NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
Note 1
— Basis of Presentation and Significant Accounting Policies
The Condensed Consolidated Financial Statements of the Company present the financial position, results of operations, and cash flows of STAAR Surgical Company and its wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated. The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X of the Securities Exchange Commission. In accordance with those rules and regulations certain information and footnote disclosures normally included in Comprehensive Financial Statements have been condensed or omitted pursuant to such rules and regulations. The Consolidated Balance Sheet as of December 28, 2018 was derived from the audited financial statements at that date, but does not include all the information and footnotes required by GAAP. These financial statements should be read in conjunction with the audited financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 28, 2018.
The Condensed Consolidated Financial Statements for the three months ended March 29, 2019 and March 30, 2018, in the opinion of management, include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the Company’s financial condition and results of operations. The results of operations for the three months ended March 29, 2019 and March 30, 2018, are not necessarily indicative of the results to be expected for any other interim period or for the entire year.
Each of the Company’s fiscal reporting periods ends on the Friday nearest to the quarter ending date and generally consists of 13 weeks. Unless the context indicates otherwise “we,” “us,” the “Company,” and “STAAR” refer to STAAR Surgical Company and its consolidated subsidiaries.
Cash, Cash Equivalents and Restricted Cash
The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the Condensed Consolidated Balance Sheets that sum to the total of the same such amounts shown in the Condensed Consolidated Statements of Cash Flows (in 000’s):
|
|
March 29, 2019
|
|
|
December 28,
2018
|
|
|
March 30,
2018
|
|
Cash and cash equivalents
|
|
$
|
102,111
|
|
|
$
|
103,877
|
|
|
$
|
20,771
|
|
Restricted cash
(1)
|
|
|
122
|
|
|
|
122
|
|
|
|
121
|
|
Total cash, cash equivalents and restricted cash
|
|
$
|
102,233
|
|
|
$
|
103,999
|
|
|
$
|
20,892
|
|
(1)
|
Included in other assets on the Condensed Consolidated Balance Sheets.
|
The Company has 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.
Lease Accounting
On December 29, 2018 (beginning of fiscal year 2019), the Company adopted Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) 2016-02, “Leases (Topic 842)” and its subsequent amendments affecting the Company: (i) ASU 2018-10, “Codification Improvements to Topic 842, Leases,” and (ii) ASU 2018-11, “Leases (Topic 842): Targeted improvements,” using the modified retrospective method. Upon adoption of ASU 2016-02, the Company recognized a cumulative adjustment of $113,000 which decreased the accumulated deficit and recognized right-of-use (“ROU”) assets and lease liabilities for operating leases, whereby the Company’s accounting finance leases remained substantially unchanged.
The Company recognizes ROU assets and lease liabilities for leases with terms greater than twelve months in the Condensed Consolidated Balance Sheets. Leases are classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement.
6
STAAR SURGICAL COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
Note 1
— Basis of Presentation and Significant Accounting Policies
(Continued)
Lease Accounting (Continued)
A contract contains a lease if the contract conveys the right to control an identified asset for a period of time in exchange for consideration. An asset is either explicitly identified or implicitly identified and must be physically distinct. In addition, the Company must have both the right to obtain substantially all of the economic benefits from use of the identified asset and has the right to direct the use of the identified asset.
Certain leases may have non-lease components such as common area maintenance expense for building leases and maintenance expenses for automobile leases. In general, the Company separates common area maintenance expense component from the value of the ROU asset and lease liability when evaluating rental properties under ASU 2016-02, whereas, the Company includes the maintenance and service components in the value of the ROU asset and lease liability while evaluating automobile leases under ASU 2016-02.
When determining whether a lease is a finance lease or an operating lease, ASU 2016-02 does not specifically define criteria to determine “major part of remaining economic life of the underlying asset” and “substantially all of the fair value of the underlying asset.” For lease classification determination, the Company continues to use (i) greater to or equal to 75% to determine whether the lease term is a major part of the remaining economic life of the underlying asset and (ii) greater to or equal to 90% to determine whether the present value of the sum of lease payments is substantially of the fair value of the underlying asset.
The Company uses either the rate implicit in the lease or its incremental borrowing rate as the discount rate in lease accounting.
