ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following Management’s Discussion and Analysis of Financial Condition and Results of Operations is intended to promote understanding of our financial condition and results of operations. You should read the following discussion and analysis of our financial condition and results of operations in conjunction with the Consolidated Financial Statements and the Notes to those statements included in this Annual Report. This discussion includes forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of numerous factors, including those described in this Annual Report in Item 1A. “Risk Factors.”
Overview
STAAR Surgical Company designs, develops, manufactures, and sells implantable lenses for the eye and accessory delivery systems used to deliver the lenses into the eye. We are the leading manufacturer of phakic implantable lenses used worldwide in corrective or “refractive” surgery. We have been dedicated solely to ophthalmic surgery for over 40 years. Our goal is to position our refractive lenses throughout the world as primary and premium solutions for patients seeking visual freedom from wearing eyeglasses or contact lenses while achieving excellent visual acuity through refractive vision correction.
STAAR generates worldwide revenue almost exclusively from sales of our implantable Collamer lenses, or “ICLs.” Our ICLs are made from Collamer, which is a proprietary collagen copolymer material created and exclusively used by STAAR to make our lenses soft, flexible and biocompatible with the eye. Our ICLs are phakic lenses, meaning that they are implanted into the eye without removing the eye’s natural crystalline lens. This distinguishes an ICL procedure from other refractive procedures, as it does not involve the removal of corneal eye tissue. All of our ICLs are foldable, which allows the surgeon to insert them into the eye through a small incision during minimally invasive surgery. Further, while ICLs are intended to be permanent, our ICLs are reversible lens implants, meaning they can be removed by a doctor if desired.
We market and sell our ICLs for refractive surgery to treat myopia (nearsightedness) as our “EVO” family of lenses. We believe our EVO lenses are an “Evolution in Visual Freedom” designed to provide premium refractive outcomes while optimizing patient comfort. Our EVO family of lenses includes our EVO ICL, EVO+ ICL, and EVO Visian ICL. Our newest offering, EVO Viva, has an extended depth of focus (EDoF) optic, which is designed to treat myopia with presbyopia (age-related loss of ability to focus).We also market and sell an ICL lens to treat hyperopia (farsightedness), which we call our Visian ICL. We make our ICL product offerings available in multiple models, powers and lengths, including some with toric ICL (TICL) versions to correct for astigmatism (blurred vision). Not all of our products are currently available in all markets where we sell ICLs today.
STAAR employs a commercialization strategy that strives for sustainable, profitable growth. Our growth strategy includes making our complete ICL product line available in our existing geographic markets and expanding into attractive markets where we do not sell our products today. In addition, we are focused on driving awareness of the ICL procedure and the clinical benefits of our ICLs, and providing surgeon training, support and education, particularly in our newer markets. Historically, the Company also manufactured and sold intraocular lenses (or IOLs) for use in surgery to treat cataracts. As the Company has focused its business and strategy on its ICL product offerings, we have phased out our cataract IOL product line. For the fiscal year ended December 27, 2024, approximately 100% our net sales were generated from sales of ICLs.
Business Environment and Factors Affecting Comparability
Given the size of the Company’s business in China relative to its net sales in the rest of the world, macroeconomic conditions in China have a significant impact on the Company’s business, operations, and financial results. For the fiscal year ended December 27, 2024, we reported $313.9 million of net sales, a decrease of 3% compared to $322.4 million in fiscal 2023, and we incurred a net loss of $20.2 million compared to net income of $21.3 million in fiscal 2023. Prior to fiscal 2024, we had reported over ten years of annual net sales growth, and we had delivered net income profitability since 2018. Our results in fiscal 2024 were negatively impacted by a significant decline in ICL sales in China in the fourth quarter ended December 27, 2024, where the sluggish economy and weak consumer consumption contributed to fluctuating demand for ICL procedures.
During the fourth quarter ended December 27, 2024, we shipped a $27.5 million order of ICLs to one of our distributors in China. After the shipment was received, the distributor raised concerns about the ongoing fluctuations in procedural volumes in China and forecasted demand for fiscal 2025. Following discussions with the distributor, the distributor requested extended payment terms for the order, and we agreed. From time to time, we agree to extended
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payment terms with our distributors, but given that these payment terms were significantly longer than the terms included in our distributor agreement, we determined that under accounting principles generally accepted in the U.S. (“GAAP”), collectability was not probable, and we did not recognize the revenue associated with the shipment in the quarter ended December 27, 2024. As the shipment was received by the distributor, and control of the product passed to the distributor, the product is no longer recorded in our inventory. Ordinarily, we recognize revenue upon shipment of product, and we record cost of sales when we recognize revenue based on the matching principle under GAAP. In this instance, we did not recognize the revenue, but we did recognize costs of sales associated with this order of $3.9 million, which had a negative impact on our gross profit and gross profit margin for the fourth quarter and fiscal year ended December 27, 2024. As the control of the inventory transferred to the distributor, accounting rules require us to record the costs of sales upon such transfer, even if revenue is not recognized until a future period.
Under the extended payment terms, the distributor agreed to pay for the $27.5 million order by the end of the quarter ending September 26, 2025. Revenue for the order will not be recognized until payments are received from the distributor, at which point the collectability concern is alleviated. Because the cost of sales associated with this order was recognized in the quarter ended December 27, 2024, there will be no associated cost of sales for this order when the revenue is recognized, resulting in a 100% gross profit in the period payments are received. While we did not recognize revenue on this order upon shipment, we believe that having these ICLs in-country in China can help address challenges and delays associated with importation and logistics and can mitigate potential impacts from geopolitical risk and tariff changes.
Our agreements with our distributors in China provide for minimum inventory requirements based on forecasted demand. During fiscal 2024, our distributors purchased lenses above such minimums in anticipation of higher procedural volumes during what is typically a summer “high season” in China. Due to dynamic macroeconomic conditions and other factors, the number of ICL procedures performed during the high season and the second half of 2024 overall was lower than expected. Accordingly, our distributors in China held, as of December 27, 2024, elevated levels of ICL product inventory. We believe that volatility in surgical procedure volumes will continue until consumer confidence stabilizes and ultimately improves in China. As a result, we believe that the level of ICL inventory held by our distributors in China is sufficient to meet currently expected procedure volumes for at least the first half of fiscal 2025. We therefore anticipate we will report minimal China ICL sales in the first half of fiscal 2025. As China in-country inventory is reduced during the first half of fiscal 2025, we would expect our China revenue to normalize. However, our ability to successfully address these challenges will depend on a number of factors, including the risk of a prolonged slowdown or disruption in China and the institution of trade tariffs both globally and between the U.S. and China, as set forth in Item 1A. “Risk Factors.”
During fiscal 2025, we will continue to assess appropriate inventory levels, both inventory held by us and inventory held by our distributors. We generally keep sufficient inventory on hand to ship product immediately or shortly after receipt of an order. In addition, our distributors hold their own inventory in-country based on forecasted demand. During fiscal 2024, we increased our inventory levels to meet the significant level of anticipated demand for our ICL lenses, to support quick and efficient delivery and fulfillment for surgical procedures, and to mitigate risks associated with potential disruptions to our manufacturing and production process. During fiscal 2025, we expect to adjust our production output based on forecasted demand and optimize the level of inventory held by us and held by our distributors.
See Item 1. “Business,” for a discussion of:
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Operations
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Principal Products
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Distribution and Customers
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Competition
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Regulatory Matters
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Research and Development
Strategic Imperatives for 2025
We believe we have a significant opportunity to fundamentally transform how myopia and other refractive conditions are treated. We want to be the first choice for doctors and for patients seeking visual freedom from wearing eyeglasses or contact lenses. A key focus in 2025 will be supporting our business in China as we work to navigate the macroeconomic challenges and position the Company for growth once the market recovers. Across our markets, we
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recognize the need to further educate and train ophthalmic surgeons about our ICLs and our ICL procedure. In 2025, we intend to increase the number of strategic collaborations with leading refractive surgeons and practices in the U.S. to collaborate on marketing, training and education activities. We also plan to leverage our new EVO Experience Center at our headquarters in Lake Forest, CA, to conduct additional hands-on training and education in lens-based vision correction. In addition, we are continuing to invest in enhanced systems and tools to make ordering and fulfillment faster and easier. In 2025, we will also continue to drive awareness of the ICL procedure to reach even more potential patients and effectively communicate the clinical benefits of our ICLs. While we work to launch our existing product portfolio in attractive global markets, we also intend to continue to invest in product innovation in 2025.
