... 5
PART II
Item 5 - Other Information.................................................. 8
Signature Page..................................................... 9
Item 6 - Exhibits and Reports on Form 8-K
Exhibits
--------
27 Financial Data Schedule
Reports on Form 8-K
-------------------
None
STAAR SURGICAL COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
March 31, December 31,
2000 1999
ASSETS (Unaudited) (Note)
------ ------------ -------------
Current assets:
Cash and cash equivalents $ 3,416,438 $ 3,344,128
Accounts receivable, less allowance for doubtful accounts 9,955,537 9,426,813
Other receivables 3,531,172 3,020,027
Inventories 24,140,056 22,318,131
Prepaids, deposits, and other current assets 5,057,432 4,530,362
Deferred income tax 931,618 927,918
----------------------------------
Total current assets 47,032,253 43,567,379
----------------------------------
Investment in joint venture 3,577,450 3,577,450
Property, plant and equipment, net 13,209,551 12,676,480
Patents and licenses, net 17,190,847 14,599,361
Goodwill, net 7,607,253 7,744,267
Other assets 2,969,246 3,108,337
----------------------------------
Total assets $91,586,600 $85,273,274
==================================
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Notes payable $ 677,645 $ 880,173
Accounts payable 8,594,870 7,448,714
Current portion of long-term debt 1,829,557 1,811,164
Deferred income tax 2,723,048 2,709,318
Other current liabilities 4,273,264 5,127,336
----------------------------------
Total current liabilities 18,098,384 17,976,705
----------------------------------
Long-term debt, net of current portion 17,626,079 13,673,254
Other long-term liabilities 362,050 403,631
----------------------------------
Total liabilities 36,086,513 32,053,590
----------------------------------
Minority interest 559,596 536,055
----------------------------------
Stockholders' equity:
Common stock, $.01 par value; 30,000,000 shares authorized;
issued and outstanding 14,752,339 at March 31, 2000 and
14,752,339 at December 31, 1999 147,523 147,523
Capital in excess of par value 51,205,459 51,205,459
Stock to be issued 2,400,000 --
Accumulated other comprehensive income (1,688,708) (1,282,025)
Retained earnings 9,735,380 9,471,835
----------------------------------
61,799,654 59,542,792
Notes receivable from officers and directors (6,859,163) (6,859,163)
----------------------------------
Total stockholders' equity 54,940,491 52,683,629
----------------------------------
$91,586,600 $85,273,274
==================================
Note: The amounts presented in the December 31, 1999 balance sheet are derived
from the audited financial statements for the year ended December 31, 1999.
See accompanying notes to the condensed consolidated financial statements.
1
STAAR SURGICAL COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended
------------------------------------------------
March 31, 2000 April 2, 1999
-------------- ----------------
Sales $14,079,937 $14,725,103
Royalty income 58,036 58,036
----------- -----------
Total revenues 14,137,973 14,783,139
Cost of sales 5,480,020 5,744,670
----------- -----------
Gross profit 8,657,953 9,038,469
----------- -----------
Selling, general and administrative expenses:
General and administrative 2,337,580 1,741,779
Marketing and selling 4,870,988 4,846,486
Research and development 1,110,052 1,062,416
----------- -----------
Total selling, general and administrative expenses 8,318,620 7,650,681
----------- -----------
Operating income 339,333 1,387,788
----------- -----------
Other income (expense):
Equity in earnings of joint venture - 99,243
Interest income 532,087 22,301
Interest expense (372,971) (215,501)
Other income (expense) (33,379) (28,787)
----------- -----------
Total other income (expense) 125,737 (129,727)
----------- -----------
Income before income taxes and minority interest 465,070 1,258,061
Income tax provision 158,124 419,821
43,401 165,489
Minority interest ----------- -----------
Net income $ 263,545 $ 672,751
=========== ===========
Net income per share:
Basic $ .02 $ .05
=========== ===========
Diluted $ .02 $ .05
=========== ===========
Weighted average number of shares outstanding:
Basic 14,752,339 14,093,495
Diluted 15,308,271 14,329,031
See accompanying notes to the condensed consolidated financial statements.
