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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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 December 25, 1993
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)
Registrant's telephone number, including area code: (408) 764-4000
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 January 31, 1994 was 10,108,560 shares.
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COHERENT, INC.
INDEX
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Page No.
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PART I. FINANCIAL INFORMATION:
Consolidated Condensed Statements of Income --
Three months ended December 25, 1993
and December 26, 1992 3
Consolidated Condensed Balance Sheets --
December 25, 1993 and September 25, 1993 4
Consolidated Condensed Statements of Cash
Flows -- Three months ended December 25, 1993
and December 26, 1992 5
Notes to Consolidated Condensed Financial Statements 6
Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
PART II. OTHER INFORMATION 11
Signatures 12
</TABLE>
2
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PART I. FINANCIAL INFORMATION
COHERENT, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(UNAUDITED; IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE
MONTHS ENDED
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December 25, December 26,
1993 1992
<S> <C> <C>
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NET SALES $47,026 $46,748
COST OF SALES 24,091 23,508
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GROSS PROFIT 22,935 23,240
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OPERATING EXPENSES:
Research and development 5,520 4,824
Selling, general and administrative 14,821 14,753
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TOTAL OPERATING EXPENSES 20,341 19,577
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INCOME FROM OPERATIONS 2,594 3,663
OTHER INCOME (EXPENSE):
Interest and dividend income 459 382
Interest expense (452) (447)
Foreign exchange losses (240) (40)
Other - net 123 384
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TOTAL OTHER INCOME (EXPENSE), NET (110) 279
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INCOME FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES 2,484 3,942
PROVISION FOR INCOME TAXES 1,055 1,462
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INCOME FROM CONTINUING OPERATIONS 1,429 2,480
LOSS FROM DISCONTINUED OPERATIONS
(NET OF TAX BENEFIT OF $552) (653)
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INCOME BEFORE CUMULATIVE
EFFECT OF CHANGE IN ACCOUNTING
FOR INCOME TAXES 1,429 1,827
CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING FOR INCOME TAXES 5,637
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NET INCOME $1,429 $7,464
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COMMON AND COMMON EQUIVALENT SHARES 10,258 9,813
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COMMON AND COMMON EQUIVALENT PER
SHARE DATA:
INCOME FROM CONTINUING OPERATIONS $ .14 $ .25
LOSS FROM DISCONTINUED OPERATIONS (.06)
CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING FOR INCOME TAXES .57
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NET INCOME $ .14 $ .76
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</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS.
3
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COHERENT, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PAR VALUE PER SHARE)
<TABLE>
<CAPTION>
December 25, September 25,
1993 1993
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<S> <C> <C>
ASSETS (Unaudited)
CURRENT ASSETS:
Cash and equivalents $ 18,940 $ 27,923
Short-term investments 17,530 9,195
Accounts receivable - net of allowances of
$3,051 in 1994 and $3,025 in 1993 42,160 43,806
Other receivables, net 7,808 7,215
Inventories 37,095 35,792
Prepaid expenses and other assets 5,524 7,070
Net assets of discontinued operations 137 137
Deferred tax assets 11,970 13,119
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TOTAL CURRENT ASSETS 141,164 144,257
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PROPERTY AND EQUIPMENT 75,087 72,582
ACCUMULATED DEPRECIATION AND AMORTIZATION (36,900) (33,976)
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Property and equipment - net 38,187 38,606
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GOODWILL - net of accumulated amortization of
$3,088 in 1994 and $2,949 in 1993 4,898 4,772
NET ASSETS OF DISCONTINUED OPERATIONS 1,877 1,916
OTHER ASSETS 3,271 4,245
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$189,397 $193,796
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable $ 4,230 $ 5,666
Current portion of long-term obligations 3,617 3,832
Accounts payable 6,589 7,041
Income taxes payable 20 1,355
Other current liabilities 36,399 38,068
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TOTAL CURRENT LIABILITIES 50,855 55,962
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LONG-TERM OBLIGATIONS 12,015 14,122
DEFERRED INCOME 1,500 1,340
DEFERRED TAX LIABILITIES 1,643 1,543
MINORITY INTEREST IN SUBSIDIARIES 3,947 3,806
STOCKHOLDERS' EQUITY:
Common stock, par value $.01
Authorized - 50,000 shares
Outstanding - 10,101 in 1994 and 9,913 in 1993 101 98
Additional paid-in capital 65,899 64,457
Notes receivable from stock sales (1,334) (1,310)
Retained earnings 54,131 52,702
Accumulated translation adjustment 640 1,076
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TOTAL STOCKHOLDERS' EQUITY 119,437 117,023
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$189,397 $193,796
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</TABLE>
SEE NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS.
