We have audited the accompanying consolidated balance sheets of STAAR Surgical Company (the “Company”) as of January 1, 2021 and January 3, 2020, the related consolidated statements of operations, comprehensive income (loss), stockholders’ equity, and cash flows for each of the three years in the period ended January 1, 2021, and the related notes and financial statement schedule (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at January 1, 2021 and January 3, 2020, and the results of its operations and its cash flows for each of the three years in the period ended January 1, 2021, in conformity with accounting principles generally accepted in the United States of America.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company's internal control over financial reporting as of January 1, 2021, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) and our report dated February 24, 2021 expressed an unqualified opinion thereon.
As discussed in Notes 1 and 9 to the consolidated financial statements, the Company has changed its method of accounting for leases during the year ended January 3, 2020 due to the adoption of the Accounting Standards Codification (“ASC”) 842, “Leases.”
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which they relate.
As described in Notes 1 and 10 to the Company’s consolidated financial statements, the Company operates in multiple jurisdictions through its wholly-owned subsidiaries. The Company serves international markets and is subject to income taxes in the U.S. and numerous foreign jurisdictions, which affect the Company’s provision for income taxes. The tax provision is based on management’s understanding of current enacted tax laws and tax rates of each tax jurisdiction, and assessing the realizability of the deferred tax assets. In evaluating the Company’s ability to realize the deferred tax assets management considers the positive and negative evidence, including the reversals of deferred tax assets and liabilities, projected future taxable income, tax-planning strategies, and results of recent operations.
We identified the Company’s calculation of the provision for income taxes, including the judgement and estimation regarding projected taxable income as a critical audit matter. Management is required to apply significant judgments in calculating the provision for income taxes related to the evaluation of tax laws, including the methods used to allocate taxable income to various jurisdictions, transfer pricing methods and the development of forecasts and assumptions related to the projected sales growth, margins, costs and income that are used to assess the realizability of deferred tax assets. These forecasts include various assumptions including the likelihood of continued growth in certain key markets, projected industry-wide performance, macro and micro economic factors and the development and approval of new products. Auditing these elements involved especially complex auditor judgment due to the nature of audit evidence and extent of audit effort required to address these matters, including the need to involve personnel with specialized knowledge and skills.
The primary procedures we performed to address this critical audit matter included:
The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 — Organization and Description of Business and Accounting Policies
Organization and Description of Business
STAAR Surgical Company and subsidiaries (the “Company”), a Delaware corporation, was first incorporated in 1982 for the purpose of developing, producing, and marketing implantable lenses for the eye and delivery systems used to deliver the lenses into the eye. Principal products are implantable Collamer lenses (“ICLs”) and intraocular lenses (“IOLs”). ICLs, consisting of the Company’s ICL family of products, including the Toric implantable Collamer lenses (“TICL”) and EVO+ Visian ICL, are intraocular lenses used to correct refractive conditions such as myopia (near-sightedness), hyperopia (far-sightedness), astigmatism, and presbyopia. IOLs are prosthetic intraocular lenses used to restore vision that has been adversely affected by cataracts, and include the Company’s lines of silicone IOLs and the Preloaded Injector (a silicone or acrylic IOL preloaded into a single-use disposable injector).
As of January 1, 2021, the Company’s significant subsidiaries consisted of:
|
•
|
STAAR Surgical AG, a wholly owned subsidiary formed in Switzerland that markets and distributes ICLs and Preloaded IOLs.
|
|
•
|
STAAR Japan, a wholly owned subsidiary that markets and distributes Preloaded IOLs and ICLs.
|
The Company operates as one operating segment, the ophthalmic surgical market, for financial reporting purposes (see Note 17).
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of STAAR Surgical Company and its wholly-owned subsidiaries and have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). All significant intercompany balances and transactions have been eliminated. Certain reclassifications have been made to financial statements of prior years to conform to the current year presentation (see Note 20).
Fiscal Year and Interim Reporting Periods
The Company’s fiscal year ends on the Friday nearest December 31 and each of the Company’s quarterly reporting periods generally consists of 13 weeks. Fiscal years 2020 and 2018 are based on a 52-week period and fiscal year 2019 is based on a 53-week period.
Foreign Currency
The functional currency of the Company’s Japanese subsidiary, STAAR Japan, Inc., is the Japanese yen. The functional currency of the Company’s Swiss subsidiary, STAAR Surgical AG, is the U.S. dollar.
Assets and liabilities of the Company’s Japanese subsidiary are translated at rates of exchange in effect at the close of the period. Sales and expenses are translated at the weighted average of exchange rates in effect during the period. Net foreign translation gain (loss) was as follows (in thousands):
|
|
Years Ended
|
|
|
|
2020
|
|
|
2019
|
|
|
2018
|
|
Foreign currency translation gain(1)
|
|
$
|
717
|
|
|
$
|
291
|
|
|
$
|
242
|
|
Gain (loss) on foreign currency transactions(2)
|
|
|
864
|
|
|
|
(517
|
)
|
|
|
(836
|
)
|
(1)
|
Shown as a separate line item on the Consolidated Statements of Comprehensive Income (Loss).
|
(2)
|
Shown as a separate line item on the Consolidated Statements of Income.
|
F-9
STAAR SURGICAL COMPANY AND SUBSDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Note 1 — Organization and Description of Business and Accounting Policies (Continued)
Use of Estimates
The consolidated financial statements have been prepared in conformity with GAAP and, as such, include amounts based on significant estimates and judgments of management with consideration given to materiality. Significant estimates used include 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. Actual results could differ materially from those estimates. Throughout the COVID-19 pandemic the Company offered extended payment terms to assist its surgeon customers and their clinics as they resumed business. During the second half of 2020, the Company experienced improvements in customer payments and 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 into COVID-19’s impact on customers and potential impairment of receivables.
Cash and Cash Equivalents and Restricted Cash
The Company considers all highly liquid investments purchased with a maturity of three months or less to be cash equivalents. The Company maintains cash deposits with major banks which from time to time may exceed federally insured limits. The Company periodically assesses the financial condition of the institutions and believes that the risk of any loss is minimal. The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the Consolidated Balance Sheets that sum to the total of the same such amounts shown in the Consolidated Statements of Cash Flows at January 1, 2021, January 3, 2020 and December 28, 2018 (in thousands):
|
|
2020
|
|
|
2019
|
|
|
2018
|
|
Cash and cash equivalents
|
|
$
|
152,453
|
|
|
$
|
119,968
|
|
|
$
|
103,877
|
|
Restricted cash(1)
|
|
|
—
|
|
|
|
—
|
|
|
|
122
|
|
Total cash, cash equivalents and restricted cash
|
|
$
|
152,453
|
|
|
$
|
119,968
|
|
|
$
|
103,999
|
|
(1)Included in other assets on the 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.
Revenue Recognition
On December 30, 2017 (beginning of fiscal year 2018), the Company adopted Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) 2014-09, “Revenue from Contracts with Customers (Topic 606)” and its subsequent amendments, using the modified retrospective method, and determined that there was no cumulative effect adjustment on the Consolidated Financial Statements. The Company determined that the adoption of the new standard did not materially impact the revenue recognition on its Consolidated Financial Statements.
The Company recognizes revenue when its contractual performance obligations with customers are satisfied. The Company’s performance obligations are generally limited to single sales orders with product shipping to the customer within a month of receipt of the sales order. Substantially all of the Company’s revenues are recognized at a point-in-time when control of its products transfers to the customer, which is typically upon shipment (as discussed below). The Company presents sales tax and similar taxes it collects from its customers on a net basis (excluded from revenues).
F-10
STAAR SURGICAL COMPANY AND SUBSDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Note 1 — Organization and Description of Business and Accounting Policies (Continued)
Revenue Recognition (Continued)
The Company sells certain injector parts to an unrelated customer and supplier (collectively referred to as “supplier”) whereby these injector part sales are either made as a final sale to the supplier or, are sold to be combined with an acrylic IOL by the supplier into finished goods inventory (a preloaded acrylic IOL). These finished goods are then sold back to the Company at an agreed upon, contractual price. The Company makes a profit margin on either type of sale with the supplier and each type of sale is made under separate purchase and sales orders between the two parties resulting in cash settlement for the orders sold or repurchased. For parts that are sold as a final sale, the Company recognizes a sale and those sales are classified as other product sales in total net sales. For the injector parts that are sold to be combined with an acrylic IOL into finished goods, the Company records the transaction at its carrying value deferring any profit margin as contra-inventory, until the finished goods inventory is sold to an end-customer (not the supplier) at which point the Company recognizes revenues.
For all sales, the Company is considered the principal in the transaction as the Company is the party providing specified goods it has control over prior to when control is transferred to the customer. Cost of sales includes cost of production, freight and distribution, and inventory provisions, net of any purchase discounts. Shipping and handling activities that occur after the customer obtains control of the goods are recognized as fulfillment costs.
The Company also enters into certain strategic cooperation agreements with customers in which, as consideration for certain commitments made by the customer, including minimum purchase commitments, the Company agrees, among other things, to pay for marketing, educational training and general support of the Company’s products. The provisions in these arrangements allow for these payments to be made directly to the customer or payments can be made directly to a third party for distinct marketing, educational training and general support services provided to or on behalf of the customer by the third party. For payments the Company makes to another party, or reimburses the customer for distinct marketing and support services, the Company recognizes these payments as sales and marketing expense as incurred in accordance with ASC 606-10-32-25. These strategic cooperation agreements are generally for periods of 12 months or more with quarterly minimum purchase commitments. The Company recognizes sales and marketing expenses in the period in which it expects the customer will achieve its minimum purchase commitment, generally quarterly, and any unpaid amounts are recorded in Other Current Liabilities in “Other” on the Consolidated Balance Sheets, see Note 7. Reimbursements made directly to the customer for general marketing incentives are treated as a reduction in revenues. The Company’s performance obligations generally occur in the same quarter as the shipment of product. Sales and marketing expenses for distinct services were as follows (in thousands):
|
|
Years Ended
|
|
|
|
2020
|
|
|
2019
|
|
|
2018
|
|
Marketing and support services related to strategic cooperation agreements
|
|
$
|
655
|
|
|
$
|
485
|
|
|
$
|
629
|
|
Since the payments for distinct or non-distinct services occur within the quarter corresponding with the purchases made by the customer and the shipments made by the Company to that customer, there is no remaining performance obligation by the Company to the customer. Accordingly, there are no deferred revenues associated with these types of arrangements as of January 1, 2021, January 3, 2020 and December 28, 2018.
F-11
STAAR SURGICAL COMPANY AND SUBSDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Note 1 — Organization and Description of Business and Accounting Policies (Continued)
Revenue Recognition (Continued)
The Company disaggregates its revenue into the following categories: non-consignment sales and consignment sales.
Non-consignment Sales
The Company recognizes revenue from non-consignment product sales at a point-in-time when control has been transferred, which is typically at shipping point, except for certain customers and for the Company’s STAAR Japan subsidiary, which is typically recognized when the customer receives the product. The Company does not have significant deferred revenues as of January 1, 2021, January 3, 2020 and December 28, 2018, as delivery to the customer is generally made within the same or the next day of shipment.
Consignment Sales
The Company’s products are marketed to ophthalmic surgeons, hospitals, ambulatory surgery centers or vision centers, and distributors. IOLs and ICLs may be offered to surgeons and hospitals on a consignment basis. The Company maintains title and risk of loss on consigned inventory and recognizes revenue for consignment inventory at a point-in-time when the Company is notified that the lenses have been implanted, thus completing the performance obligation.
See Note 17 for additional information on disaggregation of revenues, geographic sales information and product sales.
Allowance for Doubtful Accounts
The Company performs ongoing credit evaluations of its customers and adjusts credit limits based on customer payment history and credit worthiness, as determined by the Company’s review of its customers’ current credit information. The Company continuously monitors collections and payments from customers and maintains a provision for estimated credit losses and uncollectible accounts based upon an expected loss model which considers its historical experience, any specific customer collection issues that have been identified and other relevant observable data, including current economic conditions. Amounts determined to be uncollectible are written off against the allowance for doubtful accounts.
