<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 March 29, 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 April 26, 1997 was 11,320,558 shares.
<PAGE>
COHERENT, INC.
INDEX
Page No.
PART I. FINANCIAL INFORMATION:
Consolidated Condensed Statements of Income --
Three months and six months ended March 29, 1997
and March 30, 1996 3
Consolidated Condensed Balance Sheets --
March 29, 1997 and September 28, 1996 4
Consolidated Condensed Statements of Cash Flows --
Six months ended March 29, 1997 and March 30, 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
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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 SIX
MONTHS ENDED MONTHS ENDED
------------ ------------
MARCH 29, March 30, MARCH 29, March 30,
1997 1996 1997 1996
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET SALES $90,985 $90,552 $184,878 $174,233
COST OF SALES 42,005 43,831 86,848 85,156
- ------------------------------------------------------------------------------------------------------------
GROSS PROFIT 48,980 46,721 98,030 89,077
- ------------------------------------------------------------------------------------------------------------
OPERATING EXPENSES:
Research and development 8,723 9,621 17,448 18,083
Purchased in-process technology 9,315
Selling, general and administrative 26,201 25,986 53,384 50,432
- ------------------------------------------------------------------------------------------------------------
TOTAL OPERATING EXPENSES 34,924 35,607 80,147 68,515
- ------------------------------------------------------------------------------------------------------------
INCOME FROM OPERATIONS 14,056 11,114 17,883 20,562
OTHER INCOME (EXPENSE):
Interest and dividend income 403 671 758 1,347
Interest expense (218) (476) (28)
Foreign exchange gain (loss) (355) (12) (487) 3
Other - net 194 342 528 829
- ------------------------------------------------------------------------------------------------------------
TOTAL OTHER INCOME, NET 24 1,001 323 2,151
- ------------------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 14,080 12,115 18,206 22,713
PROVISION FOR INCOME TAXES 5,210 4,764 9,868 8,897
- ------------------------------------------------------------------------------------------------------------
NET INCOME $ 8,870 $ 7,351 $ 8,338 $ 13,816
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
NET INCOME PER COMMON AND
COMMON EQUIVALENT SHARE $ 0.76 $ 0.64 $ 0.71 $ 1.21
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING 11,737 11,507 11,669 11,456
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
3
<PAGE>
COHERENT, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(UNAUDITED; IN THOUSANDS, EXCEPT PAR VALUE PER SHARE)
<TABLE>
<CAPTION>
MARCH 29, September 28,
1997 1996
- -----------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and equivalents $ 19,843 $ 9,214
Short-term investments 7,273 25,421
Accounts receivable - net of allowances of
$2,551 in 1997 and $3,285 in 1996 78,221 83,360
Inventories 76,427 65,835
Prepaid expenses and other assets 14,437 11,519
Deferred tax assets 22,984 23,071
- -----------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 219,185 218,420
- -----------------------------------------------------------------------------------
PROPERTY AND EQUIPMENT 129,637 117,069
ACCUMULATED DEPRECIATION AND AMORTIZATION (54,343) (52,468)
- -----------------------------------------------------------------------------------
Property and equipment - net 75,294 64,601
- -----------------------------------------------------------------------------------
GOODWILL - net of accumulated amortization of
$6,457 in 1997 and $5,717 in 1996 10,439 10,639
OTHER ASSETS 20,188 17,856
- -----------------------------------------------------------------------------------
$ 325,106 $ 311,516
- -----------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term borrowings $ 6,774 $ 4,160
Current portion of long-term obligations 4,141 4,221
Accounts payable 18,271 12,425
Income taxes payable 10,344 12,395
Other current liabilities 51,936 61,666
- -----------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 91,466 94,867
- -----------------------------------------------------------------------------------
LONG-TERM OBLIGATIONS 9,935 3,921
OTHER LONG-TERM LIABILITIES 11,491 12,403
MINORITY INTEREST IN SUBSIDIARIES 3,620 2,738
STOCKHOLDERS' EQUITY:
Common stock, par value $.01
Authorized - 50,000 shares
Outstanding 11,319 in 1997 and 11,211 in 1996 112 111
Additional paid-in capital 85,872 82,939
Notes receivable from stock sales (344) (845)
Retained earnings 122,132 113,794
Accumulated translation adjustment 822 1,588
- -----------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 208,594 197,587
- -----------------------------------------------------------------------------------
$ 325,106 $ 311,516
- -----------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS.
