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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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FORM 10-Q
Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the quarterly period ended March 31, 2001.
Commission file number 0-14742
CANDELA CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Delaware 04-2477008
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
530 Boston Post Road, Wayland, Massachusetts 01778
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
Registrant's telephone number, including area code: (508) 358-7400
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Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
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Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date.
Common Stock, $.01 par value---10,787,992 shares outstanding as of May 14, 2001.
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CANDELA CORPORATION
INDEX
Page(s)
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Part I. Financial Information:
Item 1. Unaudited Condensed Consolidated Balance Sheets
as of March 31, 2001 and July 1, 2000 3
Unaudited Condensed Consolidated Statements of Operations
and Comprehensive Income for the three month and nine
month periods ended March 31, 2001 and
April 1, 2000 4
Unaudited Condensed Consolidated Statements of Cash Flows
for the nine month periods ended March 31, 2001 and
April 1, 2000 5
Notes to Unaudited Condensed Consolidated
Financial Statements 6-8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9-12
Cautionary Statements 12
Item 3. Quantitative and Qualitative Disclosure
about Market Risk 13
Part II. Other Information:
Item 1. Legal proceedings 14
Item 6. Exhibits and Reports on Form 8-K 14
2
PART I. FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
CANDELA CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
(UNAUDITED)
MARCH 31, JULY 1,
ASSETS 2001 2000
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CURRENT ASSETS:
CASH AND CASH EQUIVALENTS $ 32,830 $ 34,863
ACCOUNTS RECEIVABLE, NET 20,301 19,875
NOTES RECEIVABLE 1,047 1,813
INVENTORIES 9,888 8,386
OTHER CURRENT ASSETS 1,805 885
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TOTAL CURRENT ASSETS 65,871 65,822
PROPERTY AND EQUIPMENT, NET 2,016 2,462
DEFERRED TAX ASSETS 5,350 4,643
OTHER ASSETS 210 237
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TOTAL ASSETS $ 73,447 $ 73,164
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LIABILITIES AND STOCKHOLDERS' EQUITY
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CURRENT LIABILITIES:
ACCOUNTS PAYABLE $ 3,964 $ 4,654
ACCRUED PAYROLL AND RELATED EXPENSES 2,033 2,351
ACCRUED WARRANTY COSTS 2,838 3,295
INCOME TAXES PAYABLE 2,886 3,332
RESTRUCTURING RESERVE 698 1,043
OTHER ACCRUED LIABILITIES 3,891 1,467
CURRENT PORTION OF LONG-TERM DEBT 189 15
DEFERRED INCOME 7,439 5,410
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TOTAL CURRENT LIABILITIES 23,938 21,567
LONG-TERM DEBT 2,923 3,034
COMMITMENTS AND CONTINGENCIES - -
STOCKHOLDERS' EQUITY:
COMMON STOCK 117 114
ADDITIONAL PAID-IN CAPITAL 43,290 41,925
ACCUMULATED EARNINGS 13,287 10,717
TREASURY STOCK, AT COST (7,782) (3,046)
ACCUMULATED OTHER COMPREHENSIVE LOSS (2,326) (1,147)
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TOTAL STOCKHOLDERS' EQUITY 46,586 48,563
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 73,447 $ 73,164
===========================================================================================================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS.
