STAAR SURGICAL CO - Quarter Report: 2013 June (Form 10-Q)

 

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(Mark One)

þ	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended:    June 28, 2013
	Or
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from          to

 

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Delaware	95-3797439
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  þ     No o

 

Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files).  Yes  þ     No o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

o Large accelerated filer

þ Accelerated filer

o Non-accelerated filer (Do not check if a smaller reporting company)

o Smaller reporting company

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes  o     No þ

 

The registrant has 36,985,483 shares of common stock, par value $0.01 per share, issued and outstanding as of August 2, 2013.

 

 

 

		PAGE
		NUMBER
PART I – FINANCIAL INFORMATION
	Item 1.     Financial Statements (Unaudited).	1
	Item 2.     Management's Discussion and Analysis of Financial Condition and Results of Operations.	11
	Item 3.     Quantitative and Qualitative Disclosures About Market Risk.	18
	Item 4.     Controls and Procedures.	19
PART II – OTHER INFORMATION
	Item 1.     Legal Proceedings.	19
	Item 1A.  Risk Factors.	19
	Item 4.     Mine Safety Disclosures.	19
	Item 5.     Other Information.	20
	Item 6.     Exhibits.	20

 

 

STAAR SURGICAL COMPANY

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except par value amounts)

(Unaudited)

 

 

 

 

STAAR SURGICAL COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

(Unaudited)

 

 

See accompanying notes to the condensed consolidated financial statements.

 

 

STAAR SURGICAL COMPANY

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS )

(In thousands, except par value amounts)

(Unaudited)

 

 

See accompanying notes to the condensed consolidated financial statements.

 

 

STAAR SURGICAL COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

 

See accompanying notes to the condensed consolidated financial statements.

 

 

 

Note 1 — Basis of Presentation and Significant Accounting Policies

Note 2 — Inventories

Inventories, net are stated at the lower of cost, determined on a first-in, first-out basis, or market and consisted of the following (in thousands):

Note 3 — Prepaids, Deposits, and Other Current Assets

 

Note 5 – Amortizable Intangible Assets

Amortizable intangible assets consisted of the following (in thousands):

Note 6 – Other Current Liabilities

Other current liabilities consisted of the following (in thousands):

 

⁽¹⁾No item in “Other” above exceeds 5% of the total other current liabilities

 

7

 

Note 9 — Geographic and Product Data

 

The Company markets and sells its products in over 60 countries and has manufacturing sites in the United States, Switzerland and Japan. Other than the United States, Japan, Korea, China, and Spain the Company does not conduct business in any country in which its sales exceed 5% of consolidated 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):

 

 

100% of the Company’s sales are generated from the ophthalmic surgical product segment 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):

 

 

The Company sells its products internationally, which subjects the Company to several potential risks, regional/country economic conditions and regulatory requirements, including fluctuating foreign currency exchange rates (to the extent the Company’s transactions are not in U.S. dollars), regulation of fund transfers by foreign governments, United States and foreign export and import duties and tariffs, and political instability.

Note 10 — Stock-Based Compensation

The cost that has been charged against income for stock-based compensation is set forth below (in thousands):

 

 

 

Stock Option Plans

The Amended and Restated 2003 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 performance contingent restricted stock units. Options under the plan are granted at fair market value on the date of grant, become exercisable 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). Pursuant to the Plan, options for 3,660,176 shares were outstanding at  June 28, 2013 with exercise prices ranging between $0.95 and $11.02 per share. Restricted stock grants under the Plan generally vest over a period of one, three or four years. There were 341,100 shares of restricted stock outstanding at June 28, 2013. As of June 28, 2013, there were 1,467,436 shares authorized and available for grants 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 assumptions noted in the following table. Expected volatilities are based on historical volatility of the Company’s stock. The Company uses historical data to estimate option exercise and employee termination behavior. The expected term of options granted is derived from the historical exercise activity over the past 15 years, and represents the period of time that options granted are expected to be outstanding. The Company has calculated a 9.92% estimated forfeiture rate used in the model for fiscal year 2013 option grants 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.

A summary of option activity under the Plan as of June 28, 2013 is presented below:

Note 11 — Manufacturing Consolidation Project and Tax Strategy

   

 

The Company expects these initiatives to cost approximately $6.2 million over a three and half year period, of which it has spent approximately $5.2 million to date. The Company announced that these costs for 2013 should be approximately $2.5 million.  Through the first half of 2013 these costs have been $1.5 million. These expenses are included in “other general and administrative expenses” in consolidated statement of income for the period ended June 28, 2013.  The expenses generally consist of professional fees to advisors and consultants, travel, salaries and severance accrual.

 

(Unaudited)

A summary of the activity for these initiatives is presented below as of June 28, 2013 (in thousands):

 

Note 12 — New Accounting Pronouncements

 

During the six months ended June 28, 2013, there were no new accounting pronouncements that would have a material effect on our unaudited condensed consolidated financial statements. For a description of recent accounting pronouncements relevant to us, please refer “Recent Accounting Pronouncements” included in Note 1 of our Annual Report on Form 10-K for the year ended December 28, 2012.

 

 

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

 

 

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The Visian ICL treats refractive disorders such as myopia (near-sightedness) and hyperopia (far-sightedness). STAAR began selling the Visian ICL outside the U.S. in 1996 and in the U.S. in 2006.