When adopting ASU 2016-02, the Company did not
reassess
any expired or existing contracts, reassess the lease classification for any expired or existing leases and reassess initial direct costs for exiting leases. The Company also elected not to capitalize leases that have terms of twelve months or less.
The Company reviews ROU assets, for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. The Company measures recoverability of these assets by comparing the carrying value of such assets to the estimated undiscounted future cash flows the assets are expected to generate. When the estimated undiscounted future cash flows are less than their carrying amount, an impairment loss is recognized equal to the difference between the assets’ fair value and their carrying value.
Recently Adopted Accounting Pronouncements and Recent Accounting Pronouncements Not Yet Adopted
On December 29, 2018 (beginning of fiscal year 2019), the Company adopted ASU 2018-02, “Income Statement – Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income,” provides an option to reclassify stranded tax effects within Accumulated Other Comprehensive Income to retained earnings in each period in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Cuts and Jobs Act is recorded. The adoption of ASU 2018‑02 did not have material impact on the Condensed Consolidated Financial Statements.
On December 29, 2018 (beginning of fiscal year 2019), the Company adopted ASU 2018-07, “Compensation-Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting,” aligns the accounting for share-based payments to nonemployees similar to employees. Upon the adoption of ASU 2018-07, the Company recognized a cumulative adjustment of $315,000 which decreased the accumulated deficit.
In August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement,” which modifies certain disclosures requirements for reporting fair value measurements. This is effective for fiscal years ending after December 15, 2019. Early adoption is permitted. The Company will adopt this standard as of January 4, 2020 (beginning of fiscal year 2020) and is currently evaluating the disclosure requirements and its effect on the Condensed Consolidated Financial Statements.
7
STAAR SURGICAL COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
Note 1
— Basis of Presentation and Significant Accounting Policies
(Continued)
Recently Adopted Accounting Pronouncements and Recent Accounting Pronouncements Not Yet Adopted (Continued)
In August 2018, the FASB issued ASU 2018-14, “Compensation – Retirement Benefits – Defined Benefit Plans – General (Subtopic 715-20); Disclosure Framework – Changes in the Disclosure Requirement for Defined Benefit Plans,” which modifies disclosure requirements for employers that sponsor defined benefit pension or other post retirement plans. This is effective for fiscal years ending after December 15, 2020. Early adoption is permitted. The Company will adopt this standard as of January 2, 2021 (beginning of fiscal year 2021) and is currently evaluating the disclosure requirements and its effect on the Condensed Consolidated Financial Statements.
Note 2 — Inventories
Inventories, net are stated at the lower of cost and net realizable value, determined on a first-in, first-out basis and consisted of the following (in thousands):
|
|
March 29, 2019
|
|
|
December 28,
2018
|
|
Raw materials and purchased parts
|
|
$
|
3,081
|
|
|
$
|
2,678
|
|
Work in process
|
|
|
2,144
|
|
|
|
2,195
|
|
Finished goods
|
|
|
12,592
|
|
|
|
13,214
|
|
Total inventories, gross
|
|
|
17,817
|
|
|
|
18,087
|
|
Less inventory reserves
|
|
|
1,378
|
|
|
|
1,383
|
|
Total inventories, net
|
|
$
|
16,439
|
|
|
$
|
16,704
|
|
Note 3 — Prepayments, Deposits, and Other Current Assets
Prepayments, deposits, and other current assets consisted of the following (in thousands):
|
|
March 29, 2019
|
|
|
December 28,
2018
|
|
Prepayments and deposits
|
|
$
|
2,716
|
|
|
$
|
1,707
|
|
Prepaid insurance
|
|
|
1,268
|
|
|
|
1,271
|
|
Consumption tax receivable
|
|
|
1,007
|
|
|
|
912
|
|
Value added tax (VAT) receivable
|
|
|
1,089
|
|
|
|
565
|
|
Income tax receivable
|
|
|
319
|
|
|
|
285
|
|
BVG Prepayment
|
|
|
543
|
|
|
|
16
|
|
Other
(1)
|
|
|
592
|
|
|
|
289
|
|
Total prepayments, deposits and other current assets
|
|
$
|
7,534
|
|
|
$
|
5,045
|
|
(1)
|
No individual item in “other current assets” exceeds 5% of the total prepayments, deposits and other current assets.