2
STAAR SURGICAL COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
------------------------------------------
March 31, April 2,
2000 1999
--------------------------------------------
Cash flows from operating activities:
Net income $ 263,545 $ 672,751
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation of property and equipment 637,261 453,470
Amortization of intangibles 587,353 505,446
Change in deferred revenue (58,036) (58,036)
Minority interest 23,541 165,489
Equity in earnings of joint venture -- (99,244)
Deferred income taxes 10,030 --
Change in operating working capital (3,038,746) (1,659,535)
----------- -----------
Net cash used in operating activities (1,575,051) (19,659)
----------- -----------
Cash flows from investing activities:
Purchase of property and equipment (1,170,332) (567,545)
Increase in patents and licenses (491,980) (332,863)
Dividends received from joint venture -- 187,171
Increase in other assets (10,753) (8,530)
----------- -----------
Net cash used in investing activities (1,673,066) (721,767)
----------- -----------
Cash flows from financing activities:
Increase in borrowings under notes payable and long-term debt 7,136,148 --
Payments on notes payable and long-term debt (853,483) (308,754)
Net borrowings (payments) under line-of-credit (2,555,555) 261,046
Proceeds from the exercise of stock options -- 207,375
----------- -----------
Net cash provided by financing activities 3,727,110 159,667
----------- -----------
Effect of exchange rate changes on cash and cash equivalents (406,683) (4,769)
----------- -----------
Decrease in cash and cash equivalents (72,310) (586,528)
Cash and cash equivalents, at beginning of period 3,344,128 4,689,574
----------- -----------
Cash and cash equivalents, at end of period $3,416,438 $4,103,046
=========== ===========
See accompanying notes to the condensed consolidated financial statements.
3
STAAR SURGICAL COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2000
1. Basis of Presentation
The accompanying financial statements consolidate the accounts of the
Company and its wholly and majority owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated in consolidation.
Assets and liabilities of foreign subsidiaries are translated at rates of
exchange in effect at the close of the period. Revenues and expenses are
translated at the weighted average of exchange rates in effect during the
period. The resulting translation gains and losses are deferred and are shown as
a separate component of stockholders' equity. During the three-months ended
March 31, 2000 and April 2, 1999, the net foreign translation loss was $406,683
and $4,769 and net foreign currency transaction gain/loss was not material.
Investments in affiliates and joint ventures are accounted for using the equity
method of accounting, except for the period ended March 31, 2000 which is on the
cost basis (see Management Discussion and Analysis).
Each of the Company's reporting periods ends on the Friday nearest
to the quarter ending date.
2. Foreign Sales
During the three-months ended March 31, 2000 and April 2, 1999, the Company
had foreign sales primarily to Europe, South Africa, Australia and Southeast
Asia of approximately $6,534,000 and $8,513,000. Of these sales, approximately
$5,636,000 and $6,441,000 were to Europe, which has been the Company's principal
foreign market.
The Company sells its products internationally. International transactions
subject the Company to several potential risks, including fluctuating exchange
rates (to the extent the Company's transactions are not in U.S. dollars),
regulation of fund transfers by foreign governments, United States and foreign
export and import duties and tariffs and possible political instability.
3. Inventories
Inventories are valued at the lower of cost (first-in, first-out) or market
(net realizable value) and consisted of the following at March 31, 2000 and
December 31, 1999:
March 31, December 31,
2000 1999
---------- ------------
Raw materials and purchased parts............ $ 2,312,617 $ 2,137,400
Work in process.............................. 3,384,436 3,128,247
Finished goods............................... 18,443,003 17,052,484
----------- -----------
$24,140,056 $22,318,131
=========== ===========
4. Patents
During the quarter, the Company purchased new technology of $2.9 million for
$2.4 million in Common Stock and $.5 million in cash.