3
CANDELA CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(in thousands, except per share data)
(unaudited)
FOR THE THREE MONTHS ENDED: FOR THE NINE MONTHS ENDED:
MARCH 31, APRIL 1, MARCH 31, APRIL 1,
2001 2000 2001 2000
REVENUES:
LASERS AND OTHER PRODUCTS $ 14,468 $ 14,771 $ 34,533 $ 41,979
PRODUCT-RELATED SERVICE 3,337 3,502 9,189 8,315
SKIN CARE CENTER 991 934 2,874 2,732
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TOTAL REVENUES 18,796 19,207 46,596 53,026
COST OF SALES:
LASERS AND OTHER PRODUCTS 6,903 5,293 15,479 15,806
PRODUCT-RELATED SERVICE 1,880 1,904 5,578 4,767
SKIN CARE CENTER 581 588 1,721 1,783
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TOTAL COST OF SALES 9,364 7,785 22,778 22,356
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GROSS PROFIT 9,432 11,422 23,818 30,670
OPERATING EXPENSES:
SELLING, GENERAL, AND ADMINISTRATIVE 5,917 5,681 16,634 15,809
RESEARCH AND DEVELOPMENT 1,392 1,432 4,329 3,616
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TOTAL OPERATING EXPENSES 7,309 7,113 20,963 19,425
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INCOME FROM OPERATIONS 2,123 4,309 2,855 11,245
OTHER INCOME (EXPENSE):
INTEREST INCOME 321 398 1,307 1,034
INTEREST EXPENSE (101) (120) (349) (364)
OTHER 72 42 190 163
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TOTAL OTHER INCOME 292 320 1,148 833
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INCOME BEFORE INCOME TAXES 2,415 4,629 4,003 12,078
PROVISION FOR INCOME TAXES 861 972 1,432 2,462
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NET INCOME $ 1,554 $ 3,657 $ 2,571 $ 9,616
================================================================================================================================
BASIC EARNINGS PER SHARE $ .14 $ 0.33 $ .23 $ 0.90
DILUTED EARNINGS PER SHARE $ .14 $ 0.30 $ .22 $ 0.82
================================================================================================================================
WEIGHTED AVERAGE SHARES OUTSTANDING 10,732 11,179 10,987 10,648
EQUIVALENT WEIGHTED AVERAGE SHARES OUTSTANDING 11,211 12,280 11,621 11,738
================================================================================================================================
NET INCOME $ 1,554 $ 3,657 $ 2,571 $ 9,616
OTHER COMPREHENSIVE INCOME NET OF TAX:
FOREIGN CURRENCY TRANSLATION ADJUSTMENT (483) (756) (198) 35
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COMPREHENSIVE INCOME $ 1,071 $ 2,901 $ 2,373 $ 9,651
================================================================================================================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS.
4
CANDELA CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
For the nine months ended:
March 31, April 1,
2001 2000
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Cash flows from operating activities:
Net income $ 2,571 $ 9,616
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 572 518
Provision for bad debts 18 230
Accretion of debt discount 73 71
Increase (decrease) in cash from working capital:
Accounts receivable (1,051) (3,328)
Notes receivable 562 1,168
Inventories (1,969) (1,174)
Other current assets (819) (598)
Other assets (684) (2,414)
Accounts payable (371) (2,521)
Accrued payroll and related expenses (445) (1,363)
Deferred income 2,047 1,742
Accrued warranty costs (456) 320
Income taxes payable (577) 159
Accrued restructuring charges (345) (362)
Other accrued liabilities 2,500 851
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Net cash provided by operating activities 1,626 2,915
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Cash flows from investing activities:
Purchases of property and equipment (130) (468)
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Net cash used for investing activities (130) (468)
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Cash flows from financing activities:
Principal payments of long-term debt - (78)
Repayments on line of credit (11) -
Principal payments of capital lease obligations - (567)
Proceeds from the issuance of common stock 1,368 21,425
Repurchases of treasury stock (4,736) -
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Net cash provided by (used for) financing activities (3,379) 20,780
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Effect of exchange rates on cash and cash equivalents (150) (353)
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Net increase (decrease) in cash and cash equivalents (2,033) 22,874
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Cash and cash equivalents at beginning of period 34,863 10,055
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Cash and cash equivalents at end of period $ 32,830 $ 32,929
===================================================================================================================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS.
5
CANDELA CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements and
notes do not include all of the disclosures made in the Annual Report on
Form 10-K of Candela Corporation (the "Company") for fiscal 2000, which
should be read in conjunction with these financial statements. The
financial information included herein is unaudited; however, the condensed
consolidated balance sheet as of July 1, 2000 was derived from the audited
consolidated balance sheet dated July 1, 2000. However, in the opinion of
management, the statements include all adjustments, consisting of normal
recurring adjustments, necessary for a fair presentation of the interim
results and are prepared and presented in a manner consistent with the
Company's Annual Report on Form 10-K. The results for the three and nine
month periods ended March 31, 2001 are not necessarily indicative of the
results to be expected for the full year.
2. NEW ACCOUNTING PRONOUNCEMENTS
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial
Statements." SAB 101 provides guidance on applying generally accepted
accounting principles to revenue recognition issues in financial
statements. The Company will adopt SAB 101 as required in the fourth
quarter of fiscal year 2001 and believes the impact, if any, will not be
significant on its consolidated results of operations and financial
position.
