<PAGE>
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 December 31, 1994
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, 1995 was 10,541,191 shares.
<PAGE>
COHERENT, INC.
INDEX
Page No.
--------
Part I. Financial Information:
Consolidated Condensed Statements of Income --
Three months ended December 31, 1994
and December 25, 1993 3
Consolidated Condensed Balance Sheets --
December 31, 1994 and October 1, 1994 4
Consolidated Condensed Statements of Cash
Flows -- Three months ended December 31, 1994
and December 25, 1993 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 12
Signatures 13
2
<PAGE>
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
-------------
DECEMBER 31, DECEMBER 25,
1994 1993
- ----------------------------------------------------------------------
<S> <C> <C>
NET SALES $58,583 $47,026
COST OF SALES 28,845 24,091
- ----------------------------------------------------------------------
GROSS PROFIT 29,738 22,935
- ----------------------------------------------------------------------
OPERATING EXPENSES:
Research and development 6,668 5,520
Selling, general and administrative 17,571 14,821
- ----------------------------------------------------------------------
TOTAL OPERATING EXPENSES 24,239 20,341
- ----------------------------------------------------------------------
INCOME FROM OPERATIONS 5,499 2,594
OTHER INCOME (EXPENSE):
Interest and dividend income 558 459
Interest expense (314) (452)
Foreign exchange gain (loss) (95) (240)
Other - net 58 123
- ----------------------------------------------------------------------
TOTAL OTHER INCOME (EXPENSE), NET 207 (110)
- ----------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 5,706 2,484
PROVISION FOR INCOME TAXES 2,220 1,055
- ----------------------------------------------------------------------
NET INCOME $3,486 $1,429
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
NET INCOME PER COMMON
AND COMMON EQUIVALENT SHARE $ .33 $ .14
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING 10,675 10,258
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS.
3
<PAGE>
COHERENT, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PAR VALUE PER SHARE)
<TABLE>
<CAPTION>
DECEMBER 31, OCTOBER 1,
1994 1994
- ------------------------------------------------------------------------
ASSETS (Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and equivalents $12,940 $27,239
Short-term investments 22,647 16,534
Accounts receivable - net of allowances of
$2,389 in 1995 and $2,384 in 1994 49,851 49,074
Inventories 41,687 38,829
Prepaid expenses and other assets 11,466 11,066
Deferred tax assets 13,091 13,527
- ------------------------------------------------------------------------
TOTAL CURRENT ASSETS 151,682 156,269
- ------------------------------------------------------------------------
PROPERTY AND EQUIPMENT 82,868 82,569
ACCUMULATED DEPRECIATION AND AMORTIZATION (40,605) (39,362)
- ------------------------------------------------------------------------
Property and equipment - net 42,263 43,207
- ------------------------------------------------------------------------
GOODWILL - net of accumulated amortization
of $3,652 in 1995 and $3,497 in 1994 4,809 4,964
OTHER ASSETS 9,972 6,540
- ------------------------------------------------------------------------
$208,726 $210,980
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term borrowings $3,345 $4,361
Current portion of long-term obligations 4,591 4,708
Accounts payable 8,802 8,012
Income taxes payable 445 3,809
Other current liabilities 38,362 37,669
- ------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 55,545 58,559
- ------------------------------------------------------------------------
LONG-TERM OBLIGATIONS 7,975 8,865
OTHER LONG-TERM LIABILITIES 4,943 6,003
MINORITY INTEREST IN SUBSIDIARIES 1,734 4,089
STOCKHOLDERS' EQUITY:
Common stock, par value $.01
Authorized - 50,000 shares
Outstanding - 10,494 in 1995 and
10,338 in 1994 104 103
Additional paid-in capital 70,422 68,646
Unrealized gain on short-term investments 314
Notes receivable from stock sales (2,256) (1,981)
Retained earnings 67,643 64,157
Accumulated translation adjustment 2,302 2,539
- ------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 138,529 133,464
- ------------------------------------------------------------------------
$208,726 $210,980
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
</TABLE>
SEE NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS.