5. Long-term Debt
During the quarter, the Company obtained a term loan in the amount of $7.0
million from its current domestic lender at a rate of interest not to exceed
prime less .5%. The note, which terminates February 1, 2005, grants as security
for all indebtedness to the bank, all of the Company's accounts receivable and
other rights to payment, general intangibles, inventory and equipment. The loan
requires the Company to satisfy certain financial tests and limits the amount of
other indebtedness the Company may incur. The Company was not in compliance with
restrictive covenants as of March 31, 2000. The Company is in negotiations with
its lender to adjust the covenants to assure future compliance.
6. Interim Financial Statements
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and Article
10 of Regulation S-X. Accordingly, they do not include all the information and
footnotes required by generally accepted accounting principles for complete
financial statements. The financial statements for the three-months ended March
31, 2000 and April 2, 1999, in the opinion of management, include all
adjustments (consisting only of normal recurring adjustments) necessary for a
fair presentation of the financial condition and results of operations for this
interim period. 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 31, 1999. The results of
operations for the three-months ended March 31, 2000 are not necessarily
indicative of the results to be expected for any other interim period or the
entire year.
7. Reclassifications
Certain reclassifications have been made to the 1999 consolidated financial
statements to conform to the 2000 presentation.
4
PART 1 - ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
The following table sets forth the percentage of total revenues represented
by certain items reflected in the Company's income statement for the period
indicated and the percentage increase or decrease in such items over the prior
period.
Percentage of
Total Revenues For Three Percentage change
Months Ended For Three Months
----------------------------------- -------------------
March 31, April 2,
2000 1999 2000 vs. 1999
----------------------------------- -------------------
Increase (Decrease)
Total revenues................................. 100.0% 100.0% (4.4%)
Cost of sales.................................. 38.8 38.9 (4.6)
----- -----
Gross profit................................... 61.2 61.1 (4.2)
Costs and expenses:
General and administrative................ 16.5 11.8 34.2
Marketing and selling..................... 34.5 32.8 .5
Research and development.................. 7.9 7.2 4.5
----- -----
Total costs and expenses 58.8 51.8 8.7
Other income (expense), net.................... .9 (.9) 100.0
----- -----
Income before income taxes..................... 3.3 8.5 (63.0)
Income tax provision........................... 1.1 2.8 (62.3)
Minority interest .3 1.1 (73.8)
----- -----
Net income...................... 1.9% 4.6% (60.8%)
===== =====
Revenues
- --------
Revenues for the three-month period ended March 31, 2000 were $14.1 million,
which is 4.4% less than the $14.8 million in revenues for the three-month period
ended April 2, 1999. The decrease in revenues was attributable to a decrease in
unit sales of the Company's intraocular lenses (IOLs) primarily in Europe and
Asia offset by increased sales in the United States and lower average selling
prices of IOLs due to competitive pressures combined with the effect of the
relative strength of the U.S. Dollar as compared to certain foreign currencies.
This decrease was offset by increased sales of the Company's refractive
products, primarily the Implantable Contact Lens(TM), a deformable intraocular
refractive corrective lens, and the Toric(TM) intraocular lens and increase in
sales from the Company's laser eye centers which commenced operations in the
third quarter of 1999.
Cost of Sales
- -------------
Cost of sales decreased to 38.8% of revenues for the three-months ended March
31, 2000 from 38.9% of revenues for the three-months ended April 2, 1999. The
slight decrease in cost of sales was due to higher sales volume of new products,
specifically the Company's refractive lenses, with higher margins offset by the
lower margins of IOLs due to cost reductions and savings not keeping pace with
the decline in selling price. The Company expects cost of sales as a percentage
of sales to remain at this level for the remainder of this year. The Company has
recently started an aggresive program of cost reduction and containment. This
program included certain changes in manufacturing management. These programs, if
successful, will lower the cost of manufacturing this year and the Company
should begin to realize the benefits of lower cost of sales possibly late this
year or early next year.
