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 January 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 January 3, 2020.
The Condensed Consolidated Financial Statements for the three and six months ended July 3, 2020 and June 28, 2019, 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 six months ended July 3, 2020 and June 28, 2019, 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.
Vendor Concentration
There were two vendors which accounted for over 27% of the Company’s consolidated accounts payable as of July 3, 2020. There was one vendor which accounted for over 11% of the Company’s consolidated accounts payable as of January 3, 2020. There were no vendors who accounted for over 10% of the Company’s consolidated purchases for the three months ended July 3, 2020. There were three vendors who accounted for over 43% of the Company’s consolidated purchases for the six months ended July 3, 2020.
Use of Estimates
During the COVID-19 pandemic, the Company believes 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 in the variables and assumptions used to calculate and record stock-based compensation. During the quarter ended July 3, 2020, the Company has experienced some delays in customer payments but is unaware of any material 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 been very well attended. This activity has given the Company insight as to the impact to customers of COVID-19 and potential impairment of receivables.
Recently Adopted Accounting Pronouncements and Recent Accounting Pronouncements Not Yet Adopted
On January 4, 2020 (beginning of fiscal year 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 2016-13 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 clarify and improve ASU 2016-13. The adoption of ASU 2016-13 did not have a material impact on the Condensed Consolidated Financial Statements.
On January 4, 2020 (beginning of fiscal year 2020), the Company adopted 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. The adoption of ASU 2018-13 did not have a material impact on the Condensed Consolidated Financial Statements.
7
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)
On January 4, 2020 (beginning of fiscal year 2020), the Company 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. The 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 beginning after December 15, 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.
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):
|
|
July 3, 2020
|
|
|
January 3, 2020
|
|
Raw materials and purchased parts
|
|
$
|
1,606
|
|
|
$
|
3,334
|
|
Work in process
|
|
|
4,997
|
|
|
|
1,870
|
|
Finished goods
|
|
|
12,487
|
|
|
|
12,976
|
|
Total inventories, gross
|
|
|
19,090
|
|
|
|
18,180
|
|
Less inventory reserves
|
|
|
1,254
|
|
|
|
1,038
|
|
Total inventories, net
|
|
$
|
17,836
|
|
|
$
|
17,142
|
|
Note 3 — Prepayments, Deposits, and Other Current Assets
Prepayments, deposits, and other current assets consisted of the following (in thousands):
|
|
July 3, 2020
|
|
|
January 3, 2020
|
|
Prepayments and deposits
|
|
$
|
5,106
|
|
|
$
|
3,031
|
|
Prepaid insurance
|
|
|
726
|
|
|
|
1,488
|
|
Consumption tax receivable
|
|
|
661
|
|
|
|
875
|
|
Value added tax (VAT) receivable
|
|
|
1,313
|
|
|
|
713
|
|
BVG (Swiss Pension) prepayment
|
|
|
451
|
|
|
|
—
|
|
Other(1)
|
|
|
640
|
|
|
|
453
|
|
Total prepayments, deposits and other current assets
|
|
$
|
8,897
|
|
|
$
|
6,560
|
|
(1)
|
No individual item in “other current assets” exceeds 5% of the total prepayments, deposits and other current assets.
