Candela Corporation
Notes to Consolidated Financial Statements (unaudited)
(amounts are in thousands except per share data)
1. Basis of Presentation and Consolidation
Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. The year-end consolidated balance sheet is derived from our audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America. In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments, consisting only of those of a normal recurring nature, considered necessary for a fair presentation of our financial position, results of operations and cash flows at the dates and for the periods indicated. Actual results may differ from these estimates.
The results for the interim periods are not necessarily indicative of results to be expected for the entire year. The information contained in the interim financial statements should be read in conjunction with Management’s Discussion and Analysis and the financial statements and notes thereto included in the Candela Corporation 2006 Form 10-K filed with the Securities and Exchange Commission (“SEC”).
The results of operations for the three and six months ended December 30, 2006 are not necessarily indicative of the results expected for the remainder of the fiscal year.
Basis of Consolidation
The financial statements include the accounts of Candela Corporation and its subsidiaries. Intercompany transactions and balances have been eliminated. Investments in which we are not able to exercise significant influence over the investee are accounted for under the cost method.
2. Recent Accounting Pronouncements
In September 2006, the Securities and Exchange Commission issued Staff Accounting Bulletin (“SAB”) No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Current Year Misstatements. SAB No. 108 requires analysis of misstatements using both an income statement (rollover) approach and a balance sheet (iron curtain) approach in assessing materiality and provides for a one-time cumulative effect transition adjustment. SAB No. 108 is effective for our fiscal year 2007 annual financial statements. We are currently assessing the potential impact that the adoption of SAB No. 108 will have on our financial statements; the impact is not expected to be material.
In September 2006, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 157, Fair Value Measurements, which defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. SFAS No. 157 does not require any new fair value measurements, but provides guidance on how to measure fair value by providing a fair value hierarchy used to classify the source of the information. This statement is effective for our fiscal year 2008. We are currently assessing the potential impact that the adoption of SFAS No. 157 will have on our financial statements; the impact is not expected to be material.
In July 2006, the FASB issued Interpretation No. 48, Accounting for Uncertainty in Income Taxes—an interpretation of FASB Statement No. 109 (FIN No. 48). FIN No. 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with FASB Statement No. 109, Accounting for Income Taxes. FIN No. 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN No. 48 also provides guidance on derecognition,
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classification, interest and penalties, accounting in interim periods and disclosure relative to uncertain tax positions. FIN No. 48 is effective for fiscal years beginning after December 15, 2006, with early adoption encouraged. We are currently assessing the potential impact that the adoption of FIN No. 48 will have on our consolidated financial statements.
In February 2006, the FASB issued Statement No. 155, Accounting for Certain Hybrid Financial Instruments—an amendment of FASB Statements No. 133 and 140 (SFAS No. 155). This standard permits fair value remeasurement for any hybrid financial instrument that contains an embedded derivative that otherwise would require bifurcation; clarifies which interest-only strips and principal-only strips are not subject to the requirements of SFAS No. 133; requires evaluation of interests in securitized financial assets; clarifies that concentrations of credit risk in the form of subordination are not embedded derivatives; and eliminates the prohibition on a qualifying special-purpose entity from holding a derivative financial instrument that pertains to a beneficial interest other than another derivative financial instrument. This standard is effective for all financial instruments acquired or issued for fiscal years beginning after September 15, 2006. We do not believe that adoption of SFAS No. 155 will have a material effect on our financial position or results of operations.
3. Discontinued Operations
On September 27, 2003 management initiated a plan to close its only remaining skin care center. The closure was accounted for as a discontinued operation in accordance with Statement of Financial Accounting Standards (“SFAS”) 144 “Accounting for the Impairment or Disposal of Long-Lived Assets” and SFAS 146 “Accounting for Costs Associated with Exit or Disposal Activities”. In determining the amount of the facilities closure accrual, we are required to estimate such factors as future vacancy rates, the time required to sublet properties and sublease rates. These estimates are reviewed quarterly and may result in revisions to established facility reserves.
Current liabilities of discontinued operations consist of the following:
| | December 30, | | July 1, | |
(in thousands) | | 2006 | | 2006 | |
Facility closure and other costs | | $ | 447 | | $ | 447 | |
Deferred revenue, gift certificates | | 840 | | 840 | |
| | | | | |
| | $ | 1,287 | | $ | 1,287 | |
4. Stock-based Compensation
Effective July 3, 2005, the Company implemented the fair value recognition provisions of SFAS No. 123 revised (“SFAS No. 123R”) and Staff Accounting Bulletin 107 (“SAB 107”) for all share-based compensation that was not vested as of July 2, 2005. The Company adopted SFAS No. 123R using a modified prospective application, as permitted under SFAS No. 123R. Accordingly, prior period amounts have not been restated. Under this application, the Company is required to record compensation expense for all awards granted after the date of adoption and for the unvested portion of previously granted awards that remain outstanding at the date of adoption. Compensation cost will be recognized over the period that an employee provides service in exchange for the award.
The application of SFAS No. 123R and SAB 107 during the three–month period ended December 30, 2006 and December 31, 2005 resulted in the recognition of share-based compensation expense of approximately $1.2 million and $0.2 million, respectively. For the six-month period ended December 30, 2006 and December 31, 2005, recognition of shared-based compensation expense was approximately $2.0 million and $0.2 million, respectively. These expenses were divided between cost of sales and operating expense cost centers based upon the functional responsibilities of the individuals holding the respective options.
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As of December 30, 2006, there was approximately $3.6 million of total unrecognized compensation cost related to non-vested stock options/Stock Appreciation Rights (“SARs”) granted under the Company’s incentive plans. This cost is expected to be recognized over a weighted-average period of 1.17 years. As of December 31, 2005, there was approximately $0.3 million of total unrecognized compensation cost related to nonvested stock options granted under the Company’s incentive plans.
The amount of cash received from the exercise of stock options for both the second quarter and first six months of fiscal 2007 and both the second quarter and first six months of fiscal 2006 was approximately $0.3 million and $2.5 million, respectively.
Stock Plans
1990 Candela Corporation Employee Stock Purchase Plan
The 1990 Employee Stock Purchase Plan (the “Purchase Plan”) provides for the sale of up to 1,500,000 shares of common stock to eligible employees. The shares are issued at 85% of the market price on the last day of semi-annual periods. Substantially all full-time employees are eligible to participate in the Purchase Plan. At December 30, 2006 there were 678,735 shares available for sale. Compensation expense for the purchase plan is recognized over the vesting period.
