<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 23, 2000
REGISTRATION NO. 333-39300
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
COHERENT, INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 3674 94-1622541
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
5100 PATRICK HENRY DRIVE
SANTA CLARA, CA 95054
(408) 764-4000
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
--------------------------
BERNARD J. COUILLAUD
PRESIDENT AND CHIEF EXECUTIVE OFFICER
COHERENT, INC.
5100 PATRICK HENRY DRIVE
SANTA CLARA, CA 95054
(408) 764-4000
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
--------------------------
COPIES TO:
<TABLE>
<S> <C>
ANN YVONNE WALKER ROBERT M. SMITH
WILSON SONSINI GOODRICH & ROSATI DEWEY BALLANTINE LLP
PROFESSIONAL CORPORATION 333 SOUTH HOPE STREET
650 PAGE MILL ROAD LOS ANGELES, CA 90071-1406
PALO ALTO, CA 94304-1050 (213) 626-3399
(650) 493-9300
</TABLE>
--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
--------------------------
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended, other than securities offered only in connection with dividend
or interest reinvestment plans, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
--------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT SHALL
BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SUCH SECTION 8(a), MAY DETERMINE.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>
THE INFORMATION IN THIS PRELIMINARY PROSPECTUS IS NOT COMPLETE AND MAY BE
CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PRELIMINARY
PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN
OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT
PERMITTED.
<PAGE>
PRELIMINARY PROSPECTUS SUBJECT TO COMPLETION JUNE 23, 2000
--------------------------------------------------------------------------------
3,000,000 SHARES
[LOGO]
COMMON STOCK
-------------------------------------------------------------------------
We are offering 3,000,000 shares of our common stock to be sold in this
offering.
Our common stock is listed on the Nasdaq National Market under the symbol
"COHR." On June 22, 2000, the last reported sale price of the common stock on
the Nasdaq National Market was $76.0625 per share.
BEFORE BUYING ANY SHARES YOU SHOULD READ THE DISCUSSION OF MATERIAL RISKS OF
INVESTING IN OUR COMMON STOCK IN "RISK FACTORS" BEGINNING ON PAGE 5.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
PER SHARE TOTAL
<S> <C> <C>
----------------------------------------------------------------------------------
PUBLIC OFFERING PRICE $ $
----------------------------------------------------------------------------------
UNDERWRITING DISCOUNTS AND COMMISSIONS $ $
----------------------------------------------------------------------------------
PROCEEDS, BEFORE EXPENSES, TO US $ $
----------------------------------------------------------------------------------
</TABLE>
The underwriters may also purchase up to 450,000 shares of common stock from us
at the public offering price, less the underwriting discounts and commissions,
within 30 days from the date of this prospectus to cover over-allotments, if
any. If the underwriters exercise the option in full, the total underwriting
discounts and commissions will be $ , and the total proceeds, before
expenses, to us will be $ .
The underwriters are offering the common stock as set forth under
"Underwriting." Delivery of the shares will be made on or about , 2000.
UBS WARBURG LLC
CIBC WORLD MARKETS
U.S. BANCORP PIPER JAFFRAY
TRADE.COM
A DIVISION OF BLUESTONE CAPITAL PARTNERS, L.P.
<PAGE>
APPENDIX- DESCRIPTION OF GRAPHICS
INSIDE FRONT COVER
Headline: "The POWER of Light"
Graphics: The following captions appear below pictures of Coherent products
beginning with the top left hand corner and moving clockwise across the page,
with the application for the products appearing immediately below the picture
and the product name below the application: "Age-Related Macular Degeneration"
and "Opal Photoactivator;" "DWDM Etalons" and "ComEts;" "DUV Lithography" and
"NovaLine Excimer Laser;" "Hair Removal" and "LightSheer Laser;" "EDFA
Amplifiers" and "Optically Pumped Semiconductor Laser;" and "Advanced Packaging"
and "AVIA DPSS Laser." In addition, the caption below, "EDFA Amplifiers" and
"Optically Pumped Semiconductor Laser" includes the designation "(Under
development)."
The center of the graphic contains Coherent's key target markets identified by
the following descriptions appearing in the graphic: "Semiconductor and Related
Manufacturing," "Optical Telecommunications" and "Medical."
The Coherent logo appears in the bottom right hand corner of the graphic.
OUTSIDE BACK COVER
The Coherent logo is set forth in the center of the page.
<PAGE>
TABLE OF CONTENTS
--------------------------------------------------------------------------------
<TABLE>
<S> <C>
Prospectus summary..................... 1
The offering........................... 3
Summary consolidated financial data.... 4
Risk factors........................... 5
Forward-looking information............ 17
Use of proceeds........................ 18
Dividend policy........................ 18
Price range of common stock............ 19
Capitalization......................... 20
Selected consolidated financial data... 21
Management's discussion and analysis of
financial condition and results of
operations........................... 23
Business............................... 37
Management............................. 61
Principal stockholders................. 64
Description of capital stock........... 66
Underwriting........................... 70
Legal matters.......................... 72
Experts................................ 72
Where you can find additional
information.......................... 72
Documents incorporated by reference.... 73
Index to consolidated financial
statements........................... F-1
</TABLE>
You should rely only on the information contained or incorporated by reference
in this prospectus. We have not authorized anyone to provide you with
information different from that contained or incorporated by reference in this
prospectus. We are offering to sell, and seeking offers to buy, shares of common
stock only in jurisdictions where offers and sales are permitted. The
information contained in this prospectus is accurate only as of the date of this
prospectus, regardless of the time of delivery of this prospectus or of any sale
of the common stock. In this prospectus, the "Company," "Coherent," "we," "us,"
and "our" refer to Coherent, Inc. and its consolidated subsidiaries, unless the
context otherwise requires.
--------------------------------------------------------------------------------
<PAGE>
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this prospectus. You
should read the entire prospectus carefully, especially the risks of investing
in our common stock that we discuss under "Risk factors." Our principal
executive offices are located at 5100 Patrick Henry Drive, Santa Clara,
California 95054. Our telephone number is (408) 764-4000. Our web site is
http://www.cohr.com. We do not intend the information found on our web site to
be part of this prospectus.
OUR BUSINESS
We are one of the world's leading suppliers of photonics-based solutions for a
broad range of commercial, medical and scientific applications. We design,
manufacture and market lasers, laser-based systems, precision optics and related
accessories for a diverse group of customers. Since inception in 1966, we have
grown through a combination of internal expansion and strategic acquisitions of
companies with related technologies and products. While our products address a
broad range of applications, we are now increasingly concentrating our efforts
on three rapidly growing segments of the photonics market: semiconductor and
related manufacturing, optical telecommunications and medical applications.
Within these three market segments, we are focusing on the following five key
initiatives:
- deep ultra-violet, or DUV, lithography;
- semiconductor processing and microelectronics packaging;
- optical telecommunications;
- hair removal; and
- age-related macular degeneration, or AMD, an emerging ophthalmic market.
We are also focusing on the development and production of high power,
semiconductor-based lasers for a variety of applications.
APPLICATIONS
As lasers become less expensive, smaller and more reliable, they are
increasingly replacing conventional tools and enabling technological advances in
a variety of applications and industries. Our three reportable business
segments, Electro-Optics, Medical and Lambda Physik, provide products that
address a broad range of applications, including the following:
- SEMICONDUCTOR AND RELATED MANUFACTURING -- Lasers are increasingly being
used for multiple steps in the semiconductor manufacturing process. We
currently provide excimer lasers for DUV lithography, a process used to
print a master image of a circuit layer onto a semiconductor wafer, and for
the flat panel display industry. We manufacture ion lasers for direct
imaging of photomasks and printed circuit boards, and diode-pumped
solid-state, or DPSS, lasers to detect defects in photomasks, semiconductor
chips and printed circuit boards. In the semiconductor, inspection,
measurement, test and repair sector, our DPSS lasers and carbon dioxide, or
CO(2), lasers are used for advanced packaging and interconnects.
- OPTICAL TELECOMMUNICATIONS -- We manufacture lasers and optical components
that enable increased bandwidth by allowing multiple wavelengths of light to
travel across the same fiber. We are developing a new type of laser, an
Optically Pumped Semiconductor laser, that generates sufficient power to
eliminate the need for multiple pump lasers in fiber optic networks. Before
this laser can be commercially deployed, we must develop packaging for the
product and the product must meet Telcordia requirements. We also serve the
fiber bragg grating market with our ion and excimer lasers, and provide a
new etalon for optical telecommunications applications, which
1
<PAGE>
enhances the frequency stability of laser transmitters when integrated into
dense wavelength division multiplexing, or DWDM, network components.
- MEDICAL -- We pioneered the development of lasers used in medical
applications 30 years ago and remain a leader and innovator in the
aesthetic, ophthalmic and surgical markets. For example, our laser systems
are used for the treatment of secondary cataracts, retinal diseases and the
wet "classical" form of AMD, which is a leading cause of blindness in the
elderly. We also produce a compete line of innovative laser products for
aesthetic procedures, including the first semiconductor laser system that
received clearance from the FDA to claim permanence in hair reduction.
- PRINTING AND REPROGRAPHICS -- Working with professionals in the printing
industry, we design semiconductor and DPSS lasers used in complex
computer-to-plate printing systems that simplify the process of engraving
printing plates.
- MATERIALS PROCESSING -- Our semiconductor and CO(2) lasers are used for
cutting, marking, welding and other applications where accuracy, speed and
processing costs are important.
- SCIENTIFIC AND INSTRUMENTATION -- Historically, we have maintained close
relationships with the scientific market, which has provided an ideal test
market for leading-edge laser technology. For example, our ion lasers are
sold to instrument manufacturers for applications such as cell sorting and
DNA and protein sequencing.
OUR STRATEGY
We strive to develop innovative and proprietary products and solutions that meet
the needs of our customers based on our core expertise in lasers and optical
technologies. In pursuit of our strategy, we intend to:
- Leverage our technology leadership to grow with rapidly expanding markets;
- Maintain our leadership position in existing markets;
- Maintain and develop additional strong collaborative customer and industry
relationships;
- Expand semiconductor laser market opportunities; and
- Develop and acquire new technologies.
2
<PAGE>
THE OFFERING
The following information assumes that the underwriters do not exercise the
over-allotment option granted to them to purchase additional shares in this
offering.
<TABLE>
<S> <C>
Common stock we are offering................. 3,000,000 shares
Common stock to be outstanding after this
offering................................... 28,117,673 shares
Nasdaq National Market symbol................ COHR
Use of proceeds.............................. For acquisitions of or investments in
businesses, technologies and products,
continued development of new technologies and
general corporate purposes. See "Use of
proceeds."
Risk factors................................. Investing in our common stock involves
certain risks. Please see "Risk factors"
beginning on page 5 for a description.
</TABLE>
The number of shares of common stock to be outstanding after this offering is
based on the number of shares outstanding as of April 1, 2000, excluding:
- 4,179,455 shares issuable upon the exercise of options outstanding at a
weighted average exercise price of $24.25 per share;
- 1,701,550 shares available for future grant under our 1995 Stock Plan;
- 100,000 shares available for future grant under our 1998 Director Option
Plan;
- 1,801,926 shares available for future grant under our Employee Stock
Purchase Plan; and
- 450,000 shares that the underwriters may purchase from us if they exercise
their over-allotment option in full.
3
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
The following table sets forth our summary consolidated financial data as of the
dates or for the periods indicated.
<TABLE>
<CAPTION>
FISCAL YEARS ENDED SIX MONTHS ENDED
------------------------------------------------------------- ---------------------
CONSOLIDATED STATEMENTS SEPT. 30, SEPT. 28, SEPT. 27, SEPT. 26, OCT. 2, APRIL 3, APRIL 1,
1995 1996 1997(1) 1998(2) 1999(3) 1999 2000
(IN THOUSANDS, EXCEPT PER SHARE DATA)
OF INCOME DATA
----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales................ $285,499 $364,430 $391,038 $410,449 $468,869 $222,168 $263,875
Gross profit............. 142,483 187,218 205,502 197,865 220,666 105,208 130,806
Income from operations... 29,912 44,700 42,310 24,132 18,077 14,254 24,161
Net income............... $ 19,323 $ 30,314 $ 26,292 $ 18,811 $ 11,841 $ 9,646 $ 15,076
======== ======== ======== ======== ======== ======== ========
Net income per share(4):
Basic.................. $ 0.91 $ 1.37 $ 1.16 $ 0.80 $ 0.49 $ 0.40 $ 0.61
Diluted................ $ 0.87 $ 1.31 $ 1.12 $ 0.79 $ 0.48 $ 0.40 $ 0.57
Shares used in
computation(4):
Basic.................. 21,270 22,128 22,664 23,374 23,957 23,861 24,705
Diluted................ 22,224 23,084 23,480 23,749 24,633 24,378 26,594
</TABLE>
----------
(1) Includes a $9.0 million, or $0.38 per diluted share, after-tax charge for
the write-off of purchased in-process research and development.
(2) Includes a $2.7 million, or $0.11 per diluted share, tax benefit associated
with a favorable IRS ruling.
(3) Includes a $10.7 million, or $0.44 per diluted share, after-tax charge for
the write-off of purchased in-process research and development.
(4) See Note 1 of Notes to Consolidated Financial Statements for an explanation
of the determination of the number of shares used in computing net income
per share.
<TABLE>
<CAPTION>
APRIL 1, 2000
OCT. 2, -------------------------------
1999 ACTUAL AS ADJUSTED(5)
(IN THOUSANDS)
CONSOLIDATED BALANCE SHEET DATA
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash, cash equivalents and short-term investments........... $ 68,916 $ 76,601 $292,579
Working capital............................................. 194,919 218,636 434,614
Total assets................................................ 495,468 542,026 758,004
Long-term obligations, less current portion................. 74,745 76,497 76,497
Other long-term liabilities................................. 16,819 19,465 19,465
Retained earnings........................................... 170,738 185,814 185,814
Total stockholders' equity.................................. 277,305 302,372 518,350
</TABLE>
----------
(5) The as adjusted consolidated balance sheet data reflects the receipt of the
net proceeds from the sale of 3,000,000 shares of common stock in this
offering at an assumed public offering price of $76.0625 per share, after
deducting estimated underwriting discounts and commissions and the estimated
offering expenses.
--------------------------
Aura-TM-, Avia-TM-, ChillTip-TM-, Coherent-Registered Trademark-, ComEts-TM-,
Compass-TM-, Compex-TM-, Diamond-TM-, Enterprise-TM-, FAP-TM-, Fieldmaster-TM-,
Gator-TM- 2000, Innova-Registered Trademark-, Innova iLine-TM-, Innova
Sabre-TM-, Innova SabreFreD-TM-, Labmaster-TM-, Lambda STEEL-TM-, LI-FBG-TM-,
LightSheer-TM-, LPX-TM-, Mira-TM-, Modemaster-TM-, NovaLine-Registered
Trademark-, Novus-Registered Trademark- 2000-TM-, Novus Omni-TM-, Novus
Verdi-TM-, Opal-TM- Photoactivator, Optex-TM-, RegA-TM-, Ultima 2000-Registered
Trademark-, UltraFine-TM-, UltraPulse-Registered Trademark-, Verdi-TM-,
VersaPulse-Registered Trademark-, VersaPulse Select-TM-, VersaPulse C-TM-,
Vitesse-TM- and the Coherent logo are our trademarks. Visudyne-TM- is the
trademark of Novartis A.G. All other trademarks, servicemarks or trade names
referred to in this prospectus are the property of their respective owners.
4
<PAGE>
--------------------------------------------------------------------------------
RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER THE RISKS DESCRIBED BELOW TOGETHER WITH ALL OF THE
OTHER INFORMATION INCLUDED IN OR INCORPORATED BY REFERENCE INTO THIS PROSPECTUS
BEFORE MAKING AN INVESTMENT DECISION. IF ANY OF THE FOLLOWING RISKS ACTUALLY
OCCURS, OUR BUSINESS, FINANCIAL CONDITION OR RESULTS OF OPERATIONS COULD BE
HARMED. IN SUCH AN EVENT, THE TRADING PRICE OF OUR COMMON STOCK COULD DECLINE
DUE TO ANY OF THESE RISKS, AND YOU MAY LOSE ALL OR PART OF YOUR INVESTMENT.
RISKS RELATED TO OUR BUSINESS
WE MAY EXPERIENCE QUARTERLY AND ANNUAL FLUCTUATIONS IN OUR NET SALES AND
OPERATING RESULTS IN THE FUTURE, WHICH MAY RESULT IN VOLATILITY IN OUR STOCK
PRICE.
Our net sales and operating results may vary significantly from quarter to
quarter and from year to year in the future. A number of factors, many of which
are outside of our control, may cause these variations, including:
- fluctuations in demand for, and sales of, our products or prolonged
downturns in the industries that we serve;
- ability of our suppliers to produce and deliver components and parts,
including sole or limited source components, in a timely manner, in the
quantity and quality desired and at the prices we have budgeted;
- timing or cancellation of customer orders and shipment scheduling;
- fluctuations in our product mix;
- foreign currency fluctuations;
- introductions of new products and product enhancements by our competitors,
entry of new competitors into our markets, pricing pressures and other
competitive factors;
- our ability to develop, introduce, manufacture and ship new and enhanced
products in a timely manner without defects;
- rate of market acceptance of our new products;
- delays or reductions in customer purchases of our products in anticipation
of the introduction of new and enhanced products by us or our competitors;
- our ability to control expenses;
- timing of regulatory approvals and changes in domestic and regulatory
environments;
- level of capital spending of our customers;
- economic conditions, especially in the Asia-Pacific market;
- potential obsolescence of our inventory; and
- costs related to acquisitions of technology or businesses.
In addition, we often recognize a substantial portion of our sales in the last
month of the quarter. Our expenses for any given quarter are typically based on
expected sales and if sales are below expectations in any given quarter, the
adverse impact of the shortfall on our operating results may be magnified by our
inability to adjust spending quickly to compensate for the shortfall. We also
base our
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5
<PAGE>
RISK FACTORS
--------------------------------------------------------------------------------
manufacturing on our forecasted product mix for the quarter. If the actual
product mix varies significantly from our forecast, we may not be able to fill
some orders during that quarter, which would result in delays in the shipment of
our products. Accordingly, variations in timing of sales, particularly for our
higher priced, higher margin products, can cause significant fluctuations in
quarterly operating results. As a result of all these factors, our operating
results in one or more future periods may fail to meet the expectations of
market analysts or investors. In that event, the trading price of our common
stock would likely decline.