Results of Operations
The following table sets forth the percentage of total sales represented by certain items reflected in the Company’s Consolidated Statement of Operations for the period indicated.
Percentage of Net Sales
General and administrative 28.6 % 22.4 % 19.2 %
Total selling, general and administrative 80.3 % 69.6 % 63.1 %
Operating income (loss) (4.0 )% 8.8 % 15.4 %
Total other income, net 1.0 % 1.7 % 0.6 %
Income (loss) before income taxes (3.0 )% 10.5 % 16.0 %
Provision for income taxes 3.6 % 3.8 % 2.1 %
Net income (loss) (6.6 )% 6.7 % 13.9 %
Net Sales
The following table presents our net sales, by product for the fiscal years presented (dollars in thousands):
% of Total Sales % of Total Sales % of Total Sales
Other product sales
Net sales for 2024 decreased 3% from 2023. The decrease in net sales was due to decreased ICL sales of $6.9 million and decreased other product sales of $1.6 million.
Net sales for 2023 increased 13% from 2022. The increase in net sales was due to increased ICL sales of $49.7 million, partially offset by a decrease in other product sales of $11.7 million.
Total ICL sales for 2024 decreased 2% from 2023, with units down 6%. The sales decrease was driven by the APAC region, which decreased 6% with units down 9%. The decrease in the APAC region was driven by decreased sales in China, primarily related to the $27.5 million order in December 2024 for which we did not recognize revenue discussed above, partially offset by sales growth in India, other APAC Distributors, Japan and Korea. The Europe, Middle East and Africa region sales increased 10% with unit growth up 17%, due primarily to sales increases in our distributor markets. The Americas region sales increased 16%, with unit increase of 17%, due primarily to sales growth in the U.S. Changes in foreign currency unfavorably impacted ICL sales by $2.7 million, which impacted our Japan and Europe, Middle East and Africa markets. ICL sales represented 99.6% of our total sales for fiscal year 2024.
Total ICL sales for 2023 increased 18% from 2022, with unit growth up 19%. The sales increase was driven by the APAC region, which grew 21% with unit growth of 22%, primarily due to sales growth in China, other APAC Distributors, India, Japan and Korea. The Europe, Middle East and Africa region sales increased 7% with units similar to prior year, due to sales growth in our distributor markets and direct markets. The Americas region sales increased
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11%, with unit increase of 9%, due primarily to sales growth in the U.S. Changes in foreign currency unfavorably impacted ICL sales by $1.8 million, which impacted our Japan and Europe, Middle East and Africa markets. ICL sales represented 99.1% of our total sales for fiscal year 2023.
Other product sales include cataract IOLs, delivery systems and normal recurring sales adjustments such as sales return allowances. As a result of third-party materials and supply chain challenges that affected our cataract IOLs and associated delivery devices, we have phased out sales of our cataract IOLs as we focus on growing our ICL business. During 2023, we stopped manufacturing cataract IOLs, and we did not sell any cataract IOLs in 2024. Other product sales for 2024 decreased 55% from 2023, mainly due to decreased sales of cataract IOLs and cataract IOL injector parts, partially offset by increased sales of delivery systems. Changes in foreign currency unfavorably impacted other product sales by $0.1 million. Other product sales represented less than 1.0% of our total sales for fiscal year 2024.
Other product sales in 2023 decreased 80% from 2022, mainly due to decreased sales of cataract IOLs and cataract IOL injector parts and increased sales returns reserves related to cataract IOLs. Changes in foreign currency unfavorably impacted other product sales by $0.3 million. Other product sales represented 1.0% of our total sales for fiscal year 2023.
Gross Profit
The following table presents our gross profit and gross profit margin for the fiscal years presented (dollars in thousands):
Percentage Change
Gross profit for 2024 decreased 5.2% from 2023. Gross profit margin decreased to 76.3% of revenue for 2024 compared to 78.4% of revenue for 2023. The decrease in gross profit and gross profit margin was primarily due to the recognition of $3.9 million of cost of sales associated with our shipment of $27.5 million of ICLs to one of our distributors in China in the quarter ended December 27, 2024, for which we did not recognize revenue due to extended payment terms with the distributor. Gross profit and gross profit margin for fiscal 2024 were also negatively impacted by period costs associated with the expansion of the Company’s manufacturing capabilities in its Nidau, Switzerland facility, as well as the temporary idling of its U.S. manufacturing facility during the holiday season and for facility upgrades.
Gross profit for 2023 increased 13.1% from 2022. Gross profit margin increased to 78.4% of revenue for 2023 compared to 78.5% of revenue for 2022, due to reserves related to cataract IOLs and increased period costs associated with manufacturing expansion projects, offset by an increased mix of ICL sales, which carry a higher margin.
General and Administrative Expense
The following table presents our general and administrative expense for the fiscal years presented (dollars in thousands):
Percentage Change
General and administrative expenses for 2024 increased 24.3% from 2023, due to increased outside services, facilities costs, salary-related and payroll tax expenses and bonus and stock-based compensation expenses.
General and administrative expenses for 2023 increased 32.1% from 2022, due to increased salary-related and payroll tax expenses, outside services, facilities costs, bonus and stock-based compensation expenses and Japan one-time employee benefits.
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Selling and Marketing Expense
The following table presents our selling and marketing expense for the fiscal years presented (dollars in thousands):
Percentage Change
Selling and marketing expenses for 2024 increased 0.5% from 2023, due to increased salary-related payroll tax expenses, trade shows and sales meeting expenses, costs and charges associated with the opening of our new EVO Experience Center, sales commission expenses and travel expenses, offset by decreased advertising and promotional activities.
Selling and marketing expenses for 2023 increased 21.4% from 2022, due to increased advertising and promotional activities, salary-related payroll tax expenses, sales commission expenses and travel expenses, partially offset by bonus and stock-based compensation expenses.
Research and Development Expense
The following table presents our research and development expense for the fiscal years presented (dollars in thousands):
Percentage Change
Research and development expenses for 2024 increased 21.6% from 2023 due to increased salary-related and payroll tax expenses, purchases of in-process research and development related to external AI tools for measurement and lens size selection and outside services related to professional and medical education, partially offset by decreased clinical expenses associated with our U.S. post-approval clinical trials.
Research and development expenses for 2023 increased 23.4% from 2022 due to increased salary-related and payroll tax expenses and clinical expenses associated with our U.S. post-approval clinical trials.
Research and development expense consist primarily of compensation and related costs for personnel responsible for the research and development of new and existing products, the regulatory and clinical activities required to acquire and maintain product approvals globally and medical affairs expenses. These costs are expensed as incurred.
Other Income, Net
The following table presents our other income, net for the fiscal years presented (dollars in thousands):
Percentage Change
Percentage of sales 1.0 % 1.7 % 0.6 %
* Denotes change is greater than +100%.
The change in other income, net for 2024 was due to increased foreign exchange losses (primarily Japanese Yen and euro) and lower interest income as a result of lower balances of investments available for sale. The change in other income, net for 2023 was due to increased interest income as a result of higher interest rates during 2023.
Other income, net generally relates to interest income earned on cash, cash equivalents and investments available for sale, interest expense on finance lease obligations, gains or losses on foreign currency transactions, and royalty income. The table below summarizes the year over year changes in other income, net (in thousands):
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Favorable (Unfavorable)
Net change in other income, net $ (2,040 ) $ 3,849
Provision for Income Taxes
The following table presents our provision for income taxes for the fiscal years presented (in thousands):
Percentage Change
* Denotes change is greater than +100%.
Our effective tax rates differ from the U.S. federal statutory rate of 21% for 2024, 2023 and 2022, respectively, primarily due to the income taxes generated in foreign jurisdictions and realizability of deferred tax assets. Also impacting our effective tax rates was a $4.5 million recapture of our U.S. valuation allowance in 2024, $3.3 million recapture of our U.S. valuation allowance in 2023 and a $0.9 million release of our U.S. valuation allowance in 2022. Also during 2024, we recognized $1.5 million of unrecognized benefits, including interest, related to uncertain tax positions taken by us. There were no unrecognized benefits related to uncertain tax positions taken by us in 2023 or 2022.