4
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COHERENT, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED; IN THOUSANDS)
<TABLE>
<CAPTION>
THREE
MONTHS ENDED
-------------
December 25, December 26,
1993 1992
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<S> <C> <C>
INCREASE (DECREASE) IN CASH AND EQUIVALENTS
OPERATING ACTIVITIES:
Net income $ 1,429 $ 7,464
Adjustments to reconcile to net cash
provided by operating activities:
Discontinued operations 653
Cumulative effect of change in accounting
for income taxes (5,637)
Changes in assets and liabilities 2,895 2,869
Other adjustments (1,082) 1,722
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Net Cash Provided by Operating Activities 3,242 7,071
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INVESTING ACTIVITIES:
Purchases of short-term investments (23,416) (21,673)
Proceeds from sales of short-term investments 15,081 15,497
Purchases of property and equipment - net (846) (3,263)
Purchase of Vinten Electro-Optics Ltd. (1,500)
Other - net 123 (270)
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Net Cash Used For Investing Activities (10,558) (9,709)
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FINANCING ACTIVITIES:
Long-term debt borrowings 3 150
Long-term debt repayments (2,151) (757)
Notes payable borrowings 1,382 744
Notes payable repayments (2,670) (1,132)
Repayments of capital lease obligations (134)
Sales of shares under employee benefit plans 1,355 624
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Net Cash Used For Financing Activities (2,215) (371)
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EFFECT OF EXCHANGE RATE CHANGES
ON CASH AND EQUIVALENTS 548 (143)
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Net decrease in cash and equivalents (8,983) (3,152)
Cash and equivalents beginning of period 27,923 17,643
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CASH AND EQUIVALENTS END OF PERIOD $18,940 $14,491
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</TABLE>
SEE NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS.
5
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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 used to prepare the Company's annual report to
stockholders for the fiscal year ended September 25, 1993. All
adjustments, in the opinion of management, 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 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.
Common share equivalents represent outstanding stock options and shares
subscribed under the Employee Stock Purchase Plan.
No dividends were paid in fiscal 1994 or 1993.
3. Inventories are stated at the lower of cost (first-in, first-out) or
market. Inventories are as follows:
<TABLE>
<CAPTION>
December 25, September 25,
1993 1993
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(IN THOUSANDS)
<S> <C> <C>
Purchased parts and assemblies $12,713 $11,556
Work-in-process 13,344 12,859
Finished goods 11,038 11,377
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$37,095 $35,792
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</TABLE>
4. Other current liabilities consist of the following:
<TABLE>
<CAPTION>
December 25, September 25,
1993 1993
- --------------------------------------------------------------------------------
(IN THOUSANDS)
<S> <C> <C>
Accrued expenses $11,797 $11,930
Accrued payroll and benefits 8,117 9,288
Customer deposits 1,171 564
Reserve for warranty 5,201 5,814
Deferred service income 6,909 7,135
Discontinued operations 3,204 3,337
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Other current liabilities $36,399 $38,068
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</TABLE>
5. In October 1993, the Company acquired the business and net assets of Vinten
Electro-Optics Ltd. (VEOL), a wholly-owned subsidiary of Vinten Group plc
located in Leicester, England, for approximately $1.5 million in cash. The
acquisition has been accounted for as a purchase and accordingly, the
Company has recorded approximately $0.3 million of goodwill. VEOL is a
supplier of optical components and windows for infra-red imaging systems
built in Western Europe. The subsidiary will operate as Coherent Optics
Europe Ltd. (COEL). COEL had current quarter sales of approximately $1.2
million.
6. Effective February 2, 1994, the Company purchased its previously leased
optics facility located at 2301 Lindbergh Street, Auburn, California for
$3.7 million in cash.
6
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7. Loss from discontinued operations of $0.7 million ($.06 per share) in the
prior year's first quarter resulted from net sales of $38.4 million.
8. 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 condensed financial
position or results of operations.
For several years, agencies of the State of California have been conducting
an investigation of soil and groundwater contamination at and in the
vicinity of the Stanford Industrial Park in Palo Alto, California, where
the Company's Laser Group was formerly located. During fiscal 1989, the
Company, as expected, was named, along with several other companies, as a
respondent on a remedial action order issued by the California Department
of Toxic Substance Control for a Regional Area adjacent to Stanford
Industrial Park. The Responding Parties to the Regional Order (which
includes the Company) have submitted Remedial Investigation and Feasibility
Reports to the State of California. The Responding Parties have installed
one initial remedial system and construction of three additional initial
remedial systems is scheduled for completion in June 1994. The Company's
interim cost share of this Regional Investigation and Remedial Action was
$0.1 million in both the current quarter and in the first quarter of fiscal
1993.