For example, in the third quarter of fiscal 1998 we experienced a problem with
our VersaPulse family of products for aesthetic applications because it did not
meet customer expectations. As a result, we saw a significant increase in
returns and allowances and decrease in sales, which caused a substantial decline
in our quarterly results. This situation persisted into the first half of fiscal
1999, by which time we had improved both the reliability and functionality of
these products.
Due to these and other factors, we believe that quarter-to-quarter and
year-to-year comparisons of our past operating results may not be meaningful.
You should not rely on our results for any quarter or year as an indication of
our future performance. Our operating results in future quarters and years may
be below public market analysts' or investors' expectations, which would likely
cause the price of our common stock to fall.
WE DEPEND ON SOLE SOURCE OR LIMITED SOURCE SUPPLIERS FOR SOME OF THE KEY
COMPONENTS AND MATERIALS, INCLUDING EXOTIC MATERIALS AND CRYSTALS, IN OUR
PRODUCTS, WHICH MAKES US SUSCEPTIBLE TO SUPPLY SHORTAGES OR PRICE FLUCTUATIONS
THAT COULD ADVERSELY AFFECT OUR BUSINESS.
We currently purchase several key components and materials used in the
manufacture of our products from sole source or limited source suppliers. Some
of these suppliers are relatively small private companies that may discontinue
their operations at any time. We typically purchase our components and materials
through purchase orders and we have no guaranteed supply arrangement with any of
these suppliers. We may fail to obtain these supplies in a timely manner in the
future. We may experience difficulty identifying alternative sources of supply
for certain components used in our products. Once identified, we would
experience further delays from evaluating and testing the products of these
potential alternative suppliers. Furthermore, financial or other difficulties
faced by these suppliers or significant changes in demand for these components
or materials could limit their availability. Any interruption or delay in the
supply of any of these components or materials, or the inability to obtain these
components and materials from alternate sources at acceptable prices and within
a reasonable amount of time, would impair our ability to meet scheduled product
deliveries to our customers and could cause customers to cancel orders.
We rely exclusively on our own production capability to manufacture certain
strategic components, optics and optical systems, semiconductor lasers, lasers
and laser-based systems. Because we manufacture, package and test these
components, products and systems at our own facilities, and such components,
products and systems are not readily available from other sources, any
interruption in manufacturing would adversely affect our business. In addition,
our failure to achieve adequate manufacturing yields at our manufacturing
facilities may materially and adversely affect our operating results and
financial condition.
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6
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RISK FACTORS
--------------------------------------------------------------------------------
OUR FUTURE SUCCESS DEPENDS ON OUR ABILITY TO INCREASE OUR SALES VOLUMES AND
DECREASE OUR COSTS TO OFFSET ANTICIPATED DECLINES IN THE AVERAGE SELLING PRICES
OF OUR PRODUCTS AND, IF WE ARE UNABLE TO REALIZE GREATER SALES VOLUMES AND LOWER
COSTS, OUR OPERATING RESULTS MAY SUFFER.
Our future success depends on the continued growth of the markets for lasers,
laser systems, precision optics and related accessories, as well as our ability
to identify in advance emerging markets for laser-based systems. We cannot
assure you that we will be able to successfully identify new high-growth markets
in the future. Moreover, we cannot assure you that new markets will develop for
our products or our customers' products, or that our technology or pricing will
enable such markets to develop. Future demand for our products is uncertain and
will depend to a great degree on the continued technological development and the
introduction of new or enhanced products. If this does not continue, sales of
our products may decline and our business will be harmed.
We have historically been the industry's high quality, high priced supplier of
laser systems. We have in the past experienced decreases in the average selling
prices of some of our products. We anticipate that as competing products become
more widely available, the average selling price of our products may decrease.
If we are unable to offset the anticipated decrease in our average selling
prices by increasing our sales volumes, our net sales will decline. In addition,
to maintain our gross margins, we must continue to reduce the cost of our
products. Further, as average selling prices of our current products decline, we
must develop and introduce new products and product enhancements with higher
margins. If we cannot maintain our gross margins, our operating results could be
seriously harmed, particularly if the average selling prices of our products
decrease significantly.
OUR FUTURE SUCCESS DEPENDS ON OUR ABILITY TO DEVELOP AND SUCCESSFULLY INTRODUCE
NEW AND ENHANCED PRODUCTS THAT MEET THE NEEDS OF OUR CUSTOMERS.
Our current products address a broad range of commercial, medical and scientific
applications in the photonics markets. We cannot assure you that the market for
these applications will continue to generate significant or consistent demand
for our products. Demand for our products could be significantly diminished by
new technologies or products that replace them or render them obsolete.
Over the last three fiscal years, our research and development expenses have
been in the range of 10% to 11% of net sales. Our future success depends on our
ability to anticipate our customers' needs and develop products that address
those needs. Introduction of new products and product enhancements will require
that we effectively transfer production processes from research and development
to manufacturing and coordinate our efforts with those of our suppliers to
achieve volume production rapidly. If we fail to effectively transfer production
processes, develop product enhancements or introduce new products in sufficient
quantities to meet the needs of our customers as scheduled, our net sales may be
reduced and our business may be harmed.
WE HAVE VERY LITTLE EXPERIENCE IN PROVIDING OPTICAL COMPONENTS TO THE OPTICAL
TELECOMMUNICATIONS MARKET SEGMENT; WE DO NOT CURRENTLY HAVE THE ABILITY TO
PACKAGE ACTIVE COMPONENTS; AND, EVEN IF SUCCESSFUL IN DEVELOPING THIS PACKAGING,
WE STILL MAY NOT MEET THE STRINGENT TELCORDIA SPECIFICATIONS, ANY OF WHICH COULD
LIMIT OUR ABILITY TO SUCCEED IN THIS MARKET.
We have only recently begun to develop products for the optical
telecommunications market. Sales to that market accounted for only
$3.0 million, or 1.1%, of net sales during the first six months of fiscal 2000.
Our lack of prior experience in this market could put us at a competitive
disadvantage. In
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7
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RISK FACTORS
--------------------------------------------------------------------------------
addition, we have not yet developed packaging for our active components. Even if
we successfully develop this packaging, we still may not meet the stringent
Telcordia specifications. Telcordia specifications are worldwide industry
telecommunications standards established by an industry consortium. Most
potential telecommunications customers demand that we meet these specifications.
We do not anticipate that we will have a Telcordia-qualified product before
early 2002. Our failure to develop qualified packaging or to meet the Telcordia
specifications would seriously harm our future sales of our active optical
telecommunications products.
WE FACE RISKS ASSOCIATED WITH OUR INTERNATIONAL SALES THAT COULD HARM OUR
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
For the fiscal years ended September 26, 1998 and October 2, 1999 and the six
months ended April 1, 2000, 55%, 58% and 59%, respectively, of our net sales
were derived from international sales. We anticipate that international sales
will continue to account for a significant portion of our revenues in the
foreseeable future. A portion of our international sales occurs through our
international sales subsidiaries and the remainder of our international sales
result from exports to foreign distributors and resellers. Our international
operations and sales are subject to a number of risks, including:
- longer accounts receivable collection periods;
- the impact of recessions in economies outside the United States;
- unexpected changes in regulatory requirements;
- certification requirements;
- reduced protection for intellectual property rights in some countries;
- potentially adverse tax consequences;
- political and economic instability; and
- preference for locally produced products.
We are also subject to the risks of fluctuating foreign exchange rates, which
could materially adversely affect the sales price of our products in foreign
markets as well as the costs and expenses of our international sales
subsidiaries. While we use forward exchange contracts, currency swap contracts,
currency options and other risk management techniques to hedge our foreign
currency exposure, we remain exposed to the economic risks of foreign currency
fluctuations. For additional discussion about our foreign currency risks, see
"Management's discussion and analysis of financial condition and results of
operations -- Quantitative and Qualitative Disclosures About Market Risk."
WE MAY NOT BE ABLE TO PROTECT OUR PROPRIETARY TECHNOLOGY, WHICH COULD ADVERSELY
AFFECT OUR COMPETITIVE ADVANTAGE.
We rely on a combination of patent, copyright, trademark and trade secret laws
and restrictions on disclosure to protect our intellectual property rights. We
currently hold approximately 325 patents and have approximately 240 pending
patent applications that have been filed. We cannot assure you that our patent
applications will be approved, that any patents that may issue will protect our
intellectual property or that any issued patents will not be challenged by third
parties. Other parties may independently develop similar or competing technology
or design around any patents that may be issued to us. We cannot be certain that
the steps we have taken will prevent the misappropriation of
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our intellectual property, particularly in foreign countries where the laws may
not protect our proprietary rights as fully as in the United States. See
"Business -- Intellectual Property."
WE COULD BECOME SUBJECT TO LITIGATION REGARDING INTELLECTUAL PROPERTY RIGHTS,
WHICH COULD SERIOUSLY HARM OUR BUSINESS.
The laser industry is characterized by a very large number of patents, many of
which are of questionable validity and some of which appear to overlap with
other issued patents. As a result, there is a significant amount of uncertainty
in the industry regarding patent protection and infringement. In recent years,
there has been significant litigation in the United States involving patents and
other intellectual property rights. In the future, we may be a party to
litigation to protect our intellectual property or as a result of an alleged
infringement of others' intellectual property. These claims and any resulting
lawsuit, if successful, could subject us to significant liability for damages or
invalidation of our proprietary rights. These lawsuits, regardless of their
success, would likely be time-consuming and expensive to resolve and would
divert management time and attention. Any potential intellectual property
litigation also could force us to do one or more of the following:
- stop manufacturing, selling or using our products that use the infringed
intellectual property;
- obtain from the owner of the infringed intellectual property right a license
to sell or use the relevant technology, which license may not be available
on reasonable terms, or at all; or
- redesign the products that use the technology.
If we are forced to take any of these actions, our business may be seriously
harmed. We do not have insurance to cover potential claims of this type.
We may in the future initiate claims or litigation against third parties for
infringement of our proprietary rights to protect these rights or to determine
the scope and validity of our proprietary rights or the proprietary rights of
competitors. These claims could result in costly litigation and the diversion of
our technical and management personnel.
WE DEPEND ON SKILLED PERSONNEL TO OPERATE OUR BUSINESS EFFECTIVELY IN A RAPIDLY
CHANGING MARKET, AND IF WE ARE UNABLE TO RETAIN EXISTING OR HIRE ADDITIONAL
PERSONNEL, OUR ABILITY TO DEVELOP AND SELL OUR PRODUCTS COULD BE HARMED.
Our future success depends upon the continued services of our executive officers
and other key engineering, sales, marketing, manufacturing and support
personnel. None of our officers or key employees in the United States is bound
by an employment agreement for any specific term and these personnel may
terminate their employment at any time. In addition, we do not have "key person"
life insurance policies covering any of our employees.
We intend to hire a significant number of additional employees during the next
12 months. Our ability to continue to attract and retain highly skilled
personnel will be a critical factor in determining whether we will be successful
in the future. Competition for highly skilled personnel is intense, especially
in the Silicon Valley, where two of our major operating facilities are located.
We may not be successful in attracting, assimilating or retaining qualified
personnel to fulfill our current or future needs. This is particularly
challenging for a mature public company such as Coherent, as many employees are
seeking jobs with pre-public and newly public companies. Our failure to attract
additional employees and retain our existing employees could adversely affect
our growth and our business.
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THE LONG SALES CYCLES FOR OUR PRODUCTS MAY CAUSE US TO INCUR SIGNIFICANT
EXPENSES WITHOUT OFFSETTING REVENUES.
Customers often view the purchase of our products as a significant and strategic
decision. As a result, customers typically expend significant effort in
evaluating, testing and qualifying our products before making a decision to
purchase them, resulting in a lengthy initial sales cycle. While our customers
are evaluating our products and before they place an order with us, we may incur
substantial sales and marketing and research and development expenses to
customize our products to the customer's needs. We may also expend significant
management efforts, increase manufacturing capacity and order long-lead-time
components or materials prior to receiving an order. Even after this evaluation
process, a potential customer may not purchase our products. As a result, these
long sales cycles may cause us to incur significant expenses without ever
receiving revenue to offset those expenses.
THE MARKETS IN WHICH WE SELL OUR PRODUCTS ARE INTENSELY COMPETITIVE AND
INCREASED COMPETITION COULD CAUSE REDUCED SALES LEVELS, REDUCED GROSS MARGINS OR
THE LOSS OF MARKET SHARE.
Competition in the various laser markets in which we provide products is very
intense. In the semiconductor and related manufacturing market, we compete
against a number of companies, including SDL, Inc., Spectra-Physics
Lasers, Inc., Cymer, Inc. and Komatsu Ltd. In the optical telecommunications
market, we compete, or expect to compete, against SDL, Inc., JDS Uniphase
Corporation and Spectra-Physics Lasers, Inc., among others. Our medical products
compete against products offered by ESC Medical Systems Ltd., Candela
Corporation and The Carl Zeiss Group, among others. Some of our competitors are
large companies that have significant financial, technical, marketing and other
resources. These competitors may be able to devote greater resources than we can
to the development, promotion, sale and support of their products. Several of
our competitors that have large market capitalizations or cash reserves are much
better positioned than we are to acquire other companies in order to gain new
technologies or products that may displace our product lines. Any of these
acquisitions could give our competitors a strategic advantage. Any business
combinations or mergers among our competitors, forming larger competitors with
greater resources, could result in increased competition, price reductions,
reduced margins or loss of market share, any of which could materially and
adversely affect our business, results of operations and financial condition.
Additional competitors may enter the market and we are likely to compete with
new companies in the future. We expect to encounter potential customers that,
due to existing relationships with our competitors, are committed to the
products offered by these competitors. As a result of the foregoing factors, we
expect that competitive pressures may result in price reductions, reduced
margins and loss of market share. For a more detailed discussion of our
competition, see "Business -- Competition."
OUR MEDICAL PRODUCTS ARE SUBJECT TO US AND INTERNATIONAL MEDICAL REGULATIONS AND
CONTROLS, WHICH IMPOSE SUBSTANTIAL FINANCIAL COSTS ON US AND WHICH CAN PREVENT
OR DELAY THE INTRODUCTION OF NEW PRODUCTS.
Our ability to sell our medical products is subject to various federal, state
and international rules and regulations governing the medical products industry.
In the United States, we are subject to inspection and market surveillance by
the Food and Drug Administration, or FDA, to determine compliance with
regulatory requirements. The FDA regulates the clinical testing, manufacturing,
labeling, sale, distribution and promotion of medical devices. The regulatory
process is costly, lengthy and uncertain. Unless an exemption applies, each
medical device that we wish to market in the United States must receive either
510(k) clearance or pre-marketing approval in advance from the FDA. The FDA's
510(k)
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clearance process usually takes from four to 12 months, but it can take longer.
For products subject to pre-market approval, the regulatory process generally
takes from one to three years or more and involves substantially greater risks
and commitment of resources than the 510(k) clearance process. We may not be
able to obtain necessary regulatory approvals or clearances on a timely basis,
if at all, for any of our products under development and delays in receipt of or
failure to receive such approvals or clearances could have an adverse effect on
our business.
Following clearance or approval, marketed products are subject to continuing
regulation. We are required to adhere to the FDA's Quality System Regulation, or
QSR, and similar regulations in other countries, which include design, testing,
quality control and documentation requirements. Ongoing compliance with QSR,
labeling and other applicable regulatory requirements is monitored through
periodic inspections and market surveillance by the FDA and by comparable
agencies in other countries.
Our failure to comply with applicable requirements could lead to an enforcement
action, which could have an adverse effect on our financial condition and
results of operations. The FDA can institute a wide variety of enforcement
actions, ranging from a public warning letter to more severe sanctions such as:
- fines, injunctions and civil penalties;
- recall or seizure of our products;
- the issuance of public notices or warnings;
- operating restrictions, partial suspension or total shutdown of production;
- refusal of our request for 510(k) clearance pre-market approval of new
products;
- withdrawal of 510(k) clearance or pre-market approvals already granted; and
- criminal prosecution.
The FDA also has the authority to require repair, replacement or refund of the
cost of any medical device manufactured or distributed by us.
Our medical products are subject to additional similar regulations in most of
the international markets in which we sell our products. Changes to existing US
and international rules and regulations could adversely affect our ability to
sell our current line of medical products in the United States and
internationally, could increase our costs and could materially adversely impact
our results of operations.
SOME OF OUR LASER SYSTEMS ARE COMPLEX IN DESIGN AND MAY CONTAIN DEFECTS THAT ARE
NOT DETECTED UNTIL DEPLOYED BY OUR CUSTOMERS, WHICH COULD INCREASE OUR COSTS AND
REDUCE OUR REVENUES.
Laser systems are inherently complex in design and require ongoing regular
maintenance. The manufacture of our lasers, laser products and systems involves
a highly complex and precise process. As a result of the technical complexity of
our products, changes in our or our suppliers' manufacturing processes or the
inadvertent use of defective or contaminated materials by us or our suppliers
could result in a material adverse effect on our ability to achieve acceptable
manufacturing yields and product reliability. To the extent that we do not
achieve such yields or product reliability, our business, operating results,
financial condition and customer relationships would be adversely affected.
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Our customers may discover defects in our products after the products have been
fully deployed and operated under peak stress conditions. In addition, some of
our products are combined with products from other vendors, which may contain
defects. As a result, should problems occur, it may be difficult to identify the
source of the problem. If we are unable to fix defects or other problems, we
could experience, among other things:
- loss of customers;
- increased costs of product returns and warranty expenses;
- damage to our brand reputation;
- failure to attract new customers or achieve market acceptance;
- diversion of development and engineering resources; and
- legal actions by our customers.
The occurrence of any one or more of the foregoing factors could seriously harm
our business, financial condition and results of operations.