3. 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 NINE MONTHS ENDED:
--------------------------- --------------------------
March 31, April 1, March 31, April 1,
2001 2000 2001 2000
---- ---- ---- ----
NUMERATOR
Net Income $ 1,554 $ 3,657 $ 2,571 $ 9,616
============= =========== ============= ==========
DENOMINATOR
BASIC EARNINGS PER SHARE
------------------------
Weighted average shares outstanding
10,732 11,179 10,987 10,648
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Basic earnings per share $ 0.14 $ 0.33 $ 0.23 $ 0.90
============= ============ ============= ===========
6
DILUTED EARNINGS PER SHARE
Weighted average shares outstanding 10,732 11,179 10,987 10,648
Effect of dilutive securities:
Stock options 268 572 352 522
Stock warrants 211 529 282 568
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Adjusted weighted average shares
outstanding 11,211 12,280 11,621 11,738
----------- --------- ----------- ---------
Diluted earnings per share $ 0.14 $ 0.30 $ 0.22 $ 0.82
------------- ----------- -------------- -----------
During the three month period ended March 31, 2001, there were options to
purchase 279,096 shares of common stock that were excluded from the
calculation of diluted earnings per share, while during the nine month
period ended March 31, 2001 there were options to purchase 209,096 shares
of common stock that were excluded from the calculation of diluted
earnings per share. During the three month period ended April 1, 2000,
there were no options to purchase shares of common stock that were
excluded from the calculation of diluted earnings per share, while during
the nine month period ended April 1, 2000 there were options to purchase
157,500 shares of common stock that were excluded from the calculation of
diluted earnings per share. All warrants to purchase shares of common
stock were included in the computation of diluted earnings per share for
the three and nine month periods ended March 31, 2001, and the three and
nine month periods ended April 1, 2000. Exclusion of common stock
equivalents from the calculation of diluted earnings per share occurs when
the exercise price is greater than the average market price of the common
stock.
4. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
Effective July 2, 2000, the Company adopted Statement of Financial
Accounting Standards No. 133 ("SFAS 133") "Accounting for Derivative
Instruments and Hedging Activities." SFAS 133 (as amended by SFAS Nos. 137
and 138) requires companies to recognize all derivatives as either assets
or liabilities, with the instruments measured at fair value. Gains or
losses resulting from changes in the values of those derivatives are
recorded in current earnings. As of March 31, 2001, the Company's
derivative instruments included forward exchange contracts. The adoption
of SFAS 133 did not materially affect the Company's results of operations
or financial position.
5. INVENTORIES
Inventories consist of the following (in thousands):
MARCH 31, 2001 JULY 1, 2000
-------------- ------------
Raw materials $ 3,675 $ 2,750
Work in process 525 602
Finished goods 5,688 5,034
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$ 9,888 $ 8,386
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7
6. RESTRUCTURING CHARGES
During the quarter ended December 27, 1997, the Company recorded
restructuring charges of $2,609,000 resulting from management's decision
to close the skin care center located in Scottsdale, Arizona. The
following table reflects the restructuring charges incurred during the
nine-month period ended March 31, 2001:
PAYROLL AND FIXED FACILITY
SEVERANCE ASSETS COSTS TOTAL
Balance at July 1, 2000 $ 145 $ 592 $ 306 $ 1,043
Cash charges (67) - (129) (196)
Non-cash charges - (149) - (149)
------------------ ------------------ ------------------ --- -------------------
Balance at March 31, 2001 $ 78 $ 443 $ 177 $ 698
================== ================== ================== === ===================
7. DEBT
In 1998, the Company issued eight-year, 9.75%, subordinated term notes
("Note Agreement") to three investors in the aggregate amount of $3.7
million, secured by the assets of the Company. The notes become due in
October 2006, and require quarterly interest payments. The Company is
required to make mandatory quarterly principal payments of $185,000, along
with any unpaid interest, beginning on January 31, 2002. The Note
Agreement also contains restrictive covenants establishing maximum
leverage, certain minimum ratios, and minimum levels of net income.
Further, the lender has established limits to be used for the stock
repurchase program. As of March 31, 2001, the Company is in violation of
maximum share repurchase values, for which a waiver has been received for
the third quarter.
8. SEGMENT INFORMATION
The Company operates principally in two industry segments: the design,
manufacture, sale, and service of medical devices and related equipment;
and the performance of services in the skin care/health spa industry.
