<PAGE>
UNITED STATES SECURITIES AND EXCHANGECOMMISSION
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 28, 1998
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 27, 1998 was 23,415,483 shares
<PAGE>
COHERENT, INC.
INDEX
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
PART I. FINANCIAL INFORMATION:
Consolidated Condensed Statements of Income --
Three months and six months ended March 28, 1998
and March 29, 1997 3
Consolidated Condensed Balance Sheets --
March 28, 1998 and September 27, 1997 4
Consolidated Condensed Statements of Cash Flows --
Six months ended March 28, 1998 and March 29, 1997 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 13
SIGNATURES 14
</TABLE>
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 SIX
MONTHS ENDED MONTHS ENDED
------------ ------------
MARCH 28, March 29, MARCH 28, March 29,
1998 1997 1998 1997
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET SALES $105,881 $ 90,985 $207,250 $184,878
COST OF SALES 53,185 42,005 102,104 86,848
- ----------------------------------------------------------------------------------------------------
GROSS PROFIT 52,696 48,980 105,146 98,030
- ----------------------------------------------------------------------------------------------------
OPERATING EXPENSES:
Research and development 11,608 8,723 22,036 17,448
Purchased in-process technology 9,315
Selling, general and administrative 30,767 26,201 60,702 53,384
- ----------------------------------------------------------------------------------------------------
TOTAL OPERATING EXPENSES 42,375 34,924 82,738 80,147
- ----------------------------------------------------------------------------------------------------
INCOME FROM OPERATIONS 10,321 14,056 22,408 17,883
- ----------------------------------------------------------------------------------------------------
OTHER INCOME (EXPENSE):
Interest and dividend income 289 403 611 758
Interest expense (251) (218) (569) (476)
Foreign exchange loss (83) (355) (428) (487)
Other - net 36 194 35 528
- ----------------------------------------------------------------------------------------------------
TOTAL OTHER INCOME (EXPENSE), NET (9) 24 (351) 323
- ----------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 10,312 14,080 22,057 18,206
PROVISION FOR INCOME TAXES 3,474 5,210 7,709 9,868
NET INCOME $ 6,838 $ 8,870 $ 14,348 $ 8,338
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
NET INCOME PER SHARE:
BASIC $ .29 $ .39 $ .62 $ .37
DILUTED $ .29 $ .38 $ .61 $ .36
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
SHARES USED IN COMPUTATION:
BASIC 23,211 22,599 23,145 22,546
DILUTED 23,830 23,474 23,714 23,338
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
</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 28, September 27,
1998 1997
- -------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and equivalents $ 9,106 $ 21,455
Short-term investments 6,225 10,182
Accounts receivable - net of allowances of
$3,634 in 1998 and $3,499 in 1997 107,270 95,844
Inventories 101,385 86,446
Prepaid expenses and other assets 20,339 18,971
Deferred tax assets 22,741 22,267
- -------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 267,066 255,165
- -------------------------------------------------------------------------------------------
PROPERTY AND EQUIPMENT 137,063 128,532
ACCUMULATED DEPRECIATION AND AMORTIZATION (61,746) (56,708)
- -------------------------------------------------------------------------------------------
Property and equipment - net 75,317 71,824
- -------------------------------------------------------------------------------------------
GOODWILL - net of accumulated amortization of
$6,003 in 1998 and $7,199 in 1997 12,313 13,372
OTHER ASSETS 24,703 21,289
- -------------------------------------------------------------------------------------------
$ 379,399 $ 361,650
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term borrowings $ 12,698 $ 19,235
Current portion of long-term obligations 3,339 3,629
Accounts payable 21,312 18,039
Income taxes payable 13,187 9,286
Other current liabilities 53,381 52,288
- -------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 103,917 102,477
- -------------------------------------------------------------------------------------------
LONG-TERM OBLIGATIONS 10,022 9,665