IF WE FAIL TO ACCURATELY FORECAST COMPONENT AND MATERIAL REQUIREMENTS FOR OUR
PRODUCTS, WE COULD INCUR ADDITIONAL COSTS AND INCUR SIGNIFICANT DELAYS IN
SHIPMENTS, WHICH COULD RESULT IN LOSS OF CUSTOMERS.
We use rolling forecasts based on anticipated product orders and a material
requirements planning system to determine our product requirements. It is very
important that we accurately predict both the demand for our products and the
lead times required to obtain the necessary components and materials. We depend
on our suppliers for most of our product components and materials. Lead times
for components and materials that we order vary significantly and depend on
factors including the specific supplier requirements, the size of the order,
contract terms and current market demand for components. For substantial
increases in our sales levels, some of our suppliers may need at least six
months lead time. If we overestimate our component and material requirements, we
may have excess inventory, which would increase our costs. If we underestimate
our component and material requirements, we may have inadequate inventory, which
could interrupt and delay delivery of our products to our customers. Any of
these occurrences would negatively impact our net sales, business and operating
results.
IF WE FAIL TO MANAGE OUR GROWTH EFFECTIVELY, OUR BUSINESS COULD BE DISRUPTED,
WHICH COULD HARM OUR OPERATING RESULTS.
Our ability to successfully offer our products and implement our business plan
in evolving markets requires an effective planning and management process. We
continue to expand the scope of our operations domestically and internationally.
The growth in employee headcount and in sales, combined with the challenges of
managing geographically-dispersed operations, has placed, and our anticipated
growth in future operations will continue to place, a significant strain on our
management systems and resources, particularly our information technology
systems. We expect that we will need to continue to improve our information
technology systems, financial and managerial controls, reporting systems and
procedures and continue to expand, train and manage our work force worldwide.
The failure to effectively manage our growth could disrupt our business and harm
our operating results.
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ANY ACQUISITIONS WE MAKE COULD DISRUPT OUR BUSINESS AND HARM OUR FINANCIAL
CONDITION.
We have in the past made strategic acquisitions of other corporations, and we
continue to evaluate potential strategic acquisitions of complementary
companies, products or technologies. In the event of any future acquisitions, we
could:
- issue stock that would dilute our current stockholders' percentage
ownership;
- pay cash;
- incur debt;
- assume liabilities; or
- incur expenses related to in-process research and development, amortization
of goodwill and other intangible assets.
These purchases also involve numerous risks, including:
- problems combining the acquired operations, technologies or products;
- unanticipated costs or liabilities;
- diversion of management's attention from our core businesses;
- adverse effects on existing business relationships with suppliers and
customers; and
- potential loss of key employees, particularly those of the purchased
organizations.
We cannot assure you that we will be able to successfully integrate any
businesses, products, technologies or personnel that we might acquire in the
future, which may harm our business.
RISKS RELATED TO OUR INDUSTRY
OUR MARKET IS UNPREDICTABLE AND CHARACTERIZED BY RAPID TECHNOLOGICAL CHANGES AND
EVOLVING STANDARDS, AND, IF WE FAIL TO ADDRESS CHANGING MARKET CONDITIONS, OUR
BUSINESS AND OPERATING RESULTS WILL BE HARMED.
The photonics industry is characterized by extensive research and development,
rapid technological change, frequent new product introductions, changes in
customer requirements and evolving industry standards. Because this market is
subject to rapid change, it is difficult to predict its potential size or future
growth rate. Our success in generating revenues in this market will depend on,
among other things:
- maintaining and enhancing our relationships with our customers;
- the education of potential end-user customers about the benefits of lasers,
laser systems and precision optics; and
- our ability to accurately predict and develop our products to meet industry
standards.
We incurred expenditures for research and development of $26.8 million, or 10%,
of net sales, during the first six months of fiscal 2000. For our fiscal years
ended October 2, 1999, September 26, 1998 and September 27, 1997, our research
and development costs were $46.8 million, or 10%, of net sales, $44.5 million,
or 11%, of sales, and $39.4 million, or 10%, of net sales, respectively. We
cannot
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assure you that our expenditures for research and development will result in the
introduction of new products or, if such products are introduced, that those
products will achieve sufficient market acceptance. Our failure to address rapid
technological changes in our markets could adversely affect our business and
results of operations. See "Business -- Research and Development."
A DOWNTURN IN THE SEMICONDUCTOR MANUFACTURING INDUSTRY COULD ADVERSELY AFFECT
OUR BUSINESS, FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Our net sales depend in part on the demand for our products by semiconductor
equipment companies. The semiconductor industry is highly cyclical and has
historically experienced periodic and significant downturns, which have often
severely affected the demand for semiconductor manufacturing equipment,
including laser-based tools and systems. If a downturn should occur in the
semiconductor industry in the future, we believe this would result in decreased
demand for semiconductor manufacturing equipment and consequently a decreased
demand for our products. Although such a downturn would reduce our sales, we
would not be able to reduce expenses commensurately, due in part to the need for
continual development in research and development and the need to maintain
extensive ongoing customer service and support capability. Accordingly, any
downturn in the semiconductor industry could have a material adverse effect on
our financial condition and results of operations.
SOME OF OUR MEDICAL SEGMENT CUSTOMERS' WILLINGNESS TO PURCHASE OUR PRODUCTS
DEPENDS ON THEIR ABILITY TO OBTAIN REIMBURSEMENT FOR MEDICAL PROCEDURES USING
OUR PRODUCTS FROM THIRD-PARTY PAYORS AND OUR REVENUES COULD SUFFER FROM CHANGES
IN THIRD-PARTY COVERAGE AND REIMBURSEMENT POLICIES.
Our medical segment customers include doctors, clinics, hospitals and other
health care providers whose willingness and ability to purchase our products
depends in part upon their ability to obtain reimbursement for medical
procedures using our products from third-party payors, including private
insurance companies, health maintenance organizations, or HMOs, and federal,
state and local government programs, including Medicare and Medicaid. Many
therapeutic, ophthalmic and surgical procedures performed using our products
currently qualify for reimbursement. However, third-party payors are
increasingly scrutinizing health care costs submitted for reimbursement and
changing coverage levels for reimbursement of medical procedures and equipment.
Payors may deny coverage and reimbursement for the medical procedures made
possible by our products. Failure by doctors, clinics, hospitals and other
health care providers to obtain adequate reimbursement from third-party payors
for medical procedures that use our products or changes in third-party coverage
and reimbursement policies could have a material adverse effect on our sales,
results of operations and financial condition.
A NEW ACCOUNTING PRONOUNCEMENT MAY CAUSE OUR OPERATING RESULTS TO FLUCTUATE.
In December 1999, the SEC staff issued Staff Accounting Bulletin No. 101,
"Revenue Recognition in Financial Statements," or SAB 101. SAB 101 summarizes
certain of the SEC's views in applying generally accepted accounting principles,
or GAAP, to revenue recognition in financial statements. We are required to
adopt SAB 101 in the first quarter of fiscal 2001. Although we believe that our
revenue recognition policies are in accordance with GAAP, we are currently
studying SAB 101 and have not determined its impact, if any, on our financial
statements. However, adoption of SAB 101 may have a significant effect on our
operating results in the first quarter of fiscal 2001, which may impact
comparability of our financial statements from period to period.
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WE USE STANDARD LABORATORY AND MANUFACTURING MATERIALS THAT COULD BE CONSIDERED
HAZARDOUS; AND WE COULD BE LIABLE FOR ANY DAMAGE OR LIABILITY RESULTING FROM
ACCIDENTAL ENVIRONMENTAL CONTAMINATION OR INJURY.
Although most of our products do not incorporate any hazardous or toxic
materials or chemicals, some of the gases used in our excimer lasers and some of
the liquid dyes used in some of our scientific laser products are highly toxic.
In addition, our operations involve the use of standard laboratory and
manufacturing materials that could be considered hazardous. Although we believe
that our safety procedures for handling and disposing of such materials comply
with all federal and state regulations and standards, the risk of accidental
environmental contamination or injury from such materials cannot be entirely
eliminated. In the event of such an accident involving such materials, we could
be liable for any damage and such liability could exceed the amount of our
liability insurance coverage and the resources of our business.
IF OUR FACILITIES WERE TO EXPERIENCE CATASTROPHIC LOSS, OUR OPERATIONS WOULD BE
SERIOUSLY HARMED.
Our facilities could be subject to a catastrophic loss such as fire, flood or
earthquake. A substantial portion of our research and development activities,
manufacturing, our corporate headquarters and other critical business operations
are located near major earthquake faults in Santa Clara, California, an area
with a history of seismic events. Any such loss at any of our facilities could
disrupt our operations, delay production, shipments and revenue and result in
large expenses to repair and replace the facility. While we have obtained
insurance to cover most potential losses at our facilities, we cannot assure you
that our existing insurance coverage will be adequate against all possible
losses.
RISKS RELATED TO THIS OFFERING
PROVISIONS OF OUR CHARTER DOCUMENTS, DELAWARE LAW, OUR COMMON SHARES RIGHTS PLAN
AND OUR CHANGE-OF-CONTROL SEVERANCE PLAN MAY HAVE ANTI-TAKEOVER EFFECTS THAT
COULD PREVENT OR DELAY A CHANGE IN CONTROL.
Provisions of our certificate of incorporation and bylaws may discourage, delay
or prevent a merger or acquisition or make removal of incumbent directors or
officers more difficult. These provisions may discourage takeover attempts and
bids for our common stock at a premium over the market price. These provisions
include:
- the ability of our board of directors to alter our bylaws without
stockholder approval;
- limiting the ability of stockholders to call special meetings;
- limiting the ability of our stockholders to act by written consent; and
- establishing advance notice requirements for nominations for election to our
board of directors or for proposing matters that can be acted on by
stockholders at stockholder meetings.
We are subject to Section 203 of the Delaware General Corporation Law, which
prohibits a publicly held Delaware corporation from engaging in a merger, asset
or stock sale or other transaction with an interested stockholder for a period
of three years following the date such person became an interested stockholder,
unless prior approval of our board of directors is obtained or as otherwise
provided. These provisions of Delaware law also may discourage, delay or prevent
someone from acquiring or merging with us without obtaining the prior approval
of our board of directors, which may cause the market price of our common stock
to decline. See "Description of capital stock -- Delaware Anti-
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Takeover Law and Other Anti-Takeover Provisions." In addition, we have adopted a
change of control severance plan, which provides for the payment of a cash
severance benefit to each eligible employee based on the employee's position and
years of service to us. If a change of control occurs, our successor or acquiror
will be required to assume and agree to perform all of our obligations under the
change of control severance plan.
Our common shares rights agreement permits the holders of rights to purchase
shares of our common stock to exercise the stock purchase rights following an
acquisition of or merger by us with another corporation or entity, following a
sale of 50% or more of our consolidated assets or earning power, or the
acquisition by an individual or entity of 20% or more of our common stock. Our
successor or acquiror is required to assume all of our obligations and duties
under the common shares rights agreement, including in certain circumstances the
issuance of shares of its capital stock upon exercise of the stock purchase
rights. The existence of our common shares rights agreement may have the effect
of delaying, deferring or preventing a change of control and, as a consequence,
may discourage potential acquirors from making tender offers for our shares.
WE MAY EXPERIENCE VOLATILITY IN OUR STOCK PRICE, WHICH COULD NEGATIVELY AFFECT
YOUR INVESTMENT, AND YOU MAY NOT BE ABLE TO RESELL YOUR SHARES AT OR ABOVE THE
OFFERING PRICE.
The offering price of our common stock may vary from the market price of our
common stock after the offering. If you purchase shares of common stock, you may
not be able to resell those shares at or above the offering price. The market
price of our common stock may fluctuate significantly in response to a number of
factors, some of which are beyond our control, including:
- quarterly variations in operating results;
- changes in financial estimates by securities analysts;
- changes in market valuations of other similar companies;
- announcements by us or our competitors of new products or of significant
technical innovations, contracts, acquisitions, strategic partnerships or
joint ventures;
- additions or departures of key personnel;
- any deviations in net sales or in losses from levels expected by securities
analysts; and
- future sales of common stock.
In addition, the stock market has recently experienced extreme volatility that
has often been unrelated to the performance of particular companies. These
market fluctuations may cause our stock price to fall regardless of our
performance.
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FORWARD-LOOKING INFORMATION
Some of the statements under "Prospectus summary," "Risk factors," "Management's
discussion and analysis of financial condition and results of operations,"
"Business" and elsewhere in this prospectus constitute forward-looking
statements. These statements relate to future events or our future financial
performance and involve known and unknown risks, uncertainties and other factors
that may cause our or our industry's actual results, levels of activity,
performance or achievements to be materially different from those expressed or
implied by any forward-looking statements. Some of these factors are listed
under "Risk factors" and elsewhere in this prospectus. In some cases, you can
identify forward-looking statements by terminology such as "may," "will,"
"could," "would," "should," "expect," "plan," "anticipate," "intend," "believe,"
"estimate," "predict," "potential" or "continue" or the negative of these terms
or other comparable terminology. These statements are only predictions. Actual
events or results may differ materially. Moreover, neither we nor any other
person assumes responsibility for the accuracy and completeness of those
statements. We are under no duty to update any of the forward-looking statements
after the date of this prospectus to conform them to actual results.
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USE OF PROCEEDS
We estimate that the net proceeds from the sale of the 3,000,000 shares of
common stock we are offering will be approximately $216.0 million. If the
underwriters fully exercise the over-allotment option, the net proceeds will be
approximately $248.5 million. "Net proceeds" is what we expect to receive after
we pay the estimated underwriting discounts and commissions and other estimated
expenses for this offering. For the purpose of estimating net proceeds, we are
assuming that the public offering price will be $76.0625 per share.
The principal purpose of this offering is to provide us with sufficient cash
reserves and public float to allow us to acquire or invest in businesses,
technologies or products that are complementary to our business without the
necessity of raising additional funds at that time. Many companies in the
markets in which we compete have much larger cash reserves or higher market
capitalizations than we do, which could put us at a competitive disadvantage in
seeking to acquire a key business or technology for cash or stock. From time to
time we have discussed potential strategic acquisitions and investments with
third parties, and several such preliminary discussions are currently ongoing.
However, we currently have no agreements or commitments to complete any material
transaction.
We also intend to use the net proceeds to fund our operations, including
continued development, manufacturing and commercialization of existing products
and applications, research and development of additional applications and for
general corporate purposes, including working capital. Pending our uses of the
proceeds, we intend to invest the net proceeds of this offering primarily in
short-term, investment grade, interest-bearing instruments.
DIVIDEND POLICY
We have never declared or paid any cash dividends on Coherent, Inc. capital
stock. We anticipate that we will retain any earnings to support operations and
to finance the growth and development of our business. Therefore, we do not
expect to pay cash dividends on Coherent, Inc. capital stock in the foreseeable
future. Any future determination relating to our dividend policy will be made at
the discretion of our board of directors and will depend on a number of factors,
including future earnings, capital requirements, financial conditions and future
prospects and other factors the board of directors may deem relevant. In
addition, our existing bank line of credit prohibits the payment of cash
dividends if immediately prior to and after such payment an event of default
occurs.
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PRICE RANGE OF COMMON STOCK
Our common stock is quoted on the Nasdaq National Market under the symbol
"COHR." The following table sets forth, for the periods indicated, the high and
low closing prices of our common stock, as reported on the Nasdaq National
Market.
<TABLE>
<CAPTION>
HIGH LOW
------------------------------------------------------------------------------
<S> <C> <C>
1998:
First Quarter............................................... $ 28.75 $16.94
Second Quarter.............................................. 24.38 17.56
Third Quarter............................................... 24.19 16.75
Fourth Quarter.............................................. 17.38 8.75
1999:
First Quarter............................................... $ 13.91 $ 7.75
Second Quarter.............................................. 16.88 11.75
Third Quarter............................................... 18.94 12.25
Fourth Quarter.............................................. 22.31 16.00
2000:
First Quarter............................................... $ 29.88 $18.38
Second Quarter.............................................. 106.00 25.69
Third Quarter (through June 22, 2000)....................... 76.06 46.63
</TABLE>
On June 22, 2000, the last reported sale price of our common stock on the Nasdaq
National Market was $76.0625 per share. As of June 1, 2000, there were 1,897
holders of record of our common stock.
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CAPITALIZATION
The following table sets forth on an unaudited basis our capitalization at
April 1, 2000 and as adjusted to give effect to our receipt of the net proceeds
from the sale of 3,000,000 shares of common stock we are offering at an assumed
public offering price of $76.0625 per share less estimated underwriting
discounts and commissions and offering expenses. You should read this
information in connection with our consolidated financial statements and the
related notes, and "Management's discussion and analysis of financial condition
and results of operations" included elsewhere in this prospectus.
<TABLE>
<CAPTION>
APRIL 1, 2000
--------------------------
ACTUAL AS ADJUSTED
(IN THOUSANDS, EXCEPT PER
SHARE DATA)
----------------------------------------------------------------------------------------
<S> <C> <C>
Current portion of long-term obligations.................... $ 7,749 $ 7,749
Long-term obligations....................................... 76,497 76,497
Other long-term liabilities................................. 19,465 19,465
Minority interest in subsidiaries........................... 5,367 5,367
Stockholders' equity:
Common stock, $0.01 par value; 50,000 shares authorized;
25,118 shares issued and outstanding, actual; and 28,118
shares issued and outstanding, as adjusted(1)............ 250 280
Additional paid-in capital................................ 119,078 335,026
Notes receivable from stock sales......................... (949) (949)
Accumulated other comprehensive income.................... (1,821) (1,821)
Retained earnings......................................... 185,814 185,814
-------- --------
Total stockholders' equity.................................. 302,372 518,350
-------- --------
Total capitalization........................................ $411,450 $627,428
======== ========
</TABLE>
---------
(1) The number of shares of common stock to be outstanding after the offering is
based on the number of shares outstanding as of April 1, 2000, excluding:
- 4,179,455 shares issuable upon the exercise of options outstanding, with a
weighted average exercise price of $24.25 per share;
- 1,701,550 shares of common stock available for future issuance under our
1995 Stock Plan;
- 100,000 shares of common stock available for future issuance under our 1998
Director Option Plan;
- 1,801,926 shares of common stock available for future issuance under our
Employee Stock Purchase Plan; and
- 450,000 shares that the underwriters may purchase from us if they exercise
their overallotment option in full.