LINE OF BUSINESS DATA: THREE MONTHS ENDED NINE MONTHS ENDED
March 31, April 1, March 31, April 1,
2001 2000 2001 2000
---- ---- ---- ----
REVENUE:
Product sales and service $ 17,805 $ 18,273 $ 43,722 $ 50,294
Skin care/health spa services 991 934 2,874 2,732
-------- -------- -------- --------
Total revenue $ 18,796 $ 19,207 $ 46,596 $ 53,026
======== ======== ======== ========
OPERATING INCOME:
Product sales and service $ 2,229 $ 4,494 $ 3,238 $ 11,805
Skin care/health spa services (106) (185) (383) (560)
-------- -------- -------- --------
Total operating income $ 2,123 $ 4,309 $ 2,855 $ 11,245
======== ======== ======== ========
As of As of
March 31, 2001 July 1, 2000
TOTAL ASSETS: (NET INTERCOMPANY ACCOUNTS)
Product sales and service $ 71,386 $ 71,151
Skin care/health spa services 2,061 2,013
-------- --------
Total assets $ 73,477 $ 73,164
======== ========
8
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 principally to medical
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 and other
products; the provision of product-related services; and the operations of our
remaining skin care center.
RESULTS OF OPERATIONS
REVENUE. Revenue source by geography is reflected in the following table:
THREE MONTHS ENDED
(in thousands) March 31, 2001 April 1, 2000 Change
------------------------ ------------------------ ------------------------
US revenue $ 8,695 46% $ 8,754 46% $ (59) -1%
Foreign revenue $ 10,101 54% $ 10,453 54% $ (352) -3%
----------- --- ---------- --- ----------- ---
Total Revenue $ 18,796 100% $ 19,207 100% $ (411) -2%
NINE MONTHS ENDED
March 31, 2001 April 1, 2000 Change
------------------------ ------------------------ ------------------------
US revenue $ 20,205 43% $ 25,040 47% $ (4,835) -19%
Foreign revenue $ 26,391 57% $ 27,986 53% $ (1,595) -6%
----------- --- ---------- --- ---------- ---
Total Revenue $ 46,596 100% $ 53,026 100% $ (6,430) -12%
US revenue during the third quarter remained comparable to the previous year
three month period due to our initial introduction of a new laser: the
Smoothbeam(TM), a diode based laser used for non-ablative rejuvenation
procedures. US revenue was also positively impacted by a successful refocusing
of our relationship with a major US distributor, resulting cumulatively in a 28%
increase in revenue for the nine month period. Foreign revenue also remained
constant for the three and nine month periods due to steady sales of the
GentleLASE(R) product in Europe and Japan.
9
Revenue source by type is reflected in the following table:
THREE MONTHS ENDED
March 31, 2001 April 1, 2000 Change
-------------------------- ------------------------- ------------------------
Lasers and other products $ 14,468 77% $ 14,771 77% $ (303) -2%
Product related service 3,337 18% 3,502 18% (165) -5%
Skin care centers 991 5% 934 5% 57 6%
------------ -- ------------ -- -------- --
Total revenue $ 18,796 100% $ 19,207 100% $ (411) -2%
========== ==== ========== ==== ========== ===
NINE MONTHS ENDED
March 31, 2001 April 1, 2000 Change
-------------------------- ------------------------- ------------------------
Lasers and other products $ 34,533 74% $ 41,979 79% $ (7,446) -18%
Product related service 9,189 20% 8,315 16% 874 11%
Skin care centers 2,874 6% 2,732 5% 142 5%
----------- -- ----------- -- ------------- --
Total revenue $ 46,596 100% $ 53,026 100% $ (6,430) -12%
=========== ==== ========== ==== ========= ====
Lasers and other products, product related service, and skin care center revenue
for the three month period reached normal expectations, in relation to the same
quarter in the previous year. The initial sales of the Smoothbeam(TM) product
line positively impacted the three month period, along with continued sales of
the GentleLASE(R) product line. Product-related service increased for the nine
month period due to increased sales of cryogen coolant and service contracts.
Skin care center revenue increased as a result of increased marketing and
promotion.
