-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Ks5yf5GcSmkoYopVJxgUFpB85MdyypVuMfNOJPe2u1wUobg13hidb2IBSxxp+efw 3s8hahdShD6Ta8w9EvQDZg== 0000912057-97-025934.txt : 19970805 0000912057-97-025934.hdr.sgml : 19970805 ACCESSION NUMBER: 0000912057-97-025934 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970628 FILED AS OF DATE: 19970804 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: COHERENT INC CENTRAL INDEX KEY: 0000021510 STANDARD INDUSTRIAL CLASSIFICATION: LABORATORY ANALYTICAL INSTRUMENTS [3826] IRS NUMBER: 941622541 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-05255 FILM NUMBER: 97650722 BUSINESS ADDRESS: STREET 1: 5100 PATRICK HENRY DR CITY: SANTA CLARA STATE: CA ZIP: 95054 BUSINESS PHONE: 4087644000 MAIL ADDRESS: STREET 1: 5100 PATRICK HENRY DRIVE STREET 2: MAIL STOP P38 CITY: SANTA CLARA STATE: CA ZIP: 95054 FORMER COMPANY: FORMER CONFORMED NAME: COHERENT RADIATION DATE OF NAME CHANGE: 19770604 10-Q 1 FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------ FORM 10-Q (Mark One) [ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 28, 1997 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _________ to ___________ Commission File Number: 0-5255 COHERENT, INC. (Exact name of registrant as specified in its charter) DELAWARE 94-1622541 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 5100 PATRICK HENRY DRIVE, SANTA CLARA, CALIFORNIA 95054 (Address of principal executive offices) (Zip Code) (408) 764-4000 (Registrant's telephone number, including area code) 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 --- --- APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS: Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13, or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes No --- --- APPLICABLE ONLY TO CORPORATE ISSUES: The number of shares outstanding of registrant's common stock, par value $.01 per share, at July 18, 1997 was 11,407,372 shares. COHERENT, INC. INDEX Page No. -------- PART I. FINANCIAL INFORMATION: Consolidated Condensed Statements of Income -- Three months and nine months ended June 28, 1997 and June 29, 1996 3 Consolidated Condensed Balance Sheets -- June 28, 1997 and September 28, 1996 4 Consolidated Condensed Statements of Cash Flows -- Nine months ended June 28, 1997 and June 29, 1996 5 Notes to Consolidated Condensed Financial Statements 6 Management's Discussion and Analysis of Financial Condition and Results of Operations 9 PART II. OTHER INFORMATION 14 SIGNATURES 15 2 PART I. FINANCIAL INFORMATION COHERENT, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF INCOME (UNAUDITED; IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE NINE MONTHS ENDED MONTHS ENDED ------------ ------------ June 28, June 29, June 28, June 29, 1997 1996 1997 1996 - --------------------------------------------------------------------------------------------------- NET SALES $102,335 $89,327 $287,213 $263,560 COST OF SALES 47,754 43,245 134,602 128,401 - --------------------------------------------------------------------------------------------------- GROSS PROFIT 54,581 46,082 152,611 135,159 - --------------------------------------------------------------------------------------------------- OPERATING EXPENSES: Research and development 9,949 9,353 27,397 27,436 Purchased in-process technology 9,315 Selling, general and administrative 30,363 26,018 83,747 76,450 - --------------------------------------------------------------------------------------------------- TOTAL OPERATING EXPENSES 40,312 35,371 120,459 103,886 - --------------------------------------------------------------------------------------------------- INCOME FROM OPERATIONS 14,269 10,711 32,152 31,273 OTHER INCOME (EXPENSE): Interest and dividend income 282 556 1,040 1,903 Interest expense (292) (768) (28) Foreign exchange gain (loss) 47 156 (440) 159 Other - net 3,710 1,280 4,238 2,109 - --------------------------------------------------------------------------------------------------- TOTAL OTHER INCOME, NET 3,747 1,992 4,070 4,143 - --------------------------------------------------------------------------------------------------- INCOME BEFORE INCOME TAXES 18,016 12,703 36,222 35,416 PROVISION FOR INCOME TAXES 6,666 4,785 16,534 13,682 - --------------------------------------------------------------------------------------------------- NET INCOME $ 11,350 $ 7,918 $ 19,688 $ 21,734 - --------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------- NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE $ .97 $ .68 $ 1.68 $ 1.89 - --------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------- WEIGHTED AVERAGE COMMON AND COMMON EQUIVALENT SHARES OUTSTANDING 11,743 11,663 11,694 11,525 - --------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------