--------------------------------------------------------------------------------
20
<PAGE>
--------------------------------------------------------------------------------
SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth our summary consolidated financial data as of the
dates or for the periods indicated. You should read the following summary
financial data in conjunction with our consolidated financial statements and the
related notes, and "Management's discussion and analysis of financial condition
and results of operations" included elsewhere in this prospectus. Our audited
financial statements included elsewhere in this prospectus for the years ended
September 27, 1997, September 26, 1998 and October 2, 1999 have been audited by
Deloitte & Touche LLP, our independent auditors. The statement of income data
for the years ended September 27, 1997, September 26, 1998 and October 2, 1999
and the balance sheet data as of September 26, 1998 and October 2, 1999 are
derived from these consolidated financial statements. The statement of income
data for the years ended September 30, 1995 and September 28, 1996 and the
balance sheet data as of September 30, 1995, September 28, 1996 and
September 27, 1997 are derived from our audited consolidated financial
statements not included herein. The statement of income data for the six months
ended April 3, 1999 and April 1, 2000 and the balance sheet data as of April 1,
2000 are derived from our unaudited financial statements included elsewhere in
this prospectus. In the opinion of our management, such unaudited financial
statements have been prepared on the same basis as the audited consolidated
financial statements referred to above and include all adjustments, consisting
only of normal recurring adjustments, that we consider necessary for the fair
presentation of the information when read in conjunction with the consolidated
financial statements and notes thereto. Historic results are not necessarily
indicative of the results that may be expected for any future period or for a
full year.
--------------------------------------------------------------------------------
21
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FISCAL YEARS ENDED SIX MONTHS ENDED
------------------------------------------------------------ ---------------------
SEPT. 30, SEPT. 28, SEPT. 27, SEPT. 26, OCT. 2, APRIL 3, APRIL 1,
CONSOLIDATED STATEMENTS OF 1995 1996 1997 1998(1) 1999 1999 2000
INCOME DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
-------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales.......................... $285,499 $364,430 $391,038 $410,449 $468,869 $222,168 $263,875
Cost of sales...................... 143,016 177,212 185,536 212,584 248,203 116,960 133,069
-------- -------- -------- -------- -------- -------- --------
Gross profit..................... 142,483 187,218 205,502 197,865 220,666 105,208 130,806
-------- -------- -------- -------- -------- -------- --------
Operating expenses:
Research and development......... 31,042 37,705 39,406 44,534 46,759 21,694 26,762
In-process research and
development..................... 9,315 16,000
Selling, general and
administrative.................. 79,841 101,752 110,813 124,555 134,129 67,048 75,482
Intangibles amortization......... 1,688 3,061 3,658 4,644 5,701 2,212 4,401
-------- -------- -------- -------- -------- -------- --------
Total operating expenses......... 112,571 142,518 163,192 173,733 202,589 90,954 106,645
-------- -------- -------- -------- -------- -------- --------
Income from operations......... 29,912 44,700 42,310 24,132 18,077 14,254 24,161
-------- -------- -------- -------- -------- -------- --------
Other income (expense):
Interest and dividend income..... 2,392 2,444 1,404 1,274 3,042 1,406 2,598
Interest expense................. (1,148) (39) (1,226) (1,236) (3,755) (868) (3,194)
Foreign exchange gain (loss)..... 112 299 (350) (711) (163) (3) (355)
Other--net....................... 556 1,913 4,656 246 (971) (828) (366)
-------- -------- -------- -------- -------- -------- --------
Total other income (expense),
net............................. 1,912 4,617 4,484 (427) (1,847) (293) (1,317)
-------- -------- -------- -------- -------- -------- --------
Income before income taxes......... 31,824 49,317 46,794 23,705 16,230 13,961 22,844
Provision for income taxes......... 12,501 19,003 20,502 4,894 4,389 4,315 7,768
-------- -------- -------- -------- -------- -------- --------
Net income......................... $ 19,323 $ 30,314 $ 26,292 $ 18,811 $ 11,841 $ 9,646 $ 15,076
======== ======== ======== ======== ======== ======== ========
Net income per share(2):
Basic............................ $ 0.91 $ 1.37 $ 1.16 $ 0.80 $ 0.49 $ 0.40 $ 0.61
Diluted.......................... $ 0.87 $ 1.31 $ 1.12 $ 0.79 $ 0.48 $ 0.40 $ 0.57
Shares used in computation(2):
Basic............................ 21,270 22,128 22,664 23,374 23,957 23,861 24,705
Diluted.......................... 22,224 23,084 23,480 23,749 24,633 24,378 26,594
</TABLE>
------------
(1) Includes a $2.7 million, or $0.11 per diluted share, tax benefit associated
with a favorable IRS ruling.
(2) See Note 1 of Notes to Consolidated Financial Statements for an explanation
of the determination of the number of shares used in computing net income
per share.
<TABLE>
<CAPTION>
SEPT. 30, SEPT. 28, SEPT. 27, SEPT. 26, OCT. 2, APRIL 1,
1995 1996 1997 1998 1999 2000
CONSOLIDATED BALANCE SHEET DATA
(IN THOUSANDS)
------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Cash, cash equivalents and short-term
investments................................. $ 44,668 $ 34,635 $ 31,627 $ 32,898 $ 68,916 $ 76,601
Working capital............................... 106,787 123,553 152,688 173,727 194,919 218,636
Total assets.................................. 255,875 311,516 361,650 390,761 495,468 542,026
Long-term obligations, less current portion... 5,139 3,921 9,665 12,828 74,745 76,497
Other long-term liabilities................... 9,597 12,403 13,927 12,599 16,819 19,465
Retained earnings............................. 83,480 113,794 140,086 158,897 170,738 185,814
Total stockholders' equity.................... 161,191 197,587 231,233 262,623 277,305 302,372
</TABLE>
--------------------------------------------------------------------------------
22
<PAGE>
--------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion of our financial condition and results of operations
should be read in conjunction with the "Selected consolidated financial data"
and our financial statements and the notes to those statements included
elsewhere in this prospectus. This discussion may contain forward-looking
statements that involve risks, uncertainties and assumptions. As a result of
many factors, such as those set forth under "Risk factors" and elsewhere in this
prospectus, our actual results may differ materially from those anticipated in
these forward-looking statements.
OVERVIEW
We are one of the world's leading suppliers of photonics-based solutions in a
broad range of commercial, medical and scientific applications. We design,
manufacture and market lasers, laser-based systems, precision optics and related
accessories for a diverse group of customers. Since inception in 1966, we have
grown through a combination of internal expansion and strategic acquisitions of
companies with related technologies and products.
We have three reportable business segments: Electro-Optics, Medical and Lambda
Physik, which work with customers to provide cost-effective photonics-based
solutions. In addition to the semiconductor and related manufacturing and
optical telecommunications markets, the Electro-Optics segment focuses on
markets such as materials processing, scientific research, printing and
reprographics and advanced packaging. Our Medical segment focuses on the
aesthetic, ophthalmic and surgical markets, with an emphasis in the aesthetic
market on hair removal and in the ophthalmic market on the treatment of retinal
diseases, including age-related macular degeneration, or AMD. Lambda Physik
focuses on lithography, with other target markets including lasers for flat
panel display, refractive surgery, scientific research, materials processing and
micro-machining applications.
We operate in a technologically advanced, dynamic and highly competitive
environment. Our future operating results are, and will continue to be, subject
to quarterly variations based on a variety of factors, many of which are beyond
our control. While we attempt to identify and respond to these conditions in a
timely manner, such conditions represent significant risks to our performance.
We conduct a significant portion of our business internationally. International
sales accounted for 55%, 58% and 59% of our net sales for fiscal 1998, fiscal
1999 and the six months ended April 1, 2000, respectively. We anticipate that
international sales will continue to account for a significant portion of our
net sales in the foreseeable future. A portion of our international sales occurs
through our international sales subsidiaries and the remainder of our
international sales results from exports to foreign distributors and resellers.
As a result, our international sales and operations are subject to the risks of
conducting business internationally. See "Risk factors -- We face risks
associated with our international sales that could harm our financial condition
and results of operations." We are also subject to the risks of fluctuating
foreign exchange rates, which could materially adversely affect the sales price
of our products in foreign markets as well as the costs and expenses of our
international subsidiaries. While we use forward exchange contracts, currency
swap contracts, currency options and other risk management techniques to hedge
our currency exposure, we remain exposed to the economic risks of foreign
currency fluctuations. There can be no assurance that such factors will not
adversely impact our operations in the future or require us to modify current
business practices.
--------------------------------------------------------------------------------
23
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
--------------------------------------------------------------------------------
RESULTS OF OPERATIONS
SIX MONTHS ENDED APRIL 1, 2000 AND APRIL 3, 1999
CONSOLIDATED SUMMARY
Net income for the six months ended April 1, 2000 was $15.1 million, or $0.57
per diluted share, compared to net income of $9.6 million, or $0.40 per diluted
share, for the six months ended April 3, 1999. The increase in net income was
primarily attributable to increases in sales volumes and higher gross profit as
a percentage of total sales.
NET SALES
The following table sets forth for the periods indicated the amount of net sales
for our operating segments and net sales as a percentage of total net sales.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
-----------------------------------------------
APRIL 3, 1999 APRIL 1, 2000
---------------------- ----------------------
PERCENTAGE PERCENTAGE
OF TOTAL OF TOTAL
AMOUNT NET SALES AMOUNT NET SALES
(DOLLARS IN THOUSANDS)
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Consolidated:
Domestic....................................... $ 91,372 41.1% $107,220 40.6%
International.................................. 130,796 58.9 156,655 59.4
-------- ----- -------- -----
Total.......................................... $222,168 100.0% $263,875 100.0%
======== ===== ======== =====
Electro-Optics:
Domestic....................................... $ 44,772 20.2% $ 51,998 19.7%
International.................................. 68,092 30.6 72,845 27.6
-------- ----- -------- -----
Total.......................................... $112,864 50.8% $124,843 47.3%
======== ===== ======== =====
Medical:
Domestic....................................... $ 37,151 16.7% $ 44,809 17.0%
International.................................. 38,801 17.5 52,570 19.9
-------- ----- -------- -----
Total.......................................... $ 75,952 34.2% $ 97,379 36.9%
======== ===== ======== =====
Lambda Physik:
Domestic....................................... $ 9,449 4.2% $ 10,413 3.9%
International.................................. 23,903 10.8 31,240 11.9
-------- ----- -------- -----
Total.......................................... $ 33,352 15.0% $ 41,653 15.8%
======== ===== ======== =====
</TABLE>
CONSOLIDATED
Net sales for the six months ended April 1, 2000 increased by $41.7 million, or
19%, to $263.9 million from the six months ended April 3, 1999. International
sales increased by $25.9 million, or 20%, to $156.7 million for the six months
ended April 1, 2000, and domestic sales increased by $15.8 million, or 17%, from
the six months ended April 3, 1999 to the six months ended April 1, 2000.
ELECTRO-OPTICS
Electro-Optics net sales increased by $12.0 million, or 11%, to $124.8 million
for the six months ended April 1, 2000 compared to the six months ended
April 3, 1999. Domestic sales increased by
--------------------------------------------------------------------------------
24
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
--------------------------------------------------------------------------------
$7.2 million, or 16%, while international sales increased by $4.8 million, or
7%. The increases were primarily due to higher sales volumes in commercial
solid-state products, including semiconductor lasers to the computer-to-plate,
disk mastering, non-metal printed circuit board, or PCB, hole drilling and
optical telecommunications markets. Optical telecommunications market sales for
the current six months increased 39% to $3.0 million from the corresponding
prior year period.
MEDICAL
Medical net sales increased by $21.4 million, or 28%, to $97.4 million for the
six months ended April 1, 2000 compared to the six months ended April 3, 1999.
International sales increased by $13.8 million, or 35%, while domestic sales
increased by $7.6 million, or 21%. The increases were primarily due to the
acquisition of Star Medical Technologies, Inc., or Star Medical, in May 1999,
where we now recognize the full sales value of the LightSheer family of hair
removal systems instead of only the commission revenue recognition in the prior
year periods, and to strong sales growth in ophthalmic products, including the
Opal Photoactivator.
LAMBDA PHYSIK
Lambda Physik net sales increased by $8.3 million, or 25%, to $41.7 million for
the six months ended April 1, 2000, compared to the six months ended April 3,
1999. International sales increased by $7.3 million, or 31%, while domestic
sales increased $1.0 million, or 10%. The increases were primarily due to
increased shipments of commercial products, primarily lasers used in lithography
systems.
GROSS MARGIN
CONSOLIDATED
The gross margin rate increased to 49.6% from 47.4% for the six months ended
April 1, 2000 compared to the same period in fiscal 1999. Margins improved in
all three operating segments. The margin improvement was primarily due to higher
sales of higher margin hair removal systems and lithography products as well as
lower warranty costs in the Electro-Optics and Medical segments.
ELECTRO-OPTICS
The gross margin rate increased to 49.7% from 46.8% for the six months ended
April 1, 2000 compared to the same period in fiscal 1999. The improvement was
primarily due to increased sales of higher margin commercial solid-state
products, lower warranty costs and higher sales volumes relative to fixed
overhead costs.
MEDICAL
The gross margin rate increased to 50.4% from 49.2% for the six months ended
April 1, 2000, compared to the same period in fiscal 1999. The improvement
resulted from higher shipments of higher margin hair removal products, lower
warranty costs, and higher sales volumes relative to fixed overhead costs.
LAMBDA PHYSIK
The gross margin rate increased to 47.0% from 45.1% for the six months ended
April 1, 2000, compared to the same period in fiscal 1999. The increases
resulted from increased sales of lithography systems at higher margins and fewer
sales of lower margin scientific systems.
--------------------------------------------------------------------------------
25
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
--------------------------------------------------------------------------------
OPERATING EXPENSES
The following table sets forth for the periods indicated the amount and
percentage relationship to net sales of the operating expenses in our
consolidated statements of income.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
--------------------------------------------------
APRIL 3, 1999 APRIL 1, 2000
----------------------- ------------------------
PERCENTAGE PERCENTAGE
AMOUNT OF NET SALES AMOUNT OF NET SALES
(DOLLARS IN THOUSANDS)
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Research and development......................... $21,694 9.7% $ 26,762 10.1%
Selling, general and administrative.............. 67,048 30.2 75,482 28.6
Intangibles amortization......................... 2,212 1.0 4,401 1.7
------- ---- -------- ----
Total operating expenses......................... $90,954 40.9% $106,645 40.4%
======= ==== ======== ====
</TABLE>
Total operating expenses increased by $15.7 million, or 17%, but as a percentage
of net sales decreased to 40% from 41%.
Research and development expenses increased by $5.1 million, or 23%, but as a
percentage of net sales remained at 10%. The increases were primarily due to
increased spending on lithography, optical telecommunications and other
projects, the acquisition of Star Medical in May 1999, and an increased number
of employees.
Selling, general and administrative expenses for the six months ended April 1,
2000 increased by $8.4 million, or 13%, but decreased as a percentage of net
sales from 30% to 29% compared to the same period in fiscal 1999. The dollar
increase was due to increased sales and marketing costs to support increased
sales volumes, an increased number of employees and the write-off of a
permanently impaired intangible asset of $1.0 million related to the catalog
business unit of the Electro-Optics segment.
Intangibles amortization expenses increased by $2.2 million, or 99%, for the six
months ended April 1, 2000. The increase was primarily due to the acquisition of
Star Medical.
OTHER INCOME (EXPENSE)
Other expenses, net of other income, increased by $1.0 million to net expense of
$1.3 million for the six months ended April 1, 2000 from net expense of $0.3
million for the six months ended April 3, 1999. The increase was primarily due
to increased interest expense on the Star Medical acquisition debt, partially
offset by increased interest income from investments and the receipt of an
insurance settlement at one of our manufacturing facilities.
INCOME TAXES
The effective tax rate for the six months ended April 1, 2000 was 34% compared
to 31% for the same prior year period. The 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.
--------------------------------------------------------------------------------
26
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
--------------------------------------------------------------------------------
FISCAL YEARS ENDED OCTOBER 2, 1999, SEPTEMBER 26, 1998 AND SEPTEMBER 27, 1997
CONSOLIDATED SUMMARY
During fiscal 1999, our net income was $11.8 million, or $0.48 per diluted
share, which includes the third quarter $10.7 million, or $0.44 per diluted
share, after tax write-off of purchased in-process research and development
resulting from the acquisition of Star Medical. Pro forma net income, exclusive
of this write-off, for fiscal 1999 was $22.6 million, or $0.92 per diluted
share. Fiscal 1998 net income was $18.8 million, or $0.79 per diluted share,
including a $2.7 million, or $0.11 per diluted share, non-recurring tax benefit.
Fiscal 1997 pro forma net income, excluding the $9.0 million after tax write-off
of purchased in-process research and development, was $35.3 million, or $1.50
per diluted share. Pro forma income before income taxes, excluding the write-off
of purchased in-process research and development, increased by $8.5 million, or
36%, to $32.2 million for fiscal 1999 compared to income before income taxes of
$23.7 million for fiscal 1998, which decreased by $32.4 million, or 58%,
compared to pro forma income before income taxes of $56.1 million for fiscal
1997, excluding the write-off of purchased in-process research and development.
The fiscal 1999 increase was primarily attributable to increases in
international sales volumes and lower selling, general and administrative
expenses as a percentage of net sales.
NET SALES
The following table sets forth for the periods indicated the amount of net sales
for our operating segments and net sales as a percentage of total net sales.