1998 Candela Corporation Stock Option Plan
Effective October 5, 2005, the Second Amended and Restated 1998 Stock Plan (the “1998 Stock Plan”) was amended to clarify the granting of incentive stock options, non-qualified stock options, and stock appreciation rights (“SARs”).
Stock options provide the holder with the right to purchase common stock. The exercise price per share of “incentive stock options” within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended, granted under the 1998 Stock Plan may not be less than the fair market value per share of common stock on the date of grant. In the case of an incentive stock option granted to an employee possessing more than 10% of the total combined voting power of all classes of stock of the Company, the exercise price per share may not be less than 110% of the fair market value per share of common stock on the date of grant.
SARs provide the holder the right to receive an amount, payable in stock, cash or in any combination of these, as specified by a Committee established by the Board of Directors, equal to the excess of the market value of our common shares on the date of exercise over the grant price at the time of the grant. The grant price of a SAR may not be less than the fair market value per share of common stock on the date of grant, provided that the grant price of SARs granted in tandem with stock options shall equal the exercise price of the related stock option.
Options and rights granted under the 1998 Stock Plan become exercisable on the date of grant or in installments, as specified by a Committee established by the Board of Directors, and expire ten years from the date of the grant. The maximum number of shares for which options and rights may be granted under the 1998 Stock Plan was increased by 2,500,000 shares to 7,800,000 by affirmative vote at the Company’s Annual Meeting of Shareholders held December 12, 2006. Upon exercise of a SAR, only the net number of shares of common stock issued in connection with such exercise shall be deemed “issued” for this purpose. The Company may satisfy the awards upon exercise with either newly-issued or treasury shares.
There were 180,000 an d 330,445 stock based SARs granted during the three and six month period ended December 30, 2006, respectively. The SARs granted to employees become exercisable ratably over one to four years, while the SARs granted to directors become exercisable over two years.
There were 2,252,966 outstanding options/SARs at December 30, 2006 with a weighted-average exercise price of $11.08 per share, an aggregate intrinsic value of approximately $2.9 million and a weighted-average remaining contractual term of 7.66 years.
There were 1,231,918 of exercisable options/SARs at December 30, 2006 with a weighted-average exercise price of $8.51 per share, an aggregate intrinsic value of approximately $4.8 million, and a weighted-average remaining contractual term of 6.7 years.
There were 2,723,689 options/SARs available to grant at December 30, 2006.
The total intrinsic value of options exercised during the three and six month period ended December 30, 2006 was approximately $0.2 million and $0.3 million, respectively.
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5. Earnings per Share
Basic earnings per share is computed by dividing net income by the weighted average number of shares of common stock outstanding for the period and, if there are dilutive securities, diluted earnings per share is computed by including common stock equivalents outstanding for the period in the denominator.
Common stock equivalents include shares issuable upon the exercise of stock options or warrants, net of shares assumed to have been purchased with the proceeds, using the treasury stock method.
| | For the three months ended: | | For the six months ended: | |
| | December 30, | | December 31, | | December 30, | | December 31, | |
(in thousands, except per share data) | | 2006 | | 2005 | | 2006 | | 2005 | |
Shares used in the calculation of Basic earnings per share | | 22,910 | | 22,680 | | 23,220 | | 22,598 | |
Effect of dilutive securities:
Stock options/SAR’s | | 493 | | 818 | | 505 | | 768 | |
| | | | | | | | | |
Diluted shares used in the calculation of earnings per share | | 23,403 | | 23,498 | | 23,725 | | 23,366 | |
| | | | | | | | | |
Per share effect of dilutive securities on net income | | $ | — | | $ | 0.01 | | $ | — | | $ | 0.01 | |
| | | | | | | | | | | | | |
During the three and six month periods ended December 31, 2006, options/SARs to purchase 879 and 867 shares of common stock, respectively, were excluded from the calculations of diluted earnings per share as their effect would have been anti-dilutive.
During the three-month period ended December 31, 2005 all shares were included in the calculation of diluted earnings per share as they had exercise prices that were less than the average market prices of our common stock for the period. During the six month period ended December 31, 2005, options/SARs to purchase 379 shares of common stock were excluded from the calculations of diluted earnings per share as their effect would have been anti-dilutive.
6. Marketable Securities
The Company accounts for marketable securities in accordance with SFAS 115, Accounting for Certain Investments in Debt and Equity Securities. SFAS 115 establishes the accounting and reporting requirements for all debt securities and for investments in equity securities that have readily determinable fair values. All marketable securities must be classified as one of the following: held-to-maturity, available-for-sale, or trading. The Company classifies its marketable debt securities as held-to-maturity as the Company has the intent and ability to hold them to maturity. The Company has classified its equity investments as available-for-sale securities. Accordingly, such investments are reported at fair market value, with the resultant unrealized gains and losses reported as a separate component of shareholders’ equity. Held-to-maturity debt securities are reported at amortized cost which approximates fair value. Current marketable securities include debt investments with original maturities that are expected to mature in more than three months and up to twelve months and equity investments. Long-term marketable securities include debt securities that have remaining maturities of one to three years and equity investments. Unrealized losses related to the held-to-maturity securities are not considered a permanent decline in the market value of such securities.