SEE ACCOMPANYING NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS. 3 COHERENT, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED; IN THOUSANDS, EXCEPT PAR VALUE PER SHARE)
June 28, September 28, 1997 1996 - ------------------------------------------------------------------------------------- ASSETS CURRENT ASSETS: Cash and equivalents $ 11,899 $ 9,214 Short-term investments 14,323 25,421 Accounts receivable - net of allowances of $2,853 in 1997 and $3,285 in 1996 93,970 83,360 Inventories 84,815 65,835 Prepaid expenses and other assets 14,171 11,519 Deferred tax assets 23,129 23,071 - ------------------------------------------------------------------------------------- TOTAL CURRENT ASSETS 242,307 218,420 - ------------------------------------------------------------------------------------- PROPERTY AND EQUIPMENT 125,491 117,069 ACCUMULATED DEPRECIATION AND AMORTIZATION (55,207) (52,468) - ------------------------------------------------------------------------------------- Property and equipment - net 70,284 64,601 - ------------------------------------------------------------------------------------- GOODWILL - net of accumulated amortization of $6,817 in 1997 and $5,717 in 1996 14,066 10,639 OTHER ASSETS 20,708 17,856 - ------------------------------------------------------------------------------------- $347,365 $311,516 - ------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------- LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Short-term borrowings $ 14,940 $ 4,160 Current portion of long-term obligations 3,766 4,221 Accounts payable 13,195 12,425 Income taxes payable 6,772 12,395 Other current liabilities 59,590 61,666 - ------------------------------------------------------------------------------------- TOTAL CURRENT LIABILITIES 98,263 94,867 - ------------------------------------------------------------------------------------- LONG-TERM OBLIGATIONS 12,092 3,921 OTHER LONG-TERM LIABILITIES 11,197 12,403 MINORITY INTEREST IN SUBSIDIARIES 4,062 2,738 STOCKHOLDERS' EQUITY: Common stock, par value $.01 Authorized - 50,000 shares Outstanding 11,392 in 1997 and 11,211 in 1996 113 111 Additional paid-in capital 87,622 82,939 Notes receivable from stock sales (97) (845) Retained earnings 133,482 113,794 Accumulated translation adjustment 631 1,588 - ------------------------------------------------------------------------------------- TOTAL STOCKHOLDERS' EQUITY 221,751 197,587 - ------------------------------------------------------------------------------------- $347,365 $311,516 - ------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------
SEE ACCOMPANYING NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS. 4 COHERENT, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED; IN THOUSANDS)
NINE MONTHS ENDED ------------ June 28, June 29, 1997 1996 - ------------------------------------------------------------------------------------- INCREASE (DECREASE) IN CASH AND EQUIVALENTS OPERATING ACTIVITIES: Net income $ 19,688 $ 21,734 Adjustments to reconcile to net cash provided by operating activities: Write-off of purchased in-process technology 9,315 Purchases of short-term investments (63,611) (82,415) Proceeds from sales of short-term investments 75,700 77,065 Changes in assets and liabilities (40,816) (13,465) Other adjustments 11,389 5,476 - ------------------------------------------------------------------------------------- NET CASH PROVIDED BY OPERATING ACTIVITIES 11,665 8,395 - ------------------------------------------------------------------------------------- INVESTING ACTIVITIES: Purchases of property and equipment - net (9,920) (13,774) Acquisition of Ealing (9,500) Acquisition of Tutcore and Micracor, net of cash acquired (5,200) Acquisition of Japan distribution rights (5,048) Other - net (973) (4,918) - ------------------------------------------------------------------------------------- NET CASH USED FOR INVESTING ACTIVITIES (25,593) (23,740) - ------------------------------------------------------------------------------------- FINANCING ACTIVITIES: Long-term debt borrowings 3,277 1,306 Long-term debt repayments (3,245) (3,662) Notes payable borrowings 24,374 4,717 Notes payable repayments (13,233) (5,926) Repayments of capital lease obligations (91) Sales of shares under employee stock plans 4,455 4,603 - ------------------------------------------------------------------------------------- NET CASH PROVIDED BY FINANCING ACTIVITIES 15,628 947 - ------------------------------------------------------------------------------------- EFFECT OF EXCHANGE RATE CHANGES ON CASH AND EQUIVALENTS 985 (461) - ------------------------------------------------------------------------------------- Net increase (decrease) in cash and equivalents 2,685 (14,859) Cash and equivalents beginning of period 9,214 20,426 - ------------------------------------------------------------------------------------- CASH AND EQUIVALENTS END OF PERIOD $ 11,899 $ 5,567 - ------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------