Liquidity and Capital Resources
Our principal sources of liquidity are cash, cash equivalents, investments available for sale and cash flow from operating activities. We believe these sources of liquidity will be sufficient to meet our anticipated cash needs, including working capital needs, capital expenditures and contractual obligations for at least 12 months from the issuance date of the financial statements included in this Annual Report. We expect that cash flow from operating activities may fluctuate in future periods as a result of a number of factors, including fluctuations in our operating results, working capital needs, capital expenditures, and capital deployment decisions. In addition, future capital requirements will depend on many factors including our growth rate in net sales, the timing and extent of spending to support our growth strategy, the expansion of selling and marketing activities, the timing of introductions of new products, as well as global macroeconomic factors. If our anticipated future cash flow from operating activities is insufficient to satisfy our future capital requirements in the long-term, we may need to seek additional capital.
Our financial condition at December 27, 2024, December 29, 2023 and December 30, 2022 included the following (in thousands):
Cash and cash equivalents include cash and balances in deposits and money market accounts held at banks and financial institutions. Our investment policy primary objective is capital preservation while maximizing our return on investment. Investments available for sale may include U.S. government and corporate debt securities, commercial paper, certain certificates deposit and related security types, that are rated by two nationally recognized statistical rating organizations with minimum investment grade ratings of AAA to A-/A-1+ to A-2, or the equivalent. The maturity of individual investments may not extend 24 months from the date of purchase. There are also limits to the amount of credit exposure in any given security type. We do not have any off-balance sheet arrangements.
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Our current liquidity and capital resources, as discussed above, will enable us to meet our known contractual obligations as of December 27, 2024 (in thousands):
Payments Due by Period
Contractual Obligations Total 1 Year 2 – 3 Years 4 – 5 Years More than 5 Years
Finance lease obligations (Note 8)* $ 42 $ 42 $ — $ — $ —
Asset retirement obligation (Note 12)* 42 28 — 14 —
* Refer to the Notes to the Consolidated Financial Statements in this Annual Report on Form 10-K.
Overview of changes in cash and cash equivalents and other working capital accounts
The following table presents a summary of cash flows for the fiscal years presented (dollars in thousands):
Cash flows from:
Effect of exchange rate changes (1,111 ) 202 (862 )
For 2024, cash provided by operating activities consisted of $41.3 million in non-cash items primarily related to stock-based compensation expenses, partially offset by a $20.2 million net loss and $5.4 million in working-capital changes primarily related to the capitalization of cloud-based software and changes in inventories, partially offset by changes in accounts receivable. For 2023, cash provided by operating activities consisted of $34.1 million in non-cash items primarily related to stock-based compensation expenses and $21.3 million in net income, offset by $40.8 million in working-capital changes primarily related to changes in accounts receivable and inventories, partially offset by changes in other current liabilities. For 2022, cash provided by operating activities consisted of $39.7 million in net income and $24.9 million in non-cash items primarily related to stock-based compensation expenses, offset by $28.9 million in working-capital changes primarily related to changes in accounts receivable.
Since 2022 we decided to invest our cash in investments available for sale, in accordance with our investment policy. For 2024, cash used in investing activities resulted from $80.2 million in purchases of investments available for sale and $23.4 million in purchases of property, plant and equipment, partially offset from proceeds from the sale or maturity of investments available for sale of $44.4 million that was used to supplement working-capital. For 2023, cash provided by investment activities resulted from proceeds from the sale or maturity of investments available for sale of $144.8 million that was used to supplement working-capital, partially offset by $52.3 million in purchases of investments available for sale and $18.2 million in purchases of property, plant and equipment. For 2022, cash used in investment activities resulted from $155.7 million in purchases of investments available for sale and $18.1 million in purchases of property, plant and equipment, partially offset by $17.5 million of proceeds from the maturity of investments available for sale. Our investment in property, plant and equipment during 2024, 2023 and 2022, was primarily due to investments in manufacturing facilities.
For 2024, cash provided by financing activities of $5.7 million consisted primarily from the exercise of stock options of $7.4 million, partially offset by $1.5 million to repurchase employee common stock for taxes withheld. For 2023, cash provided by financing activities of $7.4 million consisted primarily from the exercise of stock options of $9.7 million, partially offset by $2.1 million to repurchase employee common stock for taxes withheld. For 2022, cash provided by financing activities of $8.3 million consisted primarily of proceeds from the exercise of stock options.
Accounts receivable, net was $77.9 million and $94.7 million at December 27, 2024 and December 29, 2023, respectively. Days’ Sales Outstanding (DSO) was 145 and 113 days for 2024 and 2023, respectively. As of December 27, 2024 and December 29, 2023, the Company’s China distributors accounted for 58% and 70%, respectively, of the Company’s consolidated trade receivables. During fiscal 2024, the Company’s China distributors increased their purchases in anticipation of higher procedural volumes during what is typically a summer “high
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season” in China. Due to dynamic macroeconomic conditions and other factors, the number of ICL procedures performed during the high season and the second half of 2024 overall was lower than expected. Accordingly, our distributors in China held, as of December 27, 2024, elevated levels of ICL product inventory. Our distributor agreements typically provide for payment terms between 30 and 90 days. Our DSO was higher in 2024, in part, due to the higher levels of purchases by our China distributors during the year and the lower than anticipated procedural volumes. Our China distributors have made additional payments since December 27, 2024. Prior to adding a second China distributor in fiscal 2024, we had one distributor in China. The increase in DSO in 2023 was due to extended payment terms with our China distributor due to unfavorable foreign currency conditions at such time. We have solid relationships with our distributors in China, and we believe collectability for such accounts receivable balances are reasonably assured. We do not believe the increases in net accounts receivable reflect a trend, nor that it would have a material impact on cash flows as our available liquidity and capital resources had sufficient working capital despite the increases in net accounts receivable.
Inventories, net was $43.3 million and $35.1 million at December 27, 2024 and December 29, 2023, respectively. Days’ Inventory on Hand (DOH) was 194 and 142 days for 2024 and 2023, respectively, for finished goods, including consignment inventory. In fiscal 2023 and fiscal 2024, we increased our production and inventory to support anticipated sales growth of ICL products and to support quick and efficient delivery and fulfillment for surgical procedures. Increasing our inventory levels also helps mitigate risks associated with potential disruptions to our manufacturing and production process. We intend to continue to assess appropriate inventory levels, and during fiscal 2025, we expect to adjust our production output based on forecasted demand and optimize the level of inventory held by us and held by our distributors.
Critical Accounting Estimates
Our accounting policies are more fully described in Note 1 of the Consolidated Financial Statements. As disclosed in Note 1, the preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make significant estimates and assumptions about future events that affect the amounts reported in the financial statements and accompanying notes. Actual results may differ, significantly at times, from these estimates if actual conditions differ from our assumptions.
We believe the following discussion represents our most critical accounting estimates, which are those that are most important to the portrayal of our financial condition and results of operations and require management’s most difficult, subjective and complex judgments.
Sales Return Reserves
We provide allowances for sales returns such that returns are matched against the sales from which they originated. While such allowances have historically been within our expectations, we cannot guarantee that we will continue to experience the same return rates that we have in the past. Measurement of such returns is based on an expected loss model which requires consideration of, among other factors, historical returns experience and current/anticipated trends, including the need to adjust for current conditions and product lines, the entry of a competitor, and judgments about the probable effects of relevant observable data. We consider all available information in our quarterly assessments of the adequacy of the allowance for sales returns.
Stock-Based Compensation
We account for the issuance of stock options by estimating the fair value using the Black-Scholes pricing model. This model’s calculations include the exercise price, the market price of shares on grant date, risk-free interest rates, expected term of the award, expected volatility of our stock and expected dividend yield. Stock-based compensation expense for other stock-based awards is measured at the date of grant based on the fair value of the award, which is the closing price of our common stock on the date of grant. For those awards which contain a performance condition, stock-based compensation expense will be recognized when 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. We reassess the probability of vesting at each reporting period and adjust stock-based compensation expense based on our probability assessment.
Income Taxes
In evaluating our ability to recover the deferred tax assets within a jurisdiction from which they arise, we consider 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, we begin with historical results and incorporate assumptions including overall current and projected business and industry
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conditions, projected sales growth, margins, costs and income by jurisdiction, 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 management uses to manage its businesses. In evaluating the objective evidence that historical results provide, we also consider 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 of the deferred tax asset may not be realized.