4
<PAGE>
COHERENT, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED; IN THOUSANDS)
<TABLE>
<CAPTION>
SIX
MONTHS ENDED
------------
MARCH 29, March 30,
1997 1996
- -------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN CASH AND EQUIVALENTS
OPERATING ACTIVITIES:
Net income $ 8,338 $ 13,816
Adjustments to reconcile to net cash
provided by operating activities:
Write-off of purchased in-process technology 9,315
Purchases of short-term investments (29,796) (54,124)
Proceeds from sales of short-term investments 48,500 42,532
Changes in assets and liabilities (17,602) 10,571
Other adjustments 7,902 2,760
- -------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 26,657 15,555
- -------------------------------------------------------------------------------------
INVESTING ACTIVITIES:
Purchases of property and equipment - net (14,649) (7,031)
Acquisition of Tutcore and Micracor,
net of cash acquired (5,200)
Acquisition of Japan distribution rights (5,048)
Other - net (812) (5,440)
- -------------------------------------------------------------------------------------
NET CASH USED FOR INVESTING ACTIVITIES (20,661) (17,519)
- -------------------------------------------------------------------------------------
FINANCING ACTIVITIES:
Long-term debt borrowings 1,048 1,305
Long-term debt repayments (2,682) (2,821)
Notes payable borrowings 9,733 3,213
Notes payable repayments (6,432) (5,821)
Repayments of capital lease obligations (45)
Sales of shares under employee stock plans 2,652 2,007
- -------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES 4,319 (2,162)
- -------------------------------------------------------------------------------------
EFFECT OF EXCHANGE RATE CHANGES
ON CASH AND EQUIVALENTS 314 (170)
- -------------------------------------------------------------------------------------
Net increase (decrease) in cash and equivalents 10,629 (4,296)
Cash and equivalents beginning of period 9,214 20,426
- -------------------------------------------------------------------------------------
CASH AND EQUIVALENTS END OF PERIOD $ 19,843 $ 16,130
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING 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 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 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 six months ended March 29, 1997 are $0.79 and $.74, respectively,
compared to $.67 and $1.26 for the same prior year periods. Proforma
diluted earnings per share for the same current fiscal year periods are
$0.76 and $.71 respectively, compared to $.64 and $1.21 for the same
periods in the prior year.
No dividends were paid in fiscal 1997 or 1996.
3. 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
$1.1 million (consisting of $1.0 million of cash and $0.1 million of
acquisition costs). Micracor manufacturers 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 $11.3 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.
6
<PAGE>
4. Balance Sheet Detail:
Inventories are stated at the lower of cost (first-in, first-out) or
market. Inventories are as follows:
<TABLE>
<CAPTION>
March 29, September 28,
1997 1996
-----------------------------------------------------------------------------
(IN THOUSANDS)
<S> <C> <C>
Purchased parts and assemblies $ 20,969 $ 18,446
Work-in-process 27,726 24,244
Finished goods 27,732 23,145
-----------------------------------------------------------------------------
Net inventories $ 76,427 $ 65,835
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
</TABLE>
Prepaid expenses and other assets consist of the following:
<TABLE>
<CAPTION>
March 29, September 28,
1997 1996
-----------------------------------------------------------------------------
(IN THOUSANDS)
<S> <C> <C>
Prepaid expenses and other $ 8,342 $ 5,339
Prepaid income taxes 6,095 6,180
-----------------------------------------------------------------------------
Prepaid expenses and other assets $ 14,437 $ 11,519
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
</TABLE>
Other assets consist of the following:
<TABLE>
<CAPTION>
March 29, September 28,
1997 1996
-----------------------------------------------------------------------------
(IN THOUSANDS)
<S> <C> <C>
Assets held for investment $ 1,435 $ 1,491
Intangibles and other assets 18,753 16,365
-----------------------------------------------------------------------------
Other assets $ 20,188 $ 17,856
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
</TABLE>
Other current liabilities consist of the following:
<TABLE>
<CAPTION>
March 29, September 28,
1997 1996
-----------------------------------------------------------------------------
(IN THOUSANDS)
<S> <C> <C>
Accrued payroll and benefits $ 16,932 $ 20,264
Accrued expenses and other 13,929 13,278
Deferred income 10,241 9,028
Reserve for warranty 8,360 9,450
Customer deposits 2,155 1,689
Cash overdrafts 319 7,957
-----------------------------------------------------------------------------
Other current liabilities $ 51,936 $ 61,666
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
</TABLE>
7
<PAGE>
Other long-term liabilities consist of the following:
<TABLE>
<CAPTION>
March 29, September 28,
1997 1996
-----------------------------------------------------------------------------
(IN THOUSANDS)
<S> <C> <C>
Deferred income and other $ 5,794 $ 4,688
Deferred tax liabilities 3,937 5,955
Environmental remediation costs 1,760 1,760
-----------------------------------------------------------------------------
Other long-term liabilities $ 11,491 $ 12,403
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
</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, 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 Porter Drive 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 Porter Drive 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 March 29, 1997 for remaining costs associated with the above
environmental matters is $0.8 million which has been previously accrued.
