\<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 January 1, 2000
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 January 24, 2000 was 24,822,769 shares.
<PAGE>
COHERENT, INC.
INDEX
Page No.
--------
PART I. FINANCIAL INFORMATION:
Condensed Consolidated Statements of Income --
Three months ended January 1, 2000 and December 26, 1998 3
Condensed Consolidated Balance Sheets --
January 1, 2000 and October 2, 1999 4
Condensed Consolidated Statements of Cash Flows --
Three months ended January 1, 2000 and December 26, 1998 5
Notes to Condensed Consolidated Financial Statements 6
Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
PART II. OTHER INFORMATION 16
SIGNATURES 17
2
<PAGE>
PART I. FINANCIAL INFORMATION
COHERENT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED; IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE
MONTHS ENDED
------------
January 1, December 26,
2000 1998
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
NET SALES $127,194 $105,631
COST OF SALES 65,171 54,672
- --------------------------------------------------------------------------------------------------------------------
GROSS PROFIT 62,023 50,959
- --------------------------------------------------------------------------------------------------------------------
OPERATING EXPENSES
Research and development 12,374 10,915
Selling, general and administrative 35,758 32,478
Intangibles Amortization 2,179 1,151
- -------------------------------------------------------------------------------------------------------------------
TOTAL OPERATING EXPENSES 50,311 44,544
- -------------------------------------------------------------------------------------------------------------------
INCOME FROM OPERATIONS 11,712 6,415
- -------------------------------------------------------------------------------------------------------------------
OTHER INCOME (EXPENSE):
Interest and dividend income 1,488 644
Interest expense (1,643) (437)
Foreign exchange gain (loss) (520) 16
Other - Net (1,078) (363)
- -------------------------------------------------------------------------------------------------------------------
TOTAL OTHER EXPENSE, NET (1,753) (140)
- --------------------------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 9,959 6,275
PROVISION FOR INCOME TAXES 3,286 2,009
- --------------------------------------------------------------------------------------------------------------------
NET INCOME $ 6,673 $ 4,266
====================================================================================================================
NET INCOME PER SHARE:
BASIC $ .27 $ .18
DILUTED $ .26 $ .18
====================================================================================================================
SHARES USED IN COMPUTATION:
BASIC 24,517 23,809
DILUTED 25,776 24,210
====================================================================================================================
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
</TABLE>
3
<PAGE>
COHERENT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED; IN THOUSANDS, EXCEPT PAR VALUE PER SHARE)
<TABLE>
<CAPTION>
JANUARY 1, October 2,
2000 1999
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
- ------
CURRENT ASSETS:
Cash and equivalents $ 40,385 $ 38,279
Short-term investments 48,024 30,637
Accounts receivable - net of allowances of
$5,231 in 2000 and $4,592 in 1999 94,236 95,003
Inventories 99,940 97,902
Prepaid expenses and other assets 12,523 18,738
Deferred tax assets 38,195 37,014
- -----------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 333,303 317,573
- -----------------------------------------------------------------------------------------------------------------------
PROPERTY AND EQUIPMENT 169,492 165,630
ACCUMULATED DEPRECIATION AND AMORTIZATION (79,026) (75,676)
- -----------------------------------------------------------------------------------------------------------------------
Property and equipment - net 90,466 89,954
- -----------------------------------------------------------------------------------------------------------------------
GOODWILL - net of accumulated amortization of
$10,770 in 2000 and $9,372 in 1999 39,758 39,490
OTHER ASSETS 51,787 48,451
- -----------------------------------------------------------------------------------------------------------------------
$515,314 $495,468
=======================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES:
Short-term borrowings $ 19,403 $ 14,371
Current portion of long-term obligations 8,761 8,599
Accounts payable 22,990 18,343
Income taxes payable 7,642 8,221
Other current liabilities 68,756 73,120
- -----------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 127,552 122,654
- -----------------------------------------------------------------------------------------------------------------------
LONG-TERM OBLIGATIONS 76,897 74,745
OTHER LONG-TERM LIABILITIES 17,626 16,819
MINORITY INTEREST IN SUBSIDIARIES 4,854 3,945
STOCKHOLDERS' EQUITY:
Common stock, par value $.01
Authorized - 100,000 shares
Outstanding 24,708 in 2000 and 24,142 in 1999 245 240
Additional paid-in capital 112,464 106,748
Notes receivable from stock sales (459) (557)