Concentration of Credit Risk and Revenues
Financial instruments that potentially subject the Company to credit risk principally consist of trade receivables. This risk is limited due to the large number of customers comprising the Company’s customer base, and their geographic dispersion. As of January 1, 2021 and January 3, 2020, there was one customer who accounted for 46% and 43% of the Company’s consolidated trade receivables, respectively. Ongoing credit evaluations of customers’ financial condition are performed and, generally, no collateral is required. The Company maintains reserves for potential credit losses and such losses, taken together, have not exceeded management’s expectations.
There was one customer who accounted for 44%, 43% and 37% of the Company’s consolidated net sales for the years ended 2020, 2019 and 2018, respectively.
F-12
STAAR SURGICAL COMPANY AND SUBSDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Note 1 — Organization and Description of Business and Accounting Policies (Continued)
Sales Return Reserve
The Company generally may permit returns of product if the product, upon issuance of a Return Goods Authorization, is returned within the time allowed by its return policies and records an allowance for estimated returns at the time revenue is recognized. The Company’s allowance for estimated returns is based on an expected loss model which considers historical and current/anticipated trends and experience, the impact of new product launches, the entry of a competitor, availability of timely and pertinent information and the various terms and arrangements offered, including sales with extended credit terms. For estimated returns, sales are reported net of estimated returns and cost of sales are reported net of estimated returns that can be resold. On the Consolidated Balance Sheets, the balances associated for estimated sales returns were as follows (in thousands):
|
|
2020
|
|
|
2019
|
|
Estimated returns - inventory(1)
|
|
$
|
1,041
|
|
|
$
|
869
|
|
Allowance for sales returns
|
|
|
4,532
|
|
|
|
3,644
|
|
(1)
|
Recognized in inventories, net on the Consolidated Balance Sheets
|
Fair Value of Financial Instruments
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. To increase the comparability of fair value measures, the following hierarchy prioritizes the inputs to valuation methodologies used to measure fair value (ASC 820-10-50):
|
•
|
Level 1 – Inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.
|
|
•
|
Level 2 – Inputs to the valuation methodology include quoted prices for similar assets or liabilities in active markets, and inputs that are observable for the assets or liability, either directly or indirectly, for substantially the full term of the financial instruments.
|
|
•
|
Level 3 – Inputs to the valuation methodology are unobservable; that reflect management’s own assumptions about the assumptions market participants would make and significant to the fair value.
|
The carrying values reflected on the Consolidated Balance Sheets for cash and cash equivalents, trade accounts receivable, net, prepayments, deposits and other current assets, accounts payable, other current liabilities and line of credit approximate their fair values because of the short maturity of these instruments.
Inventories, Net
Inventories, net are valued at the lower of cost, determined on a first-in, first-out basis, or net realizable value. Inventories include the costs of raw material, labor, and manufacturing overhead, work in process and finished goods. Inventories also include as a contra item, deferred margins for certain injector parts described under the revenue recognition policy. The Company provides estimated inventory allowances for excess, expiring, slow moving and obsolete inventory as well as inventory whose carrying value is in excess of net realizable value to properly reflect inventory at the lower of cost or market.
F-13
STAAR SURGICAL COMPANY AND SUBSDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Note 1 — Organization and Description of Business and Accounting Policies (Continued)
Property, Plant, and Equipment
Property, plant, and equipment are recorded at cost. Depreciation on property, plant, and equipment is computed using the straight-line method over the estimated useful lives of the assets as noted below. Leasehold improvements are amortized over the lesser of the estimated useful lives of the assets or the related lease term. Major improvements are capitalized and minor replacements, maintenance and repairs are charged to expense as incurred.
Also included in property, plant and equipment is construction in process. 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.
The estimated useful lives of assets are as follows:
Machinery and equipment
|
|
5-10 years
|
Computer equipment and software
|
|
2-5 years
|
Furniture and equipment
|
|
3-7 years
|
Leasehold improvements
|
|
The shorter of the useful life of the asset or the term of the associated lease
|
Goodwill
Goodwill, which has an indefinite life, is not amortized but instead is tested for impairment on an annual basis or between annual tests if an event occurs or circumstances change that would indicate the carrying amount may be impaired. Impairment testing for goodwill is done at the reporting unit level. Reporting units can be one level below the operating segment level, and can be combined when reporting units within the same operating segment have similar economic characteristics. The Company has determined that its reporting units have similar economic characteristics, and therefore, can be combined into one reporting unit for the purposes of goodwill impairment testing. The Company performed its annual impairment test and determined that its goodwill was not impaired. As of January 1, 2021 and January 3, 2020, the carrying value of goodwill was $1,786,000.
Long-Lived Assets
The Company reviews property, plant, and equipment and intangible assets, excluding goodwill, 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. A review of long-lived assets was conducted as of January 1, 2021 and January 3, 2020 and no impairment was identified.
Amortization is computed on the straight-line basis, which is the Company’s best estimate of the economic benefits realized over the estimated useful lives of the assets which range from 3 to 20 years for patents, certain acquired rights and licenses, 10 years for customer relationships, and 3 to 10 years for developed technology.
F-14
STAAR SURGICAL COMPANY AND SUBSDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Note 1 — Organization and Description of Business and Accounting Policies (Continued)
Lease Accounting
On December 29, 2018 (beginning of fiscal year 2019), the Company adopted FASB 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 Topic 842, 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 Consolidated Balance Sheets. Leases are classified as either finance or operating, with classification affecting the pattern of expense recognition in the Consolidated Statement of Income.
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 Topic 842, whereas, the Company includes the maintenance and service components in the value of the ROU asset and lease liability while evaluating automobile leases under Topic 842.
When determining whether a lease is a finance lease or an operating lease, Topic 842 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 than 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 than 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 Topic 842, 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.
F-15
STAAR SURGICAL COMPANY AND SUBSDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Note 1 — Organization and Description of Business and Accounting Policies (Continued)
Vendor Concentration
As of January 1, 2021 and January 3, 2020 there was one vendor who accounted for over 10% and 11%, respectively, of the Company’s consolidated accounts payable. There were no vendors who accounted for over 10% of the Company’s consolidated purchases for the years ended 2020 and 2019, respectively. There was one vendor who accounted for over 10% of the Company’s consolidated purchases for the year ended 2018.
Research and Development Costs
Expenditures for research activities relating to product development and improvement are charged to expense as incurred.
Advertising Costs
Advertising costs, which are included in marketing and selling expenses, are expensed as incurred, and were as follows (in thousands):
|
|
Years Ended
|
|
|
|
2020
|
|
|
2019
|
|
|
2018
|
|
Advertising costs
|
|
$
|
9,181
|
|
|
$
|
10,990
|
|
|
$
|
8,981
|
|
Income Taxes
On December 22, 2017, the United States enacted major tax reform legislation, the 2017 Tax Act, which enacted a broad range of changes to the federal tax code. Key provisions that could have an impact on the Company’s Consolidated Financial Statements are the deemed repatriation of foreign earnings, the remeasurement of certain net deferred assets and other liabilities for the change in the U.S. corporate tax rate from 35 percent to 21 percent, and the elimination of the alternative minimum tax (“AMT”) which were included in the Company’s 2017 Consolidated Financial Statements. The Company applied the guidance in Staff Accounting Bulletin 118 when accounting for the enactment-date effects of the 2017 Tax Act in 2017 and throughout 2018. At December 28, 2018, the Company has completed its accounting for all the enactment-date income tax effects of the Tax Act.
Beginning in 2017, the 2017 Tax Act subjects a U.S. shareholder to tax on Global Intangible Low Tax Income (“GILTI”) earned by certain foreign subsidiaries. In January 2018, the FASB released guidance (Staff Q&A Topic 740, No. 5) on the accounting for tax on the GILTI provisions of the 2017 Tax Act. 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 net operating loss carryforwards. In addition, Staff Q&A Topic 740, No. 5 states that an entity can make an accounting policy election to either recognize deferred taxes for temporary basis differences expected to reverse as GILTI in future years or to provide for the tax expense related to GILTI in the year the tax is incurred as a period expense only. The Company has elected to account for GILTI as a current period expense when incurred.
The Company recognizes the income tax benefit from an uncertain tax position when it is more likely than not that, based on technical merits, the position will be sustained upon examination, including resolutions of any related appeals or litigation processes. The amount of tax benefit recorded, if any, is limited to the extent it is not greater than 50 percent likely to be realized upon settlement with the taxing authority (that has full knowledge of all relevant information). Accrued interest, if any, related to uncertain tax positions is included as a component of income tax expense, and penalties, if incurred, are recognized as a component of operating income or loss. The Company does not have any uncertain tax positions as of any of the periods presented.
The Company did not incur significant interest and penalties for any period presented.
F-16
STAAR SURGICAL COMPANY AND SUBSDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Note 1 — Organization and Description of Business and Accounting Policies (Continued)
Income Taxes (Continued)
The Company recognizes deferred tax assets and liabilities for temporary differences between the financial reporting basis and the tax basis of the Company’s assets and liabilities, net operating loss and credit carryforwards, and uncertainty in income taxes, on a jurisdiction-by-jurisdiction basis. In evaluating the Company’s ability to recover the deferred tax assets within a jurisdiction from which they arise, management considers all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, 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 successful implementation of 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 that historical results provide, the Company also considers 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. The impact on deferred taxes of changes in tax rates and laws, if any, are applied to the years during which temporary differences are expected to be settled and reflected in the financial statements in the period of enactment.
The Company has made a policy election to apply the incremental cash tax savings approach when analyzing the impact GILTI could have on its U.S. valuation allowance. As a result of future expected GILTI inclusions, and because of the Tax Act’s ordering rules, U.S. companies may now expect to utilize tax attribute carryforwards (e.g., net operating losses and deferred tax assets) for which a valuation allowance has historically been recorded (this is referred to as the “tax law ordering approach”). However, due to the mechanics of the GILTI rules, companies that have a GILTI inclusion may realize a reduced (or no) cash tax savings from utilizing such tax attribute carryforwards (this view is referred to as the “incremental cash tax savings approach”).
On July 23, 2020 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. The Company has made the election to exclude certain high-taxed income from its GILTI calculation for fiscal years 2020, 2019 and 2018. The Company will continue to make the election each year to the extent it results in a tax benefit.
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 21).
On December 27, 2020 the Consolidated Appropriations Act (“CAA”) was enacted and signed into law. The Company reviewed the provisions of the CAA, but does not expect it to have a material impact to its tax provision (also see Note 21).
Basic and Diluted Net Income Per Share
The Company has only one class of common stock and no participating securities which would require the two-class method of calculating basic earnings per share. Basic per share information is calculated by dividing net income by the weighted average number of shares outstanding, net of unvested restricted stock, unvested restricted stock units (“RSUs”) and unvested performance stock units (“PSUs”), during the period. Diluted per share information is calculated by dividing net income by the weighted average number of shares outstanding, adjusted for the effects of potentially dilutive common stock, which are comprised of outstanding warrants, stock options, unvested restricted stock, RSUs and PSUs, during the period, using the treasury-stock method (See Note 16).
F-17
STAAR SURGICAL COMPANY AND SUBSDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Note 1 — Organization and Description of Business and Accounting Policies (Continued)
Employee Defined Benefit Plans
The Company maintains a passive pension plan (the “Swiss Plan”) covering employees of its Swiss subsidiary. The Swiss Plan conforms to the features of a defined benefit plan.
The Company also maintains a noncontributory defined benefit pension plan which covers substantially all the employees of STAAR Japan.
The Company recognizes the funded status, or difference between the fair value of plan assets and the projected benefit obligations of the pension plan on the Consolidated Balance Sheets, with a corresponding adjustment to accumulated other comprehensive income (loss). If the projected benefit obligation exceeds the fair value of plan assets, then that difference or unfunded status represents the pension liability. The Company records a net periodic pension cost in the Consolidated Statements of Income. The liabilities and annual income or expense of both plans are determined using methodologies that involve several actuarial assumptions, the most significant of which are the discount rate and the expected long-term rate of asset return (asset returns and fair-value of plan assets are applicable for the Swiss Plan only). The fair values of plan assets are determined based on prevailing market prices (see Note 11).