|
8
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):
|
|
July 3, 2020
|
|
|
January 3, 2020
|
|
Machinery and equipment
|
|
$
|
20,970
|
|
|
$
|
17,173
|
|
Computer equipment and software
|
|
|
6,593
|
|
|
|
6,244
|
|
Furniture and fixtures
|
|
|
4,561
|
|
|
|
4,169
|
|
Leasehold improvements
|
|
|
11,100
|
|
|
|
10,151
|
|
Construction in process
|
|
|
8,889
|
|
|
|
8,477
|
|
Total property, plant and equipment, gross
|
|
|
52,113
|
|
|
|
46,214
|
|
Less accumulated depreciation
|
|
|
30,635
|
|
|
|
29,149
|
|
Total property, plant and equipment, net
|
|
$
|
21,478
|
|
|
$
|
17,065
|
|
Note 5 –Intangible Assets
Intangible assets, net consisted of the following (in thousands):
|
|
July 3, 2020
|
|
|
January 3, 2020
|
|
Long-lived amortized intangible assets
|
|
Gross
Carrying
Amount
|
|
|
Accumulated
Amortization
|
|
|
Net
|
|
|
Gross
Carrying
Amount
|
|
|
Accumulated
Amortization
|
|
|
Net
|
|
Patents and licenses
|
|
$
|
9,356
|
|
|
$
|
(9,076
|
)
|
|
$
|
280
|
|
|
$
|
9,353
|
|
|
$
|
(9,057
|
)
|
|
$
|
296
|
|
Note 6 – Other Current Liabilities
Other current liabilities consisted of the following (in thousands):
|
|
July 3, 2020
|
|
|
January 3, 2020
|
|
Accrued salaries and wages
|
|
$
|
5,752
|
|
|
$
|
4,400
|
|
Accrued bonuses
|
|
|
—
|
|
|
|
4,184
|
|
Accrued insurance
|
|
|
372
|
|
|
|
1,346
|
|
Income taxes payable
|
|
|
2,579
|
|
|
|
2,710
|
|
Accrued consumption tax
|
|
|
750
|
|
|
|
1,164
|
|
Accrued professional fees for clinical trials
|
|
|
968
|
|
|
|
567
|
|
Marketing obligations
|
|
|
838
|
|
|
|
633
|
|
Other(1)
|
|
|
2,982
|
|
|
|
2,693
|
|
Total other current liabilities
|
|
$
|
14,241
|
|
|
$
|
17,697
|
|
(1)
|
No individual item in “Other” exceeds 5% of the other current liabilities.
|
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 July 3, 2020) plus a 0.50% spread, and may be renewed quarterly (the current line expires on August 21, 2020). The credit facility is not collateralized. The Company had 142,500,000 Yen and 197,500,000 Yen outstanding on the line of credit as of July 3, 2020 and January 3, 2020, respectively (approximately $1,325,000 and $1,827,000 based on the foreign exchange rates on July 3, 2020 and 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 357,500,000 Yen and 302,500,000 Yen available for borrowing as of July 3, 2020 and January 3, 2020, respectively (approximately $3,325,000 and $2,798,000 based on the foreign exchange rate on July 3, 2020 and January 3, 2020, respectively). At maturity on August 21, 2020, the Company expects to renew this line of credit for an additional three months, with similar terms.
9
STAAR SURGICAL COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
Note 7 – Lines of Credit (Continued)
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 $1,100,000 and $1,000,000 at the rate of exchange on July 3, 2020 and January 3, 2020 respectively), 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 no borrowings outstanding as of July 3, 2020 and January 3, 2020.
The Company is in compliance with covenants of its credit facilities and lines of credit as of July 3, 2020.
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):
|
|
July 3, 2020
|
|
|
January 3, 2020
|
|
Machinery and equipment
|
|
$
|
568
|
|
|
$
|
1,885
|
|
Computer equipment and software
|
|
|
860
|
|
|
|
912
|
|
Furniture and fixtures
|
|
|
—
|
|
|
|
102
|
|
Leasehold improvements
|
|
|
—
|
|
|
|
27
|
|
Finance lease right-of-use assets, gross
|
|
|
1,428
|
|
|
|
2,926
|
|
Less accumulated depreciation
|
|
|
741
|
|
|
|
1,059
|
|
Finance lease right-of-use assets, net
|
|
$
|
687
|
|
|
$
|
1,867
|
|
|
|
|
|
|
|
|
|
|
Total finance lease liability
|
|
$
|
601
|
|
|
$
|
926
|
|
Weighted-average remaining lease term (in years)
|
|
|
2.0
|
|
|
|
1.1
|
|
Weighted-average discount rate
|
|
|
5.40
|
%
|
|
|
6.17
|
%
|
Supplemental cash flow information related to finance leases consisted of the following (dollars in thousands):
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
July 3, 2020
|
|
|
June 28, 2019
|
|
|
July 3, 2020
|
|
|
June 28, 2019
|
|
Amortization of finance lease right-of-use asset
|
|
