-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, AxjdBSYB3/KHYL8AJ0SrMAAREfeAE2jsp80i3cY4RtwV2k9AViiVUgrZSJEb5w+X AjPTIQeljEo1slhxRWMYHA== 0000898430-99-002144.txt : 19990518 0000898430-99-002144.hdr.sgml : 19990518 ACCESSION NUMBER: 0000898430-99-002144 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990402 FILED AS OF DATE: 19990517 FILER: COMPANY DATA: COMPANY CONFORMED NAME: STAAR SURGICAL COMPANY CENTRAL INDEX KEY: 0000718937 STANDARD INDUSTRIAL CLASSIFICATION: OPHTHALMIC GOODS [3851] IRS NUMBER: 953797439 STATE OF INCORPORATION: DE FISCAL YEAR END: 0101 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-11634 FILM NUMBER: 99627329 BUSINESS ADDRESS: STREET 1: 1911 WALKER AVE CITY: MONROVIA STATE: CA ZIP: 91016 BUSINESS PHONE: 8183037902 MAIL ADDRESS: STREET 1: 1911 WALKER AVE CITY: MONROVIA STATE: CA ZIP: 91016 10-Q 1 FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------------------- FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended: April 2, 1999 OR [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number: 0-11634 STAAR SURGICAL COMPANY (Exact name of registrant as specified in its charter) Delaware 95-3797439 (State or other jurisdiction of (I.R.S. Employer Incorporation or organization) Identification No.) 1911 Walker Avenue Monrovia, California 91016 (Address of principal executive offices) (Zip Code) (626) 303-7902 (Registrant's telephone number including area code) N/A (Former name, former address and former fiscal year, if changed since last report) ---------------------- 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 [X] NO [_] The Registrant has 14,029,811 shares of common stock, par value $0.01 per share, issued and outstanding as of May 12, 1999. Total number of sequentially numbered pages in this document: 9 STAAR SURGICAL COMPANY INDEX
PAGE NUMBER ------ PART I Item 1 - Financial Information Condensed Consolidated Balance Sheets - April 2, 1999 and January 1, 1999............................................................ 1 Condensed Consolidated Statements of Income - Three Months Ended April 2, 1999 and April 3, 1998............................................ 2 Condensed Consolidated Statements of Cash Flows - Three Months Ended April 2, 1999 and April 3, 1998............................................ 3 Notes to Condensed Consolidated Financial Statements............................ 4 Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations...................................................... 5 PART II Item 5 - Other Information............................................................... 8 Signature Page.................................................................. 9 Item 6 - Exhibits and Reports on Form 8-K Exhibits -------- 27 Financial Data Schedule Reports on Form 8-K ------------------- None
STAAR SURGICAL COMPANY CONDENSED CONSOLIDATED BALANCE SHEETS
April 2, January 1, 1999 1999 ASSETS (Unaudited) (Note) ------ ------------- ------------- Current assets: Cash and cash equivalents $ 4,103,046 $ 4,689,574 Accounts receivable, less allowance for doubtful accounts 11,189,517 10,167,449 Other receivables 1,444,830 1,386,830 Inventories 19,623,832 20,139,979 Prepaids, deposits and other current assets 4,268,199 3,624,390 Deferred income tax 1,108,761 1,108,761 ------------ ------------ Total current assets 41,738,185 41,116,983 ------------ ------------ Investment in joint venture 3,090,550 3,178,477 Property, plant and equipment, net 10,494,072 10,379,997 Patents and licenses, net 12,069,609 12,038,023 Goodwill, net 4,933,504 5,047,982 Other assets 1,446,989 1,528,150 ------------ ------------ Total assets $73,772,909 $73,289,612 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY ------------------------------------ Current liabilities: Notes payable $ 748,782 $ 1,034,801 Accounts payable 4,190,956 4,975,222 Current portion of long-term debt 1,250,395 1,277,474 Deferred income tax 2,822,706 2,822,706 Other current liabilities 4,414,346 4,081,885 ------------ ------------ Total current liabilities 13,427,185 14,192,088 ------------ ------------ Long-term debt, net of current portion 10,309,224 10,021,287 Other long-term liabilities 433,116 513,699 ------------ ------------ Total liabilities 24,169,525 24,727,074 ------------ ------------ Minority interest 1,021,528 856,039 ------------ ------------ Stockholders' equity Common stock, $.01 par value, 30,000,000 shares authorized; issued and outstanding 14,098,343 at April 2, 1999 and 13,994,593 at January 1, 1999 140,983 139,946 Capital in excess of par value 46,651,391 46,039,428 Accumulated other comprehensive income (541,260) (536,491) Retained earnings 7,990,529 7,317,778 ------------ ------------ 54,241,643 52,960,661 Notes receivable from officers and directors (5,659,787) (5,254,162) ------------ ------------ Total stockholders' equity 48,581,856 47,706,499 ------------ ------------ $73,772,909 $73,289,612 ============ ============
Note: The amounts presented in the January 1, 1999 Balance Sheet are derived from the audited financial statements for the year ended January 1, 1999. See accompanying notes to the condensed consolidated financial statements. 1 STAAR SURGICAL COMPANY CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
Three Months Ended ------------------------------ April 2, 1999 April 3, 1998 ------------- ------------- Sales $14,725,103 $14,042,833 Royalty income 58,036 58,036 ------------- ------------- Total revenues 14,783,139 14,100,869 Cost of sales 5,744,670 4,283,689 ------------- ------------- Gross profit 9,038,469 9,817,180 ------------- ------------- Selling, general and administrative expenses: General and administrative 1,741,779 1,681,963 Marketing and selling 4,846,486 4,384,999 Research and development 1,062,416 1,016,719 ------------- ------------- Total selling, general and administrative expenses 7,650,681 7,083,681 ------------- ------------- Operating income 1,387,788 2,733,499 ------------- ------------- Other income (expense): Equity in earnings of joint venture 99,243 150,054 Interest expense - net (200,183) (183,873) Other income (expense) (28,787) (64,942) ------------- ------------- Total other income (expense) (129,727) (98,761) ------------- ------------- Income before income taxes and minority interest 1,258,061 2,634,738 Income tax provision 419,821 843,781 Minority interest 165,489 116,069 ------------- ------------- Net income 672,751 $ 1,674,888 ============= ============= Net income per share: Basic $.05 $.13 ============= ============= Diluted $.05 $.12 ============= ============= Weighted average number of shares outstanding: Basic 14,093,495 13,263,243 Diluted 14,329,031 14,338,719
See accompanying notes to the condensed consolidated financial statements. 2 STAAR SURGICAL COMPANY CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Three Months Ended ------------------------------------------------ April 2, April 3, 1999 1998 ---------------------- ---------------------- Cash flows from operating activities: Net income $ 672,751 $ 1,674,888 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation of property and equipment 453,470 477,845 Amortization of intangibles 505,446 842,144 Change in deferred revenue (58,036) (58,036) Minority interest 165,489 116,069 Equity in earnings of joint venture (99,244) (150,054) Deferred income taxes -- 4,024 Change in operating working capital, excluding effects of acquisitions (1,659,535) 1,343,960 ---------------------- ---------------------- Net cash provided by (used in) operating activities (19,659) 4,250,840 ---------------------- ---------------------- Cash flows from investing activities: Purchase of property and equipment (567,545) (563,437) Increase in patents and licenses (332,863) (496,695) Acquisition of a foreign distributor, net of cash acquired -- (4,269,923) Dividends received from joint venture 187,171 -- Increase in other assets (8,530) (1,130,351) ---------------------- ---------------------- Net cash used in investing activities (721,767) (6,460,406) ---------------------- ---------------------- Cash flows from financing activities: Increase in borrowings under notes payable and long-term debt -- 4,375,162 