Inventories
We provide estimated inventory allowances for excess, slow moving, expiring and obsolete inventory as well as inventory whose carrying value is more than net realizable value. These reserves are based on current assessments about future demands, market conditions and related management initiatives. If market conditions and actual demands are less favorable than those projected by management, additional inventory write-downs may be required. We regularly review inventory quantities on hand and record a provision for excess and obsolete inventory based primarily on the expiration of products with a shelf life of less than four months, estimated forecasts of product demand and production requirements for the next twelve months. Several factors may influence the realizability of our inventories, including significant changes in demand, decisions to exit a product line, technological change, and new product development. While such inventory losses have historically been within our expectations and the provisions established, we cannot guarantee that we will continue to experience the same loss rates that we have in the past.
Employee Defined Benefit Plans - Pension
The liabilities and annual income or expense of our pension plans are determined using methodologies that involve several actuarial assumptions, the most significant of which are the discount rate, expected years of service, salary increases and the expected long-term rate of asset return. The fair values of plan assets are determined based on prevailing market prices.
Foreign Exchange Rate Impact
Management does not believe that the fluctuation in the value of the dollar in relation to the currencies of its suppliers or customers in the last three fiscal years has materially adversely affected our ability to purchase or sell products at agreed upon prices. However, currency exchange fluctuations do impact our net sales and results of operations as discussed under Item 7A. Quantitative and Qualitative Disclosures About Market Risk. No assurance can be given that adverse currency exchange rate fluctuations will not occur in the future, which could significantly affect our operating results. We do not currently hedge transactions to offset changes in foreign currency.
Inflation
Management believes inflation has not had a significant impact on our net sales and revenues and on income from continuing operations during the past three years.
Recent Accounting Pronouncements
See “Part II. Item 8. “Financial Statements and Supplementary Data – Note 1 – Organization and Description of Business and Accounting Policies – Recent Accounting Pronouncements Not Yet Adopted” of this Annual Report on Form 10-K.
ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk
In the normal course of business, our operations are exposed to risks associated with fluctuations in interest rates and foreign currency exchange rates. The Company manages its risks based on management’s judgment of the appropriate trade-off between risks, opportunity, and costs and does not generally enter into interest rate or foreign exchange rate hedge instruments.
Foreign Currency Exchange Risk
Fluctuations in the rate of exchange between the U.S. dollar and foreign currencies in which we transact business could adversely affect our financial results. Activities outside the U.S. accounted for approximately 94% of our total sales during 2024. The results of operations and the financial position of our Japanese subsidiary are reported in Japanese yen and then translated into U.S. dollars at the applicable exchange rates for inclusion in our Consolidated Financial Statements, exposing us to translation risk. In addition, we are exposed to transaction risk because we incur some of our sales and expenses in currencies other than the U.S. dollar. Our most significant currency exposures are
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to the Japanese yen, the euro, and the Swiss franc, and the exchange rates between these currencies and the U.S. dollar may fluctuate substantially. We do not actively hedge our exposure to currency rate fluctuations.
As our international subsidiaries operate in and are net recipients of currencies other than the U.S. dollar, our sales benefit from a weaker dollar and are reduced by a stronger dollar relative to major currencies worldwide (primarily, the euro and the Japanese yen). Accordingly, changes in exchange rates, and particularly the strengthening of the U.S. dollar, may negatively affect our consolidated sales and gross profit as expressed in U.S. dollars. Fluctuations during any given reporting period result in the re-measurement of our foreign currency denominated cash, receivables, and payables, generating currency transaction gains or losses and are reported in total other income, net in our Consolidated Statements of Operations. In the normal course of business, we also face risks that are either non-financial or non-quantifiable. Such risks include those set forth in Item 1A. “Risk Factors.”
We price some of our products in U.S. dollars, and thus changes in exchange rates can make our products more expensive in some offshore markets and reduce our sales. Our sales in China, for example, are denominated in U.S. dollars. Our China distributors, who sell into China and Hong Kong, collectively accounted for approximately 51% of our consolidated net sales during fiscal 2024. If the U.S. dollar strengthens relative to the Chinese yuan, it becomes more expensive for our China distributor to purchase ICLs and to pay prior accounts receivable balances. In the event of significant foreign exchange volatility in the future, the Company may extend or modify payment or other terms with its customers to mitigate the potential impact on our sales.
ITEM 8. Financial Statements and Supplementary Data
Financial Statements and the Report of Independent Registered Public Accounting Firm are filed with this Annual Report on Form 10-K in a separate section following Part IV, as shown on the index under Item 15 of this Annual Report.
ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
ITEM 9A. Controls and Procedures
Attached as exhibits to this Annual Report on Form 10-K are certifications of STAAR’s Chief Executive Officer, our principal executive officer (PEO), and Chief Financial Officer, our principal financial officer (PFO), which are required to be made by Rule 13a-14 or Rule 15d-14 of the Securities Exchange Act of 1934, as amended (the Exchange Act). This item includes information concerning the controls and controls evaluation referred to in the certifications. This item should be read in conjunction with the certifications for a more complete understanding of the certifications.
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our PEO and PFO, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can only provide reasonable assurance of achieving the desired control objectives, and in reaching a reasonable level of assurance, management necessarily is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
As of the end of the period covered by this Annual Report, our management carried out an evaluation, with the participation of our PEO and PFO, of the effectiveness of the disclosure controls and procedures of the Company. Based on that evaluation, our PEO and PFO concluded, as of December 27, 2024, that our disclosure controls and procedures were effective at the reasonable assurance level.
Changes in Internal Control over Financial Reporting
There was no change during the fiscal quarter ended December 27, 2024 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Management’s Annual Report on Internal Control over Financial Reporting
The Company’s management, including our PEO and PFO, is responsible for establishing and maintaining adequate internal control over financial reporting (as such term is defined in Exchange Act Rule 13a-15(f) and
43
15d-15(f)) for the Company. The Company’s internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements in accordance with generally accepted accounting principles in the United States of America.
Because of its inherent limitations, a system of internal control over financial reporting may not prevent or detect misstatements and can provide only reasonable, not absolute assurance, that its objectives will be achieved. Further, because of changing conditions, effectiveness of internal control over financial reporting may vary over time. The Company’s processes contain self-monitoring mechanisms, and actions are taken to correct deficiencies as they are identified.
Management has assessed the effectiveness of the Company’s internal control over financial reporting as of December 27, 2024, based on the criteria for effective internal control described in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on its assessment, management concluded that the Company’s internal control over financial reporting was effective as of December 27, 2024.
The report of BDO USA, P.C., our independent registered public accounting firm, regarding its audit of the Company’s internal control over financial reporting follows below.
44
Report of Independent Registered Public Accounting Firm
Shareholders and Board of Directors
STAAR Surgical Company
Lake Forest, California
Opinion on Internal Control over Financial Reporting
We have audited STAAR Surgical Company’s (the “Company’s”) internal control over financial reporting as of December 27, 2024, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (the “COSO criteria”). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 27, 2024, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated balance sheets of the Company as of December 27, 2024 and December 29, 2023, the related consolidated statements of operations, comprehensive income (loss), stockholders’ equity, and cash flows for each of the three fiscal years in the period ended December 27, 2024, and the related notes and financial statement schedule listed in the accompanying index and our report dated February 21, 2025 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Item 9A, Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit of internal control over financial reporting in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ BDO USA, P.C.
Los Angeles, California
February 21, 2025
45
ITEM 9B. Other Information
During the quarter ended December 27, 2024, no director or officer (as defined in Rule 16a-1(f) under the Exchange Act) of the Company adopted or terminated any “Rule 10b5-1 trading arrangements” or any “non-Rule 10b5-1 trading arrangement” (in each case, as defined in Item 408(a) of Regulation S-K).
ITEM 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
None.
PART III
Certain information required by Part III is omitted from this Annual Report because the Company will file a definitive proxy statement within 120 days after the close of its fiscal year ended December 27, 2024, pursuant to Regulation 14A (the “Proxy Statement”) for its 2025 annual meeting of stockholders, and certain information included in the Proxy Statement is incorporated herein by reference.