$
|
50
|
|
|
$
|
145
|
|
|
$
|
167
|
|
|
$
|
306
|
|
Interest on finance lease liabilities
|
|
|
8
|
|
|
|
22
|
|
|
|
18
|
|
|
|
41
|
|
Cash paid for amounts included in the measurement of finance lease liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating cash flows
|
|
|
8
|
|
|
|
22
|
|
|
|
18
|
|
|
|
41
|
|
Financing cash flows
|
|
|
110
|
|
|
|
316
|
|
|
|
346
|
|
|
|
681
|
|
Right-of-use assets obtained in exchange for new finance lease liabilities
|
|
|
22
|
|
|
|
37
|
|
|
|
22
|
|
|
|
679
|
|
10
STAAR SURGICAL COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
Note 8 – Leases (Continued)
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):
|
|
July 3, 2020
|
|
|
January 3, 2020
|
|
Machinery and equipment
|
|
$
|
837
|
|
|
$
|
765
|
|
Computer equipment and software
|
|
|
462
|
|
|
|
462
|
|
Real property
|
|
|
11,247
|
|
|
|
11,116
|
|
Operating lease right-of-use assets, gross
|
|
|
12,546
|
|
|
|
12,343
|
|
Less accumulated depreciation
|
|
|
6,959
|
|
|
|
5,659
|
|
Operating lease right-of-use assets, net
|
|
$
|
5,587
|
|
|
$
|
6,684
|
|
|
|
|
|
|
|
|
|
|
Total operating lease liability
|
|
$
|
5,675
|
|
|
$
|
6,786
|
|
Weighted-average remaining lease term (in years)
|
|
|
2.2
|
|
|
|
2.3
|
|
Weighted-average discount rate
|
|
|
1.75
|
%
|
|
|
1.82
|
%
|
Supplemental cash flow information related to operating leases was as follows (dollars in thousands):
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
July 3, 2020
|
|
|
June 28, 2019
|
|
|
July 3, 2020
|
|
|
June 28, 2019
|
|
Operating lease cost
|
|
$
|
746
|
|
|
$
|
683
|
|
|
$
|
1,486
|
|
|
$
|
1,294
|
|
Cash paid for amounts included in the measurement of operating lease liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating cash flows
|
|
|
763
|
|
|
|
691
|
|
|
|
1,501
|
|
|
|
1,292
|
|
Right-of-use assets obtained in exchange for new operating lease liabilities
|
|
|
249
|
|
|
|
1,193
|
|
|
|
318
|
|
|
|
2,657
|
|
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 July 3, 2020 is as follows (in thousands):
As of July 3, 2020
12 Months Ended
|
|
Operating Leases
|
|
|
Finance Leases
|
|
June 2021
|
|
$
|
2,473
|
|
|
$
|
510
|
|
June 2022
|
|
|
1,394
|
|
|
|
84
|
|
June 2023
|
|
|
1,216
|
|
|
|
14
|
|
June 2024
|
|
|
665
|
|
|
|
11
|
|
June 2025
|
|
|
171
|
|
|
|
—
|
|
Thereafter
|
|
|
—
|
|
|
|
—
|
|
Total minimum lease payments, including interest
|
|
$
|
5,919
|
|
|
$
|
619
|
|
Less amounts representing interest
|
|
|
244
|
|
|
|
18
|
|
Total minimum lease payments
|
|
$
|
5,675
|
|
|
$
|
601
|
|
11
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
|
|
|
Six Months Ended
|
|
|
|
July 3, 2020
|
|
|
June 28, 2019
|
|
|
July 3, 2020
|
|
|
June 28, 2019
|
|
Provision (benefit) for income taxes
|
|
$
|
556
|
|
|
$
|
1,131
|
|
|
$
|
(602
|
)
|
|
$
|
1,620
|
|
The Company recorded income taxes of $556,000 and $1,131,000 for the three months ended July 3, 2020 and June 28, 2019, respectively, primarily due to pre-tax income generated in certain foreign jurisdictions. Also included in the three months ended June 28, 2019 were withholding taxes on foreign operations. The Company recorded an income tax benefit of $602,000 for the six months ended July 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 $1,620,000 for the six months ended June 28, 2019, primarily due to pre-tax income generated in certain foreign 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 no 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.
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 by the Company’s U.S. taxable income. The Company has elected to account for GILTI as a current period expense when incurred.
For the three and six months ended July 3, 2020, the Company included GILTI of $4,137,000 and $5,400,000, respectively, and for the three and six months ended June 28, 2019, included GILTI of $5,635,000 and $7,699,000, respectively, in U.S. gross income, which was fully offset by net operating loss carryforwards. The Company was not able to utilize the deduction of 50 percent of GILTI, as this deduction is limited by the Company’s pre-GILTI U.S. taxable income.