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Marketable securities consist of the following:
| | December 30, 2006 | | July 1, 2006 | |
(in thousands) | | Net Carrying
Amount | | Fair Value | | Unrealized
loss | | Net Carrying
Amount | | Fair Value | | Unrealized
loss | |
Short-term (Held-to-maturity): | | | | | | | | | | | | | |
Government-backed securities | | $ | 11,997 | | $ | 11,991 | | $ | (6 | ) | $ | 17,997 | | $ | 17,946 | | $ | (51 | ) |
Certificates of deposit | | 2,243 | | 2,238 | | (5 | ) | 2,368 | | 2,356 | | (12 | ) |
Corporate bonds | | — | | — | | — | | 3,005 | | 2,996 | | (9 | ) |
Commercial paper | | — | | — | | — | | 3,962 | | 3,960 | | (2 | ) |
| | | | | | | | | | | | | |
| | 14,240 | | 14,229 | | (11 | ) | 27,332 | | 27,258 | | (74 | ) |
Short-term (Available-for-sale): | | | | | | | | | | | | | |
Equity investments | | 1,979 | | 1,979 | | — | | — | | — | | — | |
| | | | | | | | | | | | | |
Total marketable securities, short-term | | $ | 16,219 | | $ | 16,208 | | $ | (11 | ) | $ | 27,332 | | $ | 27,258 | | $ | (74 | ) |
| | | | | | | | | | | | | |
Long-term (Held-to-maturity): | | | | | | | | | | | | | |
Government-backed securities | | $ | 9,994 | | $ | 9,988 | | $ | (6 | ) | $ | 8,998 | | $ | 8,917 | | $ | (81 | ) |
Certificates of deposit | | 3,338 | | 3,313 | | (25 | ) | 2,955 | | 2,903 | | (52 | ) |
| | | | | | | | | | | | | |
Total marketable securities, long-term | | $ | 13,332 | | $ | 13,301 | | $ | (31 | ) | $ | 11,953 | | $ | 11,820 | | $ | (133 | ) |
There have been no material realized gains or losses for the three and six months ended December 30, 2006.
7. Inventories
Inventories consist of the following:
| | December 30, | | July 1, | |
(in thousands) | | 2006 | | 2006 | |
Raw materials | | $ | 6,380 | | $ | 5,936 | |
Work in process | | 1,382 | | 1,151 | |
Finished goods | | 10,285 | | 9,579 | |
| | | | | |
| | $ | 18,047 | | $ | 16,666 | |
8. Property and Equipment
Property and equipment consists of the following:
| | December 30, | | July 1, | |
(in thousands) | | 2006 | | 2006 | |
Leasehold improvements | | $ | 1,002 | | $ | 920 | |
Office furniture | | 679 | | 603 | |
Computers, software, and other equipment | | 9,531 | | 9,236 | |
| | | | | |
| | $ | 11,212 | | $ | 10,759 | |
Less: accumulated depreciation | | (7,904 | ) | (7,457 | ) |
| | | | | |
Property and equipment, net | | $ | 3,308 | | $ | 3,302 | |
Depreciation expense was approximately $0.2 million and $0.5 million for the three and six month periods ended December 30, 2006, respectively. Depreciation expense was approximately $0.2 million and $0.4 million for the three and six month periods ended December 31, 2005, respectively.
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9. Intangible assets
Intangible assets with finite lives (amortized) consist of the following:
| | December 30, 2006 | | July 1, 2006 | |
(in thousands) | | Gross
Carrying
Amount | | Accumulated
Amortization | | Net Book
Value | | Gross
Carrying
Amount | | Accumulated
Amortization | | Net Book
Value | |
Patent | | $ | 1,379 | | $ | (142 | ) | $ | 1,237 | | $ | — | | $ | — | | $ | — | |
Prepaid license | | 3,878 | | (713 | ) | 3,165 | | 3,878 | | (476 | ) | 3,402 | |
| | | | | | | | | | | | | |
| | $ | 5,257 | | $ | (855 | ) | $ | 4,402 | | $ | 3,878 | | $ | (476 | ) | $ | 3,402 | |
10. Derivative Instruments and Hedging Activity
The Company enters into financial instruments to reduce its exposure to fluctuations in foreign exchange rates by creating offsetting positions through the use of foreign currency forward contracts. The Company recognizes all derivative instruments as either assets or liabilities in the statements of financial position and measures those instruments at fair value. Changes to the fair value of derivative contracts that do not qualify for hedge accounting are reported in earnings in the period of the change. For derivatives that qualify for hedge accounting, changes in the fair value of the derivatives are recorded in shareholders’ equity as a component of other comprehensive income and are recognized currently in earnings, along with an offsetting adjustment against the basis of the item being hedged. Unrealized gains and losses on derivatives serving as hedged contracts have been recorded in other comprehensive income and did not amount to significant gains or losses.
The Company had two foreign currency forward contracts outstanding at December 30, 2006, serving to mitigate the foreign currency risk of a substantial portion of Euro-denominated intercompany balances, in the notional amount of approximately 1.6 million Euro. The fair value of the foreign currency derivative contracts outstanding at December 30, 2006 was approximately $2.1 million. Any gains or losses on the fair value of the effective portion of the derivative contract are largely offset by the losses and gains on the underlying transactions.
11. Warranty Reserve
The Company’s products generally carry a standard warranty. The Company maintains a reserve based on anticipated warranty claims at the time product revenue is recognized. Factors that affect the Company’s product warranty liability include the number of installed units, the anticipated cost of warranty repairs and historical and anticipated rates of warranty claims.
The following table reflects changes in the Company’s accrued warranty account during the three and six months ended December 30, 2006 and December 31, 2005, respectively:
| | For the three months ended: | | For the six months ended: | |
| | December 30, | | December 31, | | December 30, | | December 31, | |
(in thousands) | | 2006 | | 2005 | | 2006 | | 2005 | |
Beginning balance | | $ | 9,492 | | $ | 8,489 | | $ | 9,629 | | $ | 8,646 | |
Incremental accruals on current sales | | 1,891 | | 2,161 | | 3,582 | | 3,686 | |
Amortization of prior-period accruals | | (1,893 | ) | (1,760 | ) | (3,721 | ) | (3,442 | ) |
| | | | | | | | | |
Ending balance | | $ | 9,490 | | $ | 8,890 | | $ | 9,490 | | $ | 8,890 | |
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12. Deferred Revenue
The Company offers extended service contracts that may be purchased for periods from one to five years. The Company recognizes service contract revenue ratably over the life of the contract. Actual service contract expenses incurred and charged to service costs of sales during an interim period may be more or less than the amount of amortized service contract revenue recognized in that period.
Revenues are recognized when a signed non-cancelable purchase order exists, the product is shipped, title and risk have passed to the customer, the fee is fixed or determinable, and collection is considered probable. Circumstances which generally preclude the immediate recognition of revenue include shipping terms of FOB destination or the existence of a customer acceptance clause in a contract based upon customer inspection of the product. In these instances, revenue is deferred until adequate documentation is obtained to ensure that these criteria have been fulfilled.