Payments on notes payable and long-term debt (308,754) (858,444) Net borrowings (payments) under line-of-credit 261,046 (3,706,940) Proceeds from the exercise of stock options 207,375 105,499 ---------------------- ---------------------- Net cash provided by (used in) financing activities 159,667 (84,723) ---------------------- ---------------------- Effect of exchange rate changes on cash and cash equivalents (4,769) (390,887) ---------------------- ---------------------- Decrease in cash and cash equivalents (586,528) (2,685,176) Cash and cash equivalents, at beginning of period 4,689,574 6,279,136 ---------------------- ---------------------- Cash and cash equivalents, at end of period $ 4,103,046 $ 3,593,960 ====================== ======================
See accompanying notes to the condensed consolidated financial statements. 3 STAAR SURGICAL COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS April 2, 1999 1. Basis of Presentation The accompanying financial statements consolidate the accounts of the Company and its wholly and majority owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. Assets and liabilities of foreign subsidiaries are translated at rates of exchange in effect at the close of the period. Revenues and expenses are translated at the weighted average of exchange rates in effect during the period. The resulting translation gains and losses are deferred and are shown as a separate component of stockholders' equity. During the three-months ended April 2, 1999 and April 3, 1998, the net foreign translation loss was $4,769 and $390,887 and net foreign currency transaction gain/(loss) was not material. Investments in affiliates and joint ventures are accounted for using the equity method of accounting. Each of the Company's reporting periods ends on the Friday nearest to the quarter ending date. 2. Foreign Sales During the three-months ended April 2, 1999 and April 3, 1998, the Company had foreign sales primarily to Europe, South Africa, Australia and Southeast Asia of approximately $8,513,000 and $7,642,000. Of these sales, approximately $6,441,000 and $6,160,000 were to Europe, which has been the Company's principal foreign market, for the quarters ended April 2, 1999 and April 3, 1998. The Company sells its products internationally. International transactions subject the Company to several potential risks, including fluctuating exchange rates (to the extent the Company's transactions are not in U.S. dollars), regulation of fund transfers by foreign governments, United States and foreign export and import duties and tariffs and possible political instability. 3. Inventories Inventories are valued at the lower of cost (first-in, first-out) or market (net realizable value) and consisted of the following at April 2, 1999 and January 1, 1999:
April 2, January 1, 1999 1999 ----------- ----------- Raw materials and purchased parts.......$ 2,133,110 $ 2,189,154 Work in process......................... 2,221,418 2,279,002 Finished goods.......................... 15,269,304 15,671,823 ----------- ----------- $19,623,832 $20,139,979 ----------- -----------
4. Interim Financial Statements The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. The financial statements for the three-months ended April 2, 1999 and April 3, 1998, in the opinion of management, include all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of the financial condition and results of operations for this interim period. The results of operations for the three-months ended April 2, 1999 are not necessarily indicative of the results to be expected for any other interim period or the entire year. 5. Reclassifications Certain reclassifications have been made to the 1998 consolidated financial statements to conform with the 1999 presentation. 4 PART 1 - ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations The following table sets forth the percentage of total revenues represented by certain items reflected in the Company's income statement for the period indicated and the percentage increase or decrease in such items over the prior period.