Stock-Based Compensation
Stock-based compensation expense for all stock-based compensation awards granted is based on the grant-date fair value. The Company recognizes these compensation costs on a straight-line basis over the requisite service period of the award, which is generally the option vesting term of three to four years for executive officers and employees, and one year for members of its Board of Directors (the “Board”) (see Note 12).
The Company also, at times, issues restricted stock to its executive officers, employees and the Board, which are restricted and unvested common shares issued at fair market value on the date of grant. For the restricted shares issued to the Board, the restricted stock vests over a one-year service period, for executive officers and employees, it is typically a three-year service period, and are subject to forfeiture (or acceleration, depending upon the circumstances) until vested or the service period is completed. Restricted stock compensation expense is recognized on a straight-line basis over the requisite service period of one to three years, based on the grant-date fair value of the stock. Restricted stock is considered legally issued and outstanding on the grant date (see Notes 12 and 16).
The Company issues RSUs and PSUs (see Note 12), which can have only a service condition or a performance contingent restricted stock award based upon the Company meeting certain internally established performance conditions that vest only if those conditions are met or exceeded and the grantee is still employed with the Company. RSU and PSU compensation expense is recognized on a straight-line basis over the requisite service period. The Company recognizes compensation cost for the performance condition RSUs and PSUs when the Company concludes that it is probable that the performance condition will be achieved, net of an estimate of pre-vesting forfeitures, over the requisite service period based on the grant-date fair value of the stock. The Company reassesses the probability of vesting at each reporting period and adjusts compensation cost based on its probability assessment.
Once the RSUs and PSUs are vested, equivalent common shares will be issued or issuable to the grantee and therefore the RSUs and PSUs are not included in total common shares issued and outstanding until vested (see Notes 12 and 16).
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.
F-18
STAAR SURGICAL COMPANY AND SUBSDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Note 1 — Organization and Description of Business and Accounting Policies (Continued)
Comprehensive Income (Loss)
The Company presents comprehensive income (loss) in the Consolidated Balance Sheets and the Consolidated Statements of Comprehensive Income (Loss). Total comprehensive income (loss) includes, in addition to the net income, changes in equity that are excluded from the Consolidated Statements of Income and are recorded directly into a separate section of stockholders’ equity on the Consolidated Balance Sheets. The following table summarizes the changes in the accumulated balances for each component of accumulated other comprehensive income (loss) attributable to the Company for the years ended January 1, 2021, January 3, 2020 and December 28, 2018 (in thousands):
|
|
Foreign
Currency
Translation
|
|
|
Defined
Benefit
Pension
Plan – Japan
|
|
|
Defined
Benefit
Pension
Plan –
Switzerland
|
|
|
Accumulated
Other Com-
prehensive
Income
(Loss)
|
|
Balance, at December 29, 2017
|
|
$
|
278
|
|
|
$
|
88
|
|
|
$
|
(1,516
|
)
|
|
$
|
(1,150
|
)
|
Other comprehensive income (loss)
|
|
|
242
|
|
|
|
(107
|
)
|
|
|
(290
|
)
|
|
|
(155
|
)
|
Tax effect
|
|
|
(74
|
)
|
|
|
29
|
|
|
|
30
|
|
|
|
(15
|
)
|
Balance, at December 28, 2018
|
|
|
446
|
|
|
|
10
|
|
|
|
(1,776
|
)
|
|
|
(1,320
|
)
|
Other comprehensive income (loss)
|
|
|
291
|
|
|
|
34
|
|
|
|
(2,192
|
)
|
|
|
(1,867
|
)
|
Tax effect
|
|
|
(86
|
)
|
|
|
(6
|
)
|
|
|
231
|
|
|
|
139
|
|
Balance, at January 3, 2020
|
|
|
651
|
|
|
|
38
|
|
|
|
(3,737
|
)
|
|
|
(3,048
|
)
|
Other comprehensive income (loss)
|
|
|
717
|
|
|
|
(33
|
)
|
|
|
(3,323
|
)
|
|
|
(2,639
|
)
|
Tax effect
|
|
|
(217
|
)
|
|
|
10
|
|
|
|
349
|
|
|
|
142
|
|
Balance, at January 1, 2021
|
|
$
|
1,151
|
|
|
$
|
15
|
|
|
$
|
(6,711
|
)
|
|
$
|
(5,545
|
)
|
Recently Adopted Accounting Pronouncements and Recent Accounting Pronouncements Not Yet Adopted
On January 4, 2020 (beginning of fiscal year 2020), the Company adopted 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 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 Consolidated Financial Statements.
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 Consolidated Financial Statements.
F-19
STAAR SURGICAL COMPANY AND SUBSDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Note 1 — Organization and Description of Business and Accounting Policies (Continued)
Recently Adopted Accounting Pronouncements and Recent Accounting Pronouncements Not Yet Adopted (Continued)
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 intraperiod 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 not expected to have a material impact on Consolidated Financial Statements.
Note 2 — Accounts Receivable Trade, Net
Accounts receivable trade, net consisted of the following at January 1, 2021 and January 3, 2020 (in thousands):
|
|
2020
|
|
|
2019
|
|
Domestic
|
|
$
|
828
|
|
|
$
|
989
|
|
Foreign
|
|
|
34,460
|
|
|
|
30,095
|
|
Total accounts receivable trade, gross
|
|
|
35,288
|
|
|
|
31,084
|
|
Less allowance for doubtful accounts
|
|
|
59
|
|
|
|
88
|
|
Total accounts receivable trade, net
|
|
$
|
35,229
|
|
|
$
|
30,996
|
|
Note 3 — Inventories, Net
Inventories, net consisted of the following at January 1, 2021 and January 3, 2020 (in thousands):
|
|
2020
|
|
|
2019
|
|
Raw materials and purchased parts
|
|
$
|
3,679
|
|
|
$
|
3,334
|
|
Work in process
|
|
|
2,174
|
|
|
|
1,870
|
|
Finished goods
|
|
|
13,717
|
|
|
|
12,976
|
|
Total inventories, gross
|
|
|
19,570
|
|
|
|
18,180
|
|
Less inventory reserves
|
|
|
1,459
|
|
|
|
1,038
|
|
Total inventories, net
|
|
$
|
18,111
|
|
|
$
|
17,142
|
|
Note 4 — Prepayments, Deposits and Other Current Assets
Prepayments, deposits and other current assets consisted of the following at January 1, 2021 and January 3, 2020 (in thousands):
|
|
2020
|
|
|
2019
|
|
Prepayments and deposits
|
|
$
|
3,791
|
|
|
$
|
3,031
|
|
Prepaid insurance
|
|
|
2,677
|
|
|
|
1,488
|
|
Consumption tax receivable
|
|
|
1,409
|
|
|
|
875
|
|
Value added tax (VAT) receivable
|
|
|
2,056
|
|
|
|
713
|
|
Other(1)
|
|
|
692
|
|
|
|
453
|
|
Total prepayments, deposits and other current assets
|
|
$
|
10,625
|
|
|
$
|
6,560
|
|
(1)
|
No individual item in “other” exceeds 5% of the total prepayments, deposits and other current assets.
|
F-20
STAAR SURGICAL COMPANY AND SUBSDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Note 5 — Property, Plant and Equipment, Net
Property, plant and equipment, net consisted of the following at January 1, 2021 and January 3, 2020 (in thousands):
|
|
2020
|
|
|
2019
|
|
Machinery and equipment
|
|
$
|
21,209
|
|
|
$
|
17,173
|
|
Computer equipment and software
|
|
|
7,423
|
|
|
|
6,244
|
|
Furniture and fixtures
|
|
|
4,676
|
|
|
|
4,169
|
|
Leasehold improvements
|
|
|
11,388
|
|
|
|
10,151
|
|
Construction in process
|
|
|
11,120
|
|
|
|
8,477
|
|
Total property, plant and equipment, gross
|
|
|
55,816
|
|
|
|
46,214
|
|
Less accumulated depreciation
|
|
|
31,786
|
|
|
|
29,149
|
|
Total property, plant and equipment, net
|
|
$
|
24,030
|
|
|
$
|
17,065
|
|
Depreciation expense and loss on disposal of property, plant and equipment were as follows (in thousands):
|
|
Years Ended
|
|
|
|
2020
|
|
|
2019
|
|
|
2018
|
|
Depreciation expense
|
|
$
|
2,801
|
|
|
$
|
3,081
|
|
|
$
|
2,430
|
|
Loss on disposal of property, plant and equipment
|
|
|
213
|
|
|
|
14
|
|
|
|
10
|
|
The loss recognized for the year ended January 1, 2021 consisted primarily of an asset, with a net book value of $208,000, that was no longer in use.
Note 6 — Intangible Assets, Net
Intangible assets, net consisted of the following at January 1, 2021 and January 3, 2020 (in thousands):
|
|
2020
|
|
|
2019
|
|
Long-lived amortized intangible assets
|
|
Gross
Carrying
Amount
|
|
|
Accumulated
Amortization
|
|
|
Net
|
|
|
Gross
Carrying
Amount
|
|
|
Accumulated
Amortization
|
|
|
Net
|
|
Patents and licenses
|
|
$
|
9,382
|
|
|
$
|
(9,112
|
)
|
|
$
|
270
|
|
|
$
|
9,353
|
|
|
$
|
(9,057
|
)
|
|
$
|
296
|
|
Amortization expense for intangible assets were as follows (in thousands):
|
|
Years Ended
|
|
|
|
2020
|
|
|
2019
|
|
|
2018
|
|
Amortization expense
|
|
$
|
35
|
|
|
$
|
34
|
|
|
$
|
34
|
|
Future amortization of intangible assets is as follows (in thousands):
Year Ended
|
|
Amount
|
|
2021
|
|
$
|
36
|
|
2022
|
|
|
36
|
|
2023
|
|
|
36
|
|
2024
|
|
|
36
|
|
2025
|
|
|
36
|
|
Thereafter
|
|
|
90
|
|
Total
|
|
$
|
270
|
|
F-21
STAAR SURGICAL COMPANY AND SUBSDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Note 7 — Other Current Liabilities
Other current liabilities consisted of the following at January 1, 2021 and January 3, 2020 (in thousands):
|
|
2020
|
|
|
2019
|
|
Accrued salaries and wages
|
|
$
|
6,061
|
|
|
$
|
4,400
|
|
Accrued bonuses
|
|
|
3,000
|
|
|
|
4,184
|
|
Accrued insurance
|
|
|
2,633
|
|
|
|
1,346
|
|
Income taxes payable
|
|
|
4,657
|
|
|
|
2,710
|
|
Accrued consumption tax
|
|
|
1,743
|
|
|
|
1,164
|
|
Marketing obligations
|
|
|
1,484
|
|
|
|
633
|
|
Other(1)
|
|
|
5,028
|
|
|
|
3,260
|
|
Total other current liabilities
|
|
$
|
24,606
|
|
|
$
|
17,697
|
|
(1)
|
No individual item in “Other” exceeds 5% of the other current liabilities.
|
Note 8 — 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 0.07% as of January 1, 2021) plus a 0.50% spread, and may be renewed quarterly (the current line expires on February 21, 2021). 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 January 1, 2021 and January 3, 2020, respectively (approximately $1,379,000 and $1,827,000 based on the foreign exchange rates on January 1, 2021 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 January 1, 2021 and January 3, 2020, respectively (approximately $3,459,000 and $2,798,000 based on the foreign exchange rates on January 1, 2021 and January 3, 2020, respectively). At maturity on February 21, 2021, this line of credit was renewed until May 21, 2021, 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 $1,100,000 and $1,000,000 at the rate of exchange on January 1, 2021 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 January 1, 2021 and January 3, 2020.
Covenant Compliance
The Company is in compliance with covenants of its credit facilities and lines of credit as of January 1, 2021.
Lease Line of Credit (Finance Leases)
During 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.