The following table reflects changes in the Company’s deferred revenue account during the three and six months ended December 30, 2006 and December 31, 2005, respectively:
| | For the three months ended: | | For the six months ended: | |
| | December 30, | | December 31, | | December 30, | | December 31, | |
(in thousands) | | 2006 | | 2005 | | 2006 | | 2005 | |
Beginning balance | | $ | 10,104 | | $ | 8,049 | | $ | 10,329 | | $ | 8,350 | |
Deferral of new sales | | 3,347 | | 2,735 | | 5,080 | | 6,511 | |
Recognition of previously deferred revenue | | (3,372 | ) | (1,459 | ) | (5,330 | ) | (5,536 | ) |
| | | | | | | | | |
Ending balance | | $ | 10,079 | | $ | 9,325 | | $ | 10,079 | | $ | 9,325 | |
13. Common Stock Buyback
On October 31, 2005, the Company’s Board of Directors authorized the purchase by the Company of up to 10% of the Company’s outstanding shares of its common stock during a two-year period which expires on October 31, 2007.
770 shares of common stock were purchased for $8.3 million during the six-month period ended December 30, 2006.
14. Segment Information
SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information, defines operating segments as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker, or decision-making group, in deciding how to allocate resources and in assessing performance. Our chief operating decision-making group consists our executive officers. The Company operates principally in one industry segment: the design, manufacture, sale, and service of medical devices and related equipment. The results in this segment have been presented in the Consolidated Statements of Income for the appropriate periods.
15. Commitments and Contingencies
The Company has an agreement with the Regents of the University of California (the “Regents”) for exclusive license rights to the Dynamic Cooling Device (“DCD”), subject to certain limited license rights of Cool Touch, Inc. (“Cool Touch”), in the following fields of use: procedures that involve skin resurfacing and rejuvenation, vascular skin lesions, and laser hair removal. Cool Touch, a subsidiary of New Star Technology, Inc., obtained a license to the DCD on a co-exclusive basis with the Company, in certain narrower fields of use.
The Company’s agreement with the Regents called for an annual license fee of $0.3 million and a royalty obligation of 3%. The annual fee of $0.3 million was paid to the Regents in a lump sum of $3.0 million and is being amortized over the remaining life of the patent agreement, which as of December 30, 2006 was less than 9 years. The royalty and the amortization of the annual license fee payment are reflected in the Company’s consolidated statement of income. The unamortized portion of the license fee payment is reflected in intangible assets in the December 30, 2006 and July 1, 2006 balance sheets (Note 9).
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16. Legal Proceedings
The Company is currently involved in three litigation matters with Palomar Medical Technologies, Inc. (“Palomar”).
· On August 9, 2006, Palomar filed suit against the Company in the United States District Court for the District of Massachusetts, asserting infringement by the Company of U.S. Patent No. 5,735,844. Palomar served its complaint and summons on the Company on August 15, 2006. Palomar seeks compensatory and treble damages, as well as attorneys’ fees and an injunction against the Company. On November 6, 2006, the Company answered the complaint by denying Palomar’s allegations and asserting a variety of affirmative defenses and counterclaims against Palomar. This response included a counterclaim by the Company against Palomar seeking a declaratory judgment that Palomar’s 5,595,568 patent (“’568 Patent”) is invalid and/or not infringed by Company products. On November 27, 2006, Palomar answered the counterclaim and the companies are in the midst of pre-trial fact discovery.
· On August 10, 2006, the Company filed suit against Palomar in the United States District Court for the District of Massachusetts, asserting infringement by Palomar of U.S. Patent Nos. 6,659,999, 5,312,395, and 6,743,222. The Company seeks compensatory and treble damages, as well as attorneys’ fees and an injunction against Palomar. The Company served its complaint and summons on Palomar on August 10, 2006. On October 25, 2006, the Company filed a First Amended Complaint, which amended the Company’s suit against Palomar by removing from the suit Patent 6,659,999. On October 30, 2006, Palomar answered the amended complaint by denying the Company’s allegations and asserting an affirmative defense of inequitable conduct with respect to the ‘395 patent. In addition, Palomar filed a declaratory judgment counterclaim seeking an order that Palomar products either do not infringe such patents or that such patents are invalid. On November 31, 2006, the Company answered the counterclaim by denying Palomar’s allegations.
· On December 19, 2006, the Company filed suit against Palomar in the United States District Court for the Eastern District of Texas, Lufkin Division asserting that Palomar’s Lux V and 1540 Fractional hand pieces infringe upon one or more of United States patents: 5,810,801, 6,659,999 and 6,120,497. The Company seeks compensatory and treble damages, as well as attorneys’ fees and an injunction against Palomar. On January 10, 2007, Palomar answered the complaint by denying Palomar’s allegations and filed a declaratory judgment counterclaim seeking a ruling that its products do not infringe such patents and/or that such patents are invalid. In addition, Palomar filed a motion to transfer the case to the United States District Court for the District of Massachusetts.
While the Company intends to vigorously contest Palomar’s allegations, and to pursue its own claims against Palomar, each lawsuit is inherently uncertain and unpredictable as to its ultimate outcome. An adverse outcome in Palomar’s suit against the Company would materially hurt the business, financial condition, results of operations and cash flows.
From time to time, the Company is party to various legal proceedings incidental to its business. The Company believes that none of the legal proceedings, other than Palomar, that are presently pending, if adversely decided against us, will have a material adverse effect upon its financial position, results of operations, or liquidity.
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17. Other Income
During the six-month period ended December 30, 2006, the Company recognized a $3.5 million gain on the exchange of common stock of Solx Inc. for cash and common stock of Occulogix Inc. (NasdaqGM: OCCX). The gain was a result of the acquisition of Solx Inc., a privately-held company, by Occulogix Inc., a publicly traded company. The Company held 19.99% of the outstanding common stock of Solx Inc. on an as-converted basis, prior to the merger. As a result of the merger, the Company received approximately $1.0 million in cash plus approximately 1,260 shares of common stock in Occulogix Inc.
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CANDELA CORPORATION
Item 2 -Management’s Discussion and Analysis of Financial Condition and Results of Operations
Overview
We research, develop, manufacture, market and service lasers used to perform aesthetic and cosmetic procedures. We sell our lasers to physicians and personal care practitioners. We market our products directly and through a network of distributors to end-users. Our traditional customer base includes plastic and cosmetic surgeons and dermatologists. More recently, we have expanded our sales to a broader group of practitioners consisting of general practitioners and certain specialists including obstetricians, gynecologists and general and vascular surgeons. We derive our revenue from the sales of lasers, light-based devices, and other products, as well as the provision of product-related services.