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
------------------------------------------------------------------------
SEPT. 27, 1997 SEPT. 26, 1998 OCT. 2, 1999
---------------------- ---------------------- ----------------------
PERCENTAGE PERCENTAGE PERCENTAGE
OF TOTAL OF TOTAL OF TOTAL
AMOUNT NET SALES AMOUNT NET SALES AMOUNT NET SALES
(DOLLARS IN THOUSANDS)
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Consolidated:
Domestic................. $177,803 45.5% $185,004 45.1% $198,599 42.4%
International............ 213,235 54.5 225,445 54.9 270,270 57.6
-------- ----- -------- ----- -------- -----
Total.................... $391,038 100.0% $410,449 100.0% $468,869 100.0%
======== ===== ======== ===== ======== =====
Electro-Optics:
Domestic................. $ 76,115 19.5% $ 87,119 21.2% $ 95,399 20.3%
International............ 85,672 21.9 106,319 25.9 137,658 29.4
-------- ----- -------- ----- -------- -----
Total.................... $161,787 41.4% $193,438 47.1% $233,057 49.7%
======== ===== ======== ===== ======== =====
Medical:
Domestic................. $ 81,490 20.9% $ 78,893 19.3% $ 82,433 17.6%
International............ 88,462 22.6 76,797 18.7 80,286 17.1
-------- ----- -------- ----- -------- -----
Total.................... $169,952 43.5% $155,690 38.0% $162,719 34.7%
======== ===== ======== ===== ======== =====
Lambda Physik:
Domestic................. $ 20,198 5.1% $ 18,992 4.6% $ 20,767 4.5%
International............ 39,101 10.0 42,329 10.3 52,326 11.1
-------- ----- -------- ----- -------- -----
Total.................... $ 59,299 15.1% $ 61,321 14.9% $ 73,093 15.6%
======== ===== ======== ===== ======== =====
</TABLE>
--------------------------------------------------------------------------------
27
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
--------------------------------------------------------------------------------
CONSOLIDATED
During fiscal 1999, net sales increased by $58.5 million, or 14%, to $468.9
million from $410.4 million in fiscal 1998, primarily as a result of increased
sales volumes in the Electro-Optics and Lambda Physik segments. International
sales grew at a higher rate than domestic sales for a total increase of $44.8
million, or 20%. In particular, Asia-Pacific sales increased by 26% while
European sales increased 16%. The increase in Asia-Pacific sales resulted
primarily from economic recovery in that region. Accordingly, international
sales were 58% of net sales in fiscal 1999 compared to 55% in fiscal 1998.
During fiscal 1998, net sales increased by $19.4 million, or 5%, to $410.4
million from $391.0 million in fiscal 1997, primarily as a result of increased
sales volumes in the Electro-Optics segment. International sales grew at a
higher rate than domestic sales for a total increase of $12.2 million, or 6%,
and were 55% of net sales in both fiscal 1998 and 1997.
ELECTRO-OPTICS
Electro-Optics net sales increased by $39.7 million, or 20%, in fiscal 1999 to
$233.1 million from $193.4 million in fiscal 1998. Domestic sales increased by
$8.3 million, or 10%, and international sales increased by $31.3 million, or
29%, in fiscal 1999. Sales increased primarily due to higher sales volumes in
commercial solid-state products and in commercial systems.
Electro-Optics net sales increased by $31.7 million, or 20%, in fiscal 1998 to
$193.4 million from $161.8 million in fiscal 1997. Domestic sales increased
$11.0 million, or 14%, and international sales increased by $20.6 million, or
24%, for fiscal 1998. The increase in sales worldwide resulted primarily from
higher sales volumes in commercial solid-state products and due in part to our
fiscal 1997 acquisition of Ealing Electro-Optics in Watford, England. The impact
of the strengthening of the US dollar against major foreign currencies partially
offset the increase by adversely impacting international sales by $5.1 million
compared to fiscal 1997.
MEDICAL
Medical net sales increased by $7.0 million, or 5%, to $162.7 million in fiscal
1999 from $155.7 million in fiscal 1998. International sales increased by $3.5
million, or 5%, and domestic sales increased by $3.5 million, or 4%, in fiscal
1999. This increase in sales was primarily due to an increase of almost $28
million in sales of LightSheer hair removal systems partially offset by lower
sales of non-hair removal aesthetic products and the expiration of our agreement
to distribute ophthalmic refractive systems for a German manufacturer.
Medical net sales decreased by $14.3 million, or 8%, to $155.7 million in fiscal
1998 from $170.0 million in fiscal 1997. International sales decreased by $11.7
million, or 13%, and domestic sales decreased by $2.6 million, or 3%, in fiscal
1998. The decrease in sales resulted primarily from decreased sales volumes,
higher sales returns and allowances and lower average selling prices, as well as
the strengthening of the US dollar against major foreign currencies. Such
strengthening of the US dollar against major foreign currencies contributed to
the decrease in international sales by $3.9 million compared to fiscal 1997.
LAMBDA PHYSIK
Lambda Physik net sales increased by $11.8 million, or 19%, in fiscal 1999 to
$73.1 million from $61.3 million in fiscal 1998. International sales increased
by $10.0 million, or 24%, and domestic sales increased by $1.8 million, or 9%.
The increase in sales was primarily due to increased shipments of lithography
laser systems.
--------------------------------------------------------------------------------
28
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
--------------------------------------------------------------------------------
Lambda Physik net sales increased by $2.0 million, or 3%, in fiscal 1998 to
$61.3 million from $59.3 million in fiscal 1997. Domestic sales decreased by
$1.2 million, or 6%, and international sales increased by $3.2 million, or 8%,
for fiscal 1998. The increase in sales worldwide resulted primarily from higher
sales volumes in the lithography business. The impact of the strengthening of
the US dollar against major foreign currencies partially offset the increase by
adversely impacting international sales by $3.4 million compared to fiscal 1997.
GROSS MARGIN
CONSOLIDATED
The gross margin rate decreased to 47.1% for fiscal 1999 compared to 48.2% for
fiscal 1998. The deterioration in the overall margin resulted primarily from
higher sales of lower margin lithography systems at Lambda Physik and inventory
obsolescence write-downs of $1.3 million in the Lambda Physik segment.
The gross margin rate decreased to 48.2% for fiscal 1998 compared to 52.6% for
fiscal 1997. The deterioration in the overall margin resulted primarily from
lower sales of higher margin medical products, a shift to higher sales of the
lower margin solid-state technology products in the Electro-Optics segment, and
the impact of the strengthening US dollar against major foreign currencies.
ELECTRO-OPTICS
The gross margin rate decreased by 0.3% to 46.9% in fiscal 1999 from 47.2% in
fiscal 1998. The decrease was primarily due to increased inventory obsolescence
write-downs for our catalog business, partially offset by higher sales volumes
without a corresponding increase in fixed costs.
The gross margin rate decreased to 47.2% in fiscal 1998 from 51.4% in fiscal
1997. The decrease from fiscal 1997 resulted primarily from a change to a higher
mix of lower margin solid-state, semiconductor and catalog products, as well as
the strengthening of the US dollar against major foreign currencies.
MEDICAL
The gross margin rate decreased by 0.2% to 48.3% in fiscal 1999 from 48.5% in
fiscal 1998. The decrease was primarily due to lower sales of higher margin
aesthetic products.
The gross profit rate decreased to 48.5% in fiscal 1998 from 54.5% in fiscal
1997 primarily due to lower sales and margins on skin resurfacing products,
lower manufacturing throughput, as well as higher inventory related costs,
warranty costs and manufacturing variances and due in part to the strengthening
of the US dollar against major foreign currencies. These factors were partially
offset by the inaugural sales of the new LightSheer hair removal laser, for
which we recognized a commission for our selling efforts.
LAMBDA PHYSIK
The gross margin rate decreased to 44.8% in fiscal 1999 from 50.5% in fiscal
1998. The decrease from fiscal 1998 resulted primarily from lower margins on
lithography sales due to the ramp-up in production, lower average selling prices
for sales of scientific products and additional provisions for inventory
obsolescence of $1.3 million.
The gross margin rate increased to 50.5% in fiscal 1998 from 50.2% in fiscal
1997. The increase from fiscal 1997 resulted primarily from the strengthening of
the US dollar against major foreign currencies.
--------------------------------------------------------------------------------
29
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
--------------------------------------------------------------------------------
OPERATING EXPENSES
The following table sets forth for the periods indicated the amount and
percentage relationship to net sales of the operating expenses in our
consolidated statements of income.
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
------------------------------------------------------------------------------
SEPT. 27, 1997 SEPT. 26, 1998 OCT. 2, 1999
------------------------ ------------------------ ------------------------
PERCENTAGE PERCENTAGE PERCENTAGE
AMOUNT OF NET SALES AMOUNT OF NET SALES AMOUNT OF NET SALES
(DOLLARS IN THOUSANDS)
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Research and development.. $ 39,406 10.1% $ 44,534 10.9% $ 46,759 10.0%
In-process research and
development............. 9,315 2.4 16,000 3.4
Selling, general and
administrative.......... 110,813 28.3 124,555 30.3 134,129 28.6
Intangibles
amortization............ 3,658 0.9 4,644 1.1 5,701 1.2
-------- ---- -------- ---- -------- ----
Total operating
expenses................ $163,192 41.7% $173,733 42.3% $202,589 43.2%
======== ==== ======== ==== ======== ====
</TABLE>
Fiscal 1999 operating expenses increased by $28.9 million, or 17%, from fiscal
1998. As a percentage of net sales, operating expenses increased to 43% in
fiscal 1999 from 42% in fiscal 1998. Exclusive of the third quarter fiscal 1999
write-off of purchased in-process research and development, operating expenses
increased by $12.9 million, or 7%, but as a percentage of net sales decreased to
40% from 42%.
Fiscal 1998 operating expenses increased by $10.5 million, or 6%, from fiscal
1997. Exclusive of the first quarter fiscal 1997 write-off of purchased
in-process technology, operating expenses increased $19.9 million, or 13%, and
as a percentage of net sales increased to 42% from 39%.
RESEARCH AND DEVELOPMENT
Fiscal 1999 research and development expenses increased by $2.2 million, or 5%,
from fiscal 1998 but decreased to 10% from 11% of net sales. The absolute dollar
increase was primarily due to increased headcount and spending on projects in
the Electro-Optics segment.
Fiscal 1998 research and development expenses increased by $5.1 million, or 13%,
from fiscal 1997 and increased to 11% from 10% of net sales. The absolute dollar
increase was primarily in our Electro-Optics and Lambda Physik segments due to
increased headcount and related expenses associated with our continued emphasis
on product development, including lithography, and our recent strategic
acquisitions.
IN-PROCESS RESEARCH AND DEVELOPMENT
Fiscal 1999 in-process research and development expenses of $16.0 million
resulted from our acquisition of Star Medical. See Note 2 of Notes to
Consolidated Financial Statements.
Fiscal 1997 in-process research and development expenses of $9.3 million
resulted from our acquisition of Tutcore OY Ltd. and the net assets of Micracor,
Inc. See Note 2 of Notes to Consolidated Financial Statements.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
--------------------------------------------------------------------------------
SELLING, GENERAL AND ADMINISTRATIVE
Fiscal 1999 selling, general and administrative expenses increased by $9.6
million, or 8%, from fiscal 1998, but decreased as a percentage of net sales
from 30% to 29%. The dollar increase is primarily due to increases in the number
of employees and related payroll costs in the Electro-Optics segment to support
increased sales volumes. This dollar increase was also due in part to increased
investments in information technology, outside consulting costs and increased
payroll related costs offset partially by the non-recurrence of fiscal 1998
charges, which included:
- restructuring costs of $2.9 million related to the Medical segment;
- the relocation of the Medical segment to a new facility; and
- the costs associated with launching an Electro-Optics catalog.
Selling, general and administrative expenses increased by $13.7 million, or 12%,
and increased as a percentage of net sales from 28% to 30% in fiscal 1998. The
increase, primarily in the Electro-Optics business segment, was driven by
business acquisitions, the ramp-up of catalog operations, increased costs
associated with higher headcount and higher costs associated with the
Asia-Pacific region. This increase was also driven by:
- restructuring costs of $2.9 million related to the Medical segment;
- the relocation of the Medical segment to a new facility;
- the costs associated with launching an Electro-Optics catalog; and
- higher costs in Asia-Pacific associated with the selling of electro-optical
products direct in Japan since mid-fiscal 1997.
INTANGIBLES AMORTIZATION
Fiscal 1999 intangibles amortization expenses increased by $1.1 million, or 23%,
primarily due to the acquisition of Star Medical.
Fiscal 1998 intangibles amortization expenses increased by $1.0 million, or 27%,
due to amortization of cost associated with distribution rights in the Medical
segment.
OTHER INCOME (EXPENSE)
Other expenses, net of other income, increased by $1.4 million during fiscal
1999 compared to fiscal 1998. The increase was primarily due to increased
interest expense related to financing of the Star Medical acquisition, partially
offset by increased interest income.
Other income, net of other expenses, decreased by $4.9 million during fiscal
1998 compared to fiscal 1997. Fiscal 1997 other income included a $3.5 million
gain on the sale of our former headquarters facility. The remaining fluctuation
of $1.4 million was primarily due to higher foreign exchange losses due to the
strengthening of the US dollar against major foreign currencies, lower royalty
income and lower interest income on lower average cash and investment balances.
INCOME TAXES
The effective tax rate for fiscal 1999 was 27.0% and the pro forma effective tax
rate for fiscal 1999, excluding the $10.7 million write-off of purchased
in-process research and development, was 30.0%. The pro forma effective tax rate
for fiscal 1998, excluding the $2.7 million non-recurring tax benefit, was
32.1%. The pro forma effective tax rate decreased as a result of the
non-recurrence of reserves for
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
--------------------------------------------------------------------------------
exposure items offset by changes in the distribution of taxable income among
jurisdictions with varying tax rates.
The effective tax rate for fiscal 1998 was 20.6% and the pro forma effective tax
rate for fiscal 1998, excluding the $2.7 million non-recurring tax benefit
associated with a favorable IRS ruling, was 32.1%. The pro forma effective tax
rate for fiscal 1997, excluding the $9.3 million pre-tax write-off of purchased
in-process research and development, was 37.0%. The pro forma effective tax rate
decreased as a result of increases in foreign tax credit utilization and
increased research and development credits offset by changes in the distribution
of taxable income by taxing jurisdiction, as well as the proportionately greater
impact of these items due to the lower income before taxes in fiscal 1998.
QUARTERLY RESULTS
The following table sets forth some of our selected consolidated financial
information for our six most recent fiscal quarters. In the opinion of
management, this unaudited financial information has been prepared on the same
basis as the audited financial information, and includes all adjustments,
consisting only of normal, recurring adjustments, necessary to present this
information fairly when read in conjunction with our consolidated financial
statements and notes thereto contained elsewhere in this prospectus. These
operating results are not necessarily indicative of results of any future
period.
<TABLE>
<CAPTION>
QUARTERS ENDED
------------------------------------------------------------------
DEC. 26, APRIL 3, JULY 3, OCT. 2, JAN. 1, APRIL 1,
CONSOLIDATED STATEMENTS OF 1998 1999 1999 1999 2000 2000
OPERATIONS DATA (IN THOUSANDS, EXCEPT PER SHARE DATA)
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net sales.................. $105,631 $116,537 $115,051 $131,650 $127,194 $136,681
Cost of sales.............. 54,672 62,288 60,306 70,937 65,171 67,898
-------- -------- -------- -------- -------- --------
Gross profit............. 50,959 54,249 54,745 60,713 62,023 68,783
Operating expenses:
Research and
development............. 10,915 10,779 11,917 13,148 12,374 14,388
In-process research and
development............. 16,000
Selling, general and
administrative.......... 32,478 34,570 32,553 34,528 35,758 39,724
Intangibles
amortization............ 1,151 1,061 1,413 2,076 2,179 2,222
-------- -------- -------- -------- -------- --------
Total operating
expenses................ 44,544 46,410 61,883 49,752 50,311 56,334
-------- -------- -------- -------- -------- --------
Income (loss) from
operations............... 6,415 7,839 (7,138) 10,961 11,712 12,449
Other income (expense),
net...................... (140) (153) (743) (811) (1,753) 436
-------- -------- -------- -------- -------- --------
Income (loss) before income
taxes.................... 6,275 7,686 (7,881) 10,150 9,959 12,885
Provision (benefit) for
income taxes............. 2,009 2,306 (2,817) 2,891 3,286 4,482
-------- -------- -------- -------- -------- --------
Net income (loss).......... $ 4,266 $ 5,380 $ (5,064) $ 7,259 $ 6,673 $ 8,403
======== ======== ======== ======== ======== ========
Basic net income (loss) per
share.................... $ 0.18 $ 0.22 $ (0.21) $ 0.30 $ 0.27 $ 0.34
Diluted net income (loss)
per share................ $ 0.18 $ 0.22 $ (0.21) $ 0.29 $ 0.26 $ 0.31
</TABLE>
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Quarterly sales have increased due to increased shipments of LightSheer hair
removal systems, increased sales of laser systems to commercial and original
equipment manufacturers and increased sales of lithography systems. Prior to our
May 1999 acquisition of Star Medical, we recorded only commissions revenue on
sales of LightSheer products. Gross margins in the quarter ended April 3, 1999
were lower primarily due to lower margins within our optics and photonics
business located in Auburn, California, resulting from an increase in inventory
reserves reflecting changes in the business and an increase in costs associated
with implementing the catalog distribution system; pricing pressures within the
Medical segment; and lower unit sales of traditionally higher margin medical
aesthetic products. Gross margins in the quarter ended October 2, 1999 were
lower primarily due to higher variances, higher factory overhead and changes in
mix of products shipped in the Electro-Optics segment. Results for the quarter
ended July 3, 1999 include $16.0 million, or $10.7 million, net of tax, of
in-process research and development costs associated with our acquisition of
Star Medical. See Note 2 of Notes to Consolidated Financial Statements.
Our net sales and operating results may vary significantly from quarter to
quarter and from year to year in the future. A number of factors, many of which
are outside of our control, may cause these variations, including:
- fluctuations in demand for, and sales of, our products or prolonged
downturns in the industries that we serve;
- ability of our suppliers to timely produce and deliver components and parts,
including sole or limited source components, in the quantity and quality
desired and at the prices we have budgeted;
- timing or cancellation of customer orders and shipment scheduling;
- fluctuations in our product mix;
- foreign currency fluctuations;
- introductions of new products and product enhancements by our competitors,
entry of new competitors into our market, pricing pressures and other
competitive factors;
- our ability to develop, introduce, manufacture and ship new and enhanced
products in a timely manner without defects;
- rate of market acceptance of our new products;
- delays or reductions in customer purchases of our products in anticipation
of the introduction of new and enhanced products by us or our competitors;
- our ability to control expenses;
- timing of regulatory approvals and changes in domestic and regulatory
environments;
- level of capital spending of our customers;
- economic conditions, especially in the Asia-Pacific market;
- potential obsolescence of our inventory; and
- costs related to acquisitions of technology or businesses.