F-22
STAAR SURGICAL COMPANY AND SUBSDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Note 9 — 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 at January 1, 2021 and January 3, 2020 (dollars in thousands):
|
|
2020
|
|
|
2019
|
|
Machinery and equipment
|
|
$
|
570
|
|
|
$
|
1,885
|
|
Computer equipment and software
|
|
|
806
|
|
|
|
912
|
|
Furniture and fixtures
|
|
|
—
|
|
|
|
102
|
|
Leasehold improvements
|
|
|
—
|
|
|
|
27
|
|
Finance lease ROU assets, gross
|
|
|
1,376
|
|
|
|
2,926
|
|
Less accumulated depreciation
|
|
|
780
|
|
|
|
1,059
|
|
Finance lease ROU assets, net
|
|
$
|
596
|
|
|
$
|
1,867
|
|
|
|
|
|
|
|
|
|
|
Total finance lease liability
|
|
$
|
398
|
|
|
$
|
926
|
|
Weighted-average remaining lease term (in years)
|
|
|
0.9
|
|
|
|
1.1
|
|
Weighted-average discount rate
|
|
|
3.46
|
%
|
|
|
6.17
|
%
|
Supplemental cash flow information related to finance leases consisted of the following (in thousands):
|
|
Years Ended
|
|
|
|
2020
|
|
|
2019
|
|
Amortization of finance lease ROU asset
|
|
$
|
259
|
|
|
$
|
584
|
|
Interest on finance lease liabilities
|
|
|
30
|
|
|
|
72
|
|
Cash paid for amounts included in the measurement of finance lease liabilities:
|
|
|
|
|
|
|
|
|
Operating cash flows
|
|
|
30
|
|
|
|
72
|
|
Financing cash flows
|
|
|
561
|
|
|
|
1,294
|
|
ROU assets obtained in exchange for new finance lease liabilities
|
|
|
22
|
|
|
|
679
|
|
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 ten 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 at January 1, 2021 and January 3, 2020 (dollars in thousands):
F-23
STAAR SURGICAL COMPANY AND SUBSDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Note 9 — Leases (Continued)
Operating Leases (Continued)
|
|
2020
|
|
|
2019
|
|
Machinery and equipment
|
|
$
|
860
|
|
|
$
|
765
|
|
Computer equipment and software
|
|
|
462
|
|
|
|
462
|
|
Real property
|
|
|
12,956
|
|
|
|
11,116
|
|
Operating lease ROU assets, gross
|
|
|
14,278
|
|
|
|
12,343
|
|
Less accumulated depreciation
|
|
|
5,514
|
|
|
|
5,659
|
|
Operating lease ROU assets, net
|
|
$
|
8,764
|
|
|
$
|
6,684
|
|
|
|
|
|
|
|
|
|
|
Total operating lease liability
|
|
$
|
9,022
|
|
|
$
|
6,786
|
|
Weighted-average remaining lease term (in years)
|
|
|
5.2
|
|
|
|
2.3
|
|
Weighted-average discount rate
|
|
|
2.61
|
%
|
|
|
1.82
|
%
|
Supplemental cash flow information related to operating leases was as follows (in thousands):
|
|
Years Ended
|
|
|
|
2020
|
|
|
2019
|
|
Operating lease cost
|
|
$
|
3,023
|
|
|
$
|
2,749
|
|
Cash paid for amounts included in the measurement of operating lease liabilities:
|
|
|
|
|
|
|
|
|
Operating cash flows
|
|
|
3,052
|
|
|
|
2,774
|
|
ROU assets obtained in exchange for new operating lease liabilities
|
|
|
4,938
|
|
|
|
3,495
|
|
ROU assets related to operating leases of $5,726,000 were recorded upon the adoption of Topic 842 at the beginning of fiscal year 2019.
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 January 1, 2021 are as follows (in thousands):
Year Ended
|
|
Operating Leases
|
|
|
Finance Leases
|
|
2021
|
|
$
|
2,682
|
|
|
$
|
366
|
|
2022
|
|
|
2,219
|
|
|
|
20
|
|
2023
|
|
|
1,804
|
|
|
|
15
|
|
2024
|
|
|
837
|
|
|
|
4
|
|
2025
|
|
|
595
|
|
|
|
—
|
|
Thereafter
|
|
|
1,325
|
|
|
|
—
|
|
Total minimum lease payments, including interest
|
|
$
|
9,462
|
|
|
$
|
405
|
|
Less amounts representing interest
|
|
|
440
|
|
|
|
7
|
|
Total minimum lease payments
|
|
$
|
9,022
|
|
|
$
|
398
|
|
F-24
STAAR SURGICAL COMPANY AND SUBSDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Note 10 — Income Taxes
Provision (Benefit) for Income Taxes
Income from continuing operations before provision (benefit) for income taxes was as follows (in thousands):
|
|
Years Ended
|
|
|
|
2020
|
|
|
2019
|
|
|
2018
|
|
Domestic
|
|
$
|
(16,245
|
)
|
|
$
|
(5,321
|
)
|
|
$
|
(2,629
|
)
|
Foreign
|
|
|
24,512
|
|
|
|
18,347
|
|
|
|
9,268
|
|
Income before income taxes
|
|
$
|
8,267
|
|
|
$
|
13,026
|
|
|
$
|
6,639
|
|
The provision (benefit) for income taxes consisted of the following (in thousands):
|
|
Years Ended
|
|
|
|
2020
|
|
|
2019
|
|
|
2018
|
|
Current tax provision:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. federal
|
|
$
|
2
|
|
|
$
|
—
|
|
|
$
|
—
|
|
State
|
|
|
15
|
|
|
|
13
|
|
|
|
10
|
|
Foreign
|
|
|
3,186
|
|
|
|
2,446
|
|
|
|
1,220
|
|
Total current provision
|
|
|
3,203
|
|
|
|
2,459
|
|
|
|
1,230
|
|
Deferred tax provision (benefit):
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. federal
|
|
|
(573
|
)
|
|
|
(3,003
|
)
|
|
|
—
|
|
State
|
|
|
78
|
|
|
|
(373
|
)
|
|
|
—
|
|
Foreign
|
|
|
(354
|
)
|
|
|
(105
|
)
|
|
|
441
|
|
Total deferred provision (benefit)
|
|
|
(849
|
)
|
|
|
(3,481
|
)
|
|
|
441
|
|
Provision (benefit) for income taxes
|
|
$
|
2,354
|
|
|
$
|
(1,022
|
)
|
|
$
|
1,671
|
|
F-25
STAAR SURGICAL COMPANY AND SUBSDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Note 10 — Income Taxes (Continued)
Provision (Benefit) for Income Taxes (Continued)
A reconciliation of the statutory U.S. federal tax rate to the Company’s effective tax rate was as follows (dollars in thousands):
|
|
Years Ended
|
|
|
|
2020
|
|
|
2019
|
|
|
2018
|
|
|
|
Rate
|
|
|
Amount
|
|
|
Rate
|
|
|
Amount
|
|
|
Rate
|
|
|
Amount
|
|
Computed provision for taxes based
on income at statutory rate
|
|
|
21.0
|
%
|
|
$
|
1,736
|
|
|
|
21.0
|
%
|
|
$
|
2,735
|
|
|
|
21.0
|
%
|
|
$
|
1,394
|
|
Increase (decrease) in taxes resulting from:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Permanent differences
|
|
|
0.4
|
%
|
|
|
29
|
|
|
|
0.5
|
%
|
|
|
60
|
|
|
|
0.5
|
%
|
|
|
34
|
|
State taxes, net of federal income
tax benefit
|
|
|
0.9
|
%
|
|
|
74
|
|
|
|
(2.2
|
)%
|
|
|
(284
|
)
|
|
|
0.1
|
%
|
|
|
8
|
|
State tax benefit
|
|
|
(16.9
|
)%
|
|
|
(1,397
|
)
|
|
|
0.7
|
%
|
|
|
93
|
|
|
|
(6.7
|
)%
|
|
|
(447
|
)
|
Foreign tax differential
|
|
|
(27.9
|
)%
|
|
|
(2,304
|
)
|
|
|
(11.6
|
)%
|
|
|
(1,514
|
)
|
|
|
(11.0
|
)%
|
|
|
(730
|
)
|
Expiration of state net operating tax loss
carryforwards
|
|
|
3.2
|
%
|
|
|
268
|
|
|
|
8.0
|
%
|
|
|
1,039
|
|
|
|
—
|
|
|
|
—
|
|
Foreign earnings not permanently
reinvested, net of the participation
exemption
|
|
|
(0.1
|
)%
|
|
|
(5
|
)
|
|
|
(0.1
|
)%
|
|
|
(7
|
)
|
|
|
(14.0
|
)%
|
|
|
(926
|
)
|
Foreign dividend withholding
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
4.8
|
%
|
|
|
317
|
|
ASC 718 share based payment adjustment
|
|
|
5.8
|
%
|
|
|
476
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(6.5
|
)%
|
|
|
(434
|
)
|
Incentive stock option compensation
|
|
|
(59.4
|
)%
|
|
|
(4,907
|
)
|
|
|
(0.4
|
)%
|
|
|
(55
|
)
|
|
|
(12.7
|
)%
|
|
|
(842
|
)
|
Non-qualified stock option and restricted
stock tax deduction in excess of
cumulative book deduction
|
|
|
(52.3
|
)%
|
|
|
(4,324
|
)
|
|
|
(12.9
|
)%
|
|
|
(1,679
|
)
|
|
|
(12.7
|
)%
|
|
|
(842
|
)
|
Executive compensation Section 162(m) limitation
|
|
|
43.0
|
%
|
|
|
3,552
|
|
|
|
4.4
|
%
|
|
|
569
|
|
|
|
0.9
|
%
|
|
|
60
|
|
GILTI inclusion
|
|
|
54.0
|
%
|
|
|
4,461
|
|
|
|
25.9
|
%
|
|
|
3,372
|
|
|
|
26.8
|
%
|
|
|
1,780
|
|
Other
|
|
|
(2.5
|
)%
|
|
|
(204
|
)
|
|
|
0.9
|
%
|
|
|
121
|
|
|
|
0.5
|
%
|
|
|
30
|
|
Valuation allowance
|
|
|
59.3
|
%
|
|
|
4,899
|
|
|
|
(42.0
|
)%
|
|
|
(5,472
|
)
|
|
|
34.2
|
%
|
|
|
2,269
|
|
Effective tax provision (benefit)
|
|
|
28.5
|
%
|
|
$
|
2,354
|
|
|
|
(7.8
|
)%
|
|
$
|
(1,022
|
)
|
|
|
25.2
|
%
|
|
$
|
1,671
|
|
The Company recorded income taxes of $2,354,000 during the year ended 2020 due to pre-tax income generated in certain foreign jurisdictions, which included a release of $495,000 of the Company’s U.S. valuation allowance, as a result of increases in foreign income and changes in the usage and release of our deferred tax assets. The Company recorded an income tax benefit of $1,022,000 during the year ended 2019 due to the income tax benefit from the release of the U.S. and certain states valuation allowances, offset by income tax expense from profits generated in its foreign operations. The Company recorded an income tax provision of $1,671,000 during the year ended 2018, due to profits generated in its foreign operations.
For the years ended 2020 and 2019, there was a decrease in foreign deferred liabilities of $213,000 and $46,000, respectively. Included in the foreign deferred tax provision is an increase of $36,000 in foreign deferred liabilities for the year ended 2018
F-26
STAAR SURGICAL COMPANY AND SUBSDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Note 10 — Income Taxes (Continued)
Provision (Benefit) for Income Taxes (Continued)
All earnings from the Company’s subsidiaries are not considered to be permanently reinvested. Accordingly, the Company provided withholding and U.S. taxes on all unremitted foreign earnings through 2018 (see STAAR Surgical UK discussion below). During 2020, 2019 and 2018 there were no withholding taxes paid to foreign jurisdictions.
As discussed in Note 1, on December 22, 2017, the United States enacted major tax reform legislation, the 2017 Tax Act, which enacted a broad range of changes to the federal tax code. Most of the changes from the new law are effective for years beginning after December 31, 2017, with the noted exception of the deemed repatriation of the offshore earnings.