GROSS PROFIT. Gross profit decreased to $9,432,000, or 50% of revenues for the
three month period ended March 31, 2001, compared to gross profit of
$11,422,000, or 59% for the same period one year earlier. For the nine month
period ended March 31, 2001, gross profit decreased to $23,818,000, or 51% of
revenues, compared to $30,670,000 and 58% of revenues for the same period a year
earlier. The decrease in gross profit over the same period a year earlier, is
principally the result of an increase in the amount of sales discounts, a
product mix with varied gross margins, and a fluctuating currency market.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. Selling, general and administrative
expenses increased to $5,917,000 in the three month period ended March 31, 2001,
from $5,681,000 for the three month period ending April 1, 2000. As a percentage
of revenue, selling, general and administrative expenses increased slightly to
32% of revenues in comparison to 30% of revenues in the year prior. Expenses
associated with maintaining a competitive sales force considerably impacted
selling costs. For the nine month period ended March 31, 2001, selling, general
and administrative expenses amounted to $16,634,000, an increase over expenses
of $15,809,000 incurred a year earlier. This increase in selling costs is
primarily attributable to preceptorships for current and future clientele, and
increased legal costs associated with litigation settlements. Selling, general
and administrative expenses were 36% and 30% of revenues for the nine month
periods ended March 31, 2001 and April 1, 2000, respectively.
RESEARCH AND DEVELOPMENT EXPENSE. Research and development spending decreased to
$1,392,000 for the three months ended March 31, 2001, compared to $1,432,000 for
the same period one year earlier. For the nine month period ending March 31,
2001, research and development spending
10
increased $713,000, to $4,329,000, from $3,616,000 in the same period a year
earlier. Research and development spending increased for the nine month period
due to the cost of developing our new rejuvenation laser, the Smoothbeam(TM), as
well as education expenses related to the development of advanced technologies.
RESTRUCTURING CHARGE. During the quarter ended December 27, 1997, a
restructuring charge was recorded and a reserve established in the amount of
$2,609,000 resulting from management's decision to close the skin care center
located in Scottsdale, Arizona. For the nine month period ended March 31, 2001,
a total of $345,000 was charged against this reserve, representing costs
associated with the Scottsdale facility. $138,000 of these costs were charged
against the reserve in the current quarter. We continue to pursue a sublease of
the Scottsdale facility, but if this effort is not successful, we could incur
additional costs in excess of our existing reserve.
OTHER INCOME/EXPENSE. Net other income was $292,000 for the three months ended
March 31, 2001, in comparison to income of $320,000 for the same period a year
earlier. For the nine month period ended March 31, 2001, net other income
amounted to $1,148,000 in comparison to $833,000 in income for the same period a
year earlier. The net increase in other income resulted primarily from interest
and dividend income from a higher level of invested cash during the period, and
a lower level of interest expense.
INCOME TAXES. The provision for income taxes results from a combination of
activities including both the domestic and foreign subsidiaries of the Company.
The provision for income taxes for the nine months ended March 31, 2001 includes
a tax provisions calculated for income generated in Japan and Spain using rates
in excess of the U.S. statutory tax rate. The Company has recorded a 36% tax
rate for the three and nine month periods ended March 31, 2001, in comparison to
the three and nine month periods ending April 1, 2000, in which the Company
recorded a 20% tax rate due to reductions in the valuation allowance against the
deferred tax asset.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operating activities amounted to $1,626,000 for the nine months
ended March 31, 2001, in comparison to $2,915,000 for the same period a year
earlier. The decrease reflects increases in our accounts receivable,
inventories, and foreign prepaid taxes in addition to significant payments for
domestic income taxes. Cash used for investing activities totaled $130,000 for
the nine months ended March 31, 2001, compared to $468,000 for the same period
in the prior year, due to a lower level of spending to purchase equipment. Cash
used for financing activities amounted to $3,379,000 in comparison to cash
provided by financing activities of $20,780,000 for the same period a year
earlier. The prior year financing activity reflects the receipt of proceeds from
the issuance of common stock amounting to $21,425,000 primarily resulting from
our July, 1999 stock offering.
In relation to our eight-year, 9.75% subordinated notes, a total of $235,000
has been accreted to the notes through March 31, 2001, resulting in a
long-term liability balance of $2,923,000, and a short-term liability balance
of $185,000 at quarter end. A total of $73,528 of interest expense has been
recorded in the current fiscal year, of which $24,706 was recorded in the
three month period ended March 31, 2001.
On November 23, 1999, the Board of Directors approved an open market stock
repurchase program that enables the Company to purchase up to 750,000 shares of
its common stock. The program is in effect for two years, from December 13, 1999
to December 12, 2001, and may be suspended or discontinued by the Company at any
time. All such purchases are transacted on the Nasdaq Stock Market at prevailing
open market prices and are paid for with general corporate funds. Such purchases
are accounted for at cost and held as treasury stock. On December 14, 2000, the
Board of Directors authorized the Company to purchase an additional 500,000 of
its common stock under the open market stock repurchase program. As of March 31,
2001, the Company had repurchased 1,000,000 shares.