The ultimate realization of deferred tax assets is dependent upon future generation of income during the 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 had three years of accumulated 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 its analysis. This includes existing profits in foreign jurisdiction as well as projected future profits. As further described in Notes 1 and 10 of the Company’s 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 six months ended July 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 July 3, 2020, the Company released approximately $4,745,000 of valuation allowance on its deferred tax assets in the U.S. jurisdiction utilizing the incremental cash tax savings approach.
Under the incremental cash tax savings approach, the U.S. valuation allowances of $36,530,000, will remain as the usage of the remaining net operating losses and deferred tax assets will not result in cash tax savings and therefore provide no additional benefit. As of July 3, 2020, the Company 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 $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 have a material impact to its tax provision (also see note 15).
12
STAAR SURGICAL COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
Note 9 — Income Taxes (Continued)
On July 20, the U.S. Treasury issued final regulations for addressing the treatment of foreign income that is subject to a high rate of foreign tax (the GILTI high-tax exclusion). The final regulations allow companies to exclude certain high-taxed income from their GILTI calculation. The GILTI high-tax exclusion applies if the effective foreign tax rate is 90% or more of the rate that would apply if the income were subject to the maximum US rate of tax specified in section 11 (currently 18.9%, based on a maximum rate of 21%). The final regulations also provide that the GILTI high-tax exclusion is an annual election made each year and is retroactive to years beginning after December 31, 2017. As the regulations were finalized on July 20, 2020, after the current reporting period, the impact if any on the financial statements will be reported in the third quarter. Management is currently evaluating the effect if any this election would have on their financial statements.
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
|
|
|
Six Months Ended
|
|
|
|
July 3, 2020
|
|
|
June 28, 2019
|
|
|
July 3, 2020
|
|
|
June 28, 2019
|
|
Service cost(1)
|
|
$
|
320
|
|
|
$
|
248
|
|
|
$
|
639
|
|
|
$
|
480
|
|
Interest cost(2)
|
|
|
11
|
|
|
|
20
|
|
|
|
22
|
|
|
|
40
|
|
Expected return on plan assets(2)
|
|
|
(46
|
)
|
|
|
(34
|
)
|
|
|
(89
|
)
|
|
|
(67
|
)
|
Prior service credit(2),(3)
|
|
|
(8
|
)
|
|
|
(5
|
)
|
|
|
(17
|
)
|
|
|
(11
|
)
|
Actuarial loss recognized in current period(2),(3)
|
|
|
80
|
|
|
|
33
|
|
|
|
159
|
|
|
|
65
|
|
Net periodic pension cost
|
|
$
|
357
|
|
|
$
|
262
|
|
|
$
|
714
|
|
|
$
|
507
|
|
(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
|
|
|
Six Months Ended
|
|
|
|
July 3, 2020
|
|
|
June 28, 2019
|
|
|
July 3, 2020
|
|
|
June 28, 2019
|
|
Employer contribution
|
|
$
|
155
|
|
|
$
|
137
|
|
|
$
|
330
|
|
|
$
|
263
|
|
13
STAAR SURGICAL COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
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
|
|
|
Six Months Ended
|
|
|
|
July 3, 2020
|
|
|
June 28, 2019
|
|
|
July 3, 2020
|
|
|
June 28, 2019
|
|
Employee stock options
|
|
$
|
2,505
|
|
|
$
|
2,162
|
|
|
$
|
4,737
|
|
|
$
|
3,592
|
|
Restricted stock
|
|
|
76
|
|
|
|
77
|
|
|
|
154
|
|
|
|
159
|
|
Restricted stock units
|
|
|
274
|
|
|
|
311
|
|
|
|
823
|
|
|
|
1,415
|
|
Nonemployee stock options
|
|
|
63
|
|
|
|
29
|
|
|
|
125
|
|
|
|
54
|
|