For 2020, 2019 and 2018, in accordance with the 2017 Tax Act, the Company included GILTI of $21,300,000, $15,100,000 and $7,700,000, respectively, in U.S. gross income, which was fully offset with net operating loss carryforwards. The Company utilized the high-tax exception to exclude income from foreign jurisdictions with foreign taxes at an effective rate that is higher than 90 percent of the applicable highest U.S. corporate tax rate. 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. tax income.
Deferred Tax Assets and Liabilities
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company’s deferred tax assets (liabilities) at January 1, 2021 and January 3, 2020 were as follows (in thousands):
|
|
2020
|
|
|
2019
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts and sales returns
|
|
$
|
357
|
|
|
$
|
233
|
|
Inventories
|
|
|
691
|
|
|
|
703
|
|
Accrued vacation
|
|
|
599
|
|
|
|
428
|
|
Accrued other expenses
|
|
|
786
|
|
|
|
1,036
|
|
Stock-based compensation
|
|
|
3,277
|
|
|
|
2,859
|
|
Pensions
|
|
|
1,679
|
|
|
|
1,159
|
|
Depreciation and amortization
|
|
|
—
|
|
|
|
162
|
|
Net operating loss carryforwards
|
|
|
38,642
|
|
|
|
32,251
|
|
Business, foreign, AMT and R&D credit carryforwards
|
|
|
3,051
|
|
|
|
3,164
|
|
Prepaid expenses
|
|
|
280
|
|
|
|
272
|
|
Capitalized R&D
|
|
|
1,000
|
|
|
|
986
|
|
Operating lease liability
|
|
|
1,687
|
|
|
|
1,309
|
|
Other
|
|
|
19
|
|
|
|
5
|
|
Valuation allowance
|
|
|
(42,502
|
)
|
|
|
(37,007
|
)
|
Total deferred tax assets
|
|
$
|
9,566
|
|
|
$
|
7,560
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Foreign tax withholding
|
|
$
|
(1,295
|
)
|
|
$
|
(1,295
|
)
|
Operating lease ROU assets
|
|
|
(1,662
|
)
|
|
|
(1,309
|
)
|
Depreciation and amortization
|
|
|
(424
|
)
|
|
|
—
|
|
Amortization of R&D
|
|
|
(846
|
)
|
|
|
(805
|
)
|
Net foreign earnings not permanently reinvested
|
|
|
(617
|
)
|
|
|
(401
|
)
|
Total deferred tax liabilities
|
|
|
(4,844
|
)
|
|
|
(3,810
|
)
|
Total net deferred tax assets
|
|
$
|
4,722
|
|
|
$
|
3,750
|
|
F-27
STAAR SURGICAL COMPANY AND SUBSDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Note 10 — Income Taxes (Continued)
Deferred Tax Assets and Liabilities (Continued)
As of January 1, 2021, the Company had combined federal and state net deferred tax assets of $3,871,000, net deferred tax assets in Japan of $1,073,000, and net deferred tax liabilities in Switzerland of $222,000 (which included $1,295,000 of withholding taxes on unremitted foreign earnings) included in the Company’s components of deferred income tax assets and liabilities table. As of January 3, 2020, the Company had combined federal and state net deferred tax assets of $3,512,000, net deferred tax assets in Japan of $896,000, and net deferred tax liabilities in Switzerland of $658,000 (which included $1,295,000 of withholding taxes on unremitted foreign earnings) included in the Company’s components of deferred income tax assets and liabilities table.
The Company had accrued net income taxes payable of $4,650,000 and $2,572,000 at January 1, 2021 and January 3, 2020, respectively, primarily due to taxes owed in foreign jurisdictions.
U.S. Jurisdiction
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. Since January 3, 2020, the Company has at least 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. After consideration of all the information available, the Company determined that a release of the federal valuation and certain states valuation were appropriate.
As a result of the Company’s 2020 operating results, revising its global forecasts for fiscal 2021 and beyond as a result of COVID-19 in the first quarter of 2020 and changes in the usage and release of certain deferred tax assets, under the incremental cash tax savings approach, the Company recorded a valuation allowance release of $573,000 against the federal deferred tax assets, and a valuation allowance release reversal of $78,000 against certain states deferred tax assets, during 2020. Under this method, valuation allowances of $34,681,000 and $7,399,000 for federal and state, respectively, 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 at January 1, 2021.
Under the incremental cash tax savings approach, the Company recorded a valuation allowance release of $3,003,000 and $373,000 again federal and certain states deferred tax assets, respectively, during 2019, and valuation allowances of $30,308,000 and $6,174,000 for federal and state, respectively, remained 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 at January 3, 2020.
Further included in the federal deferred tax asset balance is $2,013,000 in foreign tax credits that are unlikely to be realized in the future under the new tax act and the mechanics of GILTI.
As of January 1, 2021, the Company had net deferred tax assets in the U.S. of $3,576,000, which consisted of the cumulative federal valuation allowance release and had state net deferred tax assets of $294,000, which consisted of the cumulative release of certain state valuation allowances.
As of January 1, 2021, the Company had federal net operating loss carryforwards of $152,863,000 available to reduce future income taxes of its U.S. operations. The pre-2019 federal net operating loss carryforwards expire in varying amounts between 2021 and 2037. In California, the main state from which the Company conducts its domestic operations, the Company has state net operating losses of $27,275,000 available to reduce future California income taxes. In 2020, California enacted Assembly Bill 85 which imposed limits on the usability of California state net operating losses and research and development credits in tax years beginning after 2019 and before 2023. The California net operating loss carryforwards expire in varying amounts between 2028 and 2039.
Further, pursuant to the provisions of Internal Revenue Code Section 382, significant changes in ownership may restrict the future utilization of these tax loss carry forwards. For 2020 the Company does not have a change in ownership.
F-28
STAAR SURGICAL COMPANY AND SUBSDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Note 10 — Income Taxes (Continued)
Foreign Jurisdictions
STAAR Surgical UK
On October 9, 2019 STAAR US formed STAAR Surgical UK Limited (“STAAR UK”) as a holding company in the United Kingdom for their foreign subsidiaries. On December 30, 2019, STAAR US transferred their shares in STAAR Surgical AG to STAAR UK. STAAR UK will act as the main foreign group holding company (“STAAR Group”). The STAAR Group intends to consolidate the group’s global operations to create a centralized hub to hold all future subsidiaries of the group, as well as expand into the United Kingdom market. STAAR UK’s activity will include the training and promotion of the entire product line with private and government hospitals in the United Kingdom.
Based on the current tax treaties there is no withholding on distributions between Switzerland and the United Kingdom, and the United Kingdom and the U.S. Accordingly, the Company will no longer accrue Swiss withholding tax on foreign earnings after fiscal 2018.
STAAR Surgical AG
Due to STAAR Surgical AG’s history of profits, the deferred tax assets are considered fully realizable. The Company had net deferred tax liabilities in Switzerland of $222,000 and $658,000 as of January 1, 2021 and January 3, 2020, respectively, as discussed above.
STAAR Japan, Inc.
Since 2012, STAAR Japan functions as a limited-risk distributor with a guaranteed return from STAAR AG and accordingly, STAAR Japan’s deferred tax assets are considered fully realizable. The Company had net deferred tax assets of $1,073,000 and $896,000 as of January 1, 2021 and January 3, 2020, respectively. STAAR Japan net deferred tax assets included a valuation allowance of $35,000 and $46,000 as of January 3, 2020 and December 28, 2018, respectively, related to non-deductible stock compensation for directors.
The following tax years remain subject to examination:
Significant jurisdictions
|
|
Open Years
|
U.S. Federal
|
|
2017 – 2019
|
California
|
|
2016 – 2019
|
Switzerland
|
|
2019
|
Japan
|
|
2018 – 2019
|
Note 11 – Employee Benefit Plans
Defined Benefit Plan – Switzerland
The Company maintains a passive pension plan (the “Swiss Plan”) covering employees of its Swiss subsidiary, which is accounted for as a defined benefit plan.
In Switzerland employers are required to provide a minimum pension plan for their staff. Contributions of both the employees and employer finance the Swiss Plan. The amount of the contributions is defined by the plan regulations and cannot be decreased without amending the plan regulations. It is required that the employer contribute an amount equal to or greater than the employee contribution.
The following table shows the changes in the benefit obligation and plan assets and the Swiss Plan’s funded status as of January 1, 2021 and January 3, 2020 (in thousands):
F-29
STAAR SURGICAL COMPANY AND SUBSDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Note 11 – Employee Benefit Plans (Continued)
Defined Benefit Plan – Switzerland (Continued)
|
|
2020
|
|
|
2019
|
|
Change in Projected Benefit Obligation:
|
|
|
|
|
|
|
|
|
Projected benefit obligation, beginning of period
|
|
$
|
12,864
|
|
|
$
|
8,794
|
|
Service cost
|
|
|
1,139
|
|
|
|
739
|
|
Interest cost
|
|
|
51
|
|
|
|
77
|
|
Participant contributions
|
|
|
579
|
|
|
|
458
|
|
Benefits deposited (paid)
|
|
|
6,299
|
|
|
|
492
|
|
Actuarial loss
|
|
|
4,620
|
|
|
|
2,429
|
|
Prior service credit
|
|
|
(82
|
)
|
|
|
(125
|
)
|
Projected benefit obligation, end of period
|
|
$
|
25,470
|
|
|
$
|
12,864
|
|
Change in Plan Assets:
|
|
|
|
|
|
|
|
|
Plan assets at fair value, beginning of period
|
|
$
|
6,774
|
|
|
$
|
5,130
|
|
Actual return on plan assets (including foreign currency impact)
|
|
|
1,195
|
|
|
|
152
|
|
Employer contributions
|
|
|
704
|
|
|
|
542
|
|
Participant contributions
|
|
|
579
|
|
|
|
458
|
|
Benefits deposited (paid)
|
|
|
6,299
|
|
|
|
492
|
|
Plan assets at fair value, end of period
|
|
$
|
15,551
|
|
|
$
|
6,774
|
|
Funded status (pension liability), end of year(1)
|
|
$
|
(9,919
|
)
|
|
$
|
(6,090
|
)
|
Amount Recognized in Accumulated Other Comprehensive Income
(Loss), net of tax:
|
|
|
|
|
|
|
|
|
Actuarial loss on plan assets
|
|
$
|
(198
|
)
|
|
$
|
(1,031
|
)
|
Actuarial loss on benefit obligation
|
|
|
(8,453
|
)
|
|
|
(4,317
|
)
|
Actuarial gain recognized in current year
|
|
|
1,029
|
|
|
|
744
|
|
Prior service credit
|
|
|
301
|
|
|
|
258
|
|
Effect of curtailments
|
|
|
610
|
|
|
|
609
|
|
Accumulated other comprehensive loss
|
|
$
|
(6,711
|
)
|
|
$
|
(3,737
|
)
|
Accumulated benefit obligation at year end
|
|
$
|
(24,291
|
)
|
|
$
|
(12,043
|
)
|
(1)
|
The underfunded balance was included in pension liability on the Consolidated Balance Sheets.
|
The change in the Projected Benefit Obligation during fiscal year 2020 was due to an increase in participant contributions, an increase in the number of participants, a translation effect (as the Swiss Plan is in Swiss Francs but the Company’s Swiss subsidiary currency is U.S. dollar, as described in Note 1) and a slight reduction in the discount rate.