SEE ACCOMPANYING NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS. 5 COHERENT, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED) 1. The accompanying consolidated condensed financial statements have been prepared in conformity with generally accepted accounting principles, consistent with those reflected in the Company's annual report to stockholders for the year ended September 28, 1996. All adjustments necessary for a fair presentation have been made which comprise only normal recurring adjustments; however, interim results of operations are not necessarily indicative of results to be expected for the year. 2. Net income per common and common equivalent share is based upon the weighted average number of common shares outstanding during the period including dilutive common share equivalents and shares issuable under the Productivity Incentive Plan. Dilutive common stock equivalents include outstanding stock options when the exercise price is less than the average market price and shares subscribed under the Employee Stock Purchase Plan. In June 1997, the Financial Accounting Standards Board adopted Statements of Financial Accounting Standards No. 130 (Reporting Comprehensive Income), which requires that an enterprise report, by major components and as a single total, the change in its net assets during the period from nonowner sources; and No. 131 (Disclosures about Segments of an Enterprise and Related Information), which establishes annual and interim reporting standards for an enterprise's business segments and related disclosures about its products, services, geographic areas, and major customers. Adoption of these statements will not impact the Company's consolidated financial position, results of operations or cash flows. Both statements are effective for fiscal years beginning after December 15, 1997, with earlier application permitted. In February 1997, the Financial Accounting Standards Board issued SFAS No. 128, "Earnings Per Share," which will be adopted by the Company in the second quarter of fiscal 1998 as required by the statement. Upon adoption of SFAS No. 128, the Company will present basic earnings per share and diluted earnings per share. Basic earnings per share will be computed based on the weighted average number of shares outstanding during the period. Diluted earnings per share will be computed based on the weighted average number of shares outstanding during the period increased by the effect of dilutive stock options and stock purchase contracts using the treasury stock method. Proforma basic earnings per share for the three and nine months ended June 28, 1997 are $1.00 and $1.74, respectively, compared to $.71 and $1.97 for the same prior year periods. Proforma diluted earnings per share for the same current fiscal year periods are $.97 and $1.68 respectively, compared to $.68 and $1.89 for the same periods in the prior year. No dividends were paid in fiscal 1997 or 1996. 3. In May 1997, Coherent acquired the assets and operations of Ealing Electro-Optics, located in Watford, England and its U.S. subsidiary located in Holliston, Massachusetts for approximately $9.5 million in cash. Ealing is a recognized leader in the design and manufacture of precision optical assemblies as well as complete lens and thermal imaging test systems. In addition, Ealing is a distributor of electro-optic components and its "Gold" catalog sells over 5,000 components to the photonics industry. The acquisition was accounted for as a purchase and, accordingly, the Company has recorded the $4.0 million excess of the purchase price over the fair value of net assets acquired as goodwill which is being amortized over 10 years. Coherent's consolidated results of operations include the operating results of Ealing from its acquisition date. Proforma results of operations as if the acquisition occurred at the beginning of fiscal 1996 and 1997, respectively, are not 6 presented as the amounts would not differ significantly from the Company's reported results. In December 1996, Coherent acquired 80% of the outstanding shares of Tutcore OY Ltd., located in Tampere, Finland for approximately $10.0 million (consisting of $4.0 million of cash, $5.4 million of deferred payment obligations and $0.6 million of acquisition costs). Tutcore specializes in the growth and processing of aluminum-free epitaxial wafers used in semiconductor lasers. Also in December 1996, Coherent purchased the net assets of Micracor, Inc. of Acton, Massachusetts for