Total stock-based compensation expense
|
|
$
|
2,918
|
|
|
$
|
2,579
|
|
|
$
|
5,839
|
|
|
$
|
5,220
|
|
The Company recorded stock-based compensation costs in the following categories (in thousands):
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
July 3, 2020
|
|
|
June 28, 2019
|
|
|
July 3, 2020
|
|
|
June 28, 2019
|
|
Cost of sales
|
|
$
|
30
|
|
|
$
|
22
|
|
|
$
|
52
|
|
|
$
|
36
|
|
General and administrative
|
|
|
1,209
|
|
|
|
1,018
|
|
|
|
2,294
|
|
|
|
1,796
|
|
Marketing and selling
|
|
|
812
|
|
|
|
690
|
|
|
|
1,867
|
|
|
|
1,861
|
|
Research and development
|
|
|
867
|
|
|
|
849
|
|
|
|
1,626
|
|
|
|
1,527
|
|
Total stock-based compensation expense, net
|
|
|
2,918
|
|
|
|
2,579
|
|
|
|
5,839
|
|
|
|
5,220
|
|
Amounts capitalized as part of inventory
|
|
|
291
|
|
|
|
276
|
|
|
|
560
|
|
|
|
465
|
|
Total stock-based compensation expense, gross
|
|
$
|
3,209
|
|
|
$
|
2,855
|
|
|
$
|
6,399
|
|
|
$
|
5,685
|
|
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 July 3, 2020, there were 842,975 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 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
|
|
|
Six Months Ended
|
|
|
|
July 3, 2020
|
|
|
June 28, 2019
|
|
|
July 3, 2020
|
|
|
June 28, 2019
|
|
Expected dividend yield
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
Expected volatility
|
|
|
53
|
%
|
|
|
53
|
%
|
|
|
53
|
%
|
|
|
53
|
%
|
Risk-free interest rate
|
|
|
0.31
|
%
|
|
|
2.05
|
%
|
|
|
0.53
|
%
|
|
|
2.41
|
%
|
Expected term (in years)
|
|
|
5.72
|
|
|
|
5.67
|
|
|
|
5.72
|
|
|
|
5.67
|
|
14
STAAR SURGICAL COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
Note 11 — Stockholders’ Equity (Continued)
Stock Options
A summary of stock option activity under the Plan for the six months ended July 3, 2020 is presented below:
|
|
Stock
Options
(in 000’s)
|
|
|
Minimum
Exercise
Price
|
|
|
Maximum
Exercise
Price
|
|
Outstanding at January 3, 2020
|
|
|
4,326
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
609
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(876
|
)
|
|
|
|
|
|
|
|
|
Forfeited or expired
|
|
|
(12
|
)
|
|
|
|
|
|
|
|
|
Outstanding at July 3, 2020
|
|
|
4,047
|
|
|
$
|
5.05
|
|
|
$
|
43.84
|
|
Exercisable at July 3, 2020
|
|
|
2,717
|
|
|
|
|
|
|
|
|
|
Restricted Stock and Restricted Stock Units
A summary of restricted stock and RSU activity under the Plan for the six months ended July 3, 2020 is presented below:
|
|
Restricted
Stock
(in 000’s)
|
|
|
Restricted
Stock
Units
(in 000’s)
|
|
Unvested at January 3, 2020
|
|
|
11
|
|
|
|
104
|
|
Granted
|
|
|
—
|
|
|
|
97
|
|
Vested
|
|
|
(11
|
)
|
|
|
(89
|
)
|
Forfeited or expired
|
|
|
—
|
|
|
|
(1
|
)
|
Unvested at July 3, 2020
|
|
|
—
|
|
|
|
111
|
|
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.
15
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
|
|
|
Six Months Ended
|
|
|
|
July 3, 2020
|
|
|
June 28, 2019
|
|
|
July 3, 2020
|
|
|
June 28, 2019
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(1,172
|
)
|
|
$
|
3,914
|
|
|
$
|
(1,306
|
)
|
|
$
|
5,281
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares outstanding
|
|
|
45,354
|
|
|
|
44,489
|
|
|
|
45,152
|
|
|
|
44,368
|
|
Less: Unvested restricted stock
|
|
|
—
|
|
|
|
(10
|
)
|
|
|
—
|
|
|
|
(11
|
)
|
Denominator for basic calculation
|
|
|
45,354
|
|
|
|
44,479
|
|
|
|
45,152
|
|
|
|
44,357
|
|
Weighted average effects of potentially diluted common stock:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options
|
|
|
—
|
|
|
|
2,149
|
|
|
|
—
|
|
|
|
2,292
|
|
Unvested restricted stock
|
|
|
—
|
|
|
|
97
|
|
|
|
—
|
|
|
|
185
|
|
Restricted stock units
|
|
|
—
|
|
|
|
8
|
|
|
|
—
|
|
|
|
8
|
|
Denominator for diluted calculation
|
|
|
45,354
|
|
|
|
46,733