ITEM 10. Directors, Executive Officers and Corporate Governance
Information regarding our executive officers will be set forth in the Proxy Statement under the caption “Information Regarding Executive Officers,” which is incorporated herein by reference and made a part hereof in response to the information required by Item 10.
Information regarding our directors and certain corporate governance and other matters will be set forth in the Proxy Statement under the captions “Proposal No. 1: Election of Directors,” “Information Regarding Director Nominees,” and “Corporate Governance,” which is incorporated herein by reference and made a part hereof in response to the information required by Item 10.
The Corporate Governance Guidelines adopted by our Board of Directors, as well as the charters of the Audit Committee, the Nominating and Governance Committee and the Compensation Committee of the Board are each posted in the Investors section of our website, www.staar.com, under the Investor Resources & FAQs tab, as a Corporate Governance Document.
We have adopted a Code of Business Conduct and Ethics that applies to all our directors, officers, and employees, including our Principal Executive Officer, Principal Financial Officer, Principal Accounting Officer, or Controller, or persons performing similar functions. The Code of Business Conduct and Ethics is posted in the Investors section of our website, www.staar.com, under the Investor Resources & FAQs tab, as a Corporate Governance Document. We intend to disclose any future amendments to certain provisions of the Code of Business Conduct and Ethics, or waivers thereunder granted to executive officers and directors, on our website within four business days of such amendment or waiver.
We have adopted an Insider Trading Policy that governs the purchase, sale, and other dispositions of our securities by directors, officers and employees, as well as by the Company itself. We believe our policies and procedures are reasonably designed to promote compliance with insider trading laws, rules and regulations and applicable listing standards applicable to us. The Insider Trading Policy is posted in the Investors section of our website, www.staar.com, under the Investor Resources & FAQs tab, as a Corporate Governance Document, and a copy is filed with this Annual Report on Form 10-K as Exhibit 19.1.
ITEM 11. Executive Compensation
Information regarding compensation of our executives and directors will be set forth in the Proxy Statement under the captions “Compensation Discussion and Analysis,” “Compensation Tables,” and “Compensation of Directors,” which is incorporated herein by reference and made a part hereof in response to the information required by Item 11.
ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Information regarding security ownership of certain beneficial owners and management will be set forth in the Proxy Statement under the caption “Security Ownership of Principal Shareholders and Management,” which is incorporated herein by reference and made a part hereof in response to the information required by Item 12.
46
Information regarding securities authorized for issuance under equity compensation plans will be set forth in the Proxy Statement under the caption “Equity Compensation Plan Information,” which is incorporated herein by reference and made a part hereof in response to the information required by Item 12.
ITEM 13. Certain Relationships and Related Transactions, and Director Independence
Information regarding certain relationships and related transactions and director independence will be set forth in the Proxy Statement under the captions “Review of Related Person Transactions,” and “Corporate Governance,” which is incorporated herein by reference and made a part hereof in response to the information required by Item 13.
ITEM 14. Principal Accounting Fees and Services
Information regarding principal accounting fees and services will be set forth in the Proxy Statement under the caption “Proposal No. 2: Ratification of Independent Registered Public Accounting Firm - Principal Accountant Fees and Services,” which is incorporated herein by reference and made a part hereof in response to the information required by Item 14.
PART IV
ITEM 15. Exhibits and Financial Statement Schedules
We have filed the following documents as part of this Annual Report on Form 10-K:
Page
(1) Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm F-2
Consolidated Balance Sheets F-4
Consolidated Statements of Operations F-5
Consolidated Statements of Comprehensive Income (Loss) F-6
Consolidated Statements of Stockholders’ Equity F-7
Consolidated Statements of Cash Flows F-8
Notes to Consolidated Financial Statements F-9
(2) Schedules required by Regulation S-X are filed as an exhibit to this report
II. Schedule II — Valuation and Qualifying Accounts and Reserves F-40
All other schedules have been omitted because they are not required, not applicable, or the required information is otherwise included.
(3) Index to Exhibits
Exhibit Number Description
47
48
19.1 * Insider Trading Policy.
21.1 * List of Subsidiaries.
23.1 * Consent of BDO USA, P.C.
49
101.SCH * Inline XBRL Taxonomy Extension Schema With Embedded Linked Documents.
# Management contract or compensatory plan, contract or arrangement.
* Filed herewith.
ITEM 16. Form 10-K Summary
None.
50
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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: February 21, 2025 By: /s/ THOMAS G. FRINZI
Thomas G. Frinzi
President, Chief Executive Officer and Chair of the Board
(principal executive officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Name Title Date
Thomas G. Frinzi (principal executive officer)
Patrick F. Williams (principal accounting and financial officer)
/s/ ARTHER C. BUTCHER Director February 21, 2025
Arthur C. Butcher
/s/ STEPHEN C. FARRELL Director February 21, 2025
Stephen C. Farrell
/s/ WEI JIANG Director February 21, 2025
Wei Jiang
/s/ AIMEE S. WEISNER Director February 21, 2025
Aimee S. Weisner
/s/ ELIZABETH YEU Director February 21, 2025
Elizabeth Yeu
/s/ LILIAN ZHOU Director February 21, 2025
Lilian Zhou
51
STAAR SURGICAL COMPANY AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 27, 2024, December 29, 2023 and December 30, 2022
TABLE OF CONTENTS
Consolidated Balance Sheets at December 27, 2024 and December 29, 2023 F-4
Notes to Consolidated Financial Statements F-9
Schedule II Valuation and Qualifying Accounts and Reserves F-40
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Shareholders and Board of Directors
STAAR Surgical Company
Lake Forest, California
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of STAAR Surgical Company (the “Company”) as of December 27, 2024 and December 29, 2023, the related consolidated statements of operations, comprehensive income (loss), stockholders’ equity, and cash flows for each of the three fiscal years in the period ended December 27, 2024, and the related notes and financial statement schedule listed in the accompanying index (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 December 27, 2024 and December 29, 2023, and the results of its operations and its cash flows for each of the three fiscal years in the period ended December 27, 2024, 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 December 27, 2024, 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 21, 2025 expressed an unqualified opinion thereon.
Basis for Opinion
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.
Critical Audit Matter
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) relates 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 the 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 a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Income Tax Provision
As described in Notes 1 and 9 to the consolidated financial statements, the Company operates in multiple international markets and is subject to income taxes in the U.S. and numerous foreign jurisdictions. 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.
F-2
We identified the realization of the Company’s deferred tax assets, including the judgment and estimation regarding projected taxable income as a critical audit matter. The principal considerations in our determination are the significant judgments required in the development of forecasts and certain assumptions related to the projected sales growth, margins, costs and income by jurisdiction that are used to assess the realizability of deferred tax assets. Auditing these elements involved especially subjective and 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:
•
Assessing the reasonableness of the Company’s projected forecasts and certain related assumptions against the Company’s historical performance, industry-wide performance, macro-economic factors, and evidence obtained in other areas of the audit.
•
Utilizing personnel with specialized knowledge and skills in domestic and international tax law to assist in: (i) evaluating the application of tax laws used in management’s allocation methodologies based on the Company’s structure and operations, (ii) evaluating the appropriateness of the transfer pricing positions taken by assessing the intercompany transactions and the rates used to cross charge and allocate costs based on transfer pricing agreements, and (iii) evaluating both positive and negative evidence and assessing the reasonableness of certain assumptions used in the Company’s valuation allowance assessment.
/s/ BDO USA, P.C.
We have served as the Company's auditor since 1993.
Los Angeles, California
February 21, 2025
F-3
STAAR SURGICAL COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 27, 2024 and December 29, 2023
(In thousands, except par value amounts)
ASSETS
Current assets:
Prepayments, deposits and other current assets 16,244 14,709
Finance lease right-of-use assets, net 37 183
Operating lease right-of-use assets, net 36,850 34,387
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Obligations under finance leases 42 165
Obligations under operating leases 3,894 4,202
Obligations under finance leases — 42
Asset retirement obligations 42 103
Commitments and contingencies (Note 12)
Stockholders’ equity:
Accumulated other comprehensive income (loss) (7,031 ) (4,113 )
Total liabilities and stockholders’ equity $ 509,524 $ 488,692
The accompanying notes are an integral part of these consolidated financial statements.