Critical Accounting Policies
This discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. We evaluate our estimates and judgments on an on-going basis, including those related to revenue recognition, allowance for doubtful accounts, inventories reserves, warranty reserves, contingencies, valuation of long-lived assets, stock based compensation, restructurings and income taxes. We base our estimates and judgments on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates and judgments under different assumptions or conditions. A discussion of our critical accounting policies and the related estimates and judgments affecting the preparation of our consolidated financial statements is included in our Annual Report on Form 10-K for fiscal year 2006.
Recent Accounting Pronouncements
In September 2006, the Securities and Exchange Commission issued Staff Accounting Bulletin (“SAB”) No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Current Year Misstatements. SAB No. 108 requires analysis of misstatements using both an income statement (rollover) approach and a balance sheet (iron curtain) approach in assessing materiality and provides for a one-time cumulative effect transition adjustment. SAB No. 108 is effective for our fiscal year 2007 annual financial statements. We are currently assessing the potential impact that the adoption of SAB No. 108 will have on our financial statements; the impact is not expected to be material.
In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements, which defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. SFAS No. 157 does not require any new fair value measurements, but provides guidance on how to measure fair value by providing a fair value hierarchy used to classify the source of the information. This statement is effective for our fiscal year 2008. We are currently assessing the potential impact that the adoption of SFAS No. 157 will have on our financial statements; the impact is not expected to be material.
In July 2006, the FASB issued Interpretation No. 48, Accounting for Uncertainty in Income Taxes-an interpretation of FASB Statement No. 109 (FIN No. 48). FIN No. 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with FASB Statement No. 109, Accounting for Income Taxes. FIN No. 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be
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taken in a tax return. FIN No. 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods and disclosure relative to uncertain tax positions. FIN No. 48 is effective for fiscal years beginning after December 15, 2006, with early adoption encouraged. We are currently assessing the potential impact that the adoption of FIN No. 48 will have our consolidated financial statements.
In February 2006, the FASB issued Statement No. 155, Accounting for Certain Hybrid Financial Instruments—an amendment of FASB Statements No. 133 and 140 (SFAS No. 155). This standard permits fair value remeasurement for any hybrid financial instrument that contains an embedded derivative that otherwise would require bifurcation; clarifies which interest-only strips and principal-only strips are not subject to the requirements of SFAS No. 133; requires evaluation of interests in securitized financial assets; clarifies that concentrations of credit risk in the form of subordination are not embedded derivatives; and eliminates the prohibition on a qualifying special-purpose entity from holding a derivative financial instrument that pertains to a beneficial interest other than another derivative financial instrument. This standard is effective for all financial instruments acquired or issued for fiscal years beginning after September 15, 2006. We do not believe that adoption of SFAS No. 155 will have a material effect on our financial position or results of operations.
Results of Operations
Revenue
Revenue source by geographic region is reflected in the following table:
| | For the three months ended: | |
| | December 30, | | December 31, | | | | | |
(in thousands) | | 2006 | | 2005 | | Increase (Decrease) | |
U.S. | | $ | 16,851 | | 45 | % | $ | 18,469 | | 49 | % | $ | (1,618 | ) | -9 | % |
All other countries | | 20,555 | | 55 | % | 19,251 | | 51 | % | 1,304 | | 7 | % |
| | | | | | | | | | | | | |
Total worldwide revenue | | $ | 37,406 | | 100 | % | $ | 37,720 | | 100 | % | $ | (314 | ) | -1 | % |
| | For the six months ended: | |
| | December 30, | | December 31, | | | | | |
(in thousands) | | 2006 | | 2005 | | Increase (Decrease) | |
U.S. | | $ | 32,696 | | 46 | % | $ | 28,737 | | 44 | % | $ | 3,959 | | 14 | % |
All other countries | | 38,184 | | 54 | % | 37,070 | | 56 | % | 1,114 | | 3 | % |
| | | | | | | | | | | | | |
Total worldwide revenue | | $ | 70,880 | | 100 | % | $ | 65,807 | | 100 | % | $ | 5,073 | | 8 | % |
Consolidated revenue decreased 1% or $0.3 million to $37.4 million for the three-month period ended December 30, 2006 compared to the three-month period ended December 31, 2005. Consolidated revenue increased 8% or $5.1 million to $70.9 million for the six-month period ending December 30, 2006 compared to the six-month period ending December 31, 2005. The slight decrease in the three-month period ended December 30, 2006 was due primarily to a decrease sales in Latin America and the U.S. offset by increases in Europe and Asia. The increase in the six-month period ended December 30, 2006 compared to the six-month period ended December 31, 2005 was due to an increase in the U.S., Asia, and Europe, offset by a decrease in Latin America.
Foreign revenue accounted for approximately 55% of the consolidated total revenue for the three-month period ended December 30, 2006. The increase of 7% to $20.6 million for the three-month period ended December 30, 2006, as compared to the three-month period ended December 31, 2005, was comprised of increases in Europe and Asia of $1.4 million and $1.1 million, respectively, offset by a decrease in Latin America of $1.2 million.
Foreign revenue accounted for approximately 54% of the consolidated total revenue for the six-month period ended December 30, 2006. Foreign revenue increased 3% to $38.2 million for the six-month period ended December 30, 2006, as compared to the six-month period ended December 31, 2005. Year-to-date foreign
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revenue increased in Europe and Asia offset by the decrease in Latin America. The decrease in Latin America was primarily due to exceptionally high revenue for the demographics of the region for the six-month period ended December 31, 2005.
U.S. revenue decreased 9% or $1.6 million for the three-month period ended December 30, 2006, as compared to the three-month period ended December 31, 2005, due primarily to the decrease in revenue related to a slow-down in the growth plans of a national spa franchisor. U.S. revenue increased 14% or $4.0 million for the six-month period ended December compared to the six-month period ended December 31, 2005.