approximately $0.9 million (consisting of $0.8 million of cash and $0.1 million of acquisition costs). Micracor manufactures materials used in semiconductor-based solid state microchip lasers for the telecommunications market. These acquisitions were accounted for as purchases and, accordingly, the acquired assets and liabilities were recorded at their estimated fair market values at the dates of the acquisitions. The aggregate purchase price of $10.9 million (including acquisition costs) has been allocated to the assets and liabilities acquired. Approximately $9.3 million of the total purchase price represented the value of in-process technology that had not yet reached technological feasibility and had no alternative future use, and was charged to operations during the first quarter of fiscal 1997. Coherent's consolidated results of operations include the operating results of the acquired companies from their acquisition dates. Proforma results of operations as if the acquisitions occurred at the beginning of fiscal 1996 and 1997, respectively, are not presented as the amounts would not differ significantly from the Company's reported results. 4. Balance Sheet Detail: Inventories are stated at the lower of cost (first-in, first-out) or market. Inventories are as follows: June 28, September 28, 1997 1996 --------------------------------------------------------------------------- (IN THOUSANDS) Purchased parts and assemblies $ 23,941 $18,446 Work-in-process 28,089 24,244 Finished goods 32,785 23,145 --------------------------------------------------------------------------- Net Inventories $ 84,815 $65,835 --------------------------------------------------------------------------- --------------------------------------------------------------------------- Prepaid expenses and other assets consist of the following: June 28, September 28, 1997 1996 --------------------------------------------------------------------------- (IN THOUSANDS) Prepaid income taxes $ 5,902 $ 6,180 Prepaid expenses and other 8,269 5,339 --------------------------------------------------------------------------- Prepaid expenses and other assets $ 14,171 $11,519 --------------------------------------------------------------------------- --------------------------------------------------------------------------- Other assets consist of the following: June 28, September 28, 1997 1996 --------------------------------------------------------------------------- (IN THOUSANDS) Assets held for investment $ 1,428 $ 1,491 Intangibles and other assets 19,280 16,365 --------------------------------------------------------------------------- Other assets $ 20,708 $17,856 --------------------------------------------------------------------------- --------------------------------------------------------------------------- 7 Other current liabilities consist of the following: June 28, September 28, 1997 1996 --------------------------------------------------------------------------- (IN THOUSANDS) Accrued payroll and benefits $ 16,472 $20,264 Accrued expenses and other 15,509 13,278 Deferred income 10,172 9,028 Reserve for warranty 7,890 9,450 Cash overdrafts 7,371 7,957 Customer deposits 2,176 1,689 --------------------------------------------------------------------------- Other current liabilities $ 59,590 $61,666 --------------------------------------------------------------------------- --------------------------------------------------------------------------- Other long-term liabilities consist of the following: June 28, September 28, 1997 1996 --------------------------------------------------------------------------- (IN THOUSANDS) Deferred income and other $ 6,259 $ 4,688 Deferred tax liabilities 3,582 5,955 Environmental remediation costs 1,356 1,760 --------------------------------------------------------------------------- Other long-term liabilities $ 11,197 $12,403 --------------------------------------------------------------------------- --------------------------------------------------------------------------- 5. Certain claims and lawsuits arising in the ordinary course of business have been filed or are pending against the Company. In the opinion of management, all such matters have been adequately provided for, are without merit, or are of such kind that if disposed of unfavorably, would not have a material adverse effect on the Company's consolidated financial position or results of operations. The Company, along with several other companies, was named as a party to a remedial action order issued by the California Department of Toxic Substance Control relating to soil and groundwater contamination at and in the vicinity of the Stanford Industrial Park in Palo Alto, California, where the Company's former headquarters