Quarterly Report (10-q)

Date : 07/31/2019 @ 8:22PM
Source : Edgar (US Regulatory)
Stock : STAAR Surgical Company (STAA)
Quote : 34.97  0.07 (0.20%) @ 7:53PM

Quarterly Report (10-q)

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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:    June 28, 2019

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
Lake Forest, California

 

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

 

 

 

 

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 44,542,965 shares of common stock, par value $0.01 per share, issued and outstanding as of July 26, 2019.

 


STAAR SURGICAL COMPANY

 

INDEX

 

 

 

 

PAGE

NUMBER

 

 

 

 

PART I – FINANCIAL INFORMATION

 

1

 

 

 

 

ITEM 1

FINANCIAL STATEMENTS

 

1

 

 

 

 

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

19

 

 

 

 

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

25

 

 

 

 

ITEM 4.

CONTROLS AND PROCEDURES

 

25

 

 

 

 

PART II – OTHER INFORMATION

 

25

 

 

 

 

ITEM 1.

LEGAL PROCEEDINGS

 

25

 

 

 

 

ITEM 1A.

RISK FACTORS

 

25

 

 

 

 

ITEM 4.

MINE SAFETY DISCLOSURES

 

26

 

 

 

 

ITEM 5.

OTHER INFORMATION

 

26

 

 

 

 

ITEM 6.

EXHIBITS

 

26

 

 

 


PART I – FINANCIAL INFORMATION

ITEM 1.

FINANCIAL STATEMENTS

STAAR SURGICAL COMPANY

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except par value amounts)

(Unaudited)

 

 

 

June 28, 2019

 

 

December 28,

2018

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

103,251

 

 

$

103,877

 

Accounts receivable trade, net of allowance of doubtful accounts of

   $162 and $550, respectively

 

 

32,962

 

 

 

25,946

 

Inventories, net

 

 

16,328

 

 

 

16,704

 

Prepayments, deposits and other current assets

 

 

6,367

 

 

 

5,045

 

Total current assets

 

 

158,908

 

 

 

151,572

 

Property, plant and equipment, net

 

 

13,382

 

 

 

11,451

 

Finance lease right-of-use assets, net

 

 

2,338

 

 

 

 

Operating lease right-of-use assets, net

 

 

7,219

 

 

 

 

Intangible assets, net

 

 

261

 

 

 

243

 

Goodwill

 

 

1,786

 

 

 

1,786

 

Deferred income taxes

 

 

1,355

 

 

 

1,278

 

Other assets

 

 

713

 

 

 

1,009

 

Total assets

 

$

185,962

 

 

$

167,339

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Line of credit

 

$

2,854

 

 

$

3,780

 

Accounts payable

 

 

8,097

 

 

 

6,524

 

Obligations under finance leases

 

 

960

 

 

 

1,098

 

Obligations under operating leases

 

 

2,766

 

 

 

 

Allowance for sales returns

 

 

3,263

 

 

 

2,895

 

Other current liabilities

 

 

10,771

 

 

 

13,431

 

Total current liabilities

 

 

28,711

 

 

 

27,728

 

Obligations under finance leases

 

 

580

 

 

 

459

 

Obligations under operating leases

 

 

4,580

 

 

 

 

Deferred income taxes

 

 

1,406

 

 

 

1,022

 

Asset retirement obligations

 

 

212

 

 

 

206

 

Deferred rent

 

 

 

 

 

188

 

Pension liability

 

 

6,138

 

 

 

5,310

 

Total liabilities

 

 

41,627

 

 

 

34,913

 

Commitments and contingencies

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

Common stock, $0.01 par value; 60,000 shares authorized: 44,534 and

   44,195 shares issued and outstanding at June 28, 2019 and

   December 28, 2018, respectively

 

 

445

 

 

 

442

 

Additional paid-in capital

 

 

296,063

 

 

 

289,584

 

Accumulated other comprehensive loss

 

 

(1,602

)

 

 

(1,320

)

Accumulated deficit

 

 

(150,571

)

 

 

(156,280

)

Total stockholders’ equity

 

 

144,335

 

 

 

132,426

 

Total liabilities and stockholders’ equity

 

$

185,962

 

 

$

167,339

 

 

See accompanying notes to the condensed consolidated financial statements.