The Company was also named, along with other parties, to a remedial
action order for the former facility site itself in Stanford Industrial
Park. The State of California has approved the Remedial Investigation and
Feasibility Study Reports prepared by the Company for this site. The
Company has been operating remedial systems at the site to remove
subsurface chemicals since April 1992. The Company has submitted a draft
Remedial Action Plan to the State of California which defines the
supplemental systems needed to complete remedial work. The Company
incurred actual costs of $0.2 million in the first quarter of fiscal 1994,
relating to the Site Investigation and Remedial Action, compared to $0.1
million in the first quarter of fiscal 1993. Management anticipates that
past and future site costs will be shared with the other parties currently
named to the order.
Although the Company cannot presently estimate its ultimate liability
relating to the remediation of the soil and groundwater contamination
described above, preliminary management estimates anticipate such liability
to approximate $1.5 million which the Company has accrued in fiscal 1992
and 1993. Based on currently available information, the Company believes
the investigation and remedial action which may be required by the agencies
of the State of California, will not have a material adverse effect on the
consolidated financial position or results of operations of the Company.
9. Certain amounts in the September 25, 1993 consolidated condensed balance
sheet have been reclassed to conform with the current year presentation.
7
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COHERENT, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
CONSOLIDATED SUMMARY
The Company's net income for the first quarter ended December 25, 1993 was
$1.4 million ($.14 per common share) compared to net income of $7.5 million
($.76 per common share) in the prior year's first quarter. Results for the
prior year's first quarter have been restated to include a one-time favorable
adjustment of $5.6 million ($.57 per share) resulting from the adoption of
Statement of Financial Accounting Standards (SFAS) 109, "Accounting for Income
Taxes" and a $0.7 million loss, ($.06 per share), net of tax benefit, due to
the divestiture of the Industrial business segment in the quarter ending
September 1993. Income from continuing operations before income taxes decreased
$1.5 million (37%) to $2.5 million from the same period a year ago. This
decrease was primarily due to higher research and development (R&D) expenses of
$0.7 million, a 1% decline in the gross profit rate to 49% for the current
quarter and a $0.3 million net gain in the prior year on certain investments.
Additionally, the effective tax rate for the current quarter increased to 42%
from 37% due to a change in the distribution of earnings and losses in different
tax jurisdictions at different tax rates.
All prior year amounts have been adjusted to reflect the discontinued
operations of the Company's Industrial segment.
RESULTS OF OPERATIONS
NET SALES AND GROSS PROFITS
Consolidated
During the first quarter of fiscal 1994, the Company's net sales increased
$0.3 million (1%) to $47.0 million from $46.7 million in the prior year's first
quarter. Sales increased in the Electro-Optical segment by $1.5 million while
sales decreased in the Medical segment by $1.2 million.
The gross profit rate decreased to 49% in the current quarter from 50% one
year ago. This decrease was primarily due to lower sales volumes of higher
margin products and start-up costs associated with new products in Coherent's
Medical segment partially offset by improved cost efficiencies in Coherent's
Electro-Optical segment.
Electro-Optical
Electro-Optical net sales increased $1.5 million (6%) from the same prior
year period. This increase resulted primarily from higher sales volumes in the
Coherent Laser Group as well as higher optics sales volumes in Coherent's Auburn
Group due to the current quarter purchase of Vinten Electro-Optics Ltd. in
Leicester, England. These increases were partially offset by a decrease in
sales at the Company's subsidiary, Lambda Physik.
The gross profit rate increased to 51% in the current quarter from 49% in
the prior year period. This increase is due primarily to higher margins on
increased sales volumes and cost efficiencies.
Medical
Medical net sales for the current quarter decreased $1.2 million (6%) from
the same period a year ago. International sales declined $0.4 million and
domestic sales declined $0.8 million in the current quarter. International
sales decreased primarily due to lower sales volumes in Germany
8
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resulting from uncertainty caused by the reorganization of Germany's health
system and due in part to lower sales volumes in Japan, partially offset by
higher sales volumes in the United Kingdom. Domestic sales decreased primarily
due to lower sales volumes resulting from product transitions and a difficult
market environment caused in part by the proposed changes in the U.S. healthcare
industry.
The gross profit rate decreased in the current quarter to 46% from 51% in
the same period a year ago. This decrease resulted primarily from lower sales
volumes of higher margin products and start-up costs associated with new product
introductions.
<TABLE>
<CAPTION>
OPERATING EXPENSES
First Quarter
1994 1993
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(IN THOUSANDS)
<S> <C> <C>
Research & development $ 5,520 $ 4,824
Selling, general & administrative 14,821 14,753
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Total operating expenses $20,341 $19,577
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</TABLE>
Total operating expenses increased $0.8 million (4%) in the quarter ended
December 25, 1993 compared to the prior year's first quarter. This increase
resulted primarily from higher research and development (R&D) expenses of $0.7
million (14%) and a slight increase in selling, general and administrative
(SG&A) expenses of $0.1 million (1%). As a percentage of sales, total operating
expenses increased to 43% from 42% a year ago.