Percentage of Total Revenues For Three Percentage change Months Ended for Three Months ----------------------- ---------------------- April 2, April 3, 1999 1998 1999 vs 1998 ----------------------- ---------------------- Increase (Decrease) Total revenues........................ 100.0% 100.0% 4.8% Cost of sales......................... 38.9 30.4 34.1 ----- ----- Gross profit.......................... 61.1 69.6 (7.9) Costs and expenses: General and administrative....... 11.8 11.9 3.6 Marketing and selling............ 32.8 31.1 10.5 Research and development......... 7.2 7.2 4.5 ----- ----- Total costs and expenses.... 51.8 50.2 8.0 Other expense, net.................... (.9) (.7) 31.4 ----- ----- Income before income taxes............ 8.5 18.7 (52.3) Income tax provision.................. 2.8 6.0 (50.2) Minority interest..................... 1.1 .8 42.6 ----- ----- Net income............. 4.6% 11.9% (59.8) ===== =====
Revenues - -------- Revenues for the three-month period ended April 2, 1999 were $14.8 million, which is 4.8% greater than the $14.1 million in revenues for the three- month period ended April 3, 1998. The increase in revenues was attributable to an increase in sales of the Company's refractive products, primarily the Implantable Contact Lens(TM) , a deformable intraocular refractive corrective lens, and the Toric(TM) intraocular lens. Additionally, increased sales of the Company's intraocular lenses (IOL's) were partially offset by lower average selling prices for IOL's due to competitive pressures. Cost of Sales - ------------- Cost of sales increased to 38.9% of revenues for the three-months ended April 2, 1999 from 30.4% of revenues for the three-months ended April 3, 1998. The increase as a percentage of revenue was due to lower average selling prices of IOLs and higher unit costs of IOLs produced in 1998 due to lower production volume. General & Administrative - ------------------------ General and administrative expense decreased slightly to 11.8% of revenues for the three-months ended April 2, 1999 from 11.9% of revenues for the three- months ended April 3, 1998. While actual expense increased 3.6% over the 5 same period last year, the decrease as a percent of revenues was due to the slightly larger change in revenues. Marketing and Selling - --------------------- Marketing and selling expense increased to 32.8 % of revenues for the three-months ended April 2, 1999 compared to 31.1% of revenues for the three- months ended April 3, 1998. The increase in marketing and selling expense as a percentage of revenues was attributable to marketing and selling expenses of the product launch for the Toric(TM) intraocular lens and to increased domestic commission expenses. Research and Development - ------------------------ Research and development expense for the first quarter ending April 2, 1999 and April 3, 1998 was 7.2% of revenues. Actual expense increased 4.5% over the same period last year due to increased costs of managing clinical trials. Other Expense, Net - ------------------ Other expense, net for the quarter ended April 2, 1999 was ($130,000), or (.9%) of revenues, as compared to ($99,000), or (.7%) of revenues, for the quarter ended April 3, 1998. The primary reasons for this change were increased interest expenses, offset by decreased losses in foreign currency transactions, and a decrease in earnings related to the Company's joint venture with Canon STAAR. Income Tax Provision (Income Taxes) - ----------------------------------- The Company's effective income tax rate at April 2, 1999 increased to 33.4% as compared to April 3, 1998 when it was 32%. Liquidity and Capital Resources - ------------------------------- Cash and cash equivalents for the quarter ended April 2, 1999 decreased by approximately $.6 million relative to the fiscal year ended January 1, 1999. This decrease was principally due to purchases of property and equipment and acquisition of patents partially offset by cash provided by financing activities. As of April 2, 1999, the Company had a current ratio of 3.1:1, net working capital of $28.3 million and net equity of $48.6 million compared to January 1, 1999 when the Company's current ratio was 2.9:1, its net working capital was $26.9 million, and its net equity was $47.7 million. During the quarter, an officer of the Company exercised options for the Company's common stock in exchange for a note in the amount of $405,625. The note bears interest at a rate of 7%, or at the lowest applicable rate allowed by the Internal Revenue Service. The note is secured by a stock pledge agreement and matures on September 4, 2003. The Company expects to continue to be profitable in the future and the Company believes that all future cash flow needs will come from cash generated by operations or additional financing, if required. Year 2000 Compliance - -------------------- The Company's management understands the importance of identifying and addressing Year 2000 compliance