|
Note 4 — Property, Plant and Equipment
Property, plant and equipment, net consisted of the following (in thousands):
|
|
March 29, 2019
|
|
|
December 28,
2018
|
|
Machinery and equipment
|
|
$
|
19,127
|
|
|
$
|
19,000
|
|
Furniture and fixtures
|
|
|
9,328
|
|
|
|
9,860
|
|
Leasehold improvements
|
|
|
10,030
|
|
|
|
10,045
|
|
Total property, plant and equipment, gross
|
|
|
38,485
|
|
|
|
38,905
|
|
Less accumulated depreciation
|
|
|
27,185
|
|
|
|
27,454
|
|
Total property, plant and equipment, net
|
|
$
|
11,300
|
|
|
$
|
11,451
|
|
8
STAAR SURGICAL COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
Note 5 –Intangible Assets
Intangible assets, net consisted of the following (in thousands):
|
|
March 29, 2019
|
|
|
December 28,
2018
|
|
Long-lived amortized intangible assets
|
|
Gross
Carrying
Amount
|
|
|
Accumulated
Amortization
|
|
|
Net
|
|
|
Gross
Carrying
Amount
|
|
|
Accumulated
Amortization
|
|
|
Net
|
|
Patents and licenses
|
|
$
|
9,284
|
|
|
$
|
(9,021
|
)
|
|
$
|
263
|
|
|
$
|
9,257
|
|
|
$
|
(9,014
|
)
|
|
$
|
243
|
|
Note 6 – Other Current Liabilities
Other current liabilities consisted of the following (in thousands):
|
|
March 29, 2019
|
|
|
December 28,
2018
|
|
Accrued salaries and wages
|
|
$
|
5,397
|
|
|
$
|
3,172
|
|
Accrued insurance
|
|
|
666
|
|
|
|
1,061
|
|
Accrued consumption tax
|
|
|
1,155
|
|
|
|
995
|
|
Accrued bonuses
|
|
|
944
|
|
|
|
5,113
|
|
Income taxes payable
|
|
|
1,183
|
|
|
|
1,105
|
|
Other
(1)
|
|
|
1,972
|
|
|
|
1,985
|
|
Total other current liabilities
|
|
$
|
11,317
|
|
|
$
|
13,431
|
|
(1)
|
No individual item in “Other” exceeds 5% of the other current liabilities.
|
Note 7 – Lines of Credit
Since 1998, the Company’s wholly owned Japanese subsidiary, STAAR Japan, has had an agreement with Mizuho Bank which provides for borrowings of up to 500,000,000 Yen, at an interest rate equal to the uncollateralized overnight call rate (approximately 0.06% as of March 29, 2019) plus a 0.50% spread, and may be renewed quarterly (the current line expires on May 21, 2019). The credit facility is not collateralized. The Company had 362,500,000 Yen and 417,500,000 Yen outstanding on the line of credit as of March 29, 2019 and December 28, 2018, respectively (approximately $3,272,000 and 3,780,000 based on the foreign exchange rates on March 29, 2019 and December 28, 2018, 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 137,500,000 Yen and 82,500,000 Yen available for borrowing as of March 29, 2019 and December 28, 2018, respectively (approximately $1,241,000 and $747,000 based on the foreign exchange rate on March 29, 2019 and December 28, 2018, respectively). At maturity on May 21, 2019, the Company expects to renew this line of credit for an additional three months, with similar terms.
In September 2013, the Company’s wholly owned Swiss subsidiary, STAAR Surgical AG, entered into a framework agreement for loans (“framework agreement”) with Credit Suisse (the “Bank”). The framework agreement provides for borrowings of up to 1,000,000 CHF (Swiss Francs) (approximately $1,000,000 at the rate of exchange on March 29, 2019 and December 28, 2018), 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 March 29, 2019 and December 28, 2018.
The Company is in compliance with covenants of its credit facilities and lines of credit as of March 29, 2019.