facility is located. The responding parties to the Regional Order (including the Company) have completed the investigations and have installed all required remedial systems. The responding parties have agreed upon final cost sharing. The Company was also named, along with other parties, to a remedial action order for the Company's former headquarters facility site itself in the Stanford Industrial Park. The Company has completed the investigations and has installed all required remedial systems. The Company has been operating remedial systems at the site to remove subsurface chemicals since April 1992. The Company has reached final settlement agreements with upgradient and downgradient sites. A final settlement agreement with the former site occupant has been negotiated and it is expected to be signed in fiscal 1997. Management believes that the Company's probable, nondiscounted net liability at June 28, 1997 for remaining costs associated with the above environmental matters is $.6 million which has been previously accrued. This amount consists of total estimated probable costs of $1.8 million ($.4 million included in other current liabilities and $1.4 million included in other long-term liabilities) reduced by estimated minimum probable recoveries of $1.2 million included in other assets from other parties named to the order. 6. Certain prior year amounts have been reclassified to conform with the current quarter presentation. 8 COHERENT, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL The statements in this document that relate to future plans, events or performance are forward-looking statements that involve risks and uncertainties, including risks associated with uncertainties related to contract cancellations, manufacturing risks, competitive factors, uncertainties pertaining to customer orders, demand for products and services, development of markets for the Company's products and services and other risks identified in the Company's SEC filings. Actual results, events and performance may differ materially. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. The Company undertakes no obligation to release publicly the result of any revisions to these forward-looking statements that may be made to reflect events or circumstances after the date hereof or to reflect the occurence of unanticipated events. For a discussion of these risks and uncertainties, refer to the Company's annual report on Form 10-K for the fiscal year ended September 28, 1996 under the heading "Risk Factors" in Part I, Item 1. Business. The Company operates in a technologically advanced, dynamic and highly competitive environment. The Company's future operating results are and will continue to be subject to quarterly variations based on a variety of factors, many of which are beyond the Company's control, including fluctuations in customer orders and foreign currency exchange rates, among others. While the Company attempts to identify and respond to these conditions in a timely manner, such conditions represent significant risks to the Company's performance. Accordingly, if the level of orders diminishes during the next, or any future, quarter, or if for any reason the Company's shipments are disrupted (particularly near a quarter end when the Company typically ships a significant portion of its sales), it would have a material adverse effect on sales and earnings, and a corresponding adverse effect on the market price of the Company's stock. Similarly, the Company conducts a significant portion of its business internationally. International sales accounted for more than 53% of the Company's sales for fiscal 1996 and were 51% and 55% of total sales for the current quarter and nine months ended June 28, 1997, respectively. The Company expects that international sales will continue to account for a significant portion of its net sales in the future. The Company's international sales occur through its international subsidiaries, (some of which also perform research, development, manufacturing and service functions), and from exports from its U.S. operations. As a result, the Company's international sales and operations are subject to the risks of conducting business internationally, including fluctuations in foreign exchange rates, which could affect the sales price in local currencies of the Company's products in foreign markets as well as the Company's local costs and expenses of its foreign operations. The Company uses forward exchange and currency swap contracts, and other risk management techniques, to hedge its exposure to currency fluctuations relating to its intercompany transactions and certain firm foreign currency commitments; however, its international subsidiaries remain exposed to the economic risks