F-4
STAAR SURGICAL COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended December 27, 2024, December 29, 2023 and December 30, 2022
(In thousands, except per share amounts)
Selling, general and administrative expenses:
Other income, net:
Loss on foreign currency transactions (3,675 ) (1,909 ) (1,707 )
Net income (loss) per share:
Weighted average shares outstanding:
The accompanying notes are an integral part of these consolidated financial statements.
F-5
STAAR SURGICAL COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
Years Ended December 27, 2024, December 29, 2023 and December 30, 2022
(In thousands)
Other comprehensive income (loss):
Defined benefit plans:
Reclassification into other income (expense), net (77 ) (357 ) 187
Investments available for sale:
Change in unrealized gain (loss) 28 363 (406 )
Reclassification into other income (expense), net 3 — —
Other comprehensive income (loss), net of tax (2,918 ) (4,269 ) 4,204
The accompanying notes are an integral part of these consolidated financial statements.
F-6
STAAR SURGICAL COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
Years Ended December 27, 2024, December 29, 2023 and December 30, 2022
(In thousands)
Other comprehensive income — — — 4,204 — 4,204
Common stock issued upon exercise of options 427 4 8,418 — — 8,422
Unvested restricted stock 7 — — — — —
Vested restricted and performance stock units 62 1 — — — 1
Other comprehensive loss — — — (4,269 ) — (4,269 )
Common stock issued upon exercise of options 518 5 9,667 — — 9,672
Unvested restricted stock 14 — — — — —
Vested restricted and performance stock units 130 1 — — — 1
Other comprehensive loss — — — (2,918 ) — (2,918 )
Common stock issued upon exercise of options 315 3 7,389 — — 7,392
Unvested restricted stock 16 — — — — —
Forfeited restricted stock (5 ) — — — — —
Vested restricted and performance stock units 173 2 — — — 2
The accompanying notes are an integral part of these consolidated financial statements.
F-7
STAAR SURGICAL COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 27, 2024, December 29, 2023 and December 30, 2022
(In thousands)
Cash flows from operating activities:
Depreciation of property, plant, and equipment 6,891 5,111 4,481
Amortization of intangibles — 13 28
Impairment of intangibles — 154 —
Change in net pension liability 26 (956 ) 53
Loss on disposal of property and equipment 1,694 73 65
Change in asset retirement obligation (53 ) (102 ) 47
Provision for sales returns and credit losses 286 663 913
Changes in working capital:
Prepayments, deposits, and other assets (15,363 ) (3,413 ) (2,549 )
Cash flows from investing activities:
Proceeds from sale of investments available for sale 1,314 1,300 359
Cash flows from financing activities:
Repayment of finance lease obligations (165 ) (161 ) (126 )
Repurchase of employee common stock for taxes withheld (1,505 ) (2,097 ) —
Proceeds from the exercise of stock options 7,392 9,672 8,422
Proceeds from vested restricted stock 2 1 1
Effect of exchange rate changes on cash and cash equivalents (1,111 ) 202 (862 )
The accompanying notes are an integral part of these consolidated financial statements.
F-8
STAAR SURGICAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 — Organization and Description of Business and Accounting Policies
Organization and Description of Business
STAAR Surgical Company, a Delaware corporation, was first incorporated in 1982, and together with its subsidiaries (the “Company”) designs, develops, manufactures, and sells implantable lenses for the eye and accessory delivery systems used to deliver the lenses into the eye. The Company generates worldwide revenue almost exclusively from sales of its implantable Collamer lenses (“ICLs”), which are used in corrective or “refractive” surgery. Historically, the Company also manufactured and sold intraocular lenses (“IOLs”), for use in surgery to treat cataracts. As the Company has focused its business and strategy on its ICL product offerings, it has phased out its cataract IOL product line.
The Company markets and sells ICLs for refractive surgery to treat myopia (nearsightedness) as its “EVO” family of lenses. The Company’s EVO family of lenses includes its EVO ICL, EVO+ ICL, and EVO Visian ICL. The Company’s newest offering, EVO Viva, has an extended depth of focus (EDoF) optic, which is designed to treat myopia with presbyopia (age-related loss of ability to focus).The Company also markets and sells an ICL lens to treat hyperopia (farsightedness), which is called Visian ICL. The Company makes its ICL product offerings available in multiple models, powers and lengths, including some with toric ICL (TICL) versions to correct for astigmatism (blurred vision). Not all of the Company’s products are currently available in all markets where it sells ICLs today.
As of December 27, 2024, the Company’s significant subsidiaries consisted of:
•
STAAR Surgical AG, a wholly owned subsidiary organized under the laws of Switzerland (“STAAR AG”)
•
STAAR Japan, Inc., a wholly owned subsidiary organized under the laws of Japan (“STAAR Japan”)
The Company operates as one operating segment, the ophthalmic surgical market, for financial reporting purposes (see Note 16).
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.
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 2024, 2023 and 2022 are based on a 52-week period.
Segment Reporting
The Company adopted Accounting Standards Update (“ASU”) 2023-07 as of the beginning of fiscal 2024. The Company operates in one reportable segment, ophthalmic surgical product segment, as all of the Company’s sales are generated from ophthalmic surgical products. The accounting policies for of the ophthalmic surgical product segment are the same as those described in Note 1 of the Consolidated Financial Statements.
The Company’s chief operating decision maker (“CODM”) has been identified as the Chief Executive Officer and President. The CODM assesses performance for the ophthalmic surgical product segment by comparing actual results to forecasts and decides how to allocate resources, i.e., headcount and compensation, based on net income or on operating results, if a net loss, that is reported on the Consolidated Statements of Operations.
The measure of segment assets is reported on the balance sheet as total consolidated assets.
See “Note 1 – Organization and Description of Business and Accounting Policies – Concentration of Credit Risk and Sales,” “Note 16 – Disaggregation of Revenues, Geographic Sales and Product Sales” and “Note 17 – Geographic Assets” for specific information regarding the Company’s sales and long-lived assets.
F-9
STAAR SURGICAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Note 1 — Organization and Description of Business and Accounting Policies (Continued)
Foreign Currency
The functional currency of STAAR Japan is the Japanese yen. The functional currency of STAAR AG is the U.S. dollar.
Assets and liabilities of STAAR Japan 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
Foreign currency translation loss(1) $ (1,775 ) $ (1,095 ) $ (2,090 )
Loss on foreign currency transactions(2) (3,675 ) (1,909 ) (1,707 )
(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 Operations.
Cash and Cash Equivalents
Cash and cash equivalents include cash and balances in deposits and money market accounts held at banks and financial institutions with original maturities of three months or less. Such balances generally exceed the federal insurance limits; however, the Company periodically assesses the financial condition of the institutions and believes that the risk of any loss is minimal. The book value of money market accounts approximates fair value and are classified as Level 1.
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. 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.
Significant estimates used include determining valuation allowances for sales returns reserves, obsolete and excess inventory reserves, deferred income taxes, and tax reserves, including valuation allowances for deferred tax assets, pension liabilities, and in the variables and assumptions used to calculate and record stock-based compensation. Other estimates made by management not considered to be significant include determining valuation allowances for uncollectible trade receivables, evaluation of asset impairment, and in determining the useful life of depreciable and definite-lived intangible assets.
Revenue Recognition
The Company recognizes revenue when its contractual performance obligations with customers are satisfied and collectability is reasonably assured. 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). Payment for product sales is typically collected within a short period following transfer of control of product. The Company presents sales tax and similar taxes it collects from its customers on a net basis (excluded from revenues).
From time to time, the Company consigns or ships inventory to third parties outside the United States in advance of anticipated demand. While the Company does not recognize revenue on shipment of consigned inventory, the Company believes it can help address challenges and delays associated with importation and logistics. Further, the Company believes that increasing the amount of product in-country can mitigate potential impacts from geopolitical risk and tariff changes.