During the three months ended March 29, 2019, the Company converted the lease line of credit schedule 011 with Farnam Street Financial, Inc. into a finance lease liability of approximately $500,000.
9
STAAR SURGICAL COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
Note 8
–
Leases
Finance Leases
The Company entered into finance leases primarily related to purchases of equipment used for manufacturing or computer-related equipment. These finance leases are two to five years in length and have fixed payment amounts for the term of the contract and have options to purchase the assets at the end of the lease term. Supplemental balance sheet information related to finance leases was as follows (dollars in thousands):
|
|
March 29, 2019
|
|
Machinery and equipment
|
|
$
|
2,121
|
|
Furniture and fixtures
|
|
|
1,123
|
|
Leasehold improvements
|
|
|
27
|
|
Finance lease right-of-use assets, gross
|
|
|
3,271
|
|
Less accumulated depreciation
|
|
|
826
|
|
Finance lease right-of-use assets, net
|
|
$
|
2,445
|
|
|
|
|
|
|
Total finance lease liability
|
|
$
|
1,814
|
|
Weighted-average remaining lease term (in years)
|
|
|
1.5
|
|
Weighted-average discount rate
|
|
|
6.63
|
%
|
Supplemental cash flow information related to finance leases was as follows (dollars in thousands):
|
|
Three Months Ended
|
|
|
|
March 29,
2019
|
|
Amortization of finance lease right-of-use asset
|
|
$
|
161
|
|
Interest on finance lease liabilities
|
|
|
19
|
|
Cash paid for amounts included in the measurement of finance lease liabilities:
|
|
|
|
|
Operating cash flows
|
|
|
19
|
|
Financing cash flows
|
|
|
365
|
|
Right-of-use assets obtained in exchange for new finance lease liabilities
|
|
|
642
|
|
Operating Leases
The Company entered into operating leases primarily related to real property (office, manufacturing and warehouse facilities), automobiles and copiers. These operating leases are two to five years in length with options to extend. The Company did not include any lease extensions in the initial valuation unless the Company was reasonably certain to extend the lease. Depending on the lease, there are those with fixed payment amounts for the entire length of the contract or payments which increase periodically as noted in the contract or increased at an inflation rate indicator. For operating leases that increase using an inflation rate indicator, the Company used the inflation rate at the time the lease was entered into for the length of the lease term. Supplemental balance sheet information related to operating leases was as follows (dollars in thousands):
10
STAAR SURGICAL COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
Note 8 – Leases
(Continued)
Operating Leases (Continued)
|
March 29, 2019
|
|
Machinery and equipment
|
$
|
734
|
|
Furniture and fixtures
|
|
462
|
|
Real property
|
|
9,370
|
|
Operating lease right-of-use assets, gross
|
|
10,566
|
|
Less accumulated depreciation
|
|
3,937
|
|
Operating lease right-of-use assets, net
|
$
|
6,629
|
|
|
|
|
|
Total operating lease liability
|
$
|
6,765
|
|
Weighted-average remaining lease term (in years)
|
|
2.5
|
|
Weighted-average discount rate
|
|
1.83
|
%
|
Supplemental cash flow information related to operating leases was as follows (dollars in thousands):
|
|
Three Months Ended
|
|
|
|
March 29,
2019
|
|
Operating lease cost
|
|
$
|
611
|
|
Cash paid for amounts included in the measurement of operating lease liabilities:
|
|
|
|
|
Operating cash flows
|
|
|
601
|
|
Right-of-use assets obtained in exchange for new operating lease liabilities
|
|
|
1,464
|
|
Future Minimum Lease Commitments
Estimated future minimum lease payments under operating and finance leases having initial or remaining non-cancelable lease terms more than one year as of March 29, 2019 and December 28, 2018 are as follows (in thousands):
As of March 29, 2019
12 Months Ended
|
|
Operating Leases
|
|
|
Finance Leases
|
|
March 2020
|
|
$
|
2,663
|
|
|
$
|
1,221
|
|
March 2021
|
|
|
2,237
|
|
|
|
572
|
|
March 2022
|
|
|
1,042
|
|
|
|
110
|
|
March 2023
|
|
|
779
|
|
|
|
—
|
|
March 2024
|
|
|
349
|
|
|
|
—
|
|
Thereafter
|
|
|
7
|
|
|
|
—
|
|
Total minimum lease payments, including interest