of foreign currency fluctuations. For example, as discussed below under "Results of Operations", the strengthening of the U.S. dollar against certain major European and Japanese currencies had the effect of decreasing sales for the current quarter and year-to-date by $3.0 million and $9.0 million, respectively, compared to the corresponding prior year periods. There can be no assurance that such factors will not adversely impact the Company's operations in the future or require the Company to modify its current business practices. Coherent, Inc., a Delaware corporation, (herein referred to as "Coherent" or "Company") is a leading designer, manufacturer and supplier of electro-optical systems and medical instruments utilizing laser, precision optic and microelectronic technologies. The Company integrates these technologies into a wide variety of products and systems designed to meet the productivity and performance needs of its customers. Major markets include the scientific research community, medical 9 institutions, clinics and private practices, and commercial and OEM (original equipment manufacturer) applications ranging from semiconductor processing and disk mastering to light shows and entertainment. Coherent also produces and sells optical and laser components to other laser system manufacturers. The word "laser" is the acronym for "light amplification by stimulated emission of radiation." The emitted radiation oscillates within an optical resonator and is amplified by an active media, resulting in a monochromatic beam of light which is narrow, highly coherent and thus can be focused to a small spot with a high degree of precision. Since inception in 1966, the Company has grown through a combination of internal expansion, joint ventures and strategic acquisitions of companies with related technologies and products. Coherent is a technical leader in every market it serves. Driven by new product application innovations, Coherent has approximately 150 U.S. patents in force, and over the past several years has committed from 10% to 11% of annual revenues to research and development efforts. During its most recently completed fiscal year, more than half of the Company's annual sales came from products that were introduced within the last three years. Committed to quality and customer satisfaction, Coherent designs and produces many of its own components to retain quality control. Coherent provides customers with around-the-clock technical expertise and quality that is ISO 9000 certified at its principal manufacturing sites. Coherent is focused on laser product innovations. Leveraging its competitive strengths in laser technology development, new product applications, engineering R&D and manufacturing expertise, Coherent is dedicated to customer satisfaction, quality and service. Coherent's mission is to continue its tradition of providing medical, scientific and commercial customers with cost effective laser products that provide performance breakthroughs and application innovations. RESULTS OF OPERATIONS CONSOLIDATED SUMMARY The Company's net income for the nine months ended June 28, 1997 was $19.7 million ($1.68 per share) which includes the first quarter one-time $9.0 million ($0.77 per share) after tax write-off of purchased in-process technology. The Company's proforma net income (exclusive of this write-off) for the current quarter and nine months ended June 28, 1997 was $11.4 million ($.97 per share) and $28.7 million ($2.45 per share), respectively, compared to $7.9 million ($.68 per share) and $21.7 million ($1.89 per share), in the corresponding prior year periods. During the first quarter of fiscal 1997, the Company recorded the one-time after tax write-off resulting from the acquisitions of Tutcore OY Ltd. of Tampere, England and Micracor, Inc. of Acton, Massachusetts. Proforma income before income taxes increased $5.3 million (42%) and $10.1 million (29%) for the current quarter and year-to-date, respectively, compared to the prior year corresponding periods. The increases in proforma net income were primarily attributable to higher sales volumes, higher gross margins and a $2.2 million after tax gain on the Company's sale of its former headquarters facility when compared to the same periods a year ago. NET SALES AND GROSS PROFITS CONSOLIDATED The Company's net sales for the current quarter increased $13.0 million (15%) to $102.3 million from $89.3 million in the prior year's third quarter. Year-to-date sales increased $23.6 million (9%) to $287.2 million from $263.6 million one year ago. Due to the strengthening of the U.S. dollar against certain major European and Japanese currencies, sales were negatively impacted by $3.0 million and $9.0 million, respectively, for the current quarter and year-to-date. International sales represented 51% and 55% of sales for the quarter and nine months ended June 28, 1997, respectively. 