F-30
STAAR SURGICAL COMPANY AND SUBSDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Note 11 – Employee Benefit Plans (Continued)
Defined Benefit Plan – Switzerland (Continued)
Net periodic pension cost associated with the Swiss Plan included the following components (in thousands):
|
|
Years Ended
|
|
|
|
2020
|
|
|
2019
|
|
|
2018
|
|
Service cost(1)
|
|
$
|
1,139
|
|
|
$
|
739
|
|
|
$
|
474
|
|
Interest cost(2)
|
|
|
51
|
|
|
|
77
|
|
|
|
56
|
|
Expected return on plan assets(2)
|
|
|
(264
|
)
|
|
|
(147
|
)
|
|
|
(116
|
)
|
Prior service credit(2),(3)
|
|
|
(34
|
)
|
|
|
(21
|
)
|
|
|
(21
|
)
|
Actuarial loss recognized in current period(2),(3)
|
|
|
318
|
|
|
|
129
|
|
|
|
113
|
|
Net periodic pension cost
|
|
$
|
1,210
|
|
|
$
|
777
|
|
|
$
|
506
|
|
(1)
|
Recognized in selling general and administrative expenses on the Consolidated Statements of Income.
|
(2)
|
Recognized in other income (expense), net, on the Consolidated Statements of Income.
|
(3)
|
Amounts reclassified from accumulated other comprehensive income (loss).
|
Changes in other comprehensive income (loss), net of tax, associated with the Swiss Plan included the following components (in thousands):
|
|
Years Ended
|
|
|
|
2020
|
|
|
2019
|
|
|
2018
|
|
Current year actuarial gain (loss) on plan assets
|
|
$
|
833
|
|
|
$
|
4
|
|
|
$
|
(101
|
)
|
Current year actuarial loss on benefit obligation
|
|
|
(4,136
|
)
|
|
|
(2,172
|
)
|
|
|
(243
|
)
|
Actuarial gain recorded in current year
|
|
|
285
|
|
|
|
114
|
|
|
|
103
|
|
Prior service credit
|
|
|
43
|
|
|
|
93
|
|
|
|
(19
|
)
|
Effect of curtailments
|
|
|
1
|
|
|
|
—
|
|
|
|
—
|
|
Change in other comprehensive loss
|
|
$
|
(2,974
|
)
|
|
$
|
(1,961
|
)
|
|
$
|
(260
|
)
|
Net periodic pension cost and projected and accumulated pension obligation for the Company’s Swiss Plan were calculated on January 1, 2021 and January 3, 2020 using the following assumptions:
|
|
2020
|
|
|
2019
|
|
Discount rate
|
|
|
0.2
|
%
|
|
|
0.3
|
%
|
Salary increases
|
|
|
2.0
|
%
|
|
|
2.0
|
%
|
Expected return on plan assets
|
|
|
2.5
|
%
|
|
|
2.5
|
%
|
Expected average remaining working lives in years
|
|
|
10.1
|
|
|
|
10.0
|
|
The discount rates are based on an assumed duration of the pension obligations and estimated using the rates of returns for AAA and AA-rated Swiss and foreign CHF-denominated corporate bonds listed on the SIX Swiss Exchange. The salary increase rate was based on the Company’s best estimate of future increases over time. The expected long-term rate of return on plan assets is based on the expected asset allocation and assumptions concerning long-term interest rates, inflation rates, and risk premiums for equities above the risk-free rates of return. These assumptions take into consideration historical long-term rates of return for relevant asset categories.
Under Swiss law, pension funds are legally independent from the employer and all the contributions are invested with regulated entities. The Company has a contract with Allianz Suisse Life Insurance Company’s BVG Collective Foundation (the “Foundation”) to manage its Swiss pension fund. Multiple employers contract with the Foundation to manage the employers’ respective pension plans. The Foundation manages the pension plans of its contracted employers as a collective entity. The investment strategy is determined by the Foundation and applies to all members of the collective Foundation. There are no separate financial statements for each employer contract. The pension plan assets of all the employers that contract with the Foundation are comingled. They are considered multiple-employer plans under ASC 715-30-35-70 and therefore accounted for as single-employer plans.
F-31
STAAR SURGICAL COMPANY AND SUBSDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Note 11 – Employee Benefit Plans (Continued)
Defined Benefit Plan – Switzerland (Continued)
As there are no separate financial statements for each employer contract, there are no individual investments that can be directly attributed to the Company’s pension plan assets. However, the funds contributed by an employer are specifically earmarked for its employees and the total assets of the plan allocable to Company’s employees are separately tracked by the Foundation. The lack of visibility into the specific investments of the plan assets and how they are valued is a significant unobservable input, therefore, the Company considers the plan assets collectively to be Level 3 assets under the fair value hierarchy (see Note 1).
The table below sets forth the fair value of Plan assets at January 3, 2020 and January 1, 2021, and the related activity in years ended 2019 and 2020, in accordance with ASC 715-20-50-1(d) (in thousands):
|
|
Insurance
Contracts
(Level 3)
|
|
Beginning balance at December 28, 2018
|
|
$
|
5,130
|
|
Actual return on plan assets
|
|
|
152
|
|
Purchases, sales, and settlement
|
|
|
1,492
|
|
Ending balance at January 3, 2020
|
|
$
|
6,774
|
|
Actual return on plan assets
|
|
|
1,195
|
|
Purchases, sales, and settlement
|
|
|
7,582
|
|
Ending balance at January 1, 2021
|
|
$
|
15,551
|
|
During fiscal year 2021, the Company expects to make cash contributions totaling approximately $775,000 to the Swiss Plan.
The estimated future benefit payments for the Swiss Plan are as follows (in thousands):
Year Ended
|
|
Amount
|
|
2021
|
|
$
|
72
|
|
2022
|
|
|
96
|
|
2023
|
|
|
138
|
|
2024
|
|
|
156
|
|
2025
|
|
|
176
|
|
Thereafter
|
|
|
9,281
|
|
Total
|
|
$
|
9,919
|
|
Defined Benefit Plan-Japan
STAAR Japan maintains a noncontributory defined benefit pension plan (“Japan Plan”) substantially covering all the employees of STAAR Japan. Benefits under the Japan Plan are earned, vested, and accumulated based on a point-system, primarily based on the combination of years of service, actual and expected future grades (management or non-management) and actual and future zone (performance) levels of the employees. Each point earned is worth a fixed monetary value, 1,000 Yen per point, regardless of the level grade or zone of the employee. Gross benefits are calculated based on the cumulative number of points earned over the service period multiplied by 1,000 Yen. The mandatory retirement age limit is 60 years old.
STAAR Japan administers the pension plan and funds the obligations of the Japan Plan from STAAR Japan’s operating cash flows. STAAR Japan is not required, and does not intend, to provide contributions to the Plan to meet benefit obligations and therefore does not have any plan assets. Benefit payments are made to beneficiaries as they become due.
F-32
STAAR SURGICAL COMPANY AND SUBSDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Note 11 – Employee Benefit Plans (Continued)
Defined Benefit Plan-Japan (Continued)
The funded status of the benefit plan at January 1, 2021 and January 3, 2020 was as follows (in thousands):
|
|
2020
|
|
|
2019
|
|
Change in Projected Benefit Obligation:
|
|
|
|
|
|
|
|
|
Projected benefit obligation, beginning of period
|
|
$
|
1,750
|
|
|
$
|
1,646
|
|
Service cost
|
|
|
180
|
|
|
|
185
|
|
Interest cost
|
|
|
5
|
|
|
|
7
|
|
Actuarial gain
|
|
|
34
|
|
|
|
(58
|
)
|
Benefits paid
|
|
|
(35
|
)
|
|
|
(66
|
)
|
Foreign exchange adjustment
|
|
|
87
|
|
|
|
36
|
|
Projected benefit obligation, end of period
|
|
$
|
2,021
|
|
|
$
|
1,750
|
|
Change in Plan Assets:
|
|
|
|
|
|
|
|
|
Plan assets at fair value, beginning of period
|
|
$
|
—
|
|
|
$
|
—
|
|
Actual return on plan assets
|
|
|
—
|
|
|
|
—
|
|
Employer contributions
|
|
|
—
|
|
|
|
—
|
|
Benefits paid
|
|
|
—
|
|
|
|
—
|
|
Distribution of plan assets
|
|
|
—
|
|
|
|
—
|
|
Foreign exchange adjustment
|
|
|
—
|
|
|
|
—
|
|
Plan assets at fair value, end of period
|
|
$
|
—
|
|
|
$
|
—
|
|
Funded status (pension liability), end of year(1)
|
|
$
|
(2,021
|
)
|
|
$
|
(1,750
|
)
|
Amount Recognized in Accumulated Other Comprehensive Income
(Loss), net of tax:
|
|
|
|
|
|
|
|
|
Transition obligation
|
|
$
|
—
|
|
|
$
|
—
|
|
Actuarial loss
|
|
|
(38
|
)
|
|
|
(37
|
)
|
Prior service cost
|
|
|
7
|
|
|
|
7
|
|
Net gain
|
|
|
46
|
|
|
|
68
|
|
Accumulated other comprehensive income
|
|
$
|
15
|
|
|
$
|
38
|
|
Accumulated benefit obligation at year end
|
|
$
|
(1,858
|
)
|
|
$
|
(1,599
|
)
|
(1)
|
The underfunded balance was included in pension liability on the Consolidated Balance Sheets.
|
Net periodic pension cost associated with the Japan Plan included the following components (in thousands):
|
|
Years Ended
|
|
|
|
2020
|
|
|
2019
|
|
|
2018
|
|
Service cost(1)
|
|
$
|
180
|
|
|
$
|
185
|
|
|
$
|
153
|
|
Interest cost(2)
|
|
|
5
|
|
|
|
7
|
|
|
|
4
|
|
Net amortization of transitional obligation(2),(3)
|
|
|
—
|
|
|
|
—
|
|
|
|
11
|
|
Prior service credit(2),(3)
|
|
|
(1
|
)
|
|
|
(1
|
)
|
|
|
(1
|
)
|
Net periodic pension cost
|
|
$
|
184
|
|
|
$
|
191
|
|
|
$
|
167
|
|
(1)
|
Recognized in selling general and administrative expenses on the Consolidated Statements of Income.
|
(2)
|
Recognized in other income (expense), net, on the Consolidated Statements of Income.
|
(3)
|
Amounts reclassified from accumulated other comprehensive loss.
|
F-33
STAAR SURGICAL COMPANY AND SUBSDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Note 11 – Employee Benefit Plans (Continued)
Defined Benefit Plan-Japan (Continued)
Changes in other comprehensive income (loss), net of tax, associated with the Japan Plan include the following components (in thousands):
|
|
Years Ended
|
|
|
|
2020
|
|
|
2019
|
|
|
2018
|
|
Amortization of net transition obligation
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
7
|
|
Amortization of actuarial loss
|
|
|
(1
|
)
|
|
|
(1
|
)
|
|
|
(1
|
)
|
Prior service cost
|
|
|
—
|
|
|
|
(1
|
)
|
|
|
—
|
|
Actuarial income (loss) recorded in current year
|
|
|
(22
|
)
|
|
|
30
|
|
|
|
(84
|
)
|
Change in other comprehensive income (loss)
|
|
$
|
(23
|
)
|
|
$
|
28
|
|
|
$
|
(78
|
)
|
Net periodic pension cost and projected and accumulated pension obligation for the Company’s Japan Plan were calculated on January 1, 2021 and January 3, 2020 using the following assumptions:
|
|
2020
|
|
|
2019
|
|
Discount rate
|
|
|
0.3
|
%
|
|
|
0.3
|
%
|
Salary increases
|
|
|
4.4
|
%
|
|
|
4.5
|
%
|
Expected return on plan assets
|
|
N/A
|
|
|
N/A
|
|
Expected average remaining working lives in years
|
|
|
10.7
|
|
|
|
10.0
|
|
The discount rates are based on the yield curve of corporate bonds rated AA or higher. The salary increase average rate was based on the Company’s best estimate of future increases over time.