Research and development (R&D) expenses increased $0.7 million (14%) in the
current quarter compared to the same period a year ago primarily due to higher
costs for more product introductions planned for the next three quarters
compared to the same periods a year ago and increased costs for clinical
activity necessary to obtain FDA approval to sell medical products.
Selling, general and administrative expenses increased slightly by $0.1
million (1%) in the current quarter compared to the same period a year ago.
Selling and marketing expenses increased primarily due to the purchase of VEOL
and additional headcount in our European sales subsidiaries. This increase was
partially offset by a decrease in administrative expenses as bad debt and bonus
expenses were lower during the current quarter compared to the same period a
year ago.
OTHER INCOME (EXPENSE)
Other income (expense), net, decreased $0.4 million (139%) for the current
quarter compared to the same period a year ago. This decrease was primarily
due to the prior year's $0.3 million net gain on certain investments and $0.2
million higher foreign exchange losses in the current quarter as the U.S. dollar
strengthened against the German mark. These decreases were partially offset by
$0.1 million higher interest and dividend income in the current quarter due to
higher average cash, cash equivalents and short-term investment balances.
INCOME TAXES
The Company's effective tax rate for the three months ended December 25,
1993 was 42% compared to 37% for the same quarter a year ago. The Company's
fiscal 1993 and 1994 effective tax rates differ from the statutory rates
primarily because profitable operations for foreign subsidiaries are taxed at
rates different from that of the U.S. rate. The effective tax rate is based on
projected annual results by taxing jurisdiction and can change should the
Company not achieve these projected results.
9
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FINANCIAL CONDITION
Liquidity and Capital Resources
The Company's primary sources of liquidity are cash, cash equivalents and
short-term investments of $36.5 million. Additional sources of liquidity are
the Company's multi-currency line of credit and bank credit facilities totaling
$22.6 million. As of December 25, 1993, the Company had $19.6 million unused
and available under these credit facilities. Effective February 2, 1994, the
Company purchased its previously leased optics facility located in Auburn,
California for $3.7 million in cash. The Company is planning to fund this
purchase through outside financing. In addition, at December 25, 1993, the
Company had $1.1 million included in notes payable that represented the
reclassification of outstanding checks in excess of related bank balances. In
conjunction with such credit facilities and a letter of guarantee on revenue
bonds from financial institutions, the Company is required to meet certain
restrictive covenants. These covenants require the Company to achieve certain
financial ratios, maintain prescribed levels of working capital and tangible net
worth, achieve specific operating and net income performance levels, and
restrict payment of dividends. The Company also has equipment financing
arrangements that are payable over five years with varying interest rates.
In January 1994, the German Federal Ministry for Research and Technology
("FMRT") and the Company's subsidiary, Lambda Physik GmbH, reached a settlement
agreement to conclude the investigation by the FMRT of government research
grants received by Lambda Physik. The agreement provided for Lambda Physik
returning approximately DM 3.0 million including interest ($1.7 million) of
grant money to the FMRT. At September 25, 1993, the Company had reserved an
amount sufficient for this contingency. Accordingly, the settlement is not
expected to have a material adverse effect on the Company's results of
operations or financial position.
Changes in Financial Condition
Cash and cash equivalents decreased $9.0 million (32%) year-to-date.
Operations and changes in exchange rates generated $3.2 million and $0.5
million, respectively. Investing activities used $10.5 million; $8.3 million
was used to purchase short-term investments, net, $0.8 million was used to
acquire property and equipment, net, $1.5 million was used to acquire VEOL and
other investing activities used $0.1 million. Financing activities used $2.2
million; debt repayments used $5.0 million which were partially offset by
additional borrowings of $1.4 million and sales of shares under employee benefit
plans (including tax benefits) of $1.4 million.
Prepaid expenses and other assets decreased $1.5 million (22%) from
September 25, 1993 primarily due to a decrease in prepaid taxes.
Income taxes payable decreased $1.3 million (99%) from September 25, 1993
as the Company had prepaid taxes at September 25, 1993 which were used for
current year estimated tax payments.
Accrued payroll and benefits decreased $1.2 million (13%) from September
25, 1993 primarily due to higher payroll accruals at fiscal year-end due to
timing of payments.
10
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COHERENT, INC.
PART II. OTHER INFORMATION
<TABLE>
<CAPTION>
<S> <C>
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.
N/A
</TABLE>
11
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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: February 4, 1994 By: ROBERT J. QUILLINAN
---------------------------
Robert J. Quillinan
Vice President and Chief Financial Officer
12