10 The gross profit rate increased to 53% from 52% in the current quarter compared to the same quarter one year ago and increased to 53% from 51% for the nine months ended June 28, 1997, compared to the same period one year ago. ELECTRO-OPTICAL Electro-Optical net sales increased $5.8 million (11%) and $17.3 million (12%) for the third quarter and nine months ended June 28, 1997, respectively, compared to the corresponding prior year periods. The strengthening of the U.S. dollar against certain major European and Japanese currencies caused sales to be negatively impacted by $1.8 million and $5.1 million respectively, for the current quarter and year-to-date. Including the effect of the aforementioned strengthening of the U.S. dollar, international sales decreased $.7 million (3%) for the current quarter and increased $1.9 million (2%) year-to-date. Domestic sales increased $6.5 million (31%) and $15.4 million (28%) for both periods, compared to the same periods one year ago. Sales increased in all three operating groups primarily due to broader market acceptance of newer products introduced within the past two years and due in part to increased sales associated with business acquisitions. The gross profit rate decreased to 51% for the current quarter from 53% one year ago and remained at 52% for the nine months ended June 28, 1997, compared to the same period one year ago. The current quarter decrease resulted from higher manufacturing fixed costs relative to production volume and manufacturing variances on some new products. MEDICAL Medical net sales increased $7.2 million (19%) and $6.3 million (5%) for the third quarter and nine months ended June 28, 1997, respectively, compared to the corresponding prior year periods. The strengthening of the U.S. dollar against certain major European and Japanese currencies caused sales to be negatively impacted by $1.2 million and $3.9 million, respectively, for the current quarter and year-to-date. Including the effect of the aforementioned strengthening of the U.S. dollar, international sales increased $4.9 million (28%) and $16.8 million (34%) during the current quarter and nine months ended June 28, 1997, compared to the prior year periods, respectively. Domestic sales increased $2.3 million (12%) for the current quarter and decreased $10.5 million (15%) year-to-date, compared to the same prior year periods. The net increases were primarily attributable to increases in sales volumes from the reduction of substantial backlog accumulated during fiscal 1996 and from increased sales within the aesthetic product line, which includes the new VersaPulse products. The year-to-date decrease in domestic sales is primarily attributable to decreased sales of UltraPulse products. The gross profit rate increased to 56% during the current quarter from 50% one year ago and increased to 55% from 51% year-to-date compared to the same prior year period. The increases over the prior year resulted from manufacturing efficiencies associated with higher sales volumes, a more favorable product mix and increased sales through direct sales channels. OPERATING EXPENSES Third Quarter First Three Quarters 1997 1996 1997 1996 ------------------------------------------ (IN THOUSANDS) Research & development $ 9,949 $ 9,353 $ 27,397 $ 27,436 Purchased in-process technology 9,315 Selling, general & administrative 30,363 26,018 83,747 76,450 - -------------------------------------------------------------------------------- Total operating expenses $40,312 $35,371 $120,459 $103,886 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Total operating expenses increased $4.9 million (14%) and $16.6 million (16%) for the current quarter and nine months ended June 28, 1997, respectively, compared to the same periods a year ago. The increases are partially offset by the strengthening of the U.S. dollar against certain major European and Japanese currencies for the current quarter ($1.1 million) and year-to-date ($3.0 million). As a percentage of sales, operating expenses decreased to 39% for the current quarter from 40% a year 11 ago, however increased to 42% for the current year-to-date from 39% for the same period a year ago. Exclusive of the first quarter write-off of purchased in-process technology, operating expenses on a year-to-date basis increased only $7.3 million (7%) and remained at 39% of sales from one year ago. Research and development (R&D) expenses increased $.6 million (6%) for the current quarter and decreased less than $.1 million year-to-date, compared to the same periods a year ago. However, R&D expenses, at 10% of sales