The estimated future benefit payments for the Japan Plan are as follows (in thousands):
Year Ended
|
|
Amount
|
|
2021
|
|
$
|
104
|
|
2022
|
|
|
39
|
|
2023
|
|
|
212
|
|
2024
|
|
|
93
|
|
2025
|
|
|
212
|
|
Thereafter
|
|
|
1,361
|
|
Total
|
|
$
|
2,021
|
|
Defined Contribution Plan
The Company has a 401(k) profit sharing plan (“401(k) Plan”) for the benefit of qualified employees in the U.S. During the year ended January 1, 2021 employees who participate may elect to make salary deferral contributions to the 401(k) Plan up to $19,500 of the employees’ eligible payroll subject to annual Internal Revenue Code maximum limitations (with a $6,500 annual catch-up contribution permitted for those over 50 years old). The Company’s contribution percentage is 80% of the employee’s contribution up to the first 6% of the employee’s compensation. In addition, STAAR may make a discretionary contribution to qualified employees, in accordance with the 401(k) Plan. The Company’s contributions, net of forfeitures, to the 401(k) Plan were as follows (in thousands):
|
|
Years Ended
|
|
|
|
2020
|
|
|
2019
|
|
|
2018
|
|
Employer contributions, net of forfeitures
|
|
$
|
1,281
|
|
|
$
|
1,279
|
|
|
$
|
996
|
|
F-34
STAAR SURGICAL COMPANY AND SUBSDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Note 12 — Stockholders’ Equity
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, RSUs and PSUs. 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 and PSUs outstanding under the Plan generally vest based on service, performance, or a combination of both. On July 30, 2020, stockholders approved a proposal to increase the number of shares under the Plan by 2,650,000 shares, for a total of 18,035,000 shares. As of January 1, 2021, there were 3,380,231 shares available for grant under the Plan.
Stock-Based Compensation
The Company recognized a net income tax benefit in the Consolidated Statements of Income for stock-based compensation expense for incentive stock options and non-qualified stock options, as a result of disqualifying dispositions and exercises, respectively. The Company does not recognize deferred income taxes for incentive stock option compensation expense, and records a tax deduction only when a disqualified disposition has occurred (see Note 10).
The following table represents the fair value of stock-based compensation granted during the year ended 2020 (in thousands):
|
|
Fair Value
|
|
Stock options
|
|
$
|
8,592
|
|
Restricted stock units
|
|
|
4,260
|
|
Performance stock units
|
|
|
790
|
|
Restricted stock
|
|
|
644
|
|
Total stock-based compensation expense
|
|
$
|
14,286
|
|
The Company recorded stock-based compensation expense by award as follows (in thousands):
|
|
Years Ended
|
|
|
|
2020
|
|
|
2019
|
|
|
2018
|
|
Employee stock option
|
|
$
|
9,577
|
|
|
$
|
8,144
|
|
|
$
|
4,013
|
|
Restricted stock
|
|
|
428
|
|
|
|
320
|
|
|
|
274
|
|
Restricted stock units
|
|
|
1,732
|
|
|
|
1,905
|
|
|
|
2,120
|
|
Performance stock units
|
|
|
147
|
|
|
|
—
|
|
|
|
—
|
|
Nonemployee stock options
|
|
|
262
|
|
|
|
178
|
|
|
|
355
|
|
Total stock-based compensation expense
|
|
$
|
12,146
|
|
|
$
|
10,547
|
|
|
$
|
6,762
|
|
F-35
STAAR SURGICAL COMPANY AND SUBSDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Note 12 — Stockholders’ Equity (Continued)
Stock-Based Compensation (Continued)
The Company recorded stock-based compensation expense in the following categories (in thousands):
|
|
Years Ended
|
|
|
|
2020
|
|
|
2019
|
|
|
2018
|
|
Cost of sales
|
|
$
|
112
|
|
|
$
|
52
|
|
|
$
|
15
|
|
General and administrative
|
|
|
4,925
|
|
|
|
4,010
|
|
|
|
2,635
|
|
Selling and marketing
|
|
|
3,471
|
|
|
|
3,318
|
|
|
|
1,805
|
|
Research and development
|
|
|
3,638
|
|
|
|
3,167
|
|
|
|
2,307
|
|
Total stock-based compensation expense, net
|
|
|
12,146
|
|
|
|
10,547
|
|
|
|
6,762
|
|
Amounts capitalized as part of inventory
|
|
|
1,129
|
|
|
|
1,017
|
|
|
|
637
|
|
Total stock-based compensation expense, gross
|
|
$
|
13,275
|
|
|
$
|
11,564
|
|
|
$
|
7,399
|
|
As of January 1, 2021, total unrecognized compensation cost related to non-vested stock-based compensation arrangements granted under the Plan were as follows (in thousands):
|
|
2020
|
|
Stock options
|
|
$
|
12,545
|
|
Restricted stock, restricted stock units and performance stock units
|
|
|
3,917
|
|
Total unrecognized stock-based compensation cost
|
|
$
|
16,462
|
|
This cost is expected to be recognized over a weighted-average period of approximately two years.
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.
|
|
Years Ended
|
|
|
|
2020
|
|
|
2019
|
|
|
2018
|
|
Expected dividend yield
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
Expected volatility
|
|
|
53
|
%
|
|
|
53
|
%
|
|
|
53
|
%
|
Risk-free interest rate
|
|
|
0.53
|
%
|
|
|
2.40
|
%
|
|
|
2.71
|
%
|
Expected term (in years)
|
|
|
5.72
|
|
|
|
5.66
|
|
|
|
5.72
|
|
F-36
STAAR SURGICAL COMPANY AND SUBSDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Note 12 — Stockholders’ Equity (Continued)
Stock Options
A summary of option activity under the Plan for the year ended January 1, 2021 is presented below:
|
|
Shares
(in 000’s)
|
|
|
Weighted-
Average
Exercise
Price
|
|
|
Weighted-
Average
Remaining
Contractual
Term (years)
|
|
|
Aggregate
Intrinsic
Value
(in 000’s)
|
|
Outstanding at January 3, 2020
|
|
|
4,326
|
|
|
$
|
16.46
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
621
|
|
|
|
28.78
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(1,507
|
)
|
|
|
13.70
|
|
|
|
|
|
|
|
|
|
Forfeited or expired
|
|
|
(22
|
)
|
|
|
32.35
|
|
|
|
|
|
|
|
|
|
Outstanding at January 1, 2021
|
|
|
3,418
|
|
|
$
|
19.80
|
|
|
|
6.60
|
|
|
$
|
203,087
|
|
Exercisable at January 1, 2021
|
|
|
2,372
|
|
|
$
|
15.05
|
|
|
|
5.66
|
|
|
$
|
152,218
|
|
A summary of unvested options activity under the Plan for the year ended January 1, 2021 was as follows:
|
|
Shares
(in 000’s)
|
|
|
Weighted-Average
Grant-Date
Fair Value
|
|
Unvested at January 3, 2020
|
|
|
1,279
|
|
|
$
|
15.44
|
|
Granted
|
|
|
621
|
|
|
|
13.85
|
|
Forfeited or expired
|
|
|
(22
|
)
|
|
|
16.52
|
|
Vested
|
|
|
(832
|
)
|
|
|
14.66
|
|
Unvested at January 1, 2021
|
|
|
1,046
|
|
|
$
|
15.09
|
|
The weighted average grant date fair value of options granted and the total intrinsic value of options exercised were as follows:
|
|
Years Ended
|
|
|
|
2020
|
|
|
2019
|
|
|
2018
|
|
Weighted-average grant-date fair value
|
|
$
|
13.85
|
|
|
$
|
17.95
|
|
|
$
|
11.95
|
|
Intrinsic value of options (in thousands)
|
|
$
|
59,771
|
|
|
$
|
9,955
|
|
|
$
|
13,699
|
|
F-37
STAAR SURGICAL COMPANY AND SUBSDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Note 12 — Stockholders’ Equity (Continued)
Restricted Stock, Restricted Stock Units and Performance Stock Units
A summary of restricted stock, RSU and PSU activity under the Plan for the year ended January 1, 2021was as follows:
|
|
Restricted Stock
|
|
|
Restricted Stock Units
|
|
|
Performance Stock Units
|
|
|
|
Units
(in 000’s)
|
|
|
Weighted-
Average Grant-
Date Fair Value
|
|
|
Units
(in 000’s)
|
|
|
Weighted-
Average Grant-
Date Fair Value
|
|
|
Units
(in 000’s)
|
|
|
Weighted-
Average Grant-
Date Fair Value
|
|
Outstanding at January 3, 2020
|
|
|
11
|
|
|
$
|
29.39
|
|
|
|
104
|
|
|
$
|
10.79
|
|
|
|
—
|
|
|
$
|
—
|
|
Granted
|
|
|
11
|
|
|
|
58.25
|
|
|
|
127
|
|
|
|
33.57
|
|
|
|
15
|
|
|
|
51.42
|
|
Vested
|
|
|
(11
|
)
|
|
|
29.82
|
|
|
|
(108
|
)
|
|
|
12.52
|
|
|
|
—
|
|
|
|
—
|
|
Forfeited or expired
|
|
|
—
|
|
|
|
—
|
|
|
|
(1
|
)
|
|
|
13.80
|
|
|
|
—
|
|
|
|
—
|
|
Outstanding at January 1, 2021
|
|
|
11
|
|
|
$
|
59.06
|
|
|
|
122
|
|
|
$
|
32.97
|
|
|
|
15
|
|
|
$
|
51.42
|
|
Stock Offering
On August 10, 2018, the Company closed an offering of its common stock. As part of this transaction, the Company issued 1,999,850 shares of its common stock at a price of $36.309 per share. Net proceeds, after deducting expenses, received from this offering were $72,150,000.
Note 13 — Commitments and Contingencies
Asset Retirement Obligation
The Company recorded certain Asset Retirement Obligations (“ARO”), in accordance with ASC 410-20 in connection with the Company’s obligation to return its Japan facility to its “original condition”, as defined in the lease agreement. The Company has recorded approximately $221,000 and $211,000, representing the fair value of the ARO liability obligation in noncurrent liabilities at January 1, 2021 and January 3, 2020, respectively. This lease expires in 2021 and the Company intends to renew the lease in 2021 under similar terms and conditions.
Open Purchase Orders and Severance Payable
As of January 1, 2021, there were open purchase orders of $8,446,000.
Indemnification Agreements
The Company has entered into indemnification agreements with its directors and officers that may require the Company: (a) to indemnify them against liabilities that may arise by reason of their status or service as directors or officers, except as prohibited by applicable law; (b) to advance their expenses incurred as a result of any proceeding against them as to which they could be indemnified; and (c) to make a good faith determination whether or not it is practicable for the Company to obtain directors’ and officers’ insurance. The Company currently has directors’ and officers’ liability insurance through a third-party carrier. Also, in connection with the sale of products and entering into business relationships in the ordinary course of business, the Company may make representations affirming, among other things, that its products do not infringe on the intellectual property rights of others and agrees to indemnify customers against third-party claims for such infringement as well as its negligence. The Company has not been required to make material payments under such provisions.
F-38
STAAR SURGICAL COMPANY AND SUBSDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Note 13 — Commitments and Contingencies (Continued)
Tax Filings
The Company’s tax filings are subject to audit by taxing authorities in jurisdictions where it conducts business. These audits may result in assessments of additional taxes that are subsequently resolved with the authorities or potentially through the courts. Management believes the Company has adequately provided for taxes; however, final assessments, if any, could be significantly different than the amounts recorded in the consolidated financial statements.
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.
Litigation and Claims
On August 19, 2020, a putative federal securities class action, Alwazaan v. STAAR Surgical Co., et al., was filed against the Company and certain of its executives in the U.S. District Court for the Central District of California. On September 1, 2020, a substantially similar federal securities class action, Zhang v. STAAR Surgical Co., et al., was filed against the Company and the same executives in the U.S. District Court for the Central District of California. On September 11, 2020, the court consolidated the two actions under the caption In re STAAR Surgical Co. Securities Litigation. The plaintiffs in the lawsuit allege that the Company made material misstatements regarding its sales in China, its marketing spend, and its R&D expenses. Plaintiffs seek compensatory and punitive damages as well as attorneys’ fees. On October 29, 2020, the court appointed a lead plaintiff. On January 15, 2021, the lead plaintiff filed a notice of voluntary dismissal of the lawsuit, which dismissed the lead plaintiff's claims with prejudice as to him, and without prejudice as to any absent putative class members.