Revenue source by type is reflected in the following table:
| | For the three months ended: | |
| | December 30, | | December 31, | | | | | |
(in thousands) | | 2006 | | 2005 | | Increase (Decrease) | |
Lasers and other products | | $ | 29,107 | | 78 | % | $ | 31,657 | | 84 | % | $ | (2,550 | ) | -8 | % |
Product-related services | | 8,299 | | 22 | % | 6,063 | | 16 | % | 2,236 | | 37 | % |
| | | | | | | | | | | | | |
Total revenue | | $ | 37,406 | | 100 | % | $ | 37,720 | | 100 | % | $ | (314 | ) | -1 | % |
| | For the six months ended: | |
| | December 30, | | December 31, | | | | | |
(in thousands) | | 2006 | | 2005 | | Increase (Decrease) | |
Lasers and other products | | $ | 54,997 | | 78 | % | $ | 53,882 | | 82 | % | $ | 1,115 | | 2 | % |
Product-related services | | 15,883 | | 22 | % | 11,925 | | 18 | % | 3,958 | | 33 | % |
| | | | | | | | | | | | | |
Total revenue | | $ | 70,880 | | 100 | % | $ | 65,807 | | 100 | % | $ | 5,073 | | 8 | % |
The decrease in revenue from lasers and other products for the three-month period ended December 30, 2006, as compared to the three-month period ended December 31, 2005, was spread between all products except the V-beam which showed an increase of $1.5 million. The increase in revenue from product-related service for the three-month period ended December 30, 2006, as compared to the three-month period ended December 31, 2005, resulted primarily from an increase in the number of service-related contracts sold in addition to an increase in the number of consumables and accessories sold to support our installed base.
The increase in laser and other product revenue for the six-month period ended December 30, 2006, as compared to the six-month period ended December 31, 2005, resulted primarily from an increase in the sales volume of our V-beam product line of approximately $3.8 million offset by decreases in our other products.
Product-related services increased approximately $4.0 million during the six-month period ended December 30, 2006, as compared to the six-month period ended December 31 2005, due primarily to an increase in the number of service-related contracts sold in addition to an increase in the number of consumables and accessories sold to support our installed base.
Gross Profit. Gross profit decreased to approximately $17.8 million or 47.5% of revenues for the three-month period ended December 30, 2006, as compared to gross profit of approximately $19.0 million or 50.3% for the same period one year earlier. Gross profit increased to approximately $35.2 million or 49.7% of revenues for the six-month period ended December 30, 2006, as compared to gross profit of approximately $33.5 million or 50.9% for the same period one year earlier. The change in gross profit results principally from the changes in sales volume and product mix.
Selling, General and Administrative Expense. Selling, general and administrative expenses increased to approximately $12.6 million for the three-month period ended December 30, 2006, from approximately $10.5 million for the three-month period ended December 31, 2005. As a percentage of revenue, selling, general and administrative expenses increased to 33.6% from 28% of revenues from the comparative prior year period. The increase was primarily due to legal fees related to the Palomar litigation and to incremental
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share-based compensation expense. For the six-month period ended December 30, 2006, selling, general and administrative expenses increased to approximately $23.6 million from approximately $19.3 million for the six-month period ended December 31 2005. As a percentage of revenue, selling, general and administrative expenses increased to 33.4% from 29.3%. The increase is due primarily to legal fees related to the Palomar litigation and to share-based compensation expense.
Research and Development Expense. Research and development spending increased to $4.6 million for the three-month period ended December 30, 2006, from $1.8 million for the three-month period ended December 31, 2005, due primarily to an increase in the number of active projects and an increase in employee costs. Spending in this area increased to $8.2 million for the six-month period ended December 30, 2006, from $3.4 million for the six-month period ended December 31, 2005 due primarily to the aforementioned increase in project spending and an increase in employee-related costs.
Other Income/Expense. Other income increased to approximately $0.9 million for the three-months ended December 30, 2006 compared to $0.2 million for the three-month period ended December 31, 2005 due primarily to an increase in interest income earned on the higher level of cash and cash equivalents. For the six-month period ended December 30, 2006, other income was approximately $5.2 million compared to other income of approximately $0.5 million for the six-month period ended December 31, 2005. The increase is due primarily to an increase in interest income as a result of an increase in cash and cash equivalents, marketable securities, and a recognized $3.5 million gain on the exchange of common stock of Solx Inc. for cash and common stock of Occulogix Inc.
The gain was a result of the acquisition of Solx Inc., a privately-held company, by Occulogix Inc., a publicly traded company. We held 19.99% of the outstanding common stock of Solx Inc. on an as-converted basis, prior to the merger. As a result of the merger, we received approximately $1.0 million cash plus approximately 1,260 shares of common stock in Occulogix Inc., a company publicly traded on the Nasdaq Global Market.
Income Taxes. The provision for income taxes results from a combination of activities of both the domestic and foreign subsidiaries of the Company. We recorded effective tax rates of approximately 32% and 34% for the three-month periods ended December 30, 2006 and December 31, 2005, respectively. The decrease was due primarily to the retroactive reinstatement of the domestic research & development (“R&D��) tax credit. We recorded effective tax rates of approximately 36% and 34% for the six-month periods ended December 30, 2006 and December 31, 2005, respectively. The increase was due primarily to the phase out of the extraterritorial income exclusion deduction in fiscal year 2007 and a decrease in the valuation allowances for foreign jurisdictions in the same quarter in the previous year, offset slightly by the retroactive reinstatement of the R&D tax credit mentioned above.
Liquidity and Capital Resources
Our cash and cash equivalents and marketable securities at December 30, 2006 totaled approximately $70.0 million compared with approximately $79.5 million at July 1, 2006. We continue to have no long-term debt. We believe that the combination of existing cash and cash equivalents, and marketable securities on hand, along with cash to be generated by future operations and amounts available under our line of credit, will be sufficient to meet our ongoing operating and capital expenditure requirements for the foreseeable future. However, we cannot be sure that we will not require additional capital beyond the amounts currently forecasted by us, or that any such required additional capital will be available on reasonable terms, if at all, as it becomes required.
Cash used in operating activities amounted to approximately $2.8 million for the six-month period ended December 30, 2006 as compared to cash provided by operating activities of approximately $1.1 million for the same period in the prior year. The increase in cash used by operating activities is due to the payment of prior year liabilities combined with a decrease in net income.
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Cash provided by investing activities amounted to approximately $10.7 million for the six-month period ended December 30, 2006 as compared to cash used by investing activities of approximately $10.3 million for the six-month period ended December 31, 2005. The activity for both six-month periods primarily reflects the maturity or purchase of held-to-maturity investments.
Cash used by financing activities amounted to approximately $8.0 million for the six-month period ended December 30, 2006 and primarily reflects the purchase of treasury stock during the period.