F-10
STAAR SURGICAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Note 1 — Organization and Description of Business and Accounting Policies (Continued)
Revenue Recognition (Continued)
Historically, the Company marketed and sold cataract IOLs and related injectors and injector parts. The Company phased out sales of such products in fiscal 2023, and it did not sell any such products in fiscal 2024. Sales of such products involved sales by the Company of injector parts to an unrelated customer and supplier (collectively referred to as “supplier”) whereby these injector part sales were either made as a final sale to the supplier or, were sold to be combined with an acrylic cataract IOL by the supplier into finished goods inventory (a preloaded acrylic cataract IOL). These finished goods were then sold back to the Company at an agreed upon, contractual price. The Company made a profit margin on either type of sale with the supplier and each type of sale was made under separate purchase and sales orders between the two parties resulting in cash settlement for the orders sold or repurchased. For parts that were sold as a final sale, the Company recognized a sale, and those sales were classified as other product sales in total net sales. For the injector parts that were sold to be combined with an acrylic cataract IOL into finished goods, the Company recorded the transaction at its carrying value deferring any profit margin as contra-inventory, until the finished goods inventory was sold to an end-customer (not the supplier) at which point the Company recognized 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 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 STAAR Japan, which is typically recognized when the customer receives the product. The Company does not have significant deferred revenues as of December 27, 2024, December 29, 2023 and December 30, 2022, as delivery to the customer is generally made within the same or the next day of shipment. InDecember 2024, the Company shipped a $27.5 million order of ICLs to one of its distributors in China. The distributor requested extended payment terms, and the Company agreed. As these payment terms were significantly longer than the terms included in the Company’s distributor agreement, management determined that collectability was not probable, and the Company did not recognize the revenue associated with the shipment in the quarter ended December 27, 2024. However, as the shipment was received by the distributor, and control of the product passed to the distributor, the cost of the inventory was charged to cost of sales in the quarter ended December 27, 2024. Revenue for this order will not be recognized until payments are received from the distributor, at which point the collectability concern is alleviated.
•
Consignment Sales – The Company’s products are marketed to ophthalmic surgeons, hospitals, ambulatory surgery centers or vision centers, and distributors. ICLs may be offered to surgeons and hospitals on a consignment basis, and historically, cataract IOLs were also offered 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 16 for additional information on disaggregation of revenues, geographic sales information and product sales.
F-11
STAAR SURGICAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Note 1 — Organization and Description of Business and Accounting Policies (Continued)
Revenue Recognition (Continued)
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 share the expense 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. 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 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
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 December 27, 2024, December 29, 2023 and December 30, 2022.
Allowance for Credit Losses
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 credit losses.
Concentration of Credit Risk and Sales
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 December 27, 2024 and December 29, 2023, the Company’s China distributors accounted for 58% and 70%, respectively, of the Company’s consolidated trade receivables. 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.
The Company’s China distributors accounted for 51%, 58% and 52% of the Company’s consolidated net sales for the years ended 2024, 2023 and 2022, respectively.
F-12
STAAR SURGICAL COMPANY AND SUBSIDIARIES
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):
Estimated returns - inventory(1) $ 853 $ 818
(1)
Recognized in inventories, net on the Consolidated Balance Sheets
Investments Available for Sale
Investments available for sale (“AFS”) are investments in debt securities for which the Company does not have the positive intent and ability to hold to maturity. The Company’s investment policy primary objective is capital preservation while maximizing its return on investment. Investments may include U.S. government and corporate debt securities, commercial paper, certain certificates of deposit and related security types, that are rated by two nationally recognized statistical rating organizations with minimum investment grade ratings of AAA to A-/A-1+ to A-2, or the equivalent. The maturity of individual investments may not extend 24 months from the date of purchase. There are also limits to the amount of credit exposure in any given security type. Investments AFS with maturities of twelve months or less, are classified as short-term, otherwise, they are classified as long-term. Accrued interest receivable is recognized in current investments AFS on the Consolidated Balance Sheets.
Investments AFS are measured at fair value and its unrealized gains and losses reported net of the allowance for credit losses and applicable income taxes, are recognized in accumulated other comprehensive income (loss) on the Consolidated Balance Sheets. The cost of investments AFS is adjusted for amortization of premiums and accretion of discounts to maturity. Interest earned, including amortization of premiums and accretion of discounts recognized, is included in interest income (expense) on the Consolidated Statements of Operations. The cost of investments for purposes of computing realized and unrealized gains and losses is based on the specific identification method.
The Company recognizes impairment of a debt security for which there has been a decline in fair value below amortized cost if management intends to sell the security, or it is more-likely-than-not that the Company will be required to sell the security before recovery of its amortized cost basis. Impairment related to credit losses is recognized in other income (expense) on the Consolidated Statements of Operations. Any portion of impairment not related to credit losses is recognized in accumulated other comprehensive income (loss) on the Consolidated Balance Sheets. The measurement of the credit loss component is equal to the difference between the debt security’s amortized cost basis and the present value of its expected future cash flows discounted at the security’s effective yield.
F-13
STAAR SURGICAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Note 1 — Organization and Description of Business and Accounting Policies (Continued)
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:
•
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 and other current liabilities 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.
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 expected 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
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 December 27, 2024 and December 29, 2023, the carrying value of goodwill was $1,786,000.
F-14
STAAR SURGICAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Note 1 — Organization and Description of Business and Accounting Policies (Continued)
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 December 27, 2024 and December 29, 2023 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.
During 2023, the Company recognized impairment of $154,000 for the remaining unamortized Japan patent and licenses related to cataract IOLs. Amortization expense for intangible assets were as follows (in thousands):
Years Ended
Amortization expense $ — $ 13 $ 28
Cloud-Based Software Implementation Costs
The Company has entered into cloud-based software hosting arrangements for which it incurs implementation costs. Certain costs incurred during the application development stage are capitalized and included within Prepayments, deposits and other current assets or Other assets on the Consolidated Balance Sheet, depending on the short- or long-term nature of such costs, in line with the Company’s policy on the accounting for prepaid software hosting arrangements. Costs incurred during the preliminary project stage and post-implementation stage are expensed as incurred. Capitalized cloud-based software implementation costs are amortized, beginning on the date the related software or module is ready for its intended use, on a straight-line basis over the remaining term of the hosting arrangement. Amortization is recognized as a component of selling, general, and administrative expenses, in the same line item as the expense for the associated hosting arrangement.
As of December 27, 2024 and December 29, 2023, the Company recognized $15,763,000and $2,406,000, respectively, of net capitalized cloud-based software implementation costs related to several systems, including enterprise resource planning and customer relationship management systems, recorded within Other assets on the Consolidated Balance Sheets. As of December 27, 2024, these assets are not currently placed into service. These assets are expected to be placed into service throughout 2025. No amortization of capitalized cloud-based software implementation costs was recognized during the years ended 2024 and 2023.
Lease Accounting
The Company recognizes right-of-use (“ROU”) assets and lease liabilities for leases with terms greater than twelve months on the Consolidated Balance Sheets. Leases are classified as either finance or operating, with classification affecting the pattern of expense recognition in the Consolidated Statements of Operations.
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.
F-15
STAAR SURGICAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Note 1 — Organization and Description of Business and Accounting Policies (Continued)
Lease Accounting (Continued)
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, whereas the Company includes the maintenance and service components in the value of the ROU asset and lease liability while evaluating automobile leases.
When determining whether a lease is a finance lease or operating lease, the Company uses (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. 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.
Vendor Concentration
There was one vendor that accounted for over 10% of the Company’s consolidated accounts payable as of December 27, 2024. There were no vendors that accounted for over 10% of the Company’s consolidated accounts payable as of December 29, 2023.
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 selling and marketing expenses, are expensed as incurred, and were as follows (in thousands):
Years Ended
Income Taxes
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. For each tax entity and tax jurisdiction, the Company presents deferred tax liabilities and assets, as well as any related valuation allowance, as a single non-current amount. The Company does not offset deferred tax liabilities and assets attributable to different tax entities or to different tax jurisdictions.
F-16
STAAR SURGICAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Note 1 — Organization and Description of Business and Accounting Policies (Continued)
Income Taxes (Continued)
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, projected sales growth, margins, costs and income by jurisdiction, 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 Global Intangible Low Tax Income (“GILTI”) could have on its U.S. valuation allowance. As a result of future expected GILTI inclusions, and because of the 2017 Tax Cuts and Jobs 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”).
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.