On December 31, 2020, Amir Sitabkhan filed a stockholder derivative complaint against certain members of our Board of Directors, Caren Mason, Stephen C. Farrell, John C. Moore, and Louis E. Silverman, as well as current Chief Financial Officer (CFO) Patrick F. Williams and former CFO Deborah Andrews in the U.S. District Court for the Central District of California. The plaintiff alleges breaches of fiduciary duties by, among other things, allowing STAAR to disseminate misleading statements to investors regarding its sales and growth in China and overstating marketing and research and development expenses, failing to properly oversee the Company, and unjust enrichment. The complaint seeks damages, restitution and governance reforms, attorneys’ fees, and costs. On January 21, 2021, the court granted the parties’ stipulation extending the time for defendants to respond to the complaint to March 8 2021. Although the ultimate outcome of this action cannot be determined with certainty, the Company believes that the allegations in the Complaint are without merit.
Note 14 — Related Party Transactions
The Company has made various advances to certain non-executive employees. Amounts due from employees are included in prepayments, deposits, and other current assets at January 1, 2021 and January 3, 2020 were as follows (in thousands):
|
|
2020
|
|
|
2019
|
|
Due from employees
|
|
$
|
5
|
|
|
$
|
1
|
|
F-39
STAAR SURGICAL COMPANY AND SUBSDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Note 15 — Supplemental Disclosure of Cash Flow Information
The Company’s non-cash investing and financing activities, and cash paid were as follows (in thousands):
|
|
Years Ended
|
|
|
|
2020
|
|
|
2019
|
|
|
2018
|
|
Non-cash investing and financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
ROU assets obtained in exchange for new finance
lease liabilities
|
|
$
|
22
|
|
|
$
|
679
|
|
|
$
|
1,656
|
|
Purchase of property and equipment included in
accounts payable
|
|
$
|
523
|
|
|
$
|
381
|
|
|
$
|
207
|
|
Cash paid:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
64
|
|
|
$
|
105
|
|
|
$
|
130
|
|
Taxes
|
|
$
|
1,336
|
|
|
$
|
792
|
|
|
$
|
635
|
|
Note 16 — Basic and Diluted Net Income Per Share
The following table sets forth the computation of basic and diluted net income per share (in thousands except per share amounts):
|
|
Years Ended
|
|
|
|
2020
|
|
|
2019
|
|
|
2018
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
5,913
|
|
|
$
|
14,048
|
|
|
$
|
4,968
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares:
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares outstanding
|
|
|
45,616
|
|
|
|
44,504
|
|
|
|
42,598
|
|
Less: Unvested restricted stock
|
|
|
(11
|
)
|
|
|
(11
|
)
|
|
|
(11
|
)
|
Denominator for basic calculation
|
|
|
45,605
|
|
|
|
44,493
|
|
|
|
42,587
|
|
Weighted average effects of potentially diluted common stock:
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options
|
|
|
2,272
|
|
|
|
2,254
|
|
|
|
2,360
|
|
Unvested restricted stock
|
|
|
4
|
|
|
|
6
|
|
|
|
10
|
|
Restricted stock units
|
|
|
71
|
|
|
|
142
|
|
|
|
300
|
|
Performance stock units
|
|
|
1
|
|
|
|
—
|
|
|
|
—
|
|
Denominator for diluted calculation
|
|
|
47,953
|
|
|
|
46,895
|
|
|
|
45,257
|
|
Net income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.13
|
|
|
$
|
0.32
|
|
|
$
|
0.12
|
|
Diluted
|
|
$
|
0.12
|
|
|
$
|
0.30
|
|
|
$
|
0.11
|
|
The following table sets forth (in thousands) the weighted average number of options to purchase shares of common stock, restricted stock, RSUs and PSUs 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.
|
|
Years Ended
|
|
|
|
2020
|
|
|
2019
|
|
|
2018
|
|
Stock options
|
|
|
20
|
|
|
|
1,503
|
|
|
|
315
|
|
Restricted stock, restricted stock units and performance stock units
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Total
|
|
|
20
|
|
|
|
1,503
|
|
|
|
315
|
|
F-40
STAAR SURGICAL COMPANY AND SUBSDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Note 17 — Disaggregation of Revenues, Geographic Sales and Product Sales
In the following tables, revenues are disaggregated by category, sales by geographic market and sales by product data. The following breaks down revenues into the following categories (in thousands):
|
|
Years Ended
|
|
|
|
2020
|
|
|
2019
|
|
|
2018
|
|
Non-consignment sales
|
|
$
|
137,369
|
|
|
$
|
132,716
|
|
|
$
|
106,338
|
|
Consignment sales
|
|
|
26,091
|
|
|
|
17,469
|
|
|
|
17,616
|
|
Total net sales
|
|
$
|
163,460
|
|
|
$
|
150,185
|
|
|
$
|
123,954
|
|
The Company markets and sells its products in more than 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 in that country exceed 10% of 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):
|
|
Years Ended
|
|
|
|
2020
|
|
|
2019
|
|
|
2018
|
|
Domestic
|
|
$
|
6,158
|
|
|
$
|
8,106
|
|
|
$
|
7,316
|
|
Foreign:
|
|
|
|
|
|
|
|
|
|
|
|
|
China(1)
|
|
|
71,692
|
|
|
|
64,820
|
|
|
|
46,070
|
|
Japan
|
|
|
34,986
|
|
|
|
26,881
|
|
|
|
23,151
|
|
Other(2)
|
|
|
50,624
|
|
|
|
50,378
|
|
|
|
47,417
|
|
Total foreign sales
|
|
|
157,302
|
|
|
|
142,079
|
|
|
|
116,638
|
|
Total net sales
|
|
$
|
163,460
|
|
|
$
|
150,185
|
|
|
$
|
123,954
|
|
(1)
|
The China region includes sales into China and Hong Kong.
|
(2)
|
No other location individually exceeds 10% of the total net sales.
|
100% of the Company’s sales are generated from the ophthalmic surgical product segment and the chief operating decision maker makes the operating decisions and allocates resources based upon the consolidated operating results, therefore, the Company operates as one operating segment for financial reporting purposes. The Company’s principal products are IOLs used in cataract surgery and ICLs used in refractive surgery. The composition of the Company’s net sales by product line was as follows (in thousands):
|
|
Years Ended
|
|
|
|
2020
|
|
|
2019
|
|
|
2018
|
|
ICLs
|
|
$
|
141,407
|
|
|
$
|
129,322
|
|
|
$
|
101,082
|
|
Other product sales
|
|
|
|
|
|
|
|
|
|
|
|
|
IOLs
|
|
|
13,574
|
|
|
|
15,689
|
|
|
|
16,193
|
|
Other surgical products
|
|
|
8,479
|
|
|
|
5,174
|
|
|
|
6,679
|
|
Total other product sales
|
|
|
22,053
|
|
|
|
20,863
|
|
|
|
22,872
|
|
Total net sales
|
|
$
|
163,460
|
|
|
$
|
150,185
|
|
|
$
|
123,954
|
|
The Company sells its products internationally, which subjects 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, U.S. and foreign export and import duties and tariffs, and political instability
F-41
STAAR SURGICAL COMPANY AND SUBSDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Note 18 —Geographic Assets
The composition of the Company’s long-lived assets between those in the U.S., Japan and Switzerland is set forth below as of January 1, 2021 and January 3, 2020 (in thousands):
|
|
2020
|
|
|
|
U.S.
|
|
|
Japan
|
|
|
Switzerland
|
|
|
Total
|
|
Property, plant and equipment, net
|
|
$
|
19,289
|
|
|
$
|
420
|
|
|
$
|
4,321
|
|
|
$
|
24,030
|
|
Finance lease ROU assets, net
|
|
|
527
|
|
|
|
69
|
|
|
|
—
|
|
|
|
596
|
|
Operating lease ROU assets, net
|
|
|
4,380
|
|
|
|
530
|
|
|
|
3,854
|
|
|
|
8,764
|
|
Intangible assets, net
|
|
|
83
|
|
|
|
187
|
|
|
|
—
|
|
|
|
270
|
|
Total
|
|
$
|
24,279
|
|
|
$
|
1,206
|
|
|
$
|
8,175
|
|
|
$
|
33,660
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
|
|
U.S.
|
|
|
Japan
|
|
|
Switzerland
|
|
|
Total
|
|
Property, plant and equipment, net
|
|
$
|
14,956
|
|
|
$
|
306
|
|
|
$
|
1,803
|
|
|
$
|
17,065
|
|
Finance lease ROU assets, net
|
|
|
1,756
|
|
|
|
80
|
|
|
|
31
|
|
|
|
1,867
|
|
Operating lease ROU assets, net
|
|
|
2,920
|
|
|
|
919
|
|
|
|
2,845
|
|
|
|
6,684
|
|
Intangible assets, net
|
|
|
83
|
|
|
|
213
|
|
|
|
—
|
|
|
|
296
|
|
Total
|
|
$
|
19,715
|
|
|
$
|
1,518
|
|
|
$
|
4,679
|
|
|
$
|
25,912
|
|
Note 19 — Quarterly Financial Data (Unaudited)
Summary unaudited quarterly financial data from continuing operations for years ended 2020 and 2019 was as follows (in thousands except per share data). The Company has derived this data from the unaudited consolidated interim financial statements that, in the Company’s opinion, have been prepared on substantially the same basis as the audited financial statements contained elsewhere in this report and include all normal recurring adjustments necessary for a fair presentation of the financial information for the periods presented. These unaudited quarterly results should be read in conjunction with the financial statements and notes thereto included elsewhere in this report. The operating results in any quarter are not necessarily indicative of the results that may be expected for any future period.
January 1, 2021
|
|
1st Quarter
|
|
|
2nd Quarter
|
|
|
3rd Quarter
|
|
|
4th Quarter
|
|
Net sales
|
|
$
|
35,187
|
|
|
$
|
35,194
|
|
|
$
|
47,081
|
|
|
$
|
45,998
|
|
Gross profit
|
|
|
24,760
|
|
|
|
24,430
|
|
|
|
34,871
|
|
|
|
34,301
|
|
Net income (loss)
|
|
|
(134
|
)
|
|
|
(1,172
|
)
|
|
|
3,892
|
|
|
|
3,327
|
|
Net income (loss) per share – basic
|
|
|
—
|
|
|
|
(0.03
|
)
|
|
|
0.08
|
|
|
|
0.07
|
|
Net income (loss) per share – diluted
|
|
|
—
|
|
|
|
(0.03
|
)
|
|
|
0.08
|
|
|
|
0.07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 3, 2020
|
|
1st Quarter
|
|
|
2nd Quarter
|
|
|
3rd Quarter
|
|
|
4th Quarter
|
|
Net sales
|
|
$
|
32,583
|
|
|
$
|
39,664
|
|
|
$
|
39,055
|
|
|
$
|
38,883
|
|
Gross profit
|
|
|
24,180
|
|
|
|
29,899
|
|
|
|
29,051
|
|
|
|
28,824
|
|
Net income
|
|
|
1,367
|
|
|
|
3,914
|
|
|
|
2,388
|
|
|
|
6,379
|
|
Net income per share – basic
|
|
|
0.03
|
|
|
|
0.09
|
|
|
|
0.05
|
|
|
|
0.14
|
|
Net income per share – diluted
|
|
|
0.03
|
|
|
|
0.08
|
|
|
|
0.05
|
|
|
|
0.14
|
|
Quarterly and year-to-date computations of net income per share amounts are made independently. Therefore, the sum of the per share amounts for the quarters may not agree with the per share amounts for the year.
F-42
STAAR SURGICAL COMPANY AND SUBSDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Note 20 – Reclassifications
Certain amounts in previously issued financial statements related to income tax expense, deferred taxes and valuation allowance have been reclassified to conform to fiscal 2020 presentation.
Note 21 – 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 continue to 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, 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, North America, Asia, the Middle East and India. 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 in 2021 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. The Company will continue to monitor the impact that the CARES Act may have on its business, financial condition, results of operations, or liquidity.
The CAA among other things, opened up another round of Paycheck Protection Program loans, expanding eligibility to small nonprofits, destination marking organizations, and housing cooperatives, provided additional funding for the Economic Injury Disaster Loans and grants, extends the Employee Retention Tax Credit, also extended and expanded Paid Sick and Family Leave Credits and the Employee Social Security tax deferral. The Company will continue to monitor the impact that the CAA may have on its business, financial condition, results of operations, or liquidity.
F-43