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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.
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COHERENT, INC.
INDEX
Page No.
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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
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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 NINE
MONTHS ENDED MONTHS ENDED
------------ ------------
June 28, June 29, June 28, June 29,
1997 1996 1997 1996
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
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
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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
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TOTAL OPERATING EXPENSES 40,312 35,371 120,459 103,886
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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
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TOTAL OTHER INCOME, NET 3,747 1,992 4,070 4,143
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INCOME BEFORE INCOME TAXES 18,016 12,703 36,222 35,416
PROVISION FOR INCOME TAXES 6,666 4,785 16,534 13,682
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NET INCOME $ 11,350 $ 7,918 $ 19,688 $ 21,734
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NET INCOME PER COMMON AND
COMMON EQUIVALENT SHARE $ .97 $ .68 $ 1.68 $ 1.89
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WEIGHTED AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING 11,743 11,663 11,694 11,525
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS.
3
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COHERENT, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(UNAUDITED; IN THOUSANDS, EXCEPT PAR VALUE PER SHARE)
<TABLE>
<CAPTION>
June 28, September 28,
1997 1996
- -------------------------------------------------------------------------------------
<S> <C> <C>
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
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TOTAL CURRENT ASSETS 242,307 218,420
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PROPERTY AND EQUIPMENT 125,491 117,069
ACCUMULATED DEPRECIATION AND AMORTIZATION (55,207) (52,468)
- -------------------------------------------------------------------------------------
Property and equipment - net 70,284 64,601
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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
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$347,365 $311,516
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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
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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
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$347,365 $311,516
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING 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>
NINE
MONTHS ENDED
------------
June 28, June 29,
1997 1996
- -------------------------------------------------------------------------------------
<S> <C> <C>
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
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CASH AND EQUIVALENTS END OF PERIOD $ 11,899 $ 5,567
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING 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 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
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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
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(IN THOUSANDS)
Assets held for investment $ 1,428 $ 1,491
Intangibles and other assets 19,280 16,365
---------------------------------------------------------------------------
Other assets $ 20,708 $17,856
---------------------------------------------------------------------------
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7
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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
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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
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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
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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
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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
<PAGE>
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
<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: August 4, 1997 By: Robert J. Quillinan
------------------------------------
Robert J. Quillinan
Executive Vice President and Chief
Financial Officer
15
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