|
|
$
|
7,077
|
|
|
$
|
1,903
|
|
Less amounts representing interest
|
|
|
312
|
|
|
|
89
|
|
Total minimum lease payments
|
|
$
|
6,765
|
|
|
$
|
1,814
|
|
As of December 28, 2018
12 Months Ended
|
|
Operating Leases
|
|
|
Finance Leases
|
|
December 2019
|
|
$
|
2,606
|
|
|
$
|
1,153
|
|
December 2020
|
|
|
2,202
|
|
|
|
332
|
|
December 2021
|
|
|
980
|
|
|
|
143
|
|
December 2022
|
|
|
507
|
|
|
|
4
|
|
December 2023
|
|
|
202
|
|
|
|
—
|
|
Thereafter
|
|
|
12
|
|
|
|
—
|
|
Total minimum lease payments, including interest
|
|
|
6,509
|
|
|
|
1,632
|
|
Less amounts representing interest
|
|
|
—
|
|
|
|
75
|
|
Total minimum lease payments
|
|
$
|
6,509
|
|
|
$
|
1,557
|
|
11
STAAR SURGICAL COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
Note 9
—
Income Taxes
The Company recorded an income tax provision as follows (in thousands):
|
|
Three Months Ended
|
|
|
|
March 29,
2019
|
|
|
March 30,
2018
|
|
Provision for income taxes
|
|
$
|
489
|
|
|
$
|
301
|
|
The income tax provision is primarily due to pre-tax income generated in certain foreign jurisdictions. The Company’s quarterly provision for income taxes is determined by estimating an annual effective tax rate. This estimate may fluctuate throughout the year as new information becomes available affecting its underlying assumptions. There are no unrecognized tax benefits related to uncertain tax positions taken by the Company.
All earnings from the Company’s subsidiaries are not considered to be permanently reinvested. Accordingly, the Company provides withholding and U.S. taxes on all unremitted foreign earnings.
The 2017 Tax Act subjects a U.S. shareholder to tax on Global Intangible Low Tax Income (“GILTI”) earned by certain foreign subsidiaries. In general, GILTI is the excess of a U.S. shareholder’s total net foreign income over a deemed return on tangible assets. The provision further allows a deduction of 50 percent of GILTI, however this deduction is limited to the Company’s pre-GILTI U.S. income. The Company has elected to account for GILTI as a current period expense when incurred.
For the three months ended March 29, 2019, the Company included GILTI of $2,064,000 in U.S. gross income, which was fully offset with net operating loss carryforwards. The Company was not able to utilize the deduction of 50 percent of GILTI, as this deduction is limited to the Company’s pre-GILTI U.S. tax income.
As of March 29, 2019,
the Company established a full valuation allowance in the U.S. for all periods presented due to the significant uncertainty of realizing future tax benefits from its net operating loss carryforwards and other deferred tax assets, with the exception of the refundable alternative minimum tax credit of $273,000.
Management will continue to monitor and evaluate all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, impact of GILTI in the U.S., tax-planning strategies, and results of recent operations. In projecting future taxable income, the Company begins with historical results and incorporates assumptions including overall current and projected business and industry conditions, the amount of future federal, state, and foreign pretax operating income, the reversal of temporary differences and the feasible and prudent tax-planning strategies. These assumptions require significant judgment about the forecasts of future taxable income and are consistent with the plans and estimates the Company uses to manage the underlying businesses. In evaluating the objective evidence, the Company considers three years of cumulative operating results. Valuation allowances, or reductions to deferred tax assets, are recognized if, based on the weight of all the available evidence, it is more likely than not that some portion or all the deferred tax asset may not be realized. As the Company experiences continued growth and profits the need for a valuation allowance will be evaluated each reporting period by Management to determine whether it is more likely than not that the Company’s deferred tax assets will be realizable in a later period. Any such changes in the assessment of a full or partial valuation allowance could have a material impact on earnings.