|
|
|
|
45,152
|
|
|
|
46,842
|
|
Net income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.03
|
)
|
|
$
|
0.09
|
|
|
$
|
(0.03
|
)
|
|
$
|
0.12
|
|
Diluted
|
|
$
|
(0.03
|
)
|
|
$
|
0.08
|
|
|
$
|
(0.03
|
)
|
|
$
|
0.11
|
|
Because the Company had a net loss for the three and six months ended July 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
|
|
|
Six Months Ended
|
|
|
|
July 3, 2020
|
|
|
June 28, 2019
|
|
|
July 3, 2020
|
|
|
June 28, 2019
|
|
Stock options
|
|
|
3,082
|
|
|
|
1,991
|
|
|
|
3,502
|
|
|
|
1,256
|
|
Restricted stock and restricted stock units
|
|
|
59
|
|
|
|
1
|
|
|
|
72
|
|
|
|
—
|
|
Total
|
|
|
3,141
|
|
|
|
1,992
|
|
|
|
3,574
|
|
|
|
1,256
|
|
16
STAAR SURGICAL COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
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
|
|
|
Six Months Ended
|
|
|
|
July 3, 2020
|
|
|
June 28, 2019
|
|
|
July 3, 2020
|
|
|
June 28, 2019
|
|
Non-consignment sales
|
|
$
|
23,446
|
|
|
$
|
35,556
|
|
|
$
|
53,846
|
|
|
$
|
63,822
|
|
Consignment sales
|
|
|
11,748
|
|
|
|
4,108
|
|
|
|
16,535
|
|
|
|
8,425
|
|
Total net sales
|
|
$
|
35,194
|
|
|
$
|
39,664
|
|
|
$
|
70,381
|
|
|
$
|
72,247
|
|
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 was as follows (in thousands):
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
July 3, 2020
|
|
|
June 28, 2019
|
|
|
July 3, 2020
|
|
|
June 28, 2019
|
|
Domestic
|
|
$
|
882
|
|
|
$
|
2,114
|
|
|
$
|
2,621
|
|
|
$
|
4,066
|
|
Foreign:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
China
|
|
|
18,603
|
|
|
|
19,394
|
|
|
|
30,318
|
|
|
|
31,165
|
|
Japan
|
|
|
7,463
|
|
|
|
6,275
|
|
|
|
15,765
|
|
|
|
11,794
|
|
Other(1)
|
|
|
8,246
|
|
|
|
11,881
|
|
|
|
21,677
|
|
|
|
25,222
|
|
Total foreign sales
|
|
|
34,312
|
|
|
|
37,550
|
|
|
|
67,760
|
|
|
|
68,181
|
|
Total net sales
|
|
$
|
35,194
|
|
|
$
|
39,664
|
|
|
$
|
70,381
|
|
|
$
|
72,247
|
|
(1)
|
No other location individually exceeds 10% of the total sales.
|
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 one 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 was as follows (in thousands):
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
July 3, 2020
|
|
|
June 28, 2019
|
|
|
July 3, 2020
|
|
|
June 28, 2019
|
|
ICLs
|
|
$
|
30,728
|
|
|
$
|
34,432
|
|
|
$
|
60,068
|
|
|
$
|
62,218
|
|
Other product sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IOLs
|
|
|
2,561
|
|
|
|
3,874
|
|
|
|
6,555
|
|
|
|
7,891
|
|
Other surgical products
|
|
|
1,905
|
|
|
|
1,358
|
|
|
|
3,758
|
|
|
|
2,138
|
|
Total other product sales
|
|
|
4,466
|
|
|
|
5,232
|
|
|
|
10,313
|
|
|
|
10,029
|
|
Total net sales
|
|
$
|
35,194
|
|
|
$
|
39,664
|
|
|
$
|
70,381
|
|
|
$
|
72,247
|
|
One customer, the Company’s distributor in China, accounted for 53% and 43% of net sales for the three and six months ended July 3, 2020, respectively, and the same customer, accounted for 49% and 43% of net sales for the three and six months ended June 28, 2019, respectively. As of July 3, 2020 and January 3, 2020, respectively, one customer, the Company’s distributor in China, accounted for 57% and 43% of consolidated trade receivables.
17
STAAR SURGICAL COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
Note 15 — COVID-19 and CARES Act Developments
In December 2019, COVID-19 surfaced and in March 2020, the World Health Organization declared a pandemic 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 home. 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 the Company 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. The Company expects decreases in sales in certain geographies to continue through the remainder of 2020 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.
18