4
<PAGE>
COHERENT, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED; IN THOUSANDS)
<TABLE>
<CAPTION>
THREE
MONTHS ENDED
-------------
DECEMBER 31, DECEMBER 25,
1994 1993
- -------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN CASH AND EQUIVALENTS
OPERATING ACTIVITIES:
Net income $ 3,486 $1,429
Adjustments to reconcile to net cash
used for operating activities:
Purchases of short-term investments (26,699) (23,416)
Proceeds from sales of short-term investments 20,900 15,081
Changes in assets and liabilities (1,912) 2,895
Other adjustments (4,451) (1,082)
- -------------------------------------------------------------------------------
NET CASH USED FOR OPERATING ACTIVITIES (8,676) (5,093)
- -------------------------------------------------------------------------------
INVESTING ACTIVITIES:
Purchases of property and equipment - net (867) (846)
Purchase of asset held for investment (4,312)
Purchase of Vinten Electro-Optics Ltd. (1,500)
Other - net (171) 123
- -------------------------------------------------------------------------------
NET CASH USED FOR INVESTING ACTIVITIES (5,350) (2,223)
- -------------------------------------------------------------------------------
FINANCING ACTIVITIES:
Long-term debt borrowings 3
Long-term debt repayments (844) (2,151)
Notes payable borrowings 1,683 1,382
Notes payable repayments (2,649) (2,670)
Repayments of capital lease obligations (151) (134)
Sales of shares under employee benefit plans 1,374 1,355
Other 51
- -------------------------------------------------------------------------------
NET CASH USED FOR FINANCING ACTIVITIES (536) (2,215)
- -------------------------------------------------------------------------------
EFFECT OF EXCHANGE RATE CHANGES
ON CASH AND EQUIVALENTS 263 548
- -------------------------------------------------------------------------------
Net decrease in cash and equivalents (14,299) (8,983)
Cash and equivalents beginning of period 27,239 27,923
- -------------------------------------------------------------------------------
CASH AND EQUIVALENTS END OF PERIOD $12,940 $18,940
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
</TABLE>
See Notes to Consolidated Condensed Financial Statements.
5
<PAGE>
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 October 1, 1994. 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 1995 or 1994.
3. In December 1994, the Company purchased its former Porter Drive facility in
the Stanford Industrial Park for $4.3 million. The Company's intentions
are to refurbish the building for future resale or lease.
4. Balance Sheet Detail:
Inventories are stated at the lower of cost (first-in, first-out) or
market. Inventories are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, OCTOBER 1,
1994 1994
------------------------------------------------------------
(IN THOUSANDS)
<S> <C> <C>
Purchased parts and assemblies $ 13,939 $ 12,020
Work-in-process 14,336 14,714
Finished goods 13,412 12,095
------------------------------------------------------------
Net inventories $ 41,687 $ 38,829
------------------------------------------------------------
------------------------------------------------------------
</TABLE>
Prepaid expenses and other assets consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, OCTOBER 1,
1994 1994
------------------------------------------------------------
(IN THOUSANDS)
<S> <C> <C>
Prepaid income taxes $ 4,459 $ 4,686
Prepaid expenses and other 4,286 3,553
Notes receivable from Transfer
Technology Group plc 2,721 2,827
------------------------------------------------------------
Prepaid expenses and other assets $11,466 $11,066
------------------------------------------------------------
------------------------------------------------------------
</TABLE>
6
<PAGE>
Other assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, OCTOBER 1,
1994 1994
-------------------------------------------------------------------
(IN THOUSANDS)
<S> <C> <C>
Assets held for sale $1,544 $1,544
Assets held for investment (Note 3) 4,528 216
Other assets 3,900 4,780
-------------------------------------------------------------------
Other assets $9,972 $6,540
-------------------------------------------------------------------
-------------------------------------------------------------------
</TABLE>
Other current liabilities consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, OCTOBER 1,
1994 1994
-------------------------------------------------------------------
(IN THOUSANDS)
<S> <C> <C>
Accrued expenses and other $12,699 $10,924
Accrued payroll and benefits 10,904 12,407
Deferred service income 7,452 7,359
Reserve for warranty 5,712 5,418
Environmental remediation costs 1,026 1,062
Discontinued operations 569 499
-------------------------------------------------------------------
Other current liabilities $38,362 $37,669
-------------------------------------------------------------------
-------------------------------------------------------------------
</TABLE>
Other long-term liabilities consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, OCTOBER 1,
1994 1994
-------------------------------------------------------------------
(IN THOUSANDS)
<S> <C> <C>
Environmental remediation costs $ 1,992 $ 2,573
Deferred tax liabilities 1,501 1,952
Deferred income 1,450 1,478
-------------------------------------------------------------------
Other long-term liabilities $ 4,943 $ 6,003
-------------------------------------------------------------------
-------------------------------------------------------------------
</TABLE>
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, has been 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 Porter Drive facility is located. The responding parties to the
Regional Order (including the Company) have completed Remedial
Investigation and Feasibility Reports, which were approved by the State of
California. The responding parties have installed one remedial system and
the construction of three additional remedial systems was completed in
December 1994. The Company has reached agreement with responding parties
on final cost sharing.