In addition, we often recognize a substantial portion of our net sales in the
last month of the quarter. Our expenses for any given quarter are typically
based on expected sales and if sales are below expectations in any given
quarter, the adverse impact of the shortfall on our operating results may be
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
--------------------------------------------------------------------------------
magnified by our inability to adjust spending quickly to compensate for the
shortfall. We also base our manufacturing on our forecasted product mix for the
quarter. If the actual product mix varies significantly from our forecast, we
may not be able to fill some orders during that quarter, resulting in delays in
the shipment of our products. Accordingly, variations in timing of sales,
particularly for our higher priced, higher margin products, can cause
significant fluctuations in quarterly operating results. As a result of all
these factors, our operating results in one or more future periods may fail to
meet the expectations of market analysts or investors. In that event, the
trading price of our common stock would likely decline.
For example, in the third quarter of fiscal 1998 we experienced a problem with
our VersaPulse family of products for aesthetic applications because it did not
meet customer expectations. As a result, we saw a significant increase in
returns and allowances and decrease in sales, which caused a substantial decline
in our quarterly results. This situation persisted into the first half of fiscal
1999, by which time we had improved both the reliability and functionality of
these products.
Due to these and other factors, we believe that quarter-to-quarter and
year-to-year comparisons of our past operating results may not be meaningful.
You should not rely on our results for any quarter or year as an indication of
our future performance. Our operating results in future quarters and years may
be below public market analysts' or investors' expectations, which would likely
cause the price of our common stock to fall.
FINANCIAL CONDITION
LIQUIDITY AND CAPITAL RESOURCES
At April 1, 2000, our primary sources of liquidity were cash, cash equivalents
and short-term investments of $76.6 million. Additional sources of liquidity
were a multi-currency line of credit and bank credit facilities totaling $69.6
million as of April 1, 2000, of which $56.0 million was unused and available.
During fiscal 1999, these credit facilities were used in Europe and Japan.
Because of our low debt to equity ratio, we believe that additional cash could
be borrowed if necessary; however, cash flow from operations, cash and
equivalents, short-term investments and available lines of credit are expected
to be sufficient to fund operations for at least the next 12 months. We are
subject to certain financial covenants related to our lines of credit. At
April 1, 2000, we were in compliance with these covenants.
During the first quarter of fiscal 1997, we signed a lease for 216,000 square
feet of office, research and development and manufacturing space for our Medical
segment headquarters in Santa Clara, California. The lease expires in December
2001. We have an option to purchase the property for $24.0 million, or at the
end of the lease arrange for the sale of the property to a third party while
retaining an obligation to the owner for the difference between the sale price,
if less than $20.8 million, and $20.8 million, subject to certain provisions of
the lease. If we do not purchase the property or arrange for its sale as
discussed above, we would be obligated for an additional lease payment of
approximately $20.8 million. We occupied the building in July 1998 and commenced
lease payments at that time. The lease requires that we maintain specified
financial covenants. At April 1, 2000, we were in compliance with these
covenants.
We have committed approximately $13 million to build an additional building at
our Electro-Optics facility in Auburn, California to enable us to expand our
manufacturing capacity for optical telecommunications products. Additionally, we
have committed approximately $9 million to provide coating equipment at this
facility. We have also committed approximately $10 million to expand our
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--------------------------------------------------------------------------------
Lambda Physik manufacturing facility in Gottingen, Germany to expand our
manufacturing capacity for DUV lithography systems.
CHANGES IN FINANCIAL CONDITION
Cash, cash equivalents and short-term investments increased $7.7 million, or
11%, in the first six months of fiscal 2000.
Cash and cash equivalents, at April 1, 2000, decreased by $10.5 million, or 27%,
from October 2, 1999. Operations and changes in exchange rates used $15.8
million, including $18.2 million, net, used to purchase short-term investments.
Investing activities used $19.8 million, including $10.9 million used to acquire
property and equipment, net, $3.1 million used to acquire Microlase and $5.8
million, net, used for other investing activities. Financing activities provided
$25.1 million with net debt borrowings of $13.8 million and $11.3 million from
the sale of shares under our employee stock plans.
Net accounts receivable increased $18.5 million, or 19%, from October 2, 1999 to
April 1, 2000 primarily due to increases in the Medical segment to support
increased sales and increases in the Lambda Physik segment due to extended
payment terms with a large Japanese commercial customer.
Net inventories increased $14.6 million, or 15%, from October 2, 1999 to
April 1, 2000 primarily due to increases in the Lambda Physik segment to support
the lithography business and increases in the Medical segment due to increased
demonstration and new product inventory of the Opal Photoactivator, on which FDA
clearance was received after the end of the quarter.
Short-term borrowings increased $9.2 million, or 64%, from October 2, 1999 to
April 1, 2000 primarily due to borrowings incurred within our Lambda Physik
segment to fund its higher working capital needs and capital spending
necessitated by its rapid growth.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
INTEREST RATE SENSITIVITY
We maintain 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 October 2, 1999, the fair value of
the portfolio would decline by an immaterial amount. We have the ability to
generally hold our fixed income investments until maturity and therefore we
would not expect our operating results or cash flows to be affected to any
significant degree by the effect of a sudden change in market interest rates on
our securities portfolio.
At April 1, 2000, we had fixed rate long-term debt of approximately $80.4
million, and a hypothetical 10% decrease in interest rates would not have a
material impact on the fair market value of this debt. We do not hedge any
interest rate exposures.
FOREIGN CURRENCY EXCHANGE RISK
We maintain operations in various countries outside of the United States and
foreign subsidiaries that sell and manufacture our products in various global
markets. As a result, our earnings and cash flows are exposed to fluctuations in
foreign currency exchange rates. We attempt to limit these exposures
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
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--------------------------------------------------------------------------------
through operational strategies and financial market instruments. We utilize
hedge instruments, primarily forward contracts with maturities of twelve months
or less, to manage our exposure associated with firm intercompany and
third-party transactions and net asset and liability positions denominated in
non-functional currencies. We do not use derivative financial instruments for
trading purposes.
We had $25.3 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 April 1, 2000. Gains and losses related to
these instruments at April 1, 2000 were not material. Looking forward, we do not
anticipate any material adverse effect on our 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 our foreign exchange forward
contracts at April 1, 2000. The table presents the value of the contracts in US
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 April 1, 2000.
<TABLE>
<CAPTION>
AVERAGE US NOTIONAL
CONTRACT RATE AMOUNT FAIR VALUE
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
-------------------------------------------------------------------------------------------------------
Euro........................................................ 1.035 $16,760 $15,496
British Pound Sterling...................................... 1.636 4,923 4,801
Swedish Krone............................................... 8.318 2,669 2,575
Danish Kroner............................................... 7.222 949 881
Japanese Yen................................................ 98.421 813 777
Norwegian Kroner............................................ 8.147 626 603
Hong Kong Dollar............................................ 7.854 166 167
</TABLE>
RECENT ACCOUNTING PRONOUNCEMENTS
In December 1999, the staff of the SEC issued Staff Accounting Bulletin No. 101,
"Revenue Recognition in Financial Statements," or SAB 101. SAB 101 summarizes
certain of the SEC's views in applying generally accepted accounting principles,
or GAAP, to revenue recognition in financial statements. We are required to
adopt SAB 101 in the first quarter of 2001. Although we believe that our revenue
recognition policies are in accordance with GAAP, we are currently studying SAB
101 and have not yet determined its impact, if any, on our financial statements.
However, adoption of SAB 101 may have a significant effect on our operating
results in the first quarter of fiscal 2001, which may impact comparability of
the financial statements from period to period.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards 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 our first quarterly filing of fiscal 2001.
Management believes that this statement will not have a significant impact, if
any, on our financial position or results of operations.
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--------------------------------------------------------------------------------
BUSINESS
OVERVIEW
We are one of the world's leading suppliers of photonics-based solutions for a
broad range of commercial, medical and scientific applications. We design,
manufacture and market lasers, laser-based systems, precision optics and related
accessories for a diverse group of customers. Since inception in 1966, we have
grown through a combination of internal expansion and strategic acquisitions of
companies with related technologies and products. While our products address a
broad range of applications, we are now increasingly concentrating our efforts
on three rapidly growing segments of the photonics market: semiconductor and
related manufacturing, optical telecommunications and medical applications.
Within these three market segments, we are focusing on the following five key
initiatives:
- deep ultra-violet, or DUV, lithography;
- semiconductor processing and microelectronics packaging;
- optical telecommunications;
- hair removal; and
- age-related macular degeneration, or AMD, an emerging ophthalmic market.
We are also focusing on the development and production of high-powered,
semiconductor-based lasers for use in a variety of applications.
Our three reportable business segments, Electro-Optics, Medical and Lambda
Physik, work with customers to provide cost-effective photonics-based solutions.
In addition to the semiconductor and related manufacturing and optical
telecommunications markets, the Electro-Optics segment focuses on markets such
as materials processing, scientific research, instrumentation, printing and
reprographics and advanced packaging. Our Medical segment focuses on the
aesthetic, ophthalmic and surgical markets, with an emphasis in the aesthetic
market on hair removal and in the ophthalmic market on the treatment of retinal
diseases, including AMD. Lambda Physik, our majority-owned subsidiary,
concentrates on lithography, with other target markets including lasers for flat
panel display, refractive surgery, scientific research, materials processing and
micro-machining applications.
INDUSTRY BACKGROUND
The word "laser" is an acronym for "light amplification by stimulated emission
of radiation." A laser works by causing an energy source to excite, or pump, an
optical gain medium, converting the energy from the source into an emission of
photons, the fundamental particles of light. These photons stimulate the release
of more photons in the gain medium as they are reflected back and forth between
the mirrors that make up the laser's resonator. The resulting build-up in the
number of photons is usually emitted in the form of a light beam, the laser
beam, through a partially reflective mirror at the output end of the laser.
The four types of lasers commonly available today are gas, liquid, semiconductor
and solid state, each of which derives its classification from the lasing
material it uses. Laser beams can be emitted in either continuous waves or in
pulses with varying repetition rates, can have different operating wavelengths
and emission bandwidths, and can emit light in a wide range of energies and
powers. Depending on
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BUSINESS
--------------------------------------------------------------------------------
the application, lasers can be designed for a specific power, pulse width,
repetition rate and wavelength. In addition, the laser's cost of ownership can
dictate its suitability for a particular application.
As lasers become less expensive, smaller and more reliable, they are
increasingly replacing conventional tools and enabling technological advances in
a variety of applications and industries, including semiconductor inspection,
measurement, test and repair, optical telecommunications, medical,
biotechnology, consumer electronics, industrial process control, materials
processing, printing, and research and development. Examples include:
- SEMICONDUCTOR AND RELATED MANUFACTURING -- Lasers are increasingly being
used in multiple steps in the semiconductor manufacturing process, including
DUV lithography, a process that is used to print a master image of a circuit
layer onto a semiconductor wafer. Lasers are also used in the inspection,
test and measurement of semiconductors during the manufacturing process.
- OPTICAL TELECOMMUNICATIONS -- Driven by the Internet and the surge of
data-intensive applications, fiber optic networks constantly require greater
bandwidth. Lasers and optical components enable this increased bandwidth by
allowing multiple wavelengths to travel across the same fiber.
- MEDICAL -- A growing number of physicians, surgeons and researchers are
applying lasers to a wider range of therapeutic and diagnostic medical
applications. For example, lasers are being used in the treatment of eye
diseases and afflictions, including glaucoma and AMD, two of the leading
causes of blindness today. Lasers are also increasingly being used for
aesthetic applications, including hair removal, skin rejuvenation and
removal of vascular lesions.
OUR STRATEGY
We strive to develop innovative and proprietary products and solutions that meet
the needs of our customers based on our core expertise in lasers and optical
technologies. In pursuit of our strategy, we intend to:
- LEVERAGE OUR TECHNOLOGY LEADERSHIP TO GROW WITH RAPIDLY EXPANDING MARKETS --
We have targeted the semiconductor manufacturing, optical telecommunications
and medical markets. We are currently pursuing the following five key
initiatives in these markets:
- OPTICAL TELECOMMUNICATIONS -- Leverage our breadth of expertise in lasers,
optics, optical coatings and fibers in order to become a key component
provider to the optical telecommunications market.
- DUV LITHOGRAPHY -- Capitalize on our technical leadership in excimer
lasers to become the provider of choice of laser technology for DUV
lithography.
- SEMICONDUCTOR AND RELATED MANUFACTURING -- Use our position as a leading
provider of lasers for use in the semiconductor manufacturing process to
enable our customers to develop the next generation of their products.
- HAIR REMOVAL -- Increase sales of our LightSheer product family to become
the worldwide leader in the market for hair removal by providing superior
products and leveraging our global distribution network.
- AMD -- Build on the Coherent brand name, recent FDA approval and technical
advantages of our product to achieve a dominant position as a provider of
lasers for the treatment of the wet
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BUSINESS
--------------------------------------------------------------------------------
"classical" form of AMD, and work with ophthalmologists to develop new
treatments for the other forms of AMD.
- MAINTAIN OUR LEADERSHIP POSITION IN EXISTING MARKETS -- We intend to
maintain our leadership position in those commercial, medical and scientific
markets in which we have historically been at the forefront of technological
development and product deployment and from which we have derived a
substantial portion of our revenues.
- MAINTAIN AND DEVELOP ADDITIONAL STRONG COLLABORATIVE CUSTOMER AND INDUSTRY
RELATIONSHIPS -- We believe that the Coherent brand name and reputation for
product quality, technical performance and customer satisfaction will help
us to further develop our loyal customer base. We plan to maintain our
current, and develop new, relationships with customers that are industry
leaders and work together with these customers to design and develop
innovative product systems and solutions as they develop new technologies.
For example, we recently entered into a research agreement with Wellman
Laboratories, an affiliate of Massachusetts General Hospital, to develop new
laser-based medical aesthetic applications.
- EXPAND SEMICONDUCTOR LASER MARKET OPPORTUNITIES -- We are working to expand
the range and technical capabilities of, and markets for, our semiconductor
lasers. We continue to develop new lasers, some of which incorporate our
proprietary aluminum-free materials, to supply a broad range of wavelengths
and power capabilities. These new products enable us to open up markets for
new applications based on their efficiency, increased reliability and
smaller size compared with conventional lasers.
- DEVELOP AND ACQUIRE NEW TECHNOLOGIES -- We will continue to enhance our
existing technologies and develop new technologies through our internal
research and development efforts as well as through the acquisition of
additional complementary technologies, manufacturing processes and product
offerings.
APPLICATIONS
Our products address a broad range of applications. We are now increasingly
focused on three rapidly growing segments of the photonics market: semiconductor
and related manufacturing, optical telecommunications and medical applications.
We also continue to serve other segments of the photonics market, including
printing and reprographics, materials processing and scientific and
instrumentation.
SEMICONDUCTOR AND RELATED MANUFACTURING
The use of semiconductors has expanded beyond computer systems to a wide array
of applications such as telecommunications and data communication systems,
automotive products, consumer goods, medical products, household appliances and
industrial automation and control systems. The worldwide market for
semiconductors, as reported by Dataquest, is expected to grow from approximately
$169 billion in 1999 to over $319 billion in 2004.
Semiconductor manufacturers are continually seeking to improve their process and
design technologies to manufacture smaller, more powerful and more reliable
devices at a lower cost per function. A major factor in fabricating such devices
is the ability to reduce circuit geometries, measured in microns, a millionth of
a meter, and defined in terms of critical, or smallest, feature size. Reduced
circuit geometries permit semiconductor manufacturers to increase the number of
integrated components per area of silicon.
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--------------------------------------------------------------------------------
Lasers are particularly useful in manufacturing products that require fine
precision and small feature sizes, such as semiconductor and microelectronic
devices, because they can produce extremely small beam size and deliver energy
in pulses of very short duration. We provide lasers to semiconductor equipment
manufacturers for use in lithography, mask writing, wafer inspection, mask
repair and packaging processes for their semiconductor manufacturing systems.
Sales of our products for semiconductor and related manufacturing applications
accounted for approximately 14.3% of our total net sales in fiscal 1999 and
approximately 18.0% of our total net sales in the first half of fiscal 2000.
The following diagram depicts a stepper, which is used in semiconductor
manufacturing to produce circuit designs on silicon wafers using the lithography
process. We provide DUV excimer lasers used as the light source in the
lithography process and other DUV lasers incorporated into third-party systems
that inspect the optics used in the illumination and imaging phase of the
process. We also provide lasers that are used to "direct write" the photomask
and lasers used to detect, classify and repair defects in the wafers.
[Description of Diagram: The following diagram depicts the components of a
stepper, including a DUV excimer laser, illumination optics, a photomask,
imaging optics and a wafer. Beneath the component labeled DUV excimer laser, the
relevant wavelengths of light are listed, including 248nm, 193nm and 157nm.]
DUV LITHOGRAPHY
Lithography is one of the most critical and expensive steps in the manufacturing
process of complex semiconductor devices fabricated on silicon wafers. This
process requires a system that projects light through a photomask containing the
master image of a particular circuit layer onto a light sensitive material
coated on the wafer. The critical feature size of a semiconductor device depends
upon the resolution capability of the lithography system. Resolution capability
is a function of the projected wavelength of the light source and the numerical
aperture of the lens. A shorter wavelength or higher numerical aperture enables
smaller feature sizes.
Lithography tools have physical resolution limits approximating the wavelength
of their light source. Mercury arc lamps, which have been the primary
illumination source used for the last decade, can
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produce critical feature sizes down to only 0.25 microns. Currently, the only
known method capable of reducing semiconductor geometries below 0.25 microns is
with DUV lasers.