This amount consists of total estimated probable costs of $2.1 million
($0.3 million included in other current liabilities and $1.8 million
included in other long-term liabilities) reduced by estimated minimum
probable recoveries of $1.3 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
<PAGE>
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 55% and 57% of total sales for the
current quarter and six months ended March 29, 1997. 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 $3.5 million and $6.0 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
<PAGE>
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 six months ended March 29, 1997 was $8.3
million ($0.71 per share) which includes the first quarter one-time $9.0
million ($0.78 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 six months ended March 29, 1997 was $8.9 million
($.76 per share) and $17.3 million ($1.49 per share), respectively, compared to
$7.4 million ($.64 per share) and $13.8 million ($1.21 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, Finland and Micracor, Inc. of
Action, Massachusetts. Proforma income before income taxes increased $2.0
million (16%) and $4.8 million (21%) 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 gross margins in
the current quarter and higher sales volumes and gross margins, year-to-date,
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 $0.4 million
(.5%) to $91.0 million from $90.6 million in the prior year's second quarter.
Year-to-date sales increased $10.6 million (6%) to $184.9 million from $174.2
million one year ago. Due to the strengthening of the U.S. dollar against
10
<PAGE>
certain major European and Japanese currencies, sales were negatively impacted
by $3.5 million and $5.9 million, respectively, for the current quarter and
year-to-date. International sales represented 55% and 57% of sales for the
quarter and six months ended March 29, 1997, respectively.
The gross profit rate increased to 54% from 52% in the current quarter
compared to the same quarter one year ago and increased to 53% from 51% for the
six months ended March 19, 1997, compared to the same period one year ago.
ELECTRO-OPTICAL
Electro-Optical net sales increased $2.2 million (4%) and $11.6 million
(12%) for the second quarter and six months ended March 29, 1997, respectively,
compared to the corresponding prior year periods. Due to the strengthening of
the U.S. dollar against certain major European and Japanese currencies, sales
were negatively impacted by $1.8 million and $3.3 million for the current
quarter and year-to-date, respectively. Sales increased across all three
operating groups due to higher sales volumes (primarily with OEMs).
The gross profit rate increased to 54% and 52% for the current quarter and
year-to-date, compared to 51% for both corresponding prior year periods. The
increases in gross margin were primarily attributable to higher average selling
prices (primarily with the Lambda Physik Group), lower warranty costs, and
manufacturing efficiencies.
MEDICAL
Medical net sales decreased by $1.8 million (4%) and $0.9 million (1%) for
the second quarter and six months ended March 29, 1997, respectively, compared
to the corresponding prior year periods. Due to the strengthening of the U.S.
dollar against certain major European and Japanese currencies, sales were
negatively impacted by $1.7 million and $2.7 million during the current quarter
and year-to-date, respectively. The sales decreases were primarily
attributable to manufacturing delays within the group's VersaPulse C and VPW
product lines. Additionally, in the prior year corresponding periods,
Ultrapulse shipments were substantially higher than orders, as production
caught up with the large backlog created by product introduction.
The gross profit rate increased to 54% from 51% for the current quarter
and year-to-date compared to the same periods a year ago. The increases in
gross margins were primarily due to a more favorable product mix, higher sales
volumes through direct channels versus distributor arrangements, lower
commission payments on certain licensing agreements, and lower warranty costs.