Accumulated other comprehensive income (loss) (1,276) 136
Retained earnings 177,411 170,738
- -----------------------------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 288,385 277,305
- -----------------------------------------------------------------------------------------------------------------------
$515,314 $495,468
=======================================================================================================================
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
</TABLE>
4
<PAGE>
COHERENT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED; IN THOUSANDS)
<TABLE>
<CAPTION>
THREE
MONTHS ENDED
------------
JANUARY 1, December 26,
2000 1998
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 6,673 $ 4,266
Adjustments to reconcile net income to net cash
provided by operating activities:
Purchases of short-term trading investments (75,237) (24,727)
Proceeds from sales of short-term trading investments 57,850 22,100
Changes in assets and liabilities 3,459 (5,739)
Depreciation and amortization 3,994 3,329
Intangibles amortization 2,179 1,151
Other adjustments 1,296 135
- -----------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 214 515
- -----------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment, net (4,973) (4,876)
Acquisition of Microlase, net of cash acquired (2,993)
Other - net (3,274) 620
- -----------------------------------------------------------------------------------------------------------------------
NET CASH USED FOR INVESTING ACTIVITIES (11,240) (4,256)
- -----------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Long-term debt borrowings 2,849
Long-term debt repayments (378) (591)
Short-term borrowings 7,131 6,864
Short-term repayments (1,876) (3,518)
Cash overdrafts (694)
Sales of shares under employee stock plans 5,337 1,022
- -----------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 12,369 3,777
- -----------------------------------------------------------------------------------------------------------------------
EFFECT OF EXCHANGE RATE CHANGES
ON CASH AND EQUIVALENTS 763 (1,500)
- -----------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and equivalents 2,106 (1,464)
Cash and equivalents, beginning of period 38,279 15,944
- -----------------------------------------------------------------------------------------------------------------------
CASH AND EQUIVALENTS, END OF PERIOD $40,385 $14,480
=======================================================================================================================
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
</TABLE>
<PAGE>
COHERENT, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. The accompanying condensed consolidated financial statements have been
prepared in conformity with generally accepted accounting principles,
consistent with those reflected in Coherent's annual report to
stockholders for the year ended October 2, 1999. 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.
Certain prior period amounts have been reclassified to conform with the
current period presentation. Such reclassification had no impact on net
income or retained earnings for any period presented.
2. In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards (SFAS) No. 133, "Accounting for
Derivative Instruments and Hedging Activities." This statement requires
companies to record derivatives on the balance sheet as assets or
liabilities, measured at fair value. Gains or losses resulting from
changes in the value of those derivatives would be accounted for
depending on the use of the derivative and whether it qualifies for
hedge accounting. In May 1999, SFAS 133 was amended to defer its
effective date. SFAS 133 will be effective for Coherent's first
quarterly filing of fiscal 2001. Management believes that this
statement will not have a significant impact on Coherent's financial
position or results of operations.
3. In December 1999, Coherent acquired the remaining 75% interest of
Microlase Optical Systems, Ltd (Microlase), in Glasgow, Scotland, for
approximately $3.2 million cash. Coherent now owns the entire share
capital of Microlase. Microlase is the manufacturer of a range of
advanced solid-state lasers that are used in a number of developing
applications including scientific research and semiconductor test
equipment. The acquisition was accounted for as a purchase and,
accordingly, Coherent has preliminarily recorded the approximately $2.1
million excess of the purchase price over the fair value of net assets
acquired as goodwill and other intangible assets, which will be
amortized over 5-7 years.
4. The components of comprehensive income, net of tax, are as follows:
<TABLE>
<CAPTION>
Three Months Ended
January 1, December 26,
2000 1998
-------------------------------------
(IN THOUSANDS)
<S> <C> <C>
Net income $6,673 $4,266
Translation adjustment (1,412) 101
------ ------
Total comprehensive income $5,261 $4,367
====== ======
</TABLE>
Accumulated other comprehensive income at January 1, 2000 and December
26, 1998 is comprised of accumulated translation adjustments of
($1,276,000) and $136,000, respectively.
5. 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.