 

1


STAAR SURGICAL COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except per share amounts)

(Unaudited)

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 28,

2019

 

 

June 29,

2018

 

 

June 28,

2019

 

 

June 29,

2018

 

Net sales

 

$

39,664

 

 

$

33,905

 

 

$

72,247

 

 

$

60,998

 

Cost of sales

 

 

9,765

 

 

 

8,678

 

 

 

18,168

 

 

 

16,340

 

Gross profit

 

 

29,899

 

 

 

25,227

 

 

 

54,079

 

 

 

44,658

 

Selling, general and administrative expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

General and administrative

 

 

7,508

 

 

 

6,196

 

 

 

14,345

 

 

 

11,967

 

Marketing and selling

 

 

11,682

 

 

 

10,659

 

 

 

21,825

 

 

 

18,113

 

Research and development

 

 

6,098

 

 

 

5,346

 

 

 

11,733

 

 

 

10,753

 

Total selling, general and administrative expenses

 

 

25,288

 

 

 

22,201

 

 

 

47,903

 

 

 

40,833

 

Operating income

 

 

4,611

 

 

 

3,026

 

 

 

6,176

 

 

 

3,825

 

Other income (expense), net:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income (expense), net

 

 

259

 

 

 

(24

)

 

 

530

 

 

 

(36

)

Gain (loss) on foreign currency transactions

 

 

11

 

 

 

(520

)

 

 

(237

)

 

 

(597

)

Royalty income

 

 

163

 

 

 

149

 

 

 

334

 

 

 

306

 

Other income, net

 

 

1

 

 

 

4

 

 

 

98

 

 

 

21

 

Total other income (expense), net

 

 

434

 

 

 

(391

)

 

 

725

 

 

 

(306

)

Income before income taxes

 

 

5,045

 

 

 

2,635

 

 

 

6,901

 

 

 

3,519

 

Provision for income taxes

 

 

1,131

 

 

 

805

 

 

 

1,620

 

 

 

1,106

 

Net income

 

$

3,914

 

 

$

1,830

 

 

$

5,281

 

 

$

2,413

 

Net income per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.09

 

 

$

0.04

 

 

$

0.12

 

 

$

0.06

 

Diluted

 

$

0.08

 

 

$

0.04

 

 

$

0.11

 

 

$

0.06

 

Weighted average shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

44,479

 

 

 

41,723

 

 

 

44,357

 

 

 

41,568

 

Diluted

 

 

46,733

 

 

 

43,999

 

 

 

46,842

 

 

 

43,654

 

 

See accompanying notes to the condensed consolidated financial statements.

2


STAAR SURGICAL COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)

(Unaudited)

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 28,

2019

 

 

June 29,

2018

 

 

June 28,

2019

 

 

June 29,

2018

 

Net income

 

$

3,914

 

 

$

1,830

 

 

$

5,281

 

 

$

2,413

 

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Defined benefit plans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net change in plan assets

 

 

(614

)

 

 

(21

)

 

 

(640

)

 

 

(30

)

Reclassification into other income, net

 

 

28

 

 

 

26

 

 

 

54

 

 

 

51

 

Foreign currency translation gain (loss)

 

 

382

 

 

 

(521

)

 

 

339

 

 

 

207

 

Tax effect

 

 

(55

)

 

 

156

 

 

 

(35

)

 

 

(67

)

Other comprehensive income (loss), net of tax

 

 

(259

)

 

 

(360

)

 

 

(282

)

 

 

161

 

Comprehensive income

 

$

3,655

 

 

$

1,470

 

 

$

4,999

 

 

$

2,574

 

 

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

 

 

 

Common

Stock Shares

 

 

Common

Stock Par

Value

 

 

Additional

Paid-In

Capital

 

 

Accumulated

Other

Compre-

hensive

Income

(Loss)

 

 

Accumulated

Deficit

 

 

Total

 

Balance, at March 29, 2019

 

 

44,447

 

 

$

444

 

 

$

292,722

 

 

$

(1,343

)

 

$

(154,485

)

 

$

137,338

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,914

 

 

 

3,914

 

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

(259

)

 

 

 

 

 

(259

)

Common stock issued upon exercise of options

 

 

52

 

 

 

1

 

 

 

486

 

 

 

 

 

 

 

 

 

487

 

Stock-based compensation

 

 

 

 

 

 

 

 

2,855

 

 

 

 

 

 

 

 

 

2,855

 

Unvested restricted stock

 

 

11

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Vested restricted stock

 

 

24

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, at June 28, 2019

 