OPERATING EXPENSES
<TABLE>
<CAPTION>
Second Quarter First Half
1997 1996 1997 1996
- ---------------------------------------------------------------------------------------------------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Research & development $ 8,723 $ 9,621 $ 17,448 $ 18,083
Purchased in-process technology 9,315
Selling, general & administrative 26,201 25,986 53,384 50,432
- ---------------------------------------------------------------------------------------------------------------
Total operating expenses $ 34,924 $ 35,607 $ 80,147 $ 68,515
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
Total operating expenses decreased $0.7 million (2%) during the second
quarter compared to the same period last year and as a percentage of sales
decreased to 38% from 39%. Year-to-date, total operating expenses increased
$11.6 million (17%) from the same prior year period and as a percentage of
sales increased to 43% from 39%. Exclusive of the first quarter write-off of
purchased in-process technology, operating expenses on a year-to-date basis
increased only $2.3 million (3%) and decreased as a percentage of sales to 38%
from 39% one year ago.
11
<PAGE>
Research and development (R&D) expense decreased $0.9 million (9%) during
the current quarter compared to the same period last year and as a percentage
of sales, decreased to 10% from 11%. Year-to-date, R&D expense (exclusive of
the aforementioned write-off of purchased in-process technology) decreased $0.6
million (4%) compared to the same period one year ago and decreased as a
percentage of sales decreased from 10% to 9%. The decreases are primarily due
to the timing of projects as costs are lower in start-up and wrap-up phases.
Furthermore, during the six months ended March 29, 1997, the Company's Medical
segment was focusing on the resolution of technical matters related to
VersaPulse C and VPW products.
Sales, marketing and service expense increased $1.7 million (10%) for the
current quarter and increased as a percentage of sales from 19% to 21% compared
to the same period last year. Year-to-date, such expenses increased $3.2
million (9%) but as a percentage of sales remained at 20% compared to the same
period last year. The increases were due primarily to increased headcount and
activity levels for the Medical business segment in the U.S., Scandinavia, and
China. Furthermore, direct sales force in Japan was added in until the second
quarter of fiscal 1996. These increases were partially offset by the impact of
changes in foreign exchange rates on international expenses.
Administration expense decreased $1.5 million (18%) and $0.3 million (2%)
for the current quarter and year-to-date respectively, compared to the same
periods a year ago. As a percentage of sales, such expenses decreased 2% and
1%, respectively. The decreases are primarily due to lower legal costs,
management bonuses and other.
OTHER INCOME (EXPENSE)
Other income, net, decreased $1.0 million during the current quarter and
decreased $1.9 million for the six months ended March 29, 1997, compared to the
corresponding prior year periods. The decreases were 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 due
to hedging positions, higher allocation of income to minority interest due to
improved performance in the Lambda Physik Group, partially offset by higher
other income, net.
INCOME TAXES
The Company's effective tax rate for the current quarter was 37% compared
to 39% for the same quarter last year. The Company's proforma effective tax
rate for the six months ended March 29, 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 $27.1 million. Additional sources of liquidity are
the Company's multi-currency line of credit and bank credit facilities
totaling $47.3 million. As of March 29, 1997, the Company had $39.4 million
unused and available under these credit facilities.
CHANGES IN FINANCIAL CONDITION
Cash and cash equivalents increased by $10.6 million (115%) year-to-date.
Operations and
12
<PAGE>
changes in exchange rates generated $27.0 million, including $18.7 million of
net proceeds from the sale of short-term investments. Investing activities
used $20.7 million, including $14.7 million used to acquire property and
equipment and $5.2 million, net, used to acquire Tutcore and Micracor.
Financing activities provided $4.3 million through net borrowings of $1.7
million and $2.6 million from the sale of shares under employee stock plans.
Long term obligations increased $6.0 million from September 28, 1996
primarily due to deferred payment obligations of $5.4 million for the Tutcore
acquisition.
13
<PAGE>
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
<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: May 5, 1997 By: /s/ Robert J. Quillinan
-------------------------------------
Robert J. Quillinan
Vice President and Chief Financial Officer
15
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<PERIOD-START> SEP-29-1996
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