General & Administrative
- ------------------------
General and administrative expense increased to 16.5 % of revenues for the
three-months ended March 31, 2000 from
5
11.8% of revenues for the three-months ended April 2, 1999. The increase as a
percent of revenues was due to lower overall revenues, general and
administrative costs of operating the Company's Laser and Implant Technology
Centers and increased professional fees.
Marketing and Selling
- ---------------------
Marketing and selling expense increased to 34.5 % of revenues for the three-
months ended March 31, 2000 compared to 32.8% of revenues for the three-months
ended April 2, 1999. The increase in marketing and selling expense as a
percentage of revenues was attributable to decreased revenues and additional
costs associated with sales meetings.
Research and Development
- ------------------------
Research and development expense for the first quarter ending March 31, 2000
was 7.9% of revenues compared to 7.2% of revenues at April 2, 1999. Actual
expense increased 4.5% over the same period last year due to increased costs
related to clinical trials with respect to new products.
Other Income (Expense), Net
- ---------------------------
Other income (expense), net for the quarter ended March 31, 2000 was
$126,000, or .9% of revenues, as compared to ($130,000), or (.9%) of revenues,
for the quarter ended April 2, 1999. The primary reasons for this change were
increased accrued interest income related to the second quarter note repayment
by certain officers of the Company, offset by a decrease in earnings related to
the Company's joint venture with Canon STAAR and increased interest expense on
increased borrowings.
Income Tax Provision
- --------------------
The Company's effective income tax rate at March 31, 2000 increased to 34.0%
as compared to April 2, 1999 when it was 33.4%.
Liquidity and Capital Resources
- -------------------------------
Cash and cash equivalents for the quarter ended March 31, 2000 decreased by
approximately $.07 million relative to the fiscal year ended December 31, 1999.
During the quarter, the Company increased its inventories in preparation for
the product launch of its Collamer(TM) intraocular lens in the United States.
Patents and licenses increased approximately $2.9 million as a result of new
technology obtained by the Company.
During the quarter, the Company obtained a term loan in the amount of $7.0
million from its current domestic lender at a rate of interest not to exceed
prime less .5%. The note, which terminates February 1, 2005, grants as security
for all indebtedness to the bank, all of the Company's accounts receivable and
other rights to payment, general intangibles, inventory and equipment. The loan
requires the Company to satisfy certain financial tests and limits the amount of
other indebtedness the Company may incur. The Company was not in compliance
with restrictive covenants as of March 31, 2000. The Company is in negotiations
with its lender to adjust the covenants to assure future compliance.
As of March 31, 2000, the Company had a current ratio of 2.6:1, net working
capital of $28.9 million and net equity of $54.9 million compared to December
31, 1999 when the Company's current ratio was 2.4:1, its net working capital was
$25.6 million, and its net equity was $52.7 million.
6
Subsequent to the quarter ended March 31, 2000, the Board of Directors of
the Company gave preliminary approval for a financial restructuring plan that
is expected to involve one-time charges of $15.0 million to $17.0 million in the
second quarter of 2000. These charges will involve the write-off of the
Company's investment in the Canon STAAR Joint Venture in Japan; write-off or
restructuring of under-performing subsidiaries, write-off of old or unnecessary
patents, and write-off of inventory which the Company believes may become
obsolete or does not fit the future strategy of the Company and a write-off of
the Company's investment in laser centers. The Company will also make management
and other operational changes which should result in cost reductions.
The Company expects to continue to be profitable in the future, with the
exception of the above mentioned second quarter 2000 restructuring charge, and
the Company believes that all future cash flow needs will come from cash
generated by operations or additional financing, if required.
7
PART II - ITEM 5
Other Information
- -----------------
None
PART II - ITEM 6
Exhibits and Reports on Form 8-K
Exhibits
27 Financial Data Schedule
Reports on Form 8-K
None
8
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
Date: May 10, 2000 by: /s/ JOHN S. SANTOS
----------------------------------
John S. Santos
Chief Financial Officer and
Duly Authorized Officer
(principal accounting and financial
officer for the quarter)
9