6
<PAGE>
The following table presents information necessary to calculate basic
and diluted earnings per common and common equivalent share:
<TABLE>
<CAPTION>
Three Months Ended
January 1, December 26,
2000 1998
----------------------------------------
(IN THOUSANDS)
<S> <C> <C>
Weighted average shares outstanding - Basic 24,517 23,809
Common stock equivalents 1,128 233
Employee stock purchase plan equivalents 131 168
------ ------
Weighted average shares and equivalents - Diluted 25,776 24,210
====== ======
Net income for basic and diluted
earnings per share computation $6,673 $4,266
====== ======
</TABLE>
125,000 and 1,818,000 anti-dilutive weighted shares have been excluded
from the dilutive share equivalents calculation for the three months
ended January 1, 2000 and December 26, 1998, respectively.
6. Balance Sheet Detail:
Inventories are stated at the lower of cost (first-in, first-out) or
market. Inventories are as follows:
<TABLE>
<CAPTION>
January 1, October 2,
2000 1999
----------------------------------------------------------------------------------------------------------
(IN THOUSANDS)
<S> <C> <C>
Purchased parts and assemblies $28,280 $26,200
Work-in-process 33,793 33,098
Finished goods 37,867 38,604
----------------------------------------------------------------------------------------------------------
Net inventories $99,940 $97,902
==========================================================================================================
Prepaid expenses and other assets consist of the following:
January 1, October 2,
2000 1999
----------------------------------------------------------------------------------------------------------
(IN THOUSANDS)
Prepaid income taxes $ 893 $ 4,943
Prepaid expenses and other 11,630 13,795
----------------------------------------------------------------------------------------------------------
Prepaid expenses and other assets $12,523 $18,738
----------------------------------------------------------------------------------------------------------
Other assets consist of the following:
January 1, October 2,
2000 1999
----------------------------------------------------------------------------------------------------------
(IN THOUSANDS)
Other assets $27,167 $22,470
Intangible assets 23,387 24,729
Assets held for investment 1,233 1,252
----------------------------------------------------------------------------------------------------------
Other assets $51,787 $48,451
----------------------------------------------------------------------------------------------------------
7
<PAGE>
Other current liabilities consist of the following:
January 1, October 2,
2000 1999
----------------------------------------------------------------------------------------------------------
(IN THOUSANDS)
Accrued payroll and benefits $21,751 $25,132
Accrued expenses and other 17,826 22,567
Reserve for warranty 14,012 13,269
Deferred income 9,750 9,695
Customer deposits 5,417 2,457
----------------------------------------------------------------------------------------------------------
Other current liabilities $68,756 $73,120
----------------------------------------------------------------------------------------------------------
Other long-term liabilities consist of the following:
January 1, October 2,
2000 1999
----------------------------------------------------------------------------------------------------------
(IN THOUSANDS)
Deferred compensation $12,207 $11,233
Deferred income and other 3,231 3,435
Environmental remediation costs 1,169 1,169
Deferred tax liabilities 1,019 982
----------------------------------------------------------------------------------------------------------
Other long-term liabilities $17,626 $16,819
==========================================================================================================
</TABLE>
7. Certain claims and lawsuits have been filed or are pending against
Coherent. 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
Coherent's consolidated financial position or results of operations.
Coherent, 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 Coherent's former headquarters facility is located.
The responding parties to the Regional Order (including Coherent) have
completed Remedial Investigation and Feasibility Reports, which were
approved by the State of California. The responding parties have
installed four remedial systems and have reached agreement with
responding parties on final cost sharing.
Coherent was also named, along with other parties, to a remedial action
order for the Porter Drive facility site itself in Stanford Industrial
Park. The State of California has approved the Remedial Investigation
Report, Feasibility Study Report, Remedial Action Plan Report and Final
Remedial Action Report, prepared by Coherent for this site. Coherent
has been operating remedial systems at the site to remove subsurface
chemicals since April 1992. During fiscal 1997, Coherent 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 Coherent's probable, nondiscounted net
liability at January 1, 2000 for remaining costs associated with the
above environmental matters is $1.0 million which has been previously
accrued. This amount consists of total estimated probable costs of $1.3
million ($0.1 million included in other current liabilities and $1.2
million included in other long-term liabilities) reduced by estimated
minimum probable recoveries of $0.3 million included in other assets
from other parties named to the order.