Cash provided by financing activities amounted to approximately $2.5 million for the six-month period ended December 31, 2005 and primarily reflects the proceeds from the issuance of common stock by the Company to its employees under the existing stock option plan and stock purchase plan.
Off-Balance Sheet Arrangements
Our only off-balance sheet arrangements consist of non-cancelable operating leases entered into in the ordinary course of business and the license agreement with the Regents. The table below in the next section titled “Contractual Obligations” shows the amounts of our operating lease commitments and purchase commitments payable by year.
Contractual Obligations
Outstanding contractual obligations of the Company are reflected in the following table:
(in thousands) | | Total | | Less than
1 year | | 1 - 3 years | | 3 - 5 years | | After
5 years | |
Royalty commitments | | $ | 5,250 | | $ | 1,000 | | $ | 2,000 | | $ | 1,250 | | $ | 1,000 | |
Operating leases | | 2,143 | | 1,172 | | 903 | | 68 | | — | |
| | | | | | | | | | | |
Total contractual obligations | | $ | 7,393 | | $ | 2,172 | | $ | 2,903 | | $ | 1,318 | | $ | 1,000 | |
Cautionary Statements
Certain statements contained herein may constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 (“Reform Act”). We may also make forward-looking statements in other reports filed with the Securities and Exchange Commission, in materials delivered to stockholders and in press releases. In addition, our representatives may from time to time make oral forward-looking statements. Forward-looking statements provide current expectations of future events based on certain assumptions and include any statement that does not directly relate to any historical or current fact. Words such as “anticipates,” “believes,” “expects,” “estimates,” “intends,” “plans,” “projects,” and similar expressions, may identify such forward-looking statements. Such forward-looking statements include but are not limited to: that we have the necessary infrastructure in place to capitalize on expansion; the affordability of our products will allow for expansion; that we can lower production costs; or that the market will expand beyond baby boomers. We assume no obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise. The risks and uncertainties that may affect forward-looking statements and/or our business include, among others, those discussed in “Cautionary Statements” in our Annual Report filed on Form 10-K for the fiscal year ended July 1, 2006, as well as other risks and uncertainties referenced in this Quarterly Report on Form 10-Q, and the following:
· On August 9, 2006, one of our competitors, Palomar Medical Technologies, Inc. (“Palomar”), alleged that the manufacture, use and sale of our products for laser hair removal infringe certain United States patents. Public announcements concerning this litigation that are unfavorable to us may result in significant declines in our stock price. An adverse ruling or judgment in this matter is likely to cause our stock price to decline significantly. Litigation with Palomar is expensive and is likely to be protracted, and our intellectual property position may be weakened as a result of an adverse ruling or judgment. Whether or not we are successful in the pending lawsuit, litigation may consume substantial amounts of our financial resources and divert management’s attention away from our core business. Please see Part II, Item 1 (Legal Proceedings) for a further discussion of the Palomar litigation.
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· Claims by others that our products infringe their patents or other intellectual property rights, or that the patents which we own or have licensed rights to are invalid, could prevent us from manufacturing and selling some of our products or require us to incur substantial costs from litigation or development of non-infringing technology.
· Our principal source of liquidity is our current cash and equivalents and marketable investments. Our ability to generate cash from operations is dependant upon our ability to generate revenue from selling our lasers and other products and providing product-related services. A decrease in demand for our products and related services or increases in operating costs would likely have an adverse effect on our liquidity.
· Because we typically derive more than half of our revenue from international sales, we are susceptible to currency fluctuations, negative economic changes taking place in foreign marketplaces, and other risks associated with conducting business overseas. Please see Part I, Item 3 (Quantitative and Qualitative Disclosures about Market Risk) for a further discussion of risks associated with conducting business overseas.
· The failure to obtain alexandrite rods for certain laser systems from our sole supplier would impair our ability to manufacture and sell these laser systems, which has accounted for a substantial portion of our revenue in certain recent periods.
· Our failure to respond to rapid changes in technology and intense competition in the laser industry could make our lasers obsolete.
· Like other companies in our industry, we are subject to a regulatory review process and our failure to receive necessary government clearances or approvals could affect our ability to sell our products and remain competitive.
· We have modified some of our products without FDA clearance. The FDA could retroactively decide the modifications were improper and require us to cease marketing and/or recall the modified products.
· Achieving complete compliance with FDA regulations is difficult, and if we fail to comply, we could be subject to FDA enforcement action.
· We could incur substantial costs as a result of product liability claims.
· We may be unable to attract and retain management and other personnel we need to succeed.
· Our failure to manage acquisitions and joint ventures effectively may divert management attention from our core business and cause us to incur additional debt, liabilities or costs.
We caution readers not to place undue reliance upon any forward-looking statements, which speak only as of the date made. We expressly disclaim any obligation or undertaking to release publicly any updates or revisions to any such statements to reflect any change in our expectations or any change in events, conditions or circumstances on which any such statement is based.
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Item 3 - Quantitative and Qualitative Disclosures about Market Risk
We have cash equivalents and marketable securities that consist of money market mutual funds, certificates of deposit, US government securities, fixed income corporate securities and equity investments. The majority of these investments have maturities within one to three years. We believe that our exposure to interest rate risk is minimal due to the term and type of our investments and those fluctuations in interest rates would not have a material adverse effect on our results of operations.
We have international subsidiaries that transact business in both local and foreign currencies and therefore we are exposed to foreign currency exchange risk resulting from fluctuations in foreign currencies. This risk could adversely impact our results and financial condition. From time to time, we may enter into foreign currency exchange contracts to reduce our exposure to foreign currency exchange risk and variability in operating results due to fluctuation in exchange rates underlying the value of current transactions and anticipated transactions denominated in foreign currencies. These contracts obligate us to exchange predetermined amounts of specified foreign currencies at specified exchange rates on specified dates. These contracts are denominated in the same currency in which the underlying transactions are denominated and bear a contract value and maturity date that approximate the value and expected s ettlement date, respectively, of the underlying transactions. Unrealized gains and losses on open contracts at the end of each period, resulting from changes in the fair value of these contracts, are recognized in other comprehensive income in the same period as exchange gains and losses on the underlying foreign denominated receivables. We do not engage in foreign currency speculation.