OTHER LONG-TERM LIABILITIES 11,840 13,927
MINORITY INTEREST IN SUBSIDIARIES 4,936 4,348
STOCKHOLDERS' EQUITY:
Common stock, par value $.01
Authorized - 100,000 shares
Outstanding 23,258 in 1998 and 22,926 in 1997 232 228
Additional paid-in capital 95,045 90,750
Unrealized loss on marketable investments (185)
Notes receivable from stock sales (98) (98)
Retained earnings 154,434 140,086
Accumulated translation adjustment (744) 267
- -------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 248,684 231,233
- -------------------------------------------------------------------------------------------
$ 379,399 $ 361,650
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
</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 28, March 27,
1998 1997
- -------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN CASH AND EQUIVALENTS
OPERATING ACTIVITIES:
Net income $ 14,348 $ 8,338
Adjustments to reconcile to net cash
provided by operating activities:
Write-off of purchased in-process technology 9,315
Purchases of short-term investments (74,714) (29,796)
Proceeds from sales of short-term investments 78,671 48,500
Changes in assets and liabilities (23,312) (17,602)
Depreciation and amortization 8,667 7,161
Other adjustments 677 741
- -------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 4,337 26,657
- -------------------------------------------------------------------------------------------
INVESTING ACTIVITIES:
Purchases of property and equipment, net (9,660) (14,649)
Acquisition of Tutcore and Micracor,
net of cash acquired (5,200)
Acquisition of distribution rights (3,320)
Other - net (1,188) (812)
- -------------------------------------------------------------------------------------------
Net Cash Used For Investing Activities (14,168) (20,661)
- -------------------------------------------------------------------------------------------
FINANCING ACTIVITIES:
Long-term debt borrowings 1,603 1,048
Long-term debt repayments (1,491) (2,682)
Notes payable borrowings 13,502 9,733
Notes payable repayments (19,396) (6,432)
Sales of shares under employee stock plans 3,203 2,652
- -------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES (2,579) 4,319
- -------------------------------------------------------------------------------------------
EFFECT OF EXCHANGE RATE CHANGES
ON CASH AND EQUIVALENTS 61 314
- -------------------------------------------------------------------------------------------
Net increase (decrease) in cash and equivalents (12,349) 10,629
Cash and equivalents beginning of period 21,455 9,214
- -------------------------------------------------------------------------------------------
CASH AND EQUIVALENTS END OF PERIOD $ 9,106 $ 19,843
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
</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 27, 1997. 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. 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 was adopted by the Company in the first
quarter of fiscal 1998. Upon adoption of SFAS No. 128, the Company is
presenting basic earnings per share and diluted earnings per share. Basic
earnings per share is computed based on the weighted average number of
shares outstanding during the period. Diluted earnings per share is
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, and shares issuable
under the Productivity Incentive Plan.
The following table presents information necessary to calculate basic and
diluted earnings per common and common equivalent share:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 28, March 29, March 28, March 29,
1998 1997 1998 1997
--------------------------------------------------------
<S> <C> <C> <C> <C>
Weighted average shares outstanding - Basic 23,211,000 22,599,000 23,145,000 22,546,000
Dilutive share equivalents 619,000 875,000 569,000 792,000
---------- ---------- ----------- ----------
Weighted average shares and equivalents -
Diluted 23,830,000 23,474,000 23,714,000 23,338,000
---------- ---------- ----------- ----------
---------- ---------- ----------- ----------
Net income for basic and diluted
earnings per share computation $6,838,000 $8,870,000 $14,348,000 $8,338,000
---------- ---------- ----------- ----------
---------- ---------- ----------- ----------
</TABLE>
No dividends were paid in fiscal 1998 or 1997.