 

44,534

 

 

$

445

 

 

$

296,063

 

 

$

(1,602

)

 

$

(150,571

)

 

$

144,335

 

Balance, at March 30, 2018

 

 

41,592

 

 

$

416

 

 

$

206,795

 

 

$

(629

)

 

$

(160,665

)

 

$

45,917

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,830

 

 

 

1,830

 

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

(360

)

 

 

 

 

 

(360

)

Common stock issued upon exercise of options

 

 

249

 

 

 

2

 

 

 

1,950

 

 

 

 

 

 

 

 

 

1,952

 

Stock-based compensation

 

 

 

 

 

 

 

 

1,743

 

 

.

 

 

 

 

 

 

1,743

 

Unvested restricted stock

 

 

11

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Vested restricted stock

 

 

25

 

 

 

1

 

 

 

 

 

 

 

 

 

 

 

 

1

 

Balance, at June 29, 2018

 

 

41,877

 

 

$

419

 

 

$

210,488

 

 

$

(989

)

 

$

(158,835

)

 

$

51,083

 

 

See accompanying notes to the condensed consolidated financial statements.

4


STAAR SURGICAL COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (CONTINUED)

(In thousands)

(Unaudited)

 

 

 

 

Six Months Ended

 

 

 

Common

Stock Shares

 

 

Common

Stock Par

Value

 

 

Additional

Paid-In

Capital

 

 

Accumulated

Other

Compre-

hensive

Income

(Loss)

 

 

Accumulated

Deficit

 

 

Total

 

Balance, at December 28, 2018

 

 

44,195

 

 

$

442

 

 

$

289,584

 

 

$

(1,320

)

 

$

(156,280

)

 

$

132,426

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

5,281

 

 

 

5,281

 

Adoption of ASC 842

 

 

 

 

 

 

 

 

 

 

 

 

 

 

113

 

 

 

113

 

Adoption of ASU 2018-07

 

 

 

 

 

 

 

 

(315

)

 

 

 

 

 

315

 

 

 

 

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

(282

)

 

 

 

 

 

(282

)

Common stock issued upon exercise of options

 

 

126

 

 

 

1

 

 

 

1,109

 

 

 

 

 

 

 

 

 

1,110

 

Stock-based compensation

 

 

 

 

 

 

 

 

5,685

 

 

 

 

 

 

 

 

 

5,685

 

Unvested restricted stock

 

 

11

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Vested restricted stock

 

 

202

 

 

 

2

 

 

 

 

 

 

 

 

 

 

 

 

2

 

Balance, at June 28, 2019

 

 

44,534

 

 

$

445

 

 

$

296,063

 

 

$

(1,602

)

 

$

(150,571

)

 

$

144,335

 

Balance, at December 29, 2017

 

 

41,383

 

 

$

414

 

 

$

204,920

 

 

$

(1,150

)

 

$

(161,248

)

 

$

42,936

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,413

 

 

 

2,413

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

161

 

 

 

 

 

 

161

 

Common stock issued upon exercise of options

 

 

306

 

 

 

3

 

 

 

2,402

 

 

 

 

 

 

 

 

 

2,405

 

Stock-based compensation

 

 

 

 

 

 

 

 

3,166

 

 

 

 

 

 

 

 

 

3,166

 

Unvested restricted stock

 

 

11

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Vested restricted stock

 

 

177

 

 

 

2

 

 

 

 

 

 

 

 

 

 

 

 

2

 

Balance, at June 29, 2018

 

 

41,877

 

 

$

419

 

 

$

210,488

 

 

$

(989

)

 

$

(158,835

)

 

$

51,083

 

 

See accompanying notes to the condensed consolidated financial statements.

 

5


STAAR SURGICAL COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

 

 

Six Months Ended

 

 

 

June 28,

2019

 

 

June 29,

2018

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net income

 

$

5,281

 

 

$

2,413

 

Adjustments to reconcile net income to net cash provided by

   operating activities:

 

 

 

 

 

 

 

 

Depreciation of property, plant, and equipment

 

 

1,983

 

 

 

1,168

 

Amortization of intangibles

 

 

17

 

 

 

17

 

Deferred income taxes

 

 

393

 

 

 

358

 

Change in net pension liability

 

 

203

 

 

 

159

 

Loss on disposal of property and equipment

 

 

 

 

 

6

 

Stock-based compensation expense

 

 