We currently provide lasers for the lithography tools that support critical
feature sizes down to 0.18 microns using DUV light with wavelengths at 248
nanometers, or nm. One nanometer equals one billionth of a meter. We are also
working with stepper and semiconductor manufacturers to provide the next two
generations of lithography tools to reduce feature sizes to below 0.10 microns
using DUV light with wavelengths at 193nm and 157nm.
LASER DIRECT IMAGING OF PHOTOMASKS AND PRINTED CIRCUIT BOARDS
The photomask used in the lithography process is made by a laser beam that
directly "writes" a circuit pattern of a semiconductor chip onto a piece of
chrome-coated quartz glass. The mask, which is conceptually similar to a
negative in photography, is used in lithography systems to make numerous copies
of the pattern image on semiconductor wafers. The direct write process is also
used to write circuit patterns directly on printed circuit boards. Our INNOVA
SABRE and INNOVA SABREFRED ion lasers are used in laser systems for these
applications.
SEMICONDUCTOR INSPECTION, MEASUREMENT, TEST AND REPAIR
As semiconductor device geometries decrease in size, devices become increasingly
susceptible to smaller defects during each phase of their manufacturing process.
One of the semiconductor industry's responses to the increasing vulnerability of
semiconductor devices to smaller defects has been to employ defect detection and
inspection that is closely linked to the manufacturing process. Automated
inspection systems are used on-line to detect and locate defects as small as 0.1
microns, which may not be observable by conventional optical microscopes. These
detection systems use advanced image processing and innovative laser scanning
technologies to achieve high sensitivity and speed.
Detecting the presence of defects is only the first step in preventing their
recurrence. After detection, the defects must be examined in order to identify
their size and shape and the process step in which the defect occurred. This
examination is called defect classification. Identification of the sources of
defects in the lengthy and complex semiconductor manufacturing process has
become essential for maintaining high yield production. Semiconductor
manufacturing has become a round-the-clock operation and it is important for
inspection, measurement and testing products to be reliable and have long
lifetimes.
Our COMPASS 315M and VERDI diode-pumped solid-state, or DPSS, lasers are used to
detect defects in photomasks, semiconductor chips and printed circuit boards.
The INNOVA ILINE argon ion laser is used to inspect the photomasks and patterned
wafers. Our COMPASS 501Q laser is used to repair defects that may occur in the
photomask or semiconductor device.
The fabrication process typically creates numerous patterned layers on each
wafer. Laser-based systems have been developed to measure the characteristics of
metal or opaque layers in order to determine the functionality and conformance
of these devices. Our VITESSE laser generates an ultrafast laser light pulse
that produces a localized temperature rise in the materials, which generates a
sound wave, a portion of which is reflected back to the surface. By measuring
the returning echos, the laser system can detect layer thickness, adhesion and
composition.
ADVANCED PACKAGING AND INTERCONNECTS
Lasers are now being used in hole drilling of printed circuit boards and other
advanced component materials like flexible circuits, polyester and polymide.
Historically, holes in printed circuit boards have
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been made using mechanical drilling techniques. However, mechanical drills
cannot produce holes less than 50 microns, forcing manufacturers to use
laser-based solutions. Solid-state lasers are increasingly being utilized for
this application.
We have developed the AVIA DPSS laser and DIAMOND carbon dioxide, or CO(2),
family of lasers for this application. The ability of our pulsed lasers to
operate at very high repetition rates translates into faster drilling speeds and
increased throughput in materials processing applications. Lasers also produce
smaller, cleaner holes than conventional cutting tools, and laser beams do not
wear down from use as do conventional drills.
Lasers are also increasingly being used in scribing, machining and drilling
microelectronic components and in microelectronics manufacturing to adjust
electronic components. Our COMPASS 501Q, AVIA and DIAMOND lasers are used for
these applications.
FLAT PANEL DISPLAY
The high volume consumer market is driving the production of flat panel displays
in applications such as camera viewfinders, car navigation systems, laptops and
television monitors. The most common type of flat panel display is the
active-matrix crystal display, which uses a matrix of thin film transistor, or
TFT, switches to control each pixel of the screen.
The crystallization of amorphous silicon to polycrystalline silicon induced by
excimer lasers, commonly referred to as excimer laser annealing, or ELA, is a
pivotal technology for the next generation of TFT devices. In the ELA process,
the excimer laser light is absorbed into the amorphous silicon without heating
the underlying substrate. As a result, it is possible to use inexpensive glass
substrates, instead of quartz, which makes the ELA process more economical than
previous techniques. Because the ELA technique leaves the substrate virtually
unaffected, there are many potential applications for the ELA process, including
the use of plastic as a substrate material, which would enable electronics to be
integrated directly into plastic housings.
The LAMBDA STEEL, developed and marketed by Lambda Physik, is a high-powered 200
watt excimer laser designed for industrial TFT annealing.
OPTICAL TELECOMMUNICATIONS
The widespread availability of the Internet has dramatically increased demand
for high speed and reliable access to large amounts of data, translating into an
increased demand for bandwidth. Innovative technological developments in optical
transmission technology have made it possible to transmit greater amounts of
data over telecommunications networks. In optical transmission, voice, video or
data input is converted into an optical bit stream and transmitted over a fiber.
The generation of the optical signal is done through the use of lasers, which
produce light waves in a very narrow optical wavelength range. The two main
obstacles in transmitting optical signals through fiber are attenuation, or
loss, and dispersion, or spreading, of the signal.
Dense wave division multiplexing, or DWDM, dramatically increases the amount of
information that can be transmitted over an optical network by allowing several
different light signals, each at a different wavelength, to be transmitted
simultaneously on a single fiber. To overcome the signal attenuation, a DWDM
system requires an erbium doped fiber amplifier, or EDFA, every 60 to 100
kilometers to boost the light energy on the fiber without having to convert the
light energy to an electronic signal. EDFAs utilize 980nm and 1480nm pump lasers
for signal amplification, enabling optical signals to be transported over long
distances without loss of information.
The move to high channel count systems has generated greater demand for many
critical optical components, including source lasers, modulators, pump lasers,
amplifiers, filters and fiber bragg gratings, all of which are needed in
increasing supply to enable transmission of multiple wavelengths down a single
fiber.
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THE DWDM NETWORK
[Description of Diagram: The following diagram is a schematic of the path of an
optical signal, from source lasers to receivers, passing through multiple
components, moving from left to right, labeled as "Wave Lockers," "Modulators,"
"Wave Division Multiplexer," "Optical Amplifier/EDFAs" and "De-Multiplexer."
Beneath each component appear captions identifying subcomponents. Beneath the
component labeled "Wave Lockers" appears the caption "Etalon" in a box. Beneath
the component labeled "Wave Division Multiplexer" appear the captions "Thin Film
Filters" in a box, "Fiber Bragg Gratings" in a box, "Circulators," "Wave Guides"
and "Diffractions Gratings." Beneath the component labeled "Optical
Amplifiers/EDFAs" appear the captions "Isolators," "Couplers," "Pump Lasers" in
a box and "Modules." Beneath the component labeled "De-Multiplexer" appear the
captions "Optical Switches," "Attenuators," "Fiber Bragg Gratings" in a box,
"Circulators," "Thin Film Filters" in a box and "Couplers." The boxed
subcomponents indicate applications for which we currently provide, or are
developing, products. Beneath the component labeled "Source Lasers" are the
relevant wavelengths of light, including 1550nm and 1310nm.]
* We currently provide products for these applications.
+ We are currently developing products for these applications.
The optical network can be divided into several broad categories: optical fiber;
optical components, which include active and passive devices, hybrid or modular
devices and subsystems; and optical transport systems, which include traditional
SONET/SDH and DWDM networks.
Optical components are the pieces that enable the transmission of high speed
data across fiber optic systems. They are used to create, isolate, split and
channel the light that carries the information across the network. The
increasing deployment of DWDM solutions is one factor driving much of the growth
in demand for optical components. The broad optical components market which
includes active and passive components, modules and subsystems, is one of the
fastest growing portions of the telecommunications market. The market research
firm Ryan, Hankin and Kent estimates that the overall size of the worldwide
telecommunications optical components market will grow from $6.6 billion in 1999
to $23.0 billion in 2003.
Active components used in optical telecommunications networks generate, amplify
and detect light. Some examples of active components include: transmitters,
which use a source laser with a wavelength of 1550nm and 1310nm and a modulator;
pump lasers for EDFAs; and receivers. Transmitters generate the encoded light,
pump lasers are used to boost or amplify light and receivers convert the optical
signal to an electronic signal for further processing.
Currently, EDFAs use up to four pump lasers. We are developing a new type of
laser, an Optically Pumped Semiconductor, or OPS, laser that generates
sufficient power to eliminate the need for the
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multiple pump lasers that are currently required for each EDFA. Our new 980nm
OPS laser technology provides the highest power 980 nm laser output from a
single-mode device. We expect that a single Coherent OPS laser will be able to
replace up to three traditional lasers substantially reducing costly packaging
and eliminating expensive multiplexing. The OPS laser has been sent to several
optical network companies for evaluation. However, before it can be commercially
deployed, we must develop packaging for the product and test the product to meet
stringent Telcordia requirements.
Passive optical components route, process and guide beams of light in a DWDM
environment without the use of active electronics. Examples of passive
components include: filters used to allow wavelength selection; attenuators used
to control signal amplitude; couplers used to split or combine light; optical
isolators used to eliminate back reflections; and optical switches used to
direct light to fiber.
Fiber bragg gratings and etalons are used to provide dispersion compensation for
individual wavelengths in the DWDM network. The necessary combination of beam
characteristics and power for fiber bragg grating production can only be
delivered by a frequency-doubled argon ion laser or an excimer laser. We serve
the fiber bragg grating market with a number of lasers, including our INNOVA
SABREFRED ion laser and the L1-FBG excimer laser produced by Lambda Physik. In
April 2000, we announced the doubling of production capacity for our INNOVA
SABRE and SABREFRED in response to rising demand from both DWDM and
semiconductor customers.
COMETS, our new etalon for telecommunications applications, enhances the
frequency stability of laser transmitters when integrated into DWDM network
components, resulting in tighter frequency packing and increased network
density. COMETS is also used to compensate for dispersion inherent in optical
networks. This technology can be adapted to other DWDM applications including
signal muiltiplexing and de-multiplexing.
Sales of our products for optical telecommunications applications accounted for
0.7% of our total net sales in fiscal 1999 and 1.1% of our total net sales in
the first half of fiscal 2000. We intend to aggressively pursue this rapidly
growing market.
MEDICAL
The medical industry has increasingly used lasers for a variety of therapeutic
and diagnostic medical applications. We pioneered the development of lasers used
in medical applications 30 years ago and remain a leader and innovator in the
aesthetic, ophthalmic and surgical markets. Our medical laser technology has
provided benefits to the ophthalmic market, paving the way for a host of
dramatic surgical alternatives to treat many sight-threatening diseases, from
diabetic retinopathy in the early 1970s to AMD today. In addition to developing
the first laser system for skin resurfacing in the early 1990s, we have more
recently developed lasers used in the aesthetic market for hair removal, tattoo
removal and the treatment of vascular and pigmented lesions. Additionally, our
lasers are used in surgical applications, including urology, orthopedics and
gynecology.
Sales of our products for medical applications accounted for approximately 34.7%
of our total net sales in fiscal 1999 and approximately 36.9% of our total net
sales in the first half of fiscal 2000.
OPHTHALMIC APPLICATIONS
Lasers are used to treat a growing number of eye diseases and afflictions,
including glaucoma, cataracts, myopia, hyperopia, AMD, diabetic retinopathy and
other retinal diseases. Our laser systems are used in photodisruption for the
treatment of secondary cataracts, photocoagulation for the treatment of retinal
diseases and photodynamic therapy, or PDT, for the treatment of AMD. AMD is a
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leading cause of blindness in the elderly, with approximately 150,000 new cases
of the wet "classical" form arising each year in the United States.
Our OPAL PHOTOACTIVATOR, when used in conjunction with the drug Visudyne,
marketed and sold by CIBA Vision Corporation, offers a non-invasive and painless
two-step procedure for the treatment of the wet "classical" form of AMD. This
treatment procedure, approved in April 2000, represents the first FDA-approved
drug therapy for the treatment of AMD. Previously, there was no treatment for
the wet "classical" form of AMD.
We also developed the first argon photocoagulator system that achieved
widespread acceptance by the medical community for treatment of retinal diseases
and glaucoma. The ULTIMA 2000 and the NOVUS OMNI represent two of our products
sold for these applications.
AESTHETIC APPLICATIONS
We are a leading supplier of lasers to the aesthetic market. The target
customers for our aesthetic medical laser products currently include plastic
surgeons, dermatologists, gynecologists and ophthalmologists. We produce a
complete line of innovative laser products for aesthetic procedures, including
hair removal, skin rejuvenation, removal of benign vascular lesions, or
unsightly veins of the legs and face, removal of benign pigmented lesions,
including brown spots, age spots, sunspots and tattoos, and cosmetic eye
surgery. Of these applications, the laser hair removal market is currently the
largest segment of the aesthetic medical laser market.
In response to the needs of our customers, we have developed the LIGHTSHEER
family of hair removal products that we market to a range of medical
practitioners from infrequent users to higher volume practitioners at a variety
of prices. These laser systems are well-suited for permanent hair reduction and,
when combined with the CHILLTIP contact skin cooling system and variable pulse
duration, allow for treatment of a wide range of patients with different skin
colors. The LIGHTSHEER was the first semiconductor laser system that received
clearance from the FDA to claim permanence in hair reduction.
SURGICAL APPLICATIONS
The use of surgical laser systems has provided alternative treatments to
conventional surgery in a number of medical fields, including urology,
gynecology and orthopedics. Lasers offer a less invasive procedure with similar
surgical results. The use of surgical lasers has resulted in reduced surgical
trauma, shorter hospitalization and a quicker recovery, thus improving the
quality of patient care and frequently decreasing overall healthcare costs
compared to conventional procedures.
Our VERSAPULSE family of holmium lasers is primarily used for urological and
orthoscopic procedures. In urology, the main applications for the VERSAPULSE
include resection of the prostate and lithotripsy. Our ULTRAPULSE lasers are
primarily used for gynecological procedures.
PRINTING AND REPROGRAPHICS
The printing industry has traditionally depended upon silver-halide films and
chemicals to engrave printing plates. This chemical engraving process is
accomplished in several time consuming steps. Working with professionals in the
printing industry, we design semiconductor and diode-pumped lasers that are used
in complex computer-to-plate printing systems that simplify the engraving
process.
Our COMPASS 315M DPSS and semiconductor lasers are widely used for
computer-to-plate printing, an environmentally-friendly process that saves
production time by writing directly to plates.
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Our INNOVA ion lasers are used to write data on master disks that are used to
mass produce compact disks and digital video disks for consumer use.
Sales of our products for printing and reprographics applications accounted for
approximately 6.2% of our total net sales in fiscal 1999 and approximately 6.5%
of our total net sales in the first half of fiscal 2000.
MATERIALS PROCESSING
Today lasers are used in a wide variety of conventional manufacturing
applications, including cutting, marking and welding materials. Our FAP
semiconductor lasers and DIAMOND CO(2) lasers are well-suited for cutting,
marking, welding and other applications where accuracy, speed and processing
costs are important. They create clean holes and sharp edges, and their
beam-pointing stability assures accurate measurements.
Sales of our products for materials processing applications accounted for
approximately 8.0% of our total net sales in fiscal 1999 and approximately 5.7%
of our total net sales in the first half of fiscal 2000.
SCIENTIFIC AND INSTRUMENTATION
The scientific market historically has provided an ideal test market for
leading-edge laser technology, including water-cooled gas lasers, high energy
flash lamp-pumped Yttrium Aluminum Garnet, or YAG, lasers and ultrafast systems
with an installed base of tens of thousands of lasers. Current applications for
lasers in the research and development market include pump lasers for ultrafast
systems, confocal microscopy systems and seed lasers in amplifier systems.
Our MIRA Titanium Sapphire laser and REGA regenerative amplifier is an example
of an ultrafast laser system used for these applications.
Our INNOVA ion lasers are also sold to instrument manufacturers, the largest
component of which is bio-instrumentation, for applications such as cell
sorting, DNA and protein sequencing as well as drug and clinical screening.
Sales of our products for scientific applications accounted for approximately
17.9% of our total net sales in fiscal 1999 and approximately 14.3% of our total
net sales in the first half of fiscal 2000.
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PRODUCTS
We design, manufacture and market lasers, laser-based systems, precision optics
and related accessories for a diverse group of customers. The following table
shows selected products together with their applications, the markets they serve
and the technologies upon which they are based.
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------
MARKET SEGMENT APPLICATION PRODUCTS TECHNOLOGY
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Semiconductor and related DUV lithography NovaLine series Excimer
manufacturing
-------------------------------------------------------------------------------
Mask writing SabreFreD Frequency doubled ion
-------------------------------------------------------------------------------
Semiconductor inspection Vitesse Ultrafast
Compass series DPSS
Enterprise Ion
-------------------------------------------------------------------------------
Marking Avia DPSS
-------------------------------------------------------------------------------
Flat panel display Lambda STEEL series Excimer
(TFT annealing)
-------------------------------------------------------------------------------
Advanced packaging and Avia DPSS
interconnects Diamond CO(2)
FAP family Semiconductor
----------------------------------------------------------------------------------------------------------
Optical Fiber bragg gratings SabreFreD Frequency doubled ion
telecommunications L1 FBG Excimer
-------------------------------------------------------------------------------
DWDM etalons ComEts Optical fabrication and
coating
-------------------------------------------------------------------------------
Pump sources OPS Semiconductor
----------------------------------------------------------------------------------------------------------
Medical:
Ophthalmic Treatment of wet Opal Photoactivator Semiconductor
"classical" AMD
-------------------------------------------------------------------------------
Treatment of retinal Ultima 2000 Ion
diseases and glaucoma Novus 2000 Ion
Novus Verdi DPSS
Novus Omni Ion
-------------------------------------------------------------------------------
Treatment of secondary Aura Solid-state (lamp-pumped)
cataracts
----------------------------------------------------------------------------------------------------------
Aesthetic Hair removal LightSheer family Semiconductor
-------------------------------------------------------------------------------
Skin rejuvenation UltraPulse series CO(2)
UltraFine Solid-state (lamp-pumped)
-------------------------------------------------------------------------------
Removal of tattoos, VersaPulse family Solid-state (lamp-pumped)
pigmented lesions and d VPC
vascular lesions (veins d VPW
in legs and face)
----------------------------------------------------------------------------------------------------------
Surgical Urology (BPH and VersaPulse family Solid-state (lamp-pumped)
lithotripsy) d VersaPulse Select
Orthopedics d VersaPulse Select Dual
Wave Length
-------------------------------------------------------------------------------
Gynecology UltraPulse CO(2)
----------------------------------------------------------------------------------------------------------
(1) Manufactured by a third party and distributed by us.