6
<PAGE>
3. Balance Sheet Detail:
Inventories are stated at the lower of cost (first-in, first-out) or
market. Inventories are as follows:
<TABLE>
<CAPTION>
March 28, September 27,
1998 1997
--------------------------------------------------------------------------
<S> <C> <C>
(IN THOUSANDS)
Purchased parts and assemblies $ 29,755 $25,756
Work-in-process 36,811 28,917
Finished goods 34,819 31,773
--------------------------------------------------------------------------
Net inventories $101,385 $86,446
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Prepaid expenses and other assets consist of the following:
March 28, September 27,
1998 1997
--------------------------------------------------------------------------
(IN THOUSANDS)
Prepaid expenses and other $11,999 $ 8,240
Prepaid income taxes 8,340 10,731
--------------------------------------------------------------------------
Prepaid expenses and other assets $20,339 $18,971
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Other assets consist of the following:
March 28, September 27,
1998 1997
--------------------------------------------------------------------------
(IN THOUSANDS)
Intangibles and other assets $23,184 $19,878
Assets held for investment 1,519 1,411
--------------------------------------------------------------------------
Other assets $24,703 $21,289
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Other current liabilities consist of the following:
March 28, September 27,
1998 1997
--------------------------------------------------------------------------
(IN THOUSANDS)
Accrued payroll and benefits $18,530 $18,814
Accrued expenses and other 13,606 14,648
Deferred income 9,639 9,193
Reserve for warranty 8,330 7,498
Customer deposits 3,276 2,135
--------------------------------------------------------------------------
Other current liabilities $53,381 $52,288
--------------------------------------------------------------------------
--------------------------------------------------------------------------
</TABLE>
7
<PAGE>
Other long-term liabilities consist of the following:
<TABLE>
<CAPTION>
March 28, September 27,
1998 1997
--------------------------------------------------------------------------
<S> <C> <C>
(IN THOUSANDS)
Deferred income and other $10,142 $ 9,017
Environmental remediation costs 1,336 1,336
Deferred tax liabilities 362 3,574
--------------------------------------------------------------------------
Other long-term liabilities $11,840 $13,927
--------------------------------------------------------------------------
--------------------------------------------------------------------------
</TABLE>
4. Certain claims and lawsuits 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 Porter Drive facility site itself in 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. During fiscal
1997, the Company settled with the prior tenant and neighboring companies,
on allocation of the cost of investigating and remediating the site at 3210
Porter Drive and the bordering site at 3300 Hillview Avenue.
Management believes that the Company's probable, nondiscounted net
liability at March 28, 1998 for remaining costs associated with the above
environmental matters is $0.3 million which has been previously accrued.
This amount consists of total estimated probable costs of $1.5 million
($0.2 million included in other current liabilities and $1.3 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.
5. The Board of Directors declared a 2-for-1 stock split of its common stock
effected in the form of a 100% stock dividend distributed on March 2, 1998
to holders of record as of February 17, 1998. All per share amounts and
numbers of shares have been restated to reflect the stock split.
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 currency translations,
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 occurrence 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
27, 1997 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 could 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 55% of the Company's sales
for fiscal 1997 and were 55% of total sales for the current quarter and six
months ended March 28, 1998. 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. 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 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
9
<PAGE>
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 189 U.S. patents in force, and over the past several years has
committed approximately 10 % of annual revenues to research and development
efforts.
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 current quarter and six months ended March
28, 1998 was $6.8 million ($.29 per diluted share) and $14.3 million ($.61 per
diluted share), respectively, compared to proforma net income of $8.9 million
($.38 per diluted share) and $17.3 million ($.74 per diluted share) (excluding
the $9.0 million after-tax write-off of purchased in process technology) in the
corresponding prior year periods. During the first quarter of fiscal 1997, the
Company recorded the after-tax write-off resulting from the acquisitions of
Tutcore OY Ltd. of Tampere, Finland and Micracor, Inc. of Acton, Massachusetts.
The decreases in current quarter and year-to-date net income over the prior year
quarter and year-to-date proforma net income was primarily attributable to lower
gross margins and higher research and development spending. Actual net income
for the prior year-to-date was $8.3 million ($0.36 per diluted share).
NET SALES AND GROSS PROFITS
CONSOLIDATED
The Company's sales for the current quarter and six months ended March 28,
1998 increased $14.9 million (16%) and $22.4 million (12%), respectively, from
the same periods a year ago. During the current quarter, domestic sales
increased $6.6 million (16%) while international sales increased $8.3 million
(16%). Year to date, domestic sales increased $14.0 million (18%) while
international sales increased $8.4 million (8%). The strengthening of the U.S.
dollar against major foreign currencies during the current quarter and six
months ended March 28, 1998, compared to the same periods last year, caused
reported international sales to be $2.4 million and $7.4 million lower,
respectively. Reported international sales for the second fiscal quarter and six
months ended March 28, 1998 represent 55% of total outside sales.
The gross profit rate decreased to 50% for the current quarter from 54% for
the same period last year and decreased to 51% for the six months ended March
28, 1998 compared to 53% for the same period one year ago. Factors contributing
to the decline were higher than normal variances incurred in the current quarter
caused by yield issues on key purchased components, lower sales and margins on
skin resurfacing products, the strengthening of the U.S. dollar against major
foreign currencies, and higher than anticipated manufacturing start-up costs
related to several new medical products which were introduced at the same time.