for both the current quarter and nine months ended June 28, 1997, were consistent with the same periods a year ago. The current quarter dollar increases were primarily due to increased headcount and activity levels in both the Electro-Optical and Medical business segments and due to business acquisitions in the Electro-Optical segment. Selling, general and administration (SG&A) expenses increased $4.3 million (17%) and $7.3 million (10%) for the current quarter and year-to-date, respectively, compared to the same periods a year ago. SG&A expenses increased to 30% of sales for the current quarter from 29% of sales a year ago, but remained at 29% of sales year-to-date, compared to the prior year period. The dollar increases were primarily due to increased sales and marketing expenses resulting from increased headcount in both business segments, higher activity levels including workshops and trade shows in the Medical business segment, and higher costs associated with the commencement of direct sales operations in Japan for both segments. Administration expense also increased due to the business acquisitions and new sales offices. OTHER INCOME (EXPENSE) Other income, net, increased $1.8 million during the current quarter and decreased $.1 million for the nine months ended June 28, 1997, compared to the corresponding prior year periods. The current quarter increase was primarily due to a gain on the Company's sale of its former headquarters facility ($3.5 million) offset by the previous year's gain on sale of the Company's holdings in another medical laser company ($1.6 million). The year-to-date decrease, net of the offsetting gain on the facility sale, was primarily due to lower interest income on lower average cash and investment balances, higher interest expense due to the fiscal 1996 capitalization of interest on the refurbishing of the Porter Drive building, higher foreign exchange losses due to the strengthening of the U.S. dollar against the major foreign currencies, and higher minority interest income from the improved performance in the Lambda Physik Group. INCOME TAXES The Company's effective tax rate for the current quarter was 37% compared to 38% for the same quarter last year. The Company's proforma effective tax rate for the nine months ended June 28, 1997 (excluding the $9.3 million write-off of purchased R&D) was also 37% compared to 39% for the same prior year period. The Company's effective tax rates for the quarter and year-to-date decreased as a result of increases in foreign tax credit utilization, foreign sales corporation benefit and changes in income by taxing jurisdiction. FINANCIAL CONDITION LIQUIDITY AND CAPITAL RESOURCES The Company's primary sources of liquidity are cash, cash equivalents and short-term investments of $26.2 million. Additional sources of liquidity are the Company's multi-currency line of credit and bank credit facilities totaling $53.4 million. As of June 28, 1997, the Company had $29.4 million unused and available under these credit facilities. 12 CHANGES IN FINANCIAL CONDITION Cash and cash equivalents increased by $2.7 million (29%) year-to-date. Operations and changes in exchange rates generated $12.7 million, including $12.1 million of net proceeds from the sale of short-term investments. Investing activities used $25.6 million, including $10.0 million used to acquire property and equipment, $9.5 million used to acquire Ealing Electro-Optical and $5.2 million, net, used to acquire Tutcore and Micracor. Financing activities provided $15.6 million through net borrowings of $11.1 million, primarily used for the financing ($9.5 million) of the acquisition of Ealing Electro-Optical, and $4.5 million from the sale of shares under employee stock plans. 13 PART II. OTHER INFORMATION ITEM 1. Material developments in connection with legal proceedings. N/A ITEM 2. Material modification of rights of registrant's securities. N/A ITEM 3. Defaults on senior securities. N/A ITEM 4. Submission of Matters to a Vote of Security Holders N/A ITEM 5. Other. N/A ITEM 6. Exhibits and Reports on Form 8-K. Exhibit 27 "Financial Data Schedules" included herewith. 14 COHERENT, INC. SIGNATURES Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized. COHERENT, INC. ---------------------------------- (Registrant) Date: August 4, 1997 By: Robert J. Quillinan ------------------------------------ Robert J. Quillinan Executive Vice President and Chief Financial Officer 15 EX-27 2 EXHIBIT 27
5 1,000 9-MOS SEP-27-1997 SEP-29-1996 JUN-28-1997 11,899 14,323 96,822 2,853 84,815 242,307 125,491 55,207 347,365 98,263 12,092 0 0 113 221,638 347,365 287,213 287,213 134,602 134,602 115,621 0 768 36,222 16,534 19,688 0 0 0 19,688 1.68 1.68
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