8. Operating Segments:
In fiscal 1999, Coherent adopted SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information." SFAS No. 131
establishes standards for reporting information about operating
segments and related disclosures about products, geographic information
and major customers. Coherent's corporate expenses, except for
depreciation of corporate assets and general legal expenses, are
allocated to the operating segments and are included in corporate and
other in the reconciliation of operating results. Furthermore, interest
expense, interest
8
<PAGE>
income and the provision for income taxes are included in corporate
and other in the reconciliation of operating results. Information on
reportable segments for the quarters ended January 1, 2000 and
December 26, 1998 is as follows (in thousands):
Quarter ended January 1, 2000:
<TABLE>
<CAPTION>
Electro- Corporate
Optics Medical Lambda and Other Total
-------- ------- ------- ---------- --------
<S> <C> <C> <C> <C> <C>
Net sales $ 59,543 $46,774 $20,877 $127,194
Intersegment net sales 5,844 462 308 6,614
Pretax income (loss) $ 6,220 $ 1,550 $ 3,289 $(1,100) $ 9,959
Quarter ended December 26, 1998:
Electro- Corporate
Optics Medical Lambda and Other Total
-------- ------- ------- ---------- --------
Net sales $52,103 $38,660 $14,868 $105,631
Intersegment net sales 4,191 151 168 4,510
Pretax income (loss) $ 4,988 $ 712 $ 664 $ (89) $ 6,275
</TABLE>
9
<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 Coherent's products and
services and other risks identified in Coherent'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. Coherent 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 Coherent's annual report on Form 10-K for
the fiscal year ended October 2, 1999 under the heading "Risk Factors" in
Part I, Item 1. Business.
Coherent operates in a technologically advanced, dynamic and highly
competitive environment. Coherent'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 Coherent's control, including fluctuations in
customer orders and foreign currency exchange rates, among others. While
Coherent attempts to identify and respond to these conditions in a timely
manner, such conditions represent significant risks to Coherent's
performance. Accordingly, if the level of orders diminishes during the next
or any future quarter, or if for any reason Coherent's shipments are
disrupted (particularly near a quarter end when Coherent 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
Coherent's stock.
Similarly, Coherent conducts a significant portion of its business
internationally. International sales accounted for 58% of Coherent's sales
for the first quarter of 2000 and all of fiscal 1999. Coherent expects that
international sales will continue to account for a significant portion of its
net sales in the future. A significant amount of these 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, Coherent's international sales and operations
are subject to the risks of conducting business internationally. Risks
include fluctuation in foreign exchange rates, which could affect the sales
price in local currencies of products in foreign markets as well as the local
costs and expenses of foreign operations. Coherent uses forward exchange,
currency swap contracts, currency options 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 Coherent's operations in the future or require it
to modify its current business practices.
Coherent, Inc., a Delaware corporation, (herein referred to as
"Coherent" or "Company") is a global leader on the design, manufacture and
sales of lasers, laser systems, precision optics and related accessories.
Coherent 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/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." Energy is amplified to extremely high
intensity by an atomic process called stimulated emission. The use of the
word in this context, however, refers to an energy transfer. Energy moves
from one location to another by conduction, convection, and radiation. The
color of laser light is normally expressed in terms of the laser's
wavelength. The most common unit in expressing a laser's wavelength is a
nonometer ("nm"). There are one billion nanometers in one meter.
10
<PAGE>
A laser uses a source of energy such as electricity, light or a
chemical reaction to excite electrons in a "lasing medium." When these
excited electrons return to their grounded or normal state, energy is emitted
in the form of light at one or a few specific wavelengths. The lasing medium
can be gasses such as CO2 or argon, liquid dyes, or solid-state crystals such
as the commonly used yttrium aluminum garnet ('YAG"). The emitted light is
collected and refined using a series of mirrors and lenses, forming a high
intensity, tightly focused beam of "coherent" light. A laser beam can be made
powerful enough to cut steel or precise enough to perform eye surgery.
The semiconductor or diode laser uses these same physical
principles, but miniaturizes the entire assembly into a monolithic structure
using semiconductor wafer fabrication processes to build the device. In
addition to miniaturizing the laser, the use of solid-state materials greatly
increases the life of the device and provides power efficiencies over 100
times greater than a typical gas or lamp based laser. A widely used analogy
in the laser industry is that the development of the semiconductor laser will
have as significant an impact on the use of lasers as the transition of the
vacuum tube to the transistor to the integrated circuit has on the
electronics industry.