10
<PAGE>
ELECTRO-OPTICAL
Electro-Optical net sales increased $10.3 million (20%) and $16.8 million
(16%) for the second quarter and six months ended March 28, 1998, respectively,
compared to the corresponding prior year periods. Domestic sales increased $3.5
million (16%) while international sales increased $6.9 million (23%) during the
current quarter. Year-to-date, domestic sales increased $7.0 million (16%) while
international sales increased $9.8 million (16%). Sales increased primarily due
to higher sales volumes and due in part to the Auburn Group's fiscal 1997 third
quarter acquisition of Ealing Electro-Optics in Watford, England. Partially
offsetting these increases was the impact of the strengthening of the U.S.
dollar against major foreign currencies in the current quarter and six months
ended March 28, 1998, compared to the same periods last year, causing
international sales to be lower by $1.6 million and $5.2 million, respectively.
The gross profit rate decreased to 49% from 54% in the current quarter
compared to the same quarter one year ago and decreased to 50% from 52% for the
six months ended March 28, 1998, compared to the same period one year ago. The
decreases in gross margin were primarily attributable to manufacturing problems
associated with yield issues on key purchased components and due in part to the
strengthening of the U.S. dollar against the major foreign currencies.
MEDICAL
Medical net sales increased by $4.6 million (12%) and $5.6 million (7%) for
the second quarter and six months ended March 28, 1998, respectively, compared
to the corresponding prior year periods. Domestic sales increased $3.2 million
(17%) while international sales increased $1.4 million (7%) during the current
quarter. Year-to-date, domestic sales increased $7.0 million (19%) while
international sales decreased $1.4 million (3%). The increases in domestic
sales over the same prior year periods resulted primarily from increased sales
volumes of aesthetic products. The year-to-date decrease in international sales
resulted primarily from the strengthening of the U.S. dollar against the major
foreign currencies. Such strengthening of the U.S. dollar against the major
foreign currencies in the current quarter and six months, compared to the same
periods one year ago, caused international sales to be lower by $0.7 million and
$2.2 million, respectively.
The gross profit rate decreased to 51% and 52% for the current quarter and
year-to-date, compared to 54% for both corresponding prior year periods. The
decreases in gross margins were primarily due to lower sales and margins on skin
resurfacing products and higher manufacturing start-up costs related to several
products introduced at the same time, and due in part to a strengthening of the
U.S. dollar against the major foreign currencies.
OPERATING EXPENSES
<TABLE>
<CAPTION>
Second Quarter First Half
1998 1997 1998 1997
-----------------------------------------
<S> <C> <C> <C> <C>
(IN THOUSANDS)
Research & development $11,608 $ 8,723 $22,036 $17,448
Purchased in-process technology 9,315
Selling, general & administrative 30,767 26,201 60,702 53,384
- -------------------------------------------------------------------------------
Total operating expenses $42,375 $34,924 $82,738 $80,147
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
</TABLE>
Total operating expenses increased by $7.5 million (21%) during the second
quarter compared to the same period last year and as a percentage of sales
increased to 40% from 38%. Exclusive of the first quarter of fiscal 1997
write-off of purchased in-process technology, year-to-date, total operating
expenses increased $11.9 million (17%) from the same prior year period and as a
percentage of sales increased to 40% from 38%.
Research and development (R&D) expenses increased $2.8 million (33%) during
the current quarter compared to the same period last year and as a percentage of
sales, increased to 11% from 10%. Year-to-date, R&D expense (exclusive of the
aforementioned write-off of purchased in-process
11
<PAGE>
technology) increased $4.6 million (26%) compared to the same period one year
ago and increased as a percentage of sales from 9% to 11%. The increases are
due to increased spending for new projects.
Sales, marketing and service expense increased $1.7 million (9%) for the
current quarter and decreased as a percentage of sales from 21% to 20% compared
to the same period last year. Year-to-date, such expenses increased $5.1
million (13%) and increased as a percentage of sales from 20% to 21% compared to
the same period last year. Year-to-date increase as percentage of sales occrued
in both business segments primarily due to recent business acquisitions,
increased costs associated with higher headcount and higher costs associated
with the Asia Pacific region.