7
<PAGE>
The Company was also named, along with other parties, to a remedial action
order for the Porter Drive 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.
Management believes that the Company's probable, nondiscounted net
liability at December 31, 1994 for remaining costs associated with the
above environmental matters is $1.5 million which has been previously
accrued. This amount consists of total estimated probable costs of $3.5
million ($1.0 million included in other current liabilities and $2.0
million included in other long-term liabilities) reduced by estimated
minimum probable recoveries of $1.5 million included in other assets from
other parties named to the order. Based on currently available
information, the Company believes that costs in excess of amounts accrued,
if any, relating to 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.
6. Certain prior year amounts have been reclassified to conform with the
current quarter presentation.
8
<PAGE>
COHERENT, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
CONSOLIDATED SUMMARY
The Company's pretax income during the current quarter increased $3.2
million (130%) to $5.7 million from $2.5 million in the prior year's first
quarter. Current quarter net income increased $2.1 million (144%) to $3.5
million ($.33 per share) from $1.4 million ($.14 per share) one year ago. This
increase in net income was primarily due to higher sales volumes, a higher gross
profit percentage, and a lower effective tax rate. The current quarter
effective tax rate was 39% compared to 42% in the prior year's first quarter.
RESULTS OF OPERATIONS
NET SALES AND GROSS PROFITS
Consolidated
During the first quarter of fiscal 1995, the Company's net sales increased
$11.6 million (25%) to $58.6 million from $47.0 million in the prior year's
first quarter. Sales increased in the Electro-Optical business segment by $3.8
million while sales in the Medical business segment increased $7.8 million.
International sales were 51% of net sales for the current quarter compared to
49% in the prior year's first quarter.
The gross profit rate increased to 51% in the current quarter from 49% one
year ago primarily due to higher sales volumes of higher margin products in the
Medical segment.
Electro-Optical
Electro-Optical net sales increased $3.8 million (13%) from the same period
a year ago. The increases of $2.2 million and $1.6 million, respectively, in
domestic and international sales were primarily due to higher sales volumes as a
result of new product introductions. Domestically, the increase was also due to
sales resulting from the April 1994 purchase of the beam diagnostic product line
from Big Sky Laser Technologies, Inc. by our Coherent Auburn Group.
Internationally, the higher sales volumes were realized primarily in the United
Kingdom and Japan.
The gross profit rate was 51% for both the current quarter and the prior
year's first quarter.
Medical
Medical net sales for the current quarter increased $7.8 million (43%)
from the same period a year ago. Domestic sales increased $4.3 million while
international sales increased $3.5 million from the same period a year ago.
The increases were primarily due to higher sales volumes as a result of new
applications for the Company's products in urology and aesthetic surgery, sales
of the Novus-Registered Trademark- Omni-TM- photocoagulator product line, and
increased sales of disposable products.
The gross profit rate increased in the current quarter to 51% from 46% in
the same period a year ago. This increase was primarily due to higher sales
volumes of higher margin products such as the Novus Omni and
VersaPulse-Registered Trademark- Select-TM- and due to manufacturing
efficiencies achieved as a result of the higher output.
9
<PAGE>
OPERATING EXPENSES
<TABLE>
<CAPTION>
First Quarter
1995 1994
---------------------
(IN THOUSANDS)
<S> <C> <C>
Research & development $ 6,668 $ 5,520
Selling, general & administrative 17,571 14,821
- ------------------------------------------------------------
Total operating expenses $ 24,239 $ 20,341
- ------------------------------------------------------------
- ------------------------------------------------------------
</TABLE>
Total operating expenses increased $3.9 million (19%) in the quarter ended
December 31, 1994 compared to the prior year's first quarter. This increase
resulted primarily from an increase in research and development (R&D) expenses
of $1.1 million (21%) and an increase in selling, general and administrative
(SG&A) expenses of $2.8 million (19%). However, as a percentage of sales, total
operating expenses have decreased to 41% in the current quarter compared to 43%
one year ago.