12
STAAR SURGICAL COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
Note
10
– Defined Benefit Pension Plans
The Company has defined benefit plans covering employees of its Switzerland and Japan operations. The following table summarizes the components of net periodic pension cost recorded for the Company’s defined benefit pension plans (in thousands):
|
|
Three Months Ended
|
|
|
|
March 29,
2019
|
|
|
March 30,
2018
|
|
Service cost
(1)
|
|
$
|
232
|
|
|
$
|
138
|
|
Interest cost
|
|
|
20
|
|
|
|
14
|
|
Expected return on plan assets
|
|
|
(33
|
)
|
|
|
(26
|
)
|
Net amortization of transitional obligation
(2)
|
|
|
—
|
|
|
|
3
|
|
Prior service credit
(2)
|
|
|
(6
|
)
|
|
|
(6
|
)
|
Actuarial loss recognized in current period
(2)
|
|
|
32
|
|
|
|
28
|
|
Net periodic pension cost
|
|
$
|
245
|
|
|
$
|
151
|
|
(
1)
|
Recognized in selling general and administrative expenses on the Condensed Consolidated Statements of Income.
|
(
2
)
|
Amounts reclassified from accumulated other comprehensive income (loss).
|
The Company currently is not required to and does not make contributions to its Japan pension plan. The Company’s contributions to its Swiss pension plan are as follows (in thousands):
|
|
Three Months Ended
|
|
|
|
March 29,
2019
|
|
|
March 30,
2018
|
|
Employer contribution
|
|
$
|
126
|
|
|
$
|
66
|
|
Note 11
— Stockholders’ Equity
Stock-Based Compensation
The cost that has been charged against income for stock-based compensation is set forth below (in thousands):
|
|
Three Months Ended
|
|
|
|
March 29,
2019
|
|
|
March 30,
2018
|
|
Employee stock option
|
|
$
|
1,430
|
|
|
$
|
619
|
|
Restricted stock
|
|
|
82
|
|
|
|
51
|
|
Restricted stock units
|
|
|
1,104
|
|
|
|
598
|
|
Nonemployee stock options
|
|
|
25
|
|
|
|
33
|
|
Total stock-based compensation expense
|
|
$
|
2,641
|
|
|
$
|
1,301
|
|
The Company recorded stock-based compensation costs in the following categories (in thousands):
|
|
Three Months Ended
|
|
|
|
March 29,
2019
|
|
|
March 30,
2018
|
|
Cost of sales
|
|
$
|
14
|
|
|
$
|
3
|
|
General and administrative
|
|
|
778
|
|
|
|
519
|
|
Marketing and selling
|
|
|
1,171
|
|
|
|
460
|
|
Research and development
|
|
|
678
|
|
|
|
319
|
|
Total stock-based compensation expense, net
|
|
|
2,641
|
|
|
|
1,301
|
|
Amounts capitalized as part of inventory
|
|
|
189
|
|
|
|
122
|
|
Total stock-based compensation expense, gross
|
|
$
|
2,830
|
|
|
$
|
1,423
|
|
13
STAAR SURGICAL COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
Note 1
1
—
Stockholders’ Equity (Continued)
Incentive Plan
The Amended and Restated Omnibus Equity Incentive Plan (“the Plan”) provides for various forms of stock-based incentives. To date, of the available forms of awards under the Plan, the Company has granted only stock options, restricted stock, unrestricted share grants, and restricted stock units (“RSUs”). Options under the Plan are granted at fair market value on the date of grant, become exercisable generally over a three-year period, or as determined by the Board of Directors, and expire over periods not exceeding 10 years from the date of grant. Certain option and share awards provide for accelerated vesting if there is a change in control and pre-established financial metrics are met (as defined in the Plan). Grants of restricted stock outstanding under the Plan generally vest over periods of one to three years. Grants of RSUs outstanding under the Plan generally vest based on service, performance, or a combination of both. As of March 29, 2019, there were 1,694,616 shares available for grant under the Plan
Assumptions
The fair value of each option award is estimated on the date of grant using a Black-Scholes option valuation model applying the weighted-average assumptions noted in the following table. Expected volatilities are based on historical volatility of the Company’s stock. The expected term of options granted is derived from the historical exercises and post-vesting cancellations
and represents the period of time that options granted are expected to be outstanding. The Company has calculated an 8%
estimated forfeiture rate based on historical forfeiture experience. The risk-free rate is based on the U.S. Treasury yield curve corresponding to the expected term at the time of the grant.