Since inception in 1966, Coherent 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 235 U.S. patents in force, and over the past
several years has committed approximately 10% to 11% 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
and OEM customers with cost effective laser products that provide performance
breakthroughs and application innovations.
RESULTS OF OPERATIONS
CONSOLIDATED SUMMARY
Coherent's net income for the first quarter ended January 1, 2000
was $6.7 million ($0.26 per diluted share) compared to net income of $4.3
million ($0.18 per diluted share) for the same quarter one year ago. The
increase in net income was primarily attributable to increases in sales
volumes and lower SG&A expenses relative to sales volumes.
11
<PAGE>
NET SALES AND GROSS PROFITS
<TABLE>
<CAPTION>
FIRST QUARTER
2000 1999
---- ----
(IN THOUSANDS)
<S> <C> <C>
NET SALES
CONSOLIDATED:
Domestic $ 53,635 $ 46,350
International 73,559 59,281
------- ------
Total $127,194 $105,631
======== ========
ELECTRO-OPTICAL:
Domestic $ 25,843 $ 21,854
International 33,700 30,249
------- ------
Total $ 59,543 $ 52,103
========= =========
MEDICAL:
Domestic $ 21,368 $ 18,909
International 25,406 19,751
------- -------
Total $ 46,774 $ 38,660
========= =========
LAMBDA:
Domestic $ 6,424 $ 5,587
International 14,453 9,281
------ -----
Total $ 20,877 $ 14,868
========= =========
</TABLE>
CONSOLIDATED
Coherent's sales for the first fiscal quarter of 2000 increased
$21.6 million (20%) to $127.2 million from $105.6 million one year ago. Sales
increased strongly in all three operating segments. During the current
quarter, international sales increased $14.3 million (24%) to 58% of total
outside sales, and domestic sales increased $7.3 million (16%).
The gross margin rate increased to 49% from 48% one year ago. The
improvement in the current quarter's margin resulted primarily from increased
lithography sales at higher margins, lower warranty costs, improved
efficiency variances and a lower mix of discounted scientific sales.
ELECTRO-OPTICAL
Electro-Optical net sales increased $7.4 million (14%) to $59.5
million from $52.1 million one year ago. International sales increased $3.4
million (11%) while domestic sales increased $4.0 million (18%). Sales
increased primarily due to higher sales volumes in commercial solid state
products (including diode lasers) and in industrial systems.
The gross margin rate increased to 47% from 46% one year ago. The
improvement in the current quarter's margin resulted primarily from lower
warranty expenses and higher sales volumes relative to our fixed overhead
costs.
MEDICAL
Medical net sales increased $8.1 million (21%) to $46.8 million
from $38.7 million one year ago. International sales increased $5.7 million
(29%) and domestic sales increased $2.4 million (13%) during the current
quarter. Current quarter sales increased primarily due to the acquisition of
Star Medical in May 1999, where we now recognize the full sales value of
LightSheer-TM- hair removal shipments instead of only the commission revenue.
12
<PAGE>
The gross margin rate decreased to 50% from 51% one year ago. The
decrease in gross margin was primarily attributable to lower average selling
prices on aesthetic products.
LAMBDA
Lambda net sales increased $6.0 million (40%) to $20.9 million from
$14.9 million one year ago. The increase in sales is primarily due to
increased shipments of commercial products, primarily photolithography
systems.
The gross margin rate increased to 51% from 49% one year ago. The
increased resulted primarily from increased sales of photolithography systems
at higher margins and fewer sales of lower margin scientific systems.
OPERATING EXPENSES
<TABLE>
<CAPTION>
First Quarter
2000 1999
----------------------------------------
(IN THOUSANDS)
<S> <C> <C>
Research & development $12,374 $10,915
Selling, general & administrative 35,758 32,478
Intangibles amortization 2,179 1,151
- --------------------------------------------------------------------------------------------------------------------
Total operating expenses $50,311 $44,544
====================================================================================================================
</TABLE>
Total operating expenses increased $5.8 million (13%) to $50.3
million from $44.5 million one year ago. As a percentage of sales, operating
expenses decreased to 40% from 42% one year ago.