issues and has placed a high priority on this project. Accordingly, the Company's Year 2000 efforts are guided by a special Year 2000 Steering Committee which reports to the President of the Company. The Steering Committee is made up of designees from each department within the Company and includes representatives of its foreign subsidiaries. The Committee meets on a regular basis to discuss the progress of each department in achieving its Year 2000 goals and to discuss new information. The Company has developed a comprehensive plan for achieving Year 2000 compliance that is consistent with the five-step process prescribed by federal regulators as follows: 6 . Awareness - Creating and maintaining awareness of the Company's Year 2000 effort at all levels of the organization. . Assessment - Determining which computers, operating systems, applications, machinery and equipment, and facilities are impacted and prioritizing the remediation effort. . Renovation - Fixing any problems. . Validation - Testing and certification. . Implementation - Implementation of validated systems. The Company's principal computer hardware used by its business application systems has been certified to be Year 2000 compliant by the vendor, Hewlett- Packard. The Company's principal internal operating systems are UNIX/Unidata based. These systems use a sequentially incremented integer to store the date beginning with a day 1 of January 1, 1968. Therefore, the date logic of these systems had few Year 2000 related problems, the vendor has addressed such problems and the Company has upgraded its systems to a Year 2000 certified version. The Company's principal business application software is a modified version of one purchased from a third party. The Company's personnel have assessed, modified and installed the modified programs into a test environment. Testing by the Company's information system personnel is complete, including advancing the system date to the Year 2000, and all programs functioned as expected. The Company has recently successfully completed user testing of all mission critical programs and the Year 2000 compliant programs have been installed domestically. These same systems and programs are used by the majority of the Company's subsidiaries and those installations are scheduled to be complete during the third quarter of 1999. In general, the Company is ahead of its schedule for this project and has met all internal milestones. For those subsidiaries using other systems, either those systems have been certified as Year 2000 compliant or plans are in place to upgrade or replace with the Company's principal system. In addition to reviewing its internal systems, the Company is contacting certain suppliers, vendors, and other providers of goods and services to determine their ability to do business in the Year 2000 and have included Year 2000 considerations in the vendor selection and certification process. The Company expects this process to be ongoing as companies progress with their own Year 2000 issues. In any event, contingency plans are being developed in the event that the Year 2000 does impact critical suppliers or vendors. The Company's costs of achieving Year 2000 compliance to date have been immaterial to financial position, results of operations or cash flows. The Company does not anticipate that additional amounts incurred in connection with its Year 2000 compliance program will be material to its financial conditions or results of operations. Due to the uncertainties involved, the Company cannot predict the impact of the Year 2000 on its operations. Achieving Year 2000 compliance is dependent on many factors, some of which are not within the Company's control, including, without limitation, the continuity of services provided by the government, utilities, transportation industry and other service providers. Should one of these systems fail, or should the Company's internal systems or the internal systems of one or more significant vendors or suppliers fail to achieve Year 2000 compliance, the Company's business and its results of operations could be adversely affected. 7 PART II - ITEM 5 Other Information - ----------------- None PART II - ITEM 6 Exhibits and Reports on Form 8-K Exhibits 27 Financial Data Schedule Reports on Form 8-K None 8 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. STAAR SURGICAL COMPANY Date: May 14, 1999 By: /s/ WILLIAM C. HUDDLESTON ------------------------------------- William C. Huddleston Chief Financial Officer and Duly Authorized Officer (principal accounting and financial officer for the quarter) 9 EX-27 2 FINANCIAL DATA SCHEDULE
5 1,000 3-MOS DEC-31-1999 APR-02-1999 4,103,046 0 11,511,671 322,154 19,623,832 41,738,185 24,343,073 13,849,001 73,772,909 13,427,185 0 0 0 140,983 48,440,873 73,772,909 14,725,103 14,783,139 5,744,670 13,395,351 28,787 19,702 200,183 1,258,061 419,821 672,751 0 0 0 672,751 0.05 0.05
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