|
|
Three Months Ended
|
|
|
|
March 29,
2019
|
|
|
March 30,
2018
|
|
Expected dividend yield
|
|
|
0
|
%
|
|
|
0
|
%
|
Expected volatility
|
|
|
53
|
%
|
|
|
53
|
%
|
Risk-free interest rate
|
|
|
2.43
|
%
|
|
|
2.61
|
%
|
Expected term (in years)
|
|
|
5.67
|
|
|
|
5.72
|
|
Stock Options
A summary of stock option activity under the Plan for the three months ended March 29, 2019 is presented below:
|
|
Stock
Options
(in 000’s)
|
|
|
Minimum
Exercise
Price
|
|
|
Maximum
Exercise
Price
|
|
Outstanding at December 28, 2018
|
|
|
3,920
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
749
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(74
|
)
|
|
|
|
|
|
|
|
|
Forfeited or expired
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
Outstanding at March 29, 2019
|
|
|
4,594
|
|
|
$
|
1.92
|
|
|
$
|
43.84
|
|
Exercisable at March 29, 2019
|
|
|
2,839
|
|
|
|
|
|
|
|
|
|
14
STAAR SURGICAL COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
Note 1
1
— Stockholders’ Equity (Continued)
Restricted Stock and Restricted Stock Units
A summary of restricted stock and RSU activity under the Plan for the three months ended March 29, 2019 is presented below:
|
|
Restricted
Stock
(in 000’s)
|
|
|
Restricted
Stock
Units
(in 000’s)
|
|
Unvested at December 28, 2018
|
|
|
11
|
|
|
|
322
|
|
Granted
|
|
|
—
|
|
|
|
19
|
|
Vested
|
|
|
—
|
|
|
|
(178
|
)
|
Forfeited or expired
|
|
|
—
|
|
|
|
(1
|
)
|
Unvested at March 29, 2019
|
|
|
11
|
|
|
|
162
|
|
Note 12 - Commitments and Contingencies
Litigation and Claims
From time to time, the Company is involved in various legal proceedings and other matters arising in the normal course of business. These legal proceedings and other matters may relate to, among other things, contractual rights and obligations, employment matters, or claims of product liability. STAAR maintains insurance coverage for various matters, including product liability and certain securities claims. While the Company does not believe that any of the claims known is likely to have a material adverse effect on the Company’s financial condition or results of operations, new claims or unexpected results of existing claims could lead to significant financial harm.
Employment Agreements
The Company’s Chief Executive Officer entered into an employment agreement with the Company, effective March 1, 2015. She and certain officers have as provisions of their agreement’s certain rights, including continuance of cash compensation and benefits, upon a “change in control,” which may include an acquisition of substantially all its assets, or termination “without cause or for good reason” as defined in the employment agreements.
15
STAAR SURGICAL COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
Note
13
— Basi
c 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):
|
|
Three Months Ended
|
|
|
|
March 29,
2019
|
|
|
March 30,
2018
|
|
Numerator:
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
1,367
|
|
|
$
|
583
|
|
Denominator:
|
|
|
|
|
|
|
|
|
Weighted average common shares:
|
|
|
|
|
|
|
|
|
Common shares outstanding
|
|
|
44,246
|
|
|
|
41,431
|
|
Less: Unvested restricted stock
|
|
|
(11
|
)
|
|
|
(21
|
)
|
Denominator for basic calculation
|
|
|
44,235
|
|
|
|
41,410
|
|
Weighted average effects of potentially diluted common stock:
|
|
|
|
|
|
|
|
|
Stock options
|
|
|
2,418
|
|
|
|
1,396
|
|
Unvested restricted stock
|
|
|
252
|
|
|
|
264
|
|
Restricted stock units
|
|
|
8
|
|
|
|
17
|
|
Denominator for diluted calculation
|
|
|
46,913
|
|
|
|
43,087
|
|
Net income per share:
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.03
|
|
|
$
|
0.01
|
|
Diluted
|
|
$
|
0.03
|
|
|
$
|
0.01
|
|
The following table sets forth (in thousands) the weighted average number of options to purchase shares of common stock, restricted stock, and restricted stock units with either exercise prices or unrecognized compensation cost per share greater than the average market price per share of the Company’s common stock, which were not included in the calculation of diluted per share amounts because the effects would be anti-dilutive.