R&D expenses increased $1.1 million (21%) in the current quarter to $6.6
million from $5.5 million compared to the same period a year ago. Most of the
increase occurred in the Medical business segment primarily due to higher costs
associated with an increased level of products in clinical trials, higher costs
associated with increased efforts to develop dermatology, cosmetic and urology
products and increased efforts in fiber development.
SG&A expenses increased $2.8 million (19%) in the current quarter to $17.6
million from $14.8 million compared to the same period a year ago. This
increase was primarily due to increased sales and marketing expenses in the
Medical business segment due to a higher level of promotion and trade show
activity particularly for Urology and Cosmetic Surgery, and due to increased
costs associated with the higher sales volumes, and additional headcount. The
SG&A increase was also due in part to the current quarter write-down of an
investment in a corporation in which Coherent is a minority shareholder.
OTHER INCOME (EXPENSE)
Other income (expense), net, increased $0.3 million for the current
quarter to net other income of $0.2 million compared to net other expense of
$0.1 million for the same period a year ago. This increase was primarily due to
higher interest income of $0.1 million on higher average cash and investments,
lower interest expense of $0.1 million due to lower average debt balances and
lower foreign exchange losses of $0.1 million due to the effects of hedging
activity.
INCOME TAXES
The Company's effective tax rate for the three months ended December 31,
1994 was 39% compared to 42% for the same quarter a year ago. The Company's
fiscal 1994 and 1995 effective tax rates differ from the statutory rates
primarily because of state taxes and differing tax rates incurred by foreign
subsidiaries. The effective tax rate is based on projected annual results by
taxing jurisdiction and can change should the Company not achieve these
projected results.
FINANCIAL CONDITION
Liquidity and Capital Resources
The Company's primary sources of liquidity are cash, cash equivalents and
short-term investments of $35.6 million. Additional sources of liquidity are
the Company's multi-currency line of credit and bank credit facilities totaling
$20.6 million. As of December 31, 1994, the Company had $19.0 million unused and
available under these credit facilities.
10
<PAGE>
Changes in Financial Condition
Cash and cash equivalents decreased $14.3 million (52%) year-to-date.
Operations and changes in exchange rates used $8.4 million; short-term
investments increased $6.1 million. Investing activities used $5.4 million;
$5.2 million was used to acquire property and equipment (net of proceeds from
dispositions of property and equipment), including $4.3 million used to acquire
assets held for investment. Financing activities used $0.5 million; increased
repayments on borrowings, net used $1.9 million partially offset by sales of
shares under employee benefit plans (including tax benefits), net, which
generated $1.4 million.
Income taxes payable decreased $3.4 million (88%) from October 1, 1994 as
the Company had prepaid taxes at October 1, 1994 which were used for current
year estimated tax payments.
Minority interest in subsidiaries decreased $2.4 million (58%) from October
1, 1994 due to the dividend of retained earnings from Lambda Physik GmbH to
Coherent GmbH and due to a change in accounting for an investment from the
consolidation method to the equity method as a result of a decrease in the
Company's ownership percentage.
11
<PAGE>
COHERENT, INC.
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.
12
<PAGE>
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 6, 1995 By: /s/ ROBERT J QUILLINAN
----------------------
Robert J. Quillinan
Vice President and Chief Financial Officer
13
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-START> OCT-02-1994
<PERIOD-END> DEC-31-1994
<CASH> 12,940
<SECURITIES> 22,647
<RECEIVABLES> 57,936
<ALLOWANCES> 3,184
<INVENTORY> 41,687
<CURRENT-ASSETS> 151,682
<PP&E> 82,868
<DEPRECIATION> 40,605
<TOTAL-ASSETS> 208,726
<CURRENT-LIABILITIES> 55,545
<BONDS> 7,975
<COMMON> 104
0
0
<OTHER-SE> 138,425
<TOTAL-LIABILITY-AND-EQUITY> 208,726
<SALES> 58,583
<TOTAL-REVENUES> 58,583
<CGS> 28,845
<TOTAL-COSTS> 28,845
<OTHER-EXPENSES> 24,239
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 314
<INCOME-PRETAX> 5,706
<INCOME-TAX> 2,220
<INCOME-CONTINUING> 3,486
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,486
<EPS-PRIMARY> .33
<EPS-DILUTED> .32
</TABLE>