Administration expenses increased $2.9 million (41%) and $2.3 million (14%)
for the current quarter and year-to-date, respectively, compared to the same
periods a year ago. As a percentage of sales, such expenses increased 1% of
sales for both periods. The increases are primarily due to increased
amortization of intangibles and higher costs associated with increased headcount
in Asia-Pacific.
OTHER INCOME (EXPENSE)
Year-to-date, other income, net, decreased to net expense of $0.4 million
compared to net income of $0.3 million in the same period last year. Other
income decreased $0.5 million, year-to-date, due primarily to the prior year
rental income on the former headquarters facility which was sold in May 1997.
INCOME TAXES
The Company's effective tax rate for the current quarter was 34% compared
to 37% for the same quarter last year. The Company's proforma effective tax
rate for six months ended March 28, 1998 (excluding the $9.3 million write-off
of purchased in-process technology) was 35% compared to 37% for the same prior
year period. The Company's effective tax rate for the quarter and year-to-date
decreased as a result of increases in foreign tax credit utilization, foreign
sales corporation benefits 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 $15.3 million. Additional sources of liquidity are
the Company's multi-currency line of credit and bank credit facilities totaling
$52.8 million. As of March 28, 1998, the Company had $41.0 million unused and
available under these credit facilities.
CHANGES IN FINANCIAL CONDITION
Cash and cash equivalents decreased $12.3 million (58%) from September 27,
1997. Operations and changes in exchange rates provided $4.4 million, including
$4.0 million in net proceeds from short-term investments. Investing activities
used $14.2 million, including $9.7 million used to acquire property and
equipment, net and $3.3 million used to acquire distribution rights, and other,
net used $1.2 million. Financing activities used $2.6 million with debt
repayments, net of $5.8 million offset by $3.2 million from the sale of shares
under employee stock plans.
Trade receivables, net, increased $11.4 million (12%) from September 27,
1997 primarily due to increased sales volumes in the Electro-Optical segment and
longer payment terms for customers in the Asia-Pacific region.
Net inventories increased $14.9 million (17%) from September 27, 1997
primarily due to new product development in the medical segment and increased
bookings in both the medical and Electro-Optical business segments.
Short-term borrowings decreased $6.5 million (34%) primarily due to the
repayment of borrowings used to finance the acquisition of CEEL.
12
<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
On March 27, 1998, the Annual Meeting of Shareholders of Coherent,
Inc. was held in Santa Clara, California.
The following individuals were elected to the Board of Directors of
Coherent, Inc.:
Bernard J. Couillaud Henry E. Gauthier
Charles W. Cantoni Frank P. Carrubba
Thomas Sloan Nelsen Jerry E. Robertson
Other matters voted upon at the meeting and the number of affirmative
and negative votes cast with respect to each such matter were as
follows:
<TABLE>
<CAPTION>
Affirmative Negative
Votes Votes
------------------------
<S> <C> <C>
1. Proposal to approve the amendment of the 9,677,711 282,927
Company's Productivity Incentive Plan to
remove the 90-day eligibility period under
Plan.
2. Proposal to ratify the appointment of 10,012,642 24,599
Deloitte & Touche LLP as independent
public accountants to the Company for the
fiscal year ending September 26, 1998.
</TABLE>
ITEM 5. Other.
N/A
ITEM 6. Exhibits and Reports on Form 8-K.
Exhibit 27.1 "Financial Data Schedules" included herewith.
Exhibit 27.2 "Financial Data Schedules" restated for fiscal years
ended September 27, 1997
and September 28, 1996.