5,220

 

 

 

2,899

 

Provision for sales returns and bad debts

 

 

(32

)

 

 

644

 

Inventory provision

 

 

787

 

 

 

753

 

Changes in working capital:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(6,533

)

 

 

(6,390

)

Inventories

 

 

106

 

 

 

(1,536

)

Prepayments, deposits, and other current assets

 

 

(1,154

)

 

 

(889

)

Accounts payable

 

 

563

 

 

 

956

 

Other current liabilities

 

 

(2,626

)

 

 

1,748

 

Net cash provided by operating activities

 

 

4,208

 

 

 

2,306

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Acquisition of property and equipment

 

 

(4,601

)

 

 

(1,269

)

Acquisition of patents and licenses

 

 

(30

)

 

 

 

Net cash used in investing activities

 

 

(4,631

)

 

 

(1,269

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Repayment of finance lease obligations

 

 

(681

)

 

 

(881

)

Repayment on line of credit

 

 

(999

)

 

 

 

Proceeds from the exercise of stock options

 

 

1,110

 

 

 

2,405

 

Proceeds from vested restricted stock

 

 

2

 

 

 

2

 

Net cash provided by (used in) financing activities

 

 

(568

)

 

 

1,526

 

Effect of exchange rate changes on cash, cash equivalents and restricted cash

 

 

243

 

 

 

163

 

Increase (decrease) in cash, cash equivalents and restricted cash

 

 

(748

)

 

 

2,726

 

Cash, cash equivalents and restricted cash, at beginning of year

 

 

103,999

 

 

 

18,641

 

Cash, cash equivalents and restricted cash, at end of year

 

$

103,251

 

 

$

21,367

 

 

See accompanying notes to the condensed consolidated financial statements.

 

6


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 Comprehensive Financial Statements have been condensed or omitted pursuant to such rules and regulations. The Consolidated Balance Sheet as of December 28, 2018 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.

The Condensed Consolidated Financial Statements for the three and six months ended June 28, 2019 and June 29, 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 six months ended June 28, 2019 and June 29, 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):

 

 

 

December 28,

2018

 

 

June 29,

2018

 

Cash and cash equivalents

 

$

103,877

 

 

$

21,246

 

Restricted cash (1)

 

 

122

 

 

 

121

 

Total cash, cash equivalents and restricted cash

 

$

103,999

 

 

$

21,367

 

 

(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.  During the three months ended June 28, 2019, the Company was no longer required to set aside collateral for this standby letter of credit.

Lease Accounting

On December 29, 2018 (beginning 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.

The Company recognizes ROU 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 affecting the pattern of expense recognition in the Condensed Consolidated Statement of Income.  

7


STAAR SURGICAL COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

 

Note 1 — Basis of Presentation and Significant Accounting Policies (Continued)

Lease Accounting (Continued)

A contract contains a lease if the contract conveys the right to control an identified asset for a period of time in exchange for consideration.  An asset is either explicitly identified or implicitly identified and must be physically distinct.  In addition, the Company must 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, 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 rate 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 expected to generate. When the estimated undiscounted future cash flows are less than their carrying amount, an impairment loss is recognized equal to the difference between the assets’ fair value and their carrying value.

Recently Adopted Accounting Pronouncements and Recent Accounting Pronouncements Not Yet Adopted

On December 29, 2018 (beginning of fiscal year 2019), the Company adopted ASU 2018-02, “Income Statement – Reporting Comprehensive Income (Topic 220):  Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income,” provides an option 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 Cuts and Jobs Act is recorded.  The adoption of ASU 2018‑02 did not have material impact on the Condensed Consolidated Financial Statements.

On December 29, 2018 (beginning of fiscal year 2019), 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.

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.  Early adoption is permitted.  The Company will adopt this standard as of January 4, 2020 (beginning of fiscal year 2020) and is currently evaluating the disclosure requirements and its effect on the Condensed Consolidated Financial Statements.

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 2018-14, “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.  This is effective for fiscal years ending after December 15, 2020.  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):

 

 

 

June 28, 2019

 

 

December 28,

2018

 

Raw materials and purchased parts

 

$

3,195

 

 

$

2,678

 

Work in process

 

 

2,907

 

 

 

2,195

 

Finished goods

 

 

11,621

 

 

 

13,214

 

Total inventories, gross

 

 

17,723

 

 

 

18,087

 

Less inventory reserves

 

 

1,395