11
NEW ACCOUNTING PRONOUNCEMENTS
In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial Statements." SAB
101 provides guidance on applying generally accepted accounting principles to
revenue recognition issues in financial statements. The Company adopted SAB 101
as required in the fourth quarter of fiscal year 2001 and believes the impact,
if any, will not be significant on its consolidated results of operations and
financial position.
CAUTIONARY STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements
including, without limitation, statements concerning the future of the industry,
product development, business strategy (including the possibility of future
acquisitions), anticipated operational and capital expenditure levels, continued
acceptance and growth of our products, and dependence on significant customers
and suppliers. This Quarterly Report on Form 10-Q contains forward-looking
statements that we have made based on our current expectations, estimates and
projections about our industry, operations, and prospects, not historical facts.
We have made these forward-looking statements pursuant to the provisions of the
Private Securities Litigation Reform Act of 1995. These statements can be
identified by the use of forward-looking terminology such as "may," "will,"
"believe," "expect," "anticipate," "estimate," "intend", "continue" or other
similar expressions. These statements discuss future expectations, and may
contain projections of results of operations or of financial condition or state
other forward-looking information. These forward-looking statements are subject
to business and economic risks and uncertainties, and our actual results of
operations may differ materially from those contained in the forward-looking
statements. Factors that could cause or contribute to such differences include,
but are not limited to, those discussed in "Cautionary Statements" in our annual
report filed on Form 10-K dated September 29, 2000, as well as other risks and
uncertainties referenced in this Quarterly Report. These risks include, but are
not limited to, the following:
o Our dependence on GentleLASE increases our susceptibility to competitive
changes in the marketplace.
o Because we 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.
o The failure to obtain alexandrite rods for the GentleLASE and ALEXlazr
from our sole supplier would impair our ability to manufacture and sell
these laser systems, which accounted for close to half of our revenue in
recent periods.
o The cost of closing our skin care centers may be higher than management
has estimated to date, and higher actual costs would negatively impact our
operating results.
o 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.
12
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
At March 31, 2001, the Company held foreign currency forward contracts with
notional value totaling approximately $5,012,000 for the deliverance of
232,325,544 Spanish Pesetas, 641,934 German Deutsche Marks, 343,751,013 Japanese
Yen, 5,785,596 French Francs and 126,000 Swiss Francs. The present contracts
have maturity dates prior to August 3, 2001. The net fair value of these
contracts at March 31, 2001, was $181,000. The net fair value is computed by
subtracting the value of the contracts using the forward rate at quarter-end
from the value of the forward contracts computed at the contracted exchange
rates.
We have cash equivalents and marketable securities that primarily consist of
commercial paper, corporate bonds, and overnight money market accounts. Interest
rate return is fixed at the time of investment. The Company does not expect
changes in interest rates to have a material effect on income or cash flows.
13
CANDELA CORPORATION
PART II OTHER INFORMATION
ITEM 1 -- LEGAL PROCEEDINGS
In Item 3 of Part I of the Company's Annual Report on Form 10K/A for the fiscal
year ended July 1, 2000, the Company reported that it had reached a settlement
of legal disputes with the Regents of the University of California ("Regents")
and New Star Technology Inc. ("New Star") relating to the Dynamic Cooling Device
("DCD") technology licensed by Candela from the Regents, and that the parties
continued their negotiations of a definitive settlement agreement and amended
and restated license agreement.
In March, 2000, the parties concluded the negotiations and executed a definitive
settlement agreement and an amended and restated license agreement, each dated
as of August 11, 2000, the date of the original agreement in principal among the
parties, which ended all disputes pending among the parties.
From time to time, we are a party to various legal proceedings incidental to our
business. We believe that none of the presently pending legal proceedings will
have a material adverse effect upon our financial position, results of
operations, or liquidity.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 10.1, Amended and Restated License Agreement between
the Regents of the University of California and the Company.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended
March 31, 2001.
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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
Registrant
Date: May 14, 2001 /s/ Gerard E. Puorro
------------- ----------------------
Gerard E. Puorro
(President and Chief Executive
Officer)
Date: May 14, 2001 /s/ F. Paul Broyer
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F. Paul Broyer
(Senior Vice President of Finance
and Administration and Chief
Financial Officer)
15