Exhibit 27.3 "Financial Data Schedules" restated for quarters ending
December 28, 1996, March 29, 1997, June 28, 1997 and December 27, 1997
13
<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 4, 1998 By: ROBERT J. QUILLINAN
-----------------------------------------------
Robert J. Quillinan
Executive Vice President and Chief Financial Officer
14
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-26-1998
<PERIOD-START> SEP-28-1997
<PERIOD-END> MAR-28-1998
<CASH> 9,106
<SECURITIES> 6,225
<RECEIVABLES> 110,904
<ALLOWANCES> 3,634
<INVENTORY> 101,385
<CURRENT-ASSETS> 267,066
<PP&E> 137,063
<DEPRECIATION> 61,746
<TOTAL-ASSETS> 379,399
<CURRENT-LIABILITIES> 103,917
<BONDS> 10,022
0
0
<COMMON> 232
<OTHER-SE> 248,452
<TOTAL-LIABILITY-AND-EQUITY> 379,399
<SALES> 207,250
<TOTAL-REVENUES> 207,250
<CGS> 102,104
<TOTAL-COSTS> 102,104
<OTHER-EXPENSES> 82,738
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 569
<INCOME-PRETAX> 22,057
<INCOME-TAX> 7,709
<INCOME-CONTINUING> 14,348
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 14,348
<EPS-PRIMARY> .62
<EPS-DILUTED> .61
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> SEP-28-1996 SEP-27-1997
<PERIOD-START> OCT-01-1995 SEP-29-1996
<PERIOD-END> SEP-28-1996 SEP-27-1997
<CASH> 9,214 21,455
<SECURITIES> 25,421 10,182
<RECEIVABLES> 90,912 99,342
<ALLOWANCES> 4,835 3,499
<INVENTORY> 65,835 86,446
<CURRENT-ASSETS> 218,420 255,165
<PP&E> 117,069 128,532
<DEPRECIATION> 52,468 56,708
<TOTAL-ASSETS> 311,516 361,650
<CURRENT-LIABILITIES> 94,867 102,477
<BONDS> 3,921 9,665
0 0
0 0
<COMMON> 222 228
<OTHER-SE> 197,365 231,005
<TOTAL-LIABILITY-AND-EQUITY> 311,516 361,650
<SALES> 364,430 391,038
<TOTAL-REVENUES> 364,430 391,038
<CGS> 177,212 185,536
<TOTAL-COSTS> 177,212 185,536
<OTHER-EXPENSES> 142,518 163,192
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 39 1,226
<INCOME-PRETAX> 49,317 46,794
<INCOME-TAX> 19,003 20,502
<INCOME-CONTINUING> 30,314 26,292
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 30,314 26,292
<EPS-PRIMARY> 1.37 1.16
<EPS-DILUTED> 1.31 1.12
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS 9-MOS 3-MOS
<FISCAL-YEAR-END> SEP-27-1997 SEP-27-1997 SEP-27-1997 SEP-26-1998
<PERIOD-START> SEP-29-1996 SEP-29-1996 SEP-29-1996 SEP-28-1997
<PERIOD-END> DEC-28-1996 MAR-29-1997 JUN-28-1997 DEC-27-1997
<CASH> 14,323 19,843 11,899 14,571
<SECURITIES> 13,011 7,273 14,323 16,769
<RECEIVABLES> 82,369 80,772 96,822 98,406
<ALLOWANCES> 2,672 2,551 2,853 3,606
<INVENTORY> 68,347 76,427 84,815 93,673
<CURRENT-ASSETS> 206,587 219,185 242,307 259,748
<PP&E> 125,545 129,637 125,491 132,110
<DEPRECIATION> 52,421 54,343 55,207 59,117
<TOTAL-ASSETS> 310,355 325,106 347,365 369,621
<CURRENT-LIABILITIES> 85,492 91,466 98,263 101,471
<BONDS> 10,708 9,935 12,092 9,687
0 0 0 0
0 0 0 0
<COMMON> 224 224 226 230
<OTHER-SE> 198,748 208,370 221,525 241,229
<TOTAL-LIABILITY-AND-EQUITY> 310,355 325,106 347,365 369,621
<SALES> 93,893 184,878 287,213 101,369
<TOTAL-REVENUES> 93,893 184,878 287,213 101,369
<CGS> 44,843 86,848 134,602 48,919
<TOTAL-COSTS> 44,843 86,848 134,602 48,919
<OTHER-EXPENSES> 45,223 80,147 115,621 40,363
<LOSS-PROVISION> 0 0 0 0
<INTEREST-EXPENSE> 258 476 768 318
<INCOME-PRETAX> 4,126 18,206 36,222 11,745
<INCOME-TAX> 4,658 9,868 16,534 4,235
<INCOME-CONTINUING> 532 8,338 19,688 7,510
<DISCONTINUED> 0 0 0 0
<EXTRAORDINARY> 0 0 0 0
<CHANGES> 0 0 0 0
<NET-INCOME> 532 8,338 19,688 7,510
<EPS-PRIMARY> (.02) .37 .87 .33
<EPS-DILUTED> (.02) .35 .84 .32
</TABLE>