|
|
Three Months Ended
|
|
|
|
March 29,
2019
|
|
|
March 30,
2018
|
|
Stock options
|
|
|
672
|
|
|
|
385
|
|
Restricted stock and restricted stock units
|
|
|
—
|
|
|
|
4
|
|
Total
|
|
|
672
|
|
|
|
389
|
|
Note 14
— 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):
|
|
Three Months Ended
|
|
|
|
March 29,
2019
|
|
|
March 30,
2018
|
|
Non-consignment sales
|
|
$
|
28,266
|
|
|
$
|
22,181
|
|
Consignment sales
|
|
|
4,317
|
|
|
|
4,912
|
|
Total net sales
|
|
$
|
32,583
|
|
|
$
|
27,093
|
|
16
STAAR SURGICAL COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
Note 14
— Disaggregation of Revenues, Geographic Sales and Product Sales
(Continued)
The Company markets and sells its products in over 75 countries and conducts its manufacturing in the United States. Other than China, Japan and Korea, the Company does not conduct business in any country in which its sales exceed 10% of worldwide consolidated net sales. Sales are attributed to countries based on location of customers. The composition of the Company’s net sales to unaffiliated customers is set forth below (in
thousands):
|
|
Three Months Ended
|
|
|
|
March 29,
2019
|
|
|
March 30,
2018
|
|
China
|
|
$
|
11,771
|
|
|
$
|
7,910
|
|
Japan
|
|
|
5,519
|
|
|
|
5,083
|
|
Korea
|
|
|
3,291
|
|
|
|
2,195
|
|
Other
(1)
|
|
|
12,002
|
|
|
|
11,905
|
|
Total net sales
|
|
$
|
32,583
|
|
|
$
|
27,093
|
|
(1)
|
No other location individually exceeds 10% of the total sales.
|
In addition, domestic and foreign sales are as follows (in
thousands):
|
|
Three Months Ended
|
|
|
|
March 29,
2019
|
|
|
March 30,
2018
|
|
Domestic
|
|
$
|
1,952
|
|
|
$
|
1,756
|
|
Foreign
|
|
|
30,631
|
|
|
|
25,337
|
|
Total net sales
|
|
$
|
32,583
|
|
|
$
|
27,093
|
|
100% of the Company’s sales are generated from the ophthalmic surgical product segment and the chief operating decision maker makes operating decisions and allocates resources based upon the consolidated operating results, and therefore the Company operates as one operating segment for financial reporting purposes. The Company’s principal products are implantable Collamer lenses (“ICLs”) used in refractive surgery and intraocular lenses (“IOLs”) used in cataract surgery. The composition of the Company’s net sales by product line is as follows (in thousands):
|
|
Three Months Ended
|
|
|
|
March 29,
2019
|
|
|
March 30,
2018
|
|
ICLs
|
|
$
|
27,786
|
|
|
$
|
21,158
|
|
Other product sales
|
|
|
|
|
|
|
|
|
IOLs
|
|
|
4,017
|
|
|
|
4,058
|
|
Other surgical products
|
|
|
780
|
|
|
|
1,877
|
|
Total other product sales
|
|
|
4,797
|
|
|
|
5,935
|
|
Total net sales
|
|
$
|
32,583
|
|
|
$
|
27,093
|
|
One customer, our distributor in China, accounted for 36% and 29% of net sales for the three months ended March 29, 2019 and March 30, 2018, respectively. As of March 29, 2019 and December 28, 2018, respectively, one customer, our distributor in China, accounted for 37% and 36% of consolidated trade receivables.
Note 15
— Reclassifications
Certain compensation related expenses were reclassified from General and Administrative to Marketing and Selling and Research and Development line items on the Condensed Consolidated Statement of Income for the three months ended March 30, 2018.
17