Research and development (R&D) expenses increased $1.5 million (13%)
to $12.4 million from $10.9 million one year ago. As a percentage of sales,
R&D expenses remained at 10%. The absolute dollar increase is due to
increased headcount and spending on projects, particularly in the solid state
technology, in the Electro-Optics segment.
Selling, general and administrative (SG&A) expenses increased $3.3
million (10%) to $35.8 million from $32.5 million one year ago but decreased
as a percentage of sales to 28% from 31% one year ago. The dollar increase
was primarily due to increased sales costs to support increased sales volumes
and the write-off of a permanently impaired asset in the catalog business
unit of the Electro-Optics segment.
Intangibles amortization increased $1.0 million (89%) primarily due
to the acquisition of Star Medical.
OTHER INCOME (EXPENSE)
Other expense, net increased $1.6 million to net expense of $1.8
million from $0.1 million of net expense one year ago. The increase is
primarily due to increased interest expense related to financing of the Star
Medical acquisition and higher foreign exchange losses, partially offset by
increased interest income.
INCOME TAXES
Coherent's effective tax for the current quarter was 33% compared to
32% for the same quarter last year. Coherent's effective tax rate increased
as a result of higher profit before income taxes in fiscal 2000 with
relatively flat tax credits compared to fiscal 1999.
EURO CONVERSION
As with many multinational companies operating in Europe, beginning
in January 1999, Coherent was affected by the conversion of eleven European
currencies into a common currency, the euro. Based on its assessment,
Coherent does not believe the conversion will have a material impact on the
13
<PAGE>
competitiveness of its products or increase the likelihood of contract
cancellations in Europe, where there already exists substantial price
transparency. Coherent also believes its current accounting systems will
accommodate the euro conversion with minimal intervention and does not expect
to experience material adverse tax consequences as a result of the
conversion. The convergence of currencies into the euro has simplified the
Coherent's currency risk management process, including its use of derivatives
to manage that risk. The cost of addressing the euro conversion is not
expected to be material and will be charged to operations as incurred.
Coherent will continue to assess the impact of the introduction of the euro
currency over the transition period as well as the period subsequent to the
transition period, as applicable.
FINANCIAL CONDITION
LIQUIDITY AND CAPITAL RESOURCES
Coherent's primary sources of liquidity are cash, cash equivalents
and short-term investments of $88.4 million. Additional sources of liquidity
are Coherent's multi-currency line of credit and bank credit facilities
totaling $59.6 million. As of January 1, 2000, Coherent had $42.3 million
unused and available under these credit facilities.
During the first quarter of fiscal 1997, Coherent signed a lease for
216,000 square feet of office, research and development and manufacturing
space for its Medical Group headquarters in Santa Clara, California. The
lease expires in December 2001. Coherent has an option to purchase the
property for $24 million, or at the end of the lease arrange for the sale of
the property to a third party with Coherent retaining an obligation to the
owner for the difference between the sale price, if less than $24 million,
and $24 million, subject to certain provisions of the lease. If Coherent does
not purchase the property or arrange for its sale as discussed above,
Coherent would be obligated for an additional lease payment of approximately
$21.5 million. Coherent occupied the building in July 1998 and commenced
lease payments at that time. The lease requires Coherent to maintain
specified financial covenants, all of which Coherent was in compliance with
as of January 1, 2000.
CHANGES IN FINANCIAL CONDITION
Cash and cash equivalents increased $2.1 million (6%) from October
2, 1999. Operations and changes in exchange rates provided $1.0 million,
including $17.4, net, million used to purchase short-term investments.
Investing activities used $11.2 million, including $5.0 million used to
acquire property and equipment, net, $3.0 million used to acquire Microlase
and other, net used $3.2 million. Financing activities provided $12.4 million
with net debt borrowings of $7.1 million and $5.3 million from the sale of
shares under employee stock plans. Thus, cash, cash equivalents and
short-term investments increased $19.5 million during the quarter, with $17.4
million used to increase short-term investments.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
INTEREST RATE SENSITIVITY
Coherent maintains a short-term investment portfolio consisting
mainly of income securities with an average maturity of less than one year.
These trading securities are subject to interest rate risk and will fall in
value if market interest rates increase. If market interest rates were to
increase immediately and uniformly by 10 percent from levels at January 1,
2000 the fair value of the portfolio would decline by an immaterial amount.