 

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The Visian ICL or TICL, treats myopic and hyperopic patients with astigmatism.  STAAR has been selling the Visian TICL outside the U.S. since 2002.  STAAR remains in dialogue with the FDA regarding its PMA Supplement submission seeking approval to sell the TICL in the U.S.  This matter is further discussed below under, “Status of Regulatory Submission.”

 

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STAAR currently sells several versions of the Visian ICL and Visian TICL globally; the V4, the V4b, which expands the population of eligible patients to individuals in the lower diopter ranges for both myopia and hyperopia, and the V4c, which includes the proprietary CentraFLOW technology (a port, KS-AquaPORT, in the center of the myopic Visian ICL and TICL) that eliminates the need for a peripheral iridectomy or irodotomy procedure prior to implanting the Visian ICL.

 

11

 

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STAAR’s goal is to position the Visian ICL and TICL products throughout the world as primary choices for refractive surgery.

 

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Aspheric IOLs, available in single-piece and three-piece designs made from (i) Collamer, STAAR’s proprietary biocompatible collagen copolymer lens material and (ii) from silicone. Aspheric IOLs are designed to improve the patient’s quality of vision when compared to earlier spherical IOL designs. The aspheric silicone lenses are available in the U.S. and are sold preloaded in certain markets outside of the U.S., predominately in Japan.   The Collamer three piece lens is only marketed and sold in the U.S.

 

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The nanoFLEX IOL, a single-piece Collamer aspheric IOL that can be implanted through a micro-incision with a single-use disposable nanoPOINT injector system is available in the U.S and territories that accept the CE Mark.

 

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The Preloaded Injector, a silicone or acrylic IOL preloaded into a single-use disposable injector is currently available outside the U.S.  The acrylic IOL Preloaded Injector uses an acrylic lens sourced from a third party manufacturer. The KS-SP (single-piece) and KS-X (three piece) preloaded acrylic IOLs that can be implanted through a micro-incision with a single-use disposable injector system is available in Japan and on a limited basis in Europe.  The third party supplier of these acrylic lenses is currently unable to meet STAAR’s demand for the new KS IOL products, thus the company experienced approximately $1,200,000 in backorders from its European customers in the second quarter of 2013.  We are seeking alternative suppliers but cannot predict whether our efforts will prove successful.

 

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STAAR Toric IOL is a single piece silicone toric IOL, used in cataract surgery to treat preexisting astigmatism and is currently only marketed in the U.S.  A Collamer version of our toric IOL –nanoFLEX Toric has CE mark approval and initial shipments began to Europe late in the second quarter.

 

 

 

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Increase total revenue by 8% to 10%.

 

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Increase gross profit margins by 250 basis points for the full year.

 

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Achieve profitability in each quarter of 2013.

 

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Manage the manufacturing consolidation with no material disruption to customer supply requirements or quality.

 

Other Highlights

 

 

 

 

*

Denotes change is greater than +100%.

 

 

 

Net Sales

 

Net sales for the three months ended June 28, 2013 were $18.2 million, an increase of 13.9% compared to the $15.9 million reported during three months ended June 29, 2012. Net sales for the six months ended June 28, 2013 were $36.2 million, a 15% increase compared with $31.5 million reported during the six months ended June 28, 2012. The increase in net sales for the three and six month periods was due to increased sales of ICLs and Other surgical products, partially offset by a decrease in IOL sales. The effect of exchange had a negative impact on sales of $1,010,818 and $1,760,532, respectively, for the three and six months ended June 28, 2013.

 

Total ICL sales for the three months ended June 28, 2013 were $11.3 million, an increase of 30.9% compared with $8.6 million reported during the three months ended June 29, 2012. Total ICL sales for the six months ended June 28, 2013 were $21.9 million, an increase of 27.2% compared with $17.2 million reported during the six months ended June 29, 2012. ICL sales increased in each of the Company’s top 11 markets led by China which grew 77% and 39%, respectively, and Spain which grew 127% and 141%, respectively, during the three and six months ended June 28, 2013. ICL sales represented 62.0% and 60.5%, respectively, of our total sales for the three and six months ended June 28, 2013, compared to 54.0% and 54.7% for the three and six month periods ended June 29, 2012.

 

Total IOL sales for the three months ended June 28, 2013 were $5.9 million, a decrease of 13.4%, when compared with $6.8 million for the three months ended June 29, 2012. Total IOL sales for the six months ended June 28, 2013 were $12.2 million, a decrease of 7.0%, when compared with $13.1 million for the six months ended June 29, 2012. IOL sales represent 32.3% and 33.8% of sales for the three and six months ended June 28, 2013, compared to 42.5% and 41.8% for the three and six month periods ended June 29, 2012. The decrease in IOL sales was due to effect of exchange which reduced IOL sales by $826,569 and $1,472,954, respectively, for the three and six months ended June 28, 2013.

 

Other product sales for the three and six months ended June 28, 2013 were $1.0 million and $2.1 million, an increase of 85.1% and 86.1%, respectively, when compared with $0.6 million and $1.1 million for the three and six months ended June 29, 2012. The increase in other product sales was due to an increase in injector part sales to a third party supplier.