We had two forward exchange contracts outstanding serving as a hedge of our Euro-denominated intercompany receivables at December 30, 2006. These contracts serve as hedges of a substantial portion of our Euro-denominated intercompany balances. Any gains and losses on the fair value of the derivative contract would be largely offset by losses and gains on the underlying transaction.
Item 4 - Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our Chief Executive Officer and Chief Financial Officer (our principal executive officer and principal financial officer, respectively) have evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended) as of December 30, 2006, the end of the period covered by this quarterly report on Form 10-Q. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures were effective in gathering, analyzing and disclosing information needed to satisfy our disclosure obligations under the Securities Exchange Act of 1934, as amended.
Changes in Internal Controls over Financial Reporting
There have been no changes in the Company’s internal controls over financial reporting that occurred during the quarter ended December 30, 2006 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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CANDELA CORPORATION
Part II. Other Information
Item 1 - Legal Proceedings
The Company is currently involved in three litigation matters with Palomar Medical Technologies, Inc. (“Palomar”).
· On August 9, 2006, Palomar filed suit against the Company in the United States District Court for the District of Massachusetts, asserting infringement by the Company of U.S. Patent No. 5,735,844. Palomar served its complaint and summons on the Company on August 15, 2006. Palomar seeks compensatory and treble damages, as well as attorneys’ fees and an injunction against the Company. On November 6, 2006, the Company answered the complaint by denying Palomar’s allegations and asserting a variety of affirmative defenses and counterclaims against Palomar. This response included a counterclaim by the Company against Palomar seeking a declaratory judgment that Palomar’s 5,595,568 patent (“’568 Patent”) is invalid and/or not infringed by Company products. On November 27, 2006, Palomar answered the counterclaim and the companies are in the midst of pre-trial fact discovery.
· On August 10, 2006, the Company filed suit against Palomar in the United States District Court for the District of Massachusetts, asserting infringement by Palomar of U.S. Patent Nos. 6,659,999, 5,312,395, and 6,743,222. The Company seeks compensatory and treble damages, as well as attorneys’ fees and an injunction against Palomar. The Company served its complaint and summons on Palomar on August 10, 2006. On October 25, 2006, the Company filed a First Amended Complaint, which amended the Company’s suit against Palomar by removing from the suit Patent 6,659,999. On October 30, 2006, Palomar answered the amended complaint by denying the Company’s allegations and asserting an affirmative defense of inequitable conduct with respect to the ‘395 patent. In addition, Palomar filed a declaratory judgment counterclaim seeking an order that Palomar products either do not infringe such patents or that such patents are invalid. On November 31, 2006, the Company answered the counterclaim by denying Palomar’s allegations.
· On December 19, 2006, the Company filed suit against Palomar in the United States District Court for the Eastern District of Texas, Lufkin Division asserting that Palomar’s Lux V and 1540 Fractional hand pieces infringe upon one or more of United States patents: 5,810,801, 6,659,999 and 6,120,497. The Company seeks compensatory and treble damages, as well as attorneys’ fees and an injunction against Palomar. On January 10, 2007, Palomar answered the complaint by denying Palomar’s allegations and filed a declaratory judgment counterclaim seeking a ruling that its products do not infringe such patents and/or that such patents are invalid. In addition, Palomar filed a motion to transfer the case to the United States District Court for the District of Massachusetts.
While the Company intends to vigorously contest Palomar’s allegations, and to pursue its own claims against Palomar, each lawsuit is inherently uncertain and unpredictable as to its ultimate outcome. An adverse outcome in Palomar’s suit against the Company would materially hurt the business, financial condition, results of operations and cash flows.
From time to time, the Company is party to various legal proceedings incidental to its business. The Company believes that none of the legal proceedings, other than Palomar, that are presently pending, if adversely decided against us, will have a material adverse effect upon its financial position, results of operations, or liquidity.
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Item 4. Submission of Matters to a Vote of Security Holders
On December 12, 2006, the Company held its annual meeting of shareholders and voted on four proposals.
1) At the Meeting, the proposal to approve and adopt an amendment to the Company’s Certificate of Incorporation, as amended, to, among other things, divide the Board of Directors into three classes, with Directors in each class to serve staggered three-year terms, was defeated as follows:
FOR | | AGAINST | | ABSTAIN |
| | | | |
5,392,857 | | 9,668,369 | | 102,785 |
2) At the Meeting, six (6) directors were elected to hold office until the Company’s next annual meeting. The vote was as follows:
| | FOR | | WITHHOLD | |
| | | | | |
George A. Abe | | 19,047,395 | | 1,492,172 | |
Ben Bailey III | | 19,777,533 | | 762,034 | |
Nancy Nager | | 19,059,253 | | 1,480,314 | |
Gerard E. Puorro | | 19,097,472 | | 1,442,095 | |
Kenneth D. Roberts | | 19,117,442 | | 1,422,125 | |
Douglas W. Scott | | 18,390,904 | | 2,148,663 | |
3) At the Meeting, the proposal to approve and adopt an amendment to the Company’s Second Amended and Restated 1998 Stock Plan to increase the number of shares of common stock that may be issued pursuant to the Second Amended and Restated 1998 Stock Plan by 2,500,000 shares to 7,800,000 shares of common stock in the aggregate, was approved as follows:
FOR | | AGAINST | | ABSTAIN |
| | | | |
7,594,774 | | 7,544,492 | | 21,745 |
4) At the Meeting, a proposal to ratify the selection of BDO Seidman, LLP to serve as the Company’s independent registered public accounting firm for the fiscal year ending June 30, 2007, was approved as follows:
FOR | | AGAINST | | ABSTAIN |
| | | | |
20,476,747 | | 40,233 | | 22,587 |
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ITEM 6 - Exhibits
(a) Exhibits
Exhibit 10.1 | | Amendment No. 1 to Second Amended and Restated 1998 Stock Plan |
| | |
Exhibit 31.1 | | Rule 13a-14(a)/15d-14(a) Certification of the Chief Executive Officer |
| | |
Exhibit 31.2 | | Rule 13a-14(a)/15d-14(a) Certification of the Chief Financial Officer |
| | |
Exhibit 32.1 | | Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
| | |
Exhibit 32.2 | | Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| |
| CANDELA CORPORATION |
| |
| |
Date: | February 5, 2007 | | /s/ F. Paul Broyer | |
| F. Paul Broyer |
| (Senior Vice President, Finance and Administration |
| and Chief Financial Officer) |
| | | | |
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