Coherent has the ability to generally hold its fixed income investments until
maturity and therefore Coherent would not expect its operating results or
cash flows to be affected to any significant degree by the effect of a sudden
change in market interest rates on its securities portfolio.
Coherent has fixed rate long-term debt of approximately $80.8
million, and a hypothetical 10 percent decrease in interest rates would not
have a material impact on the fair market value of this debt. Coherent does
not hedge any interest rate exposures.
14
<PAGE>
FOREIGN CURRENCY EXCHANGE RISK
Coherent has foreign subsidiaries which sell and manufacture
Coherent's products in various global markets. As a result, Coherent's
earnings and cash flows are exposed to fluctuations in foreign currency
exchange rates. Coherent attempts to limit these exposures through
operational strategies and financial market instruments. Coherent utilizes
hedge instruments, primarily forward contracts with maturities of twelve
months or less, to manage its exposure associated with firm intercompany and
third-party transactions and net asset and liability positions denominated in
non-functional currencies. Coherent does not use derivative financial
instruments for trading purposes.
Coherent had $18.6 million of short-term forward exchange contracts,
denominated in major foreign currencies, which approximated the fair value of
such contracts and their underlying transactions at January 1, 2000. Gains
and losses related to these instruments at January 1, 2000 were not material.
Looking forward, Coherent does not anticipate any material adverse effect on
its consolidated financial position, results of operations, or cash flows
resulting from the use of these instruments. There can be no assurance that
these strategies will be effective or that transaction losses can be
minimized or forecasted accurately.
The following table provides information about the Coherent's
foreign exchange forward contracts at January 1, 2000. The table presents the
value of the contracts in U.S. dollars at the contract exchange rate as of
the contract maturity date. Due to the short-term nature of these contracts,
the fair value approximates the weighted average contractual foreign currency
exchange rate value of the contracts at January 1, 2000.
Forward contracts to sell (buy) foreign currencies for U.S. dollars:
<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT CONTRACT RATES)
Average U.S.
Contract Notional Fair
Rate Amount Value
-------- -------- -----
<S> <C> <C> <C>
Euro 1.130 $6,987 $6,209
Japanese Yen 112.913 5,048 5,561
British Pound Sterling 2.012 3,842 3,081
Swedish Krone 8.161 2,255 2,157
Hong Kong Dollar 7.808 525 527
Danish Krone 6.995 654 702
Norwegian Kroner 7.913 354 349
Canadian Dollar 1.472 1 --
</TABLE>
15
<PAGE>
COHERENT, INC.
PART II. OTHER INFORMATION
ITEM 1. Material developments in connection with legal proceedings.
N/A
ITEM 2. Material modification of rights of registrant's securities.
N/A
ITEM 3. Defaults on senior securities.
N/A
ITEM 4. Submission of Matters to a Vote of Security Holders
N/A
ITEM 5. Other.
N/A
ITEM 6. Exhibits and Reports on Form 8-K.
Exhibit 27 "Financial Data Schedules" included herewith.
16
<PAGE>
COHERENT, INC.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized.
COHERENT, INC.
(Registrant)
Date: February 9, 2000 By: ROBERT J. QUILLINAN
------------------------------------
Robert J. Quillinan
Executive Vice President and
Chief Financial Officer
17
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-2000
<PERIOD-START> OCT-03-2000
<PERIOD-END> JAN-01-2000
<CASH> 40,385
<SECURITIES> 48,024
<RECEIVABLES> 99,467
<ALLOWANCES> 5,231
<INVENTORY> 99,940
<CURRENT-ASSETS> 333,303
<PP&E> 169,492
<DEPRECIATION> 79,026
<TOTAL-ASSETS> 515,314
<CURRENT-LIABILITIES> 127,552
<BONDS> 76,897
0
0
<COMMON> 245
<OTHER-SE> 288,140
<TOTAL-LIABILITY-AND-EQUITY> 515,314
<SALES> 127,194
<TOTAL-REVENUES> 127,194
<CGS> 65,171
<TOTAL-COSTS> 65,171
<OTHER-EXPENSES> 50,311
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,643
<INCOME-PRETAX> 9,959
<INCOME-TAX> 3,286
<INCOME-CONTINUING> 6,673
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,673
<EPS-BASIC> 0.27
<EPS-DILUTED> 0.26
</TABLE>