Basic and Diluted Net Income (Loss) 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 (loss) by the weighted average number of shares outstanding during the period, net of unvested stock-based awards. Diluted per share information is calculated by dividing net income (loss) by the weighted average number of shares outstanding during the period, adjusted for the effects of potentially dilutive securities using the treasury stock method. When the Company incurs a net loss, the number of diluted shares is equal to the number of basic shares. Potentially dilutive securities include the Company’s outstanding stock-based awards. As of December 27, 2024, the Company had outstanding grants of stock options, restricted stock units (“RSUs”), and performance stock units (“PSUs”). Stock options that are anti-dilutive, where their exercise price exceeds the average market price of the common stock, are not included in the treasury stock method calculation for diluted net income (loss) per share.
F-17
STAAR SURGICAL COMPANY AND SUBSIDIARIES
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 STAAR AG. 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 Operations. 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.
Stock-Based Compensation
The Company maintains an Amended and Restated Omnibus Equity Incentive Plan, as amended (the “Equity Plan”). The Equity Plan provides the Company with the ability to grant various types of stock-based awards to executive officers, employees, consultants and members of its Board of Directors (the “Board”). The Equity Plan allows for awards of stock options, stock appreciation rights, restricted stock, RSUs, and other stock- and cash-based awards, including awards that are subject to service-based and performance-based vesting conditions. As of December 27, 2024, the Company had outstanding grants of stock options, restricted stock awards, RSUs and PSUs.
Stock-based compensation expense for all stock-based awards granted is based on the grant-date fair value of the award. The Company recognizes this compensation expense on a straight-line basis over the requisite service period of the award, which is generally the vesting term of three to four years for executive officers, employees and consultants, and one year for Board members.
For performance-based awards, vesting is contingent upon the Company meeting certain internally established performance conditions and is subject to the grantee’s continued service with the Company. The Company recognizes compensation expense for performance-based awards 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 award. The Company reassesses the probability of vesting at each reporting period and adjusts compensation cost based on its probability assessment.
While the majority of the Company’s outstanding stock-based awards are stock options, RSUs and PSUs, the Company also, at times, grants awards in the form of restricted stock. Restricted stock awards provide for the issuance of common stock upon grant, subject to restrictions that lapse over the requisite service period of the award. For restricted stock awards granted to the Board, the restrictions lapse over a one-year service period and for executive officers and employees, it is typically a three-year service period. In each case the awards are subject to forfeiture (or acceleration, depending upon the circumstances) until 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 award.
Restricted stock awards are included in the Company’s shares of common stock issued and outstanding on the grant date. Shares subject to RSU and PSU awards are not issuable until the requisite service and applicable performance conditions are satisfied, so they are not included in the Company’s shares of common stock issued and outstanding until the vesting of such awards.
F-18
STAAR SURGICAL COMPANY AND SUBSIDIARIES
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) on the Consolidated Balance Sheets and the Consolidated Statements of Comprehensive Income (Loss). Total comprehensive income (loss) includes, in addition to the net income (loss), changes in equity that are excluded from the Consolidated Statements of Operations 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 December 27, 2024, December 29, 2023 and December 30, 2022 (in thousands):
Recent Accounting Pronouncements Not Yet Adopted
In December 2023, the Financial Accounting Standards Board (“FASB”) issued ASU 2023-09, “Income Taxes (Topic 740).” ASU 2023-09 improves the transparency about income tax information through improvements to income tax disclosures primarily related to the rate reconciliation and income taxes paid information. It also includes certain other amendments to improve the effectiveness of income tax disclosures regarding (a) income or loss from continuing operations disaggregated between domestic and foreign and (b) income tax expense or benefit from continuing operations disaggregated by federal, state and foreign. ASU 2023-09 is effective for annual periods beginning after December 15, 2024. The Company will adopt ASU 2023-09 at the beginning of fiscal year 2025. The Company is currently evaluating the disclosure requirements and its effect on the Consolidated Financial Statements.
In November 2024, the FASB issued ASU 2024-03, “Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40).” ASU 2024-03 does not change the expense captions an entity presents on the face of the income statement; rather it requires disaggregation of certain expense captions into specified categories in disclosures within the footnotes to the financial statements. ASU 2024-03 requires footnote disclosure about specific expenses to disaggregate, in a tabular presentation, each relevant expense caption on the face of the income statement that includes any of the following natural expenses: (1) purchases of inventory, (2) employee compensation, (3) depreciation, (4) intangible asset amortization and (5) depreciation, depletion and amortization recognized as part of oil- and gas-production activities or other types of depletion expenses. The tabular disclosure would also include certain other expenses, when applicable. ASU 2024-03 does not change or remove existing expense disclosure requirements; however, it may affect where that information appears in the footnotes to the financial statements. ASU 2024-03 is effective for annual periods beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027. The requirements will be applied prospectively with the option for retrospective application. Early adoption is permitted. The Company will adopt ASU 2024-03 at the beginning of fiscal year 2026. The Company is currently evaluating the disclosure requirements and its effect on the Consolidated Financial Statements.
F-19
STAAR SURGICAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Note 2 — Investments Available for Sale
During 2022, the Company started to invest its cash in investments AFS, in accordance with its investment policy. Investments AFS and the related fair value measurement consisted of the following (dollars in thousands):
Fair Value Measurements
Fair Value Measurements
The Company obtains the fair value from third-party pricing services. The pricing services utilize industry standard valuation models, including both income and market-based approaches and observable market inputs to determine value. These observable market inputs include reportable trades, benchmark yields, credit spreads, broker/dealer quotes, bids, offers and other industry and economic events.
The Company assessed each debt security (see Note 1 for information on composition of the portfolio) in a gross unrealized loss position to determine whether the decline in fair value below amortized cost was a result of credit losses or other factors, whether the Company expects to recover the amortized cost of the debt security, the Company’s intent to sell and whether it is more-likely-than-not that the Company will not be required to sell the debt security before the recovery of the amortized cost basis. There has been no allowance for expected credit losses recorded for the years ended 2024, 2023 and 2022.
The following table shows the fair value of investments AFS by contractual maturity (dollars in thousands):
Within one year After one year through five years Total
F-20
STAAR SURGICAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Note 2 — Investments Available for Sale (Continued)
During 2024, several of the Company’s investments AFS with an aggregate fair value of $1,314,000 were subject to early redemption. The Company recognized a gain upon redemption of $3,000 for the year ended 2024. During 2023 and 2022, two of the Company’s investments AFS were the subject of a downgraded credit rating. The Company sold its investments of $1,300,000 and $359,000 during 2023 and 2022, respectively, in aggregate securities following the downgrade. The Company recognized a realized loss upon sale of less than $1,000 for the years ended 2023 and 2022.
Note 3 — Accounts Receivable Trade, Net
Accounts receivable trade, net consisted of the following (in thousands):
Total accounts receivable trade, gross 77,929 94,895
Less allowance for credit losses (32 ) (191 )
Total accounts receivable trade, net $ 77,897 $ 94,704
Note 4 — Inventories, Net
Inventories, net consisted of the following (in thousands):
Raw materials and purchased parts $ 9,705 $ 9,766
Less inventory reserves (1,278 ) (3,508 )
Note 5 — Prepayments, Deposits and Other Current Assets
Prepayments, deposits and other current assets consisted of the following (in thousands):
Consumption tax receivable 6 820
Value added tax (VAT) receivable 1,359 2,456
Total prepayments, deposits and other current assets $ 16,244 $ 14,709
(1) No individual category in “other” exceeds 5% of the total prepayments, deposits and other current assets.
F-21
STAAR SURGICAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Note 6 — Property, Plant and Equipment, Net
Property, plant and equipment, net consisted of the following (in thousands):
Total property, plant and equipment, gross 118,496 94,635
Total property, plant and equipment, net $ 84,889 $ 66,835
Construction in process primarily consists of the build out and validation of machinery and equipment.
The Company recorded depreciation expense in the following categories as follows (in thousands):
Years Ended
Loss on disposal of property, plant and equipment was as follows (in thousands):
Years Ended
Loss on disposal of property, plant and equipment $ 1,694 $ 73 $ 65
The loss recognized for the year ended 2024 consisted primarily of an asset that is no longer in use and was recorded in selling and marketing expense on the Consolidated Statements of Operations.
Note 7 — Other Current Liabilities
Other current liabilities consisted of the following (in thousands):
(1)No individual category in “Other” exceeds 5% of the other current liabilities.
F-22
STAAR SURGICAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Note 8 — Leases
Finance Leases
The Company entered into finance leases primarily related to purchases of equipment used for manufacturing, furniture and 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 (dollars in thousands):