</TABLE>
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<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------
MARKET SEGMENT APPLICATION PRODUCTS TECHNOLOGY
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Printing and Computer-to-plate DCP Semiconductor
reprographics printing Diode bars Semiconductor
Compass series DPSS
-------------------------------------------------------------------------------
Writing data to master Innova family Ion
disks
-------------------------------------------------------------------------------
Entertainment Innova family Ion
----------------------------------------------------------------------------------------------------------
Materials processing Marking, welding, cutting FAP family Semiconductor
and drilling Diamond CO(2)
Gator 2000 DPSS
----------------------------------------------------------------------------------------------------------
Scientific and Pump source for FAP family Semiconductor
instrumentation solid-state lasers Diode bars Semiconductor
-------------------------------------------------------------------------------
Confocal microscopy Mira Ultrafast
Vitesse Ultrafast
-------------------------------------------------------------------------------
Cell sorting Innova family Ion
-------------------------------------------------------------------------------
DNA and protein Innova family Ion
sequencing
-------------------------------------------------------------------------------
Laser diagnostics and Modemaster Electronics
measurement Fieldmaster Electronics
Labmaster Electronics
-------------------------------------------------------------------------------
Thermal imaging Infrared optics Optical fabrication and
coating
-------------------------------------------------------------------------------
Laser components Optics for lasers Optical fabrication and
coating
----------------------------------------------------------------------------------------------------------
</TABLE>
We design, manufacture and market a wide variety of lasers, laser-based systems
and optical components and instruments, some of which are described below.
LASER PRODUCTS
SEMICONDUCTOR LASERS
Semiconductor lasers use the same principles as more conventional types of
lasers but miniaturize the entire assembly into a monolithic structure using
semiconductor wafer fabrication processes. The advantages of this type of laser
include smaller size, longer life, enhanced reliability and greater efficiency.
We manufacture a wide range of semiconductor laser products with wavelengths
ranging from 650nm to 1000nm and output powers ranging from 60 watts for
individual bars, to several hundred watts for stacked bars. These products are
available in various forms of complexity, including the following: bare diodes
on heat sinks; fiber-coupled single emitters and bars; stacked bars; and fully
integrated modules and microprocessor-controlled units that contain power
supplies and active coolers. Our infrared semiconductor lasers, which are
manufactured from proprietary materials grown in our facility in Tutcore,
Finland, differ from other lasers in that they contain no aluminum in the active
region. This provides our lasers with longer lifetimes and the ability to
operate at broader temperature ranges.
Our recently announced OPS laser is a semiconductor chip that is pumped by a
semiconductor laser. A wide range of wavelengths can be achieved by varying the
materials used in this device and doubling the frequency of the laser beam. The
OPS is a compact, rugged, high power, single-mode laser that has promise in the
optical telecommunications industry as a pump laser for EDFA amplifiers. A
single OPS laser can potentially replace up to three traditional lasers,
substantially reducing costly packaging and eliminating expensive multiplexing.
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Another primary application for our semiconductor lasers is for use in
computer-to-plate printing machines. These machines contain a series of
semiconductor lasers that are used to direct the printing of computer images
directly to paper, without the need for film or developing chemicals.
Our semiconductor lasers are also used in machine-processing applications, such
as soldering connections on printed circuit boards and welding flat panel
displays, and in medical applications for the treatment of the wet "classical"
form of AMD and hair removal. They are also used as the pump laser in DPSS laser
systems that are manufactured by us and several of our competitors.
DIODE-PUMPED SOLID-STATE LASERS
DPSS lasers use semiconductor lasers to pump a crystal to produce a laser beam.
By changing the energy, optical components and the types of crystals used in the
laser, different wavelengths and types of laser light can be produced.
The efficiency, reliability, longevity and relatively low cost of DPSS lasers
make them ideally suited for a wide range of OEM and end-user applications,
particularly those requiring 24-hour operations. Our DPSS systems are compact,
self-contained, sealed units. Unlike conventional tools and other lasers, our
DPSS lasers require minimal maintenance since they do not have internal controls
or components that require adjusting and cleaning to maintain consistency. They
are also less affected by environmental changes in temperature and humidity,
which can alter alignment and inhibit performance in many systems.
We manufacture a variety of types of DPSS lasers for different applications,
including semiconductor inspection, repair, test and measurement, printing and
reprographics, micro-machining, rapid prototyping, holography, DNA sequencing,
flow cytometry, interferometry, laser pumping, light scattering, non-destructive
testing, particle counting and spectroscopy. The following are a few of our DPSS
laser products:
VERDI
VERDI is a frequency-doubled laser providing single-frequency output at 532nm
with power levels up to 10 watts. Using a proprietary manufacturing process, the
optical components inside the laser head are fixed permanently in place,
eliminating the need to clean or align the laser that is inherent in other
designs. This system is ideally suited for demanding laboratory and commercial
OEM applications.
AVIA
The AVIA is a high power, all-solid-state, diode-pumped, frequency-tripled,
Q-switched ultraviolet laser operating at 355nm. The proprietary cavity design
and high-efficiency harmonic conversion provide high peak-power pulses and high
repetition rates, making the AVIA particularly well suited for a number of
micro-machining applications such as via hole drilling.
COMPASS SERIES
The COMPASS series of lasers feature exceptionally low noise and long term
stability, high reliability and unit-to-unit consistency. All systems are
hermetically sealed, air-cooled and provide maintenance free operation in an
extremely small package.
The COMPASS 315M is a frequency-doubled laser providing up to 150 mw of
single-frequency output at 532nm. The COMPASS 315M is an ideal replacement for
air-cooled gas lasers in some applications.
The COMPASS 501Q family of frequency-doubled, Q-switched laser systems are
designed for micro-machining applications. The high beam quality and superb
pulse-to-pulse stability make these lasers an
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ideal replacement of lamp-pumped lasers with much higher power levels. Their
high brightness and good stability also allow the processing of materials with
greater precision.
The COMPASS ZT family of lasers are designed primarily for zone texturing of
hard-disk media. These Q-switched, air-cooled lasers operate at 1064nm, deliver
repetition rates up to 100 kHz and exceed the energy and pulse-to-pulse
stability requirements necessary for this demanding application.
VITESSE
Our VITESSE 400 is a compact system capable of generating ultrafast laser pulses
of 100 femtoseconds. Its ability to generate these extremely short pulses of
light makes it an ideal laser for incorporation into systems that measure the
characterization of different layers of materials deposited on a semiconductor
device. One femtosecond is one millionth of a billionth of a second.
GATOR
The GATOR 2000 is Lambda Physik's newest generation of DPSS lasers. The Gator
2000 is an industrial grade laser able to withstand harsh production
environments and is particularly well-suited for drilling small diameter holes
for micro-machining features and components in hard materials like steel,
Titanium, ceramics or diamond.
GAS LASERS
Gas lasers use gas as the lasing medium. As electrical current is applied to the
gas-filled laser tube, the gas is excited and photons are emitted. Different
gasses produce photons of different wavelengths. For example, carbon dioxide
lasers produce infrared light at 10.6 microns and ion lasers produce green light
at .532 microns. Lambda Physik manufactures a wide variety of OEM excimer lasers
at different power levels and repetition rates.
NOVALINE FAMILY
Our NOVALINE K2010 lithography system is a 248nm excimer laser that operates at
a 2 kHz repetition rate with an output power of 20 watts. Lambda Physik is also
shipping our next generations of lithography products, the NOVALINE A4020 and
NOVALINE F2020 products. The NOVALINE A4020 is a 193nm laser that operates at a
4 kHz repetition rate with an output power of 40 watts. The NOVALINE F2020 is a
157nm laser that operates at 2 kHz repetition rate with an output power of 20
watts.
LAMBDA STEEL
The LAMBDA STEEL laser is an industrial laser that is incorporated into systems
for TFT annealing for the manufacturing of flat panel displays, such as screens
on computers and hand-held computer devices. The LAMBDA STEEL laser is also used
to drill ink jet nozzles in printers. This product is highly reliable for large
volume industrial production with minimal maintenance downtime and low operating
costs.
L1-FBG
The L1-FBG is used for the production of fiber bragg gratings. The high peak
power and high repetition rates of this laser reduce the writing time, compared
with other laser technologies.
OTHER EXCIMER LASERS
The LPX laser is used in a number of industrial applications such as marking
surface mounts and medical devices, stripping thin wires in disk drives,
cleaning bare semiconductor wafers and writing fiber braggs on optical
telecommunications products. The OPTEX and COMPEX lasers are incorporated into
medical refractive surgery systems.
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INNOVA SERIES
The ability to generate continuous-wave powers of up to 25 watts at a variety of
visible wavelengths, and up to seven watts in the ultraviolet, has made INNOVA
lasers useful in a number of different applications, including semiconductor
manufacturing, fiber bragg grating production, confocal microscopy and
cytofluorescence. We have 62 models of these lasers at various powers and
wavelengths, including the INNOVA SABRE and the INNOVA SABREFRED lasers.
The INNOVA SABRE combines an extremely stable basic design with
performance-enhancing active components for wavelength tuning and beam quality,
for high quality ion laser performance and ease of use.
Our INNOVA SABREFRED ion laser systems use frequency doubling to produce
continuous-wave laser light in the 229nm to 264.3nm wavelength range. This
portion of the electromagnetic spectrum provides significant utility in a number
of emerging applications such as optical fiber grating writing, mask writing, UV
resonance Raman spectroscopy and inspection of semiconductor manufacturing
optics.
DIAMOND CO(2) LASER
Our DIAMOND family of CO(2) lasers utilize a completely new, proprietary design
and radio frequency technology to generate pulsed light from sealed laser tubes.
These high-energy pulses, together with excellent beam quality, make the DIAMOND
laser ideal for various materials processing applications. These lasers can
operate in harsh industrial environments for 20,000 hours on average, with
minimal maintenance.
LASER-BASED SYSTEMS
We design, manufacture and market a wide range of laser-based systems for the
aesthetic, ophthalmic and surgical medical markets, some of which are described
below.
OPHTHALMIC
OPAL PHOTOACTIVATOR
Our OPAL PHOTOACTIVATOR is a semiconductor laser-based medical system used in
conjunction with the drug Visudyne-TM- for the treatment of the wet "classical"
form of AMD. First, the Visudyne drug is injected intravenously into the
patient's arm. The drug is then activated by the OPAL laser's light released
directly into the patient's eye in a procedure lasting only 83 seconds.
NOVUS OMNI
The NOVUS OMNI achieves a high level of reliability and flexibility for
ophthalmic multi-wavelength applications. For example, the NOVUS OMNI allows a
surgeon to switch from a red to a yellow or green light so that the beam will
not be absorbed by a patient's blood during surgery.
AESTHETIC
LIGHTSHEER
The LIGHTSHEER products are compact, lightweight, semiconductor laser-based
systems that are easily transported and are the only high-energy, short pulse
semiconductor laser-based systems available for hair removal. The treatment
light is generated by high power semiconductor laser arrays using proprietary
packaging and cooling technology.
ULTRAPULSE 5000C
The ULTRAPULSE 5000C, coupled with our computer pattern generator delivery
device, is a leading laser for the treatment of wrinkles. Called laser skin
resurfacing, this procedure uses the unique high-energy
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pulsed output of the ULTRAPULSE laser to produce precise, controlled and
repeatable vaporization of a thin outer layer of skin. The laser is also widely
used for aesthetic incisional procedures including cosmetic eyelid surgery.
VERSAPULSE C
The multiwavelength VERSAPULSE C, or VPC, aesthetic laser system can be used for
a wide variety of skin procedures such as the removal of tattoos, the treatment
of pigmented lesions, including birthmarks and port wine stains, and the removal
of unsightly veins of the legs and face. Our laser technology allows treatment
of lesions containing larger vessels that often do not respond to conventional
lasers. Prior to the introduction of the VPC, physicians needed to use up to
four separate laser systems to achieve the capabilities offered by a single VPC
aesthetic laser system.
SURGICAL
VERSAPULSE SELECT LASERS
Our VERSAPULSE family of lasers are primarily used for urological and
orthoscopic procedures, and, when coupled with fiber optic delivery devices, has
proven to be particularly well-suited for minimally invasive procedures like
lithotripsy. In 1988, we introduced the first solid-state holmium laser, the
VERSAPULSE. With its wide variety of fiber optic delivery devices, which are
much smaller than conventional instrumentation, the VERSAPULSE quickly
established itself as a first choice for minimally invasive surgery. Since that
time, product enhancements and improvements have allowed us to maintain our
leadership position.
OPTICS AND INSTRUMENTS
We are a leading supplier of high performance optics and thin film coating
technologies for internal use and for sale to other laser manufacturers. Laser
optics are some of the most demanding optics to manufacture because they cannot
tolerate defects in the area where the laser light interacts with the optic.
High power lasers and laser systems depend on high quality optical components in
order to perform to their maximum potential.
Optics and thin film coatings are used as passive components in optical
telecommunications systems that are used to transmit, reflect and shape light
and currently are in very high demand in the development of DWDM networks. We
recently introduced COMETS, our new etalon for optical telecommunications
applications, which enhances the frequency stability of laser transmitters when
integrated into DWDM network components, resulting in tighter frequency packing
and increased network density. In addition, we expect to begin shipping thin
film filters for DWDM applications later this calendar year.
We also manufacture a line of power meters and laser beam analyzing systems.
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TECHNOLOGY
Formed in 1966 as one of the first commercial laser companies, we have a long
history of introducing innovative technologies and laser products. We have
developed extensive expertise over a broad range of photonics-based technology,
including the following key areas:
DPSS LASERS
We are a leading manufacturer of diode-pumped solid-state lasers. We utilize
proprietary manufacturing methods and equipment to manufacture these compact,
sealed, low cost, high efficiency, rugged lasers. For example, the laser
components of our COMPASS 315M products are soldered onto a ceramic board using
semi-automatic production equipment. As a result, the laser components never
require alignment.
NON-LINEAR CRYSTALS
Our expertise in converting laser beam frequencies allows our lasers to be used
for multiple applications. For example, we use a non-linear crystal in the laser
cavity of the INNOVA SABREFRED to double the wavelength to produce ultraviolet
light suitable for inspecting semiconductor wafers. We have also developed
proprietary techniques used to polish and coat these non-linear materials.
CARBON DIOXIDE LASERS
Our DIAMOND family of compact, high power, sealed CO(2) laser systems use a
radio frequency-based power supply. This power supply can be turned on and off
quickly to pulse the CO(2) energy for extremely high peak power, which permits
DIAMOND lasers to be much smaller and easier to maintain than conventional high
power CO(2) laser systems. Additionally, our laser tubes are made of metal
ceramic materials for long lifetimes.
ION MANUFACTURING
The manufacturing equipment for our ion lasers is custom designed and built to
our specifications. The manufacturing process itself is proprietary and produces
our highly successful line of INNOVA ion lasers. Using our proprietary ceramic
metal technology, these lasers have long lifetimes and are very reliable.
OPTICS
We manufacture state-of-the-art, high performance optical products using
proprietary coating and polishing technologies that are used across the entire
spectrum of light, ranging from the far infrared to the deep ultraviolet. We
incorporate these products into our own lasers and laser systems and also sell
them to other laser manufacturers and system integrators. We are particularly
skilled in the design and manufacturing of extremly low-loss optics, high damage
threshold and complex multifunctional coatings.
ALUMINUM-FREE SEMICONDUCTOR MATERIALS
We grow proprietary aluminum-free materials that form a key component of our
infrared semiconductor lasers. These materials are grown by molecular beam
epitaxy, a highly technical process involving advanced manufacturing equipment.
Unlike conventional materials, our aluminum-free materials in the active zone
provide for long lifetimes and an extended temperature range of operations.
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OPS LASERS
We are developing an optically pumped semiconductor laser, a compact, rugged,
high power, single mode laser based on our proprietary technology that has
considerable promise in the optical telecommunication industry as a high power
pump laser for EDFA amplifiers. Before the product can be sold to the optical
telecommunications industry, we must develop packaging for the product and the
product must meet stringent Telcordia requirements. A frequency-doubled OPS also
has the potential to replace low power, air-cooled argon lasers in a number of
other applications.
DUV EXCIMER LASERS
Lambda Physik developed the first commercial excimer laser in 1977 and since
then has sold more than 6,000 of these lasers. Because of their ability to
deliver high energy pulses at short ultraviolet wavelengths, excimer lasers are
the light source of choice for the current and next two generations of stepper
equipment needed in the semiconductor industry to manufacture complex
semiconductor devices. We believe that Lambda Physik's experience with this
technology makes it well-positioned to develop, manufacture and sell these
lasers for these demanding applications.
SEMICONDUCTOR LASERS AND ARRAYS
In our class 1000 clean room facility, equipped with state-of-the-art
semiconductor processing and testing equipment, we manufacture a wide range of
semiconductor laser devices, including high power semiconductor arrays. We have
developed proprietary methods to stack a number of semiconductor bars together
and dissipate the heat that is generated in these high power devices. Our
LIGHTSHEER series of hair removal products is based upon this technology. In
addition, this technology addresses the current needs of the printing,
automotive and the aerospace industries.
SHORT-PULSE TECHNOLOGY
We have extensive experience in manufacturing complex laser systems with
extremely short pulses. By shaping the pulsed laser light with proprietary
techniques, we can generate pulses of light as short as 30 femtoseconds. These
ultrafast laser systems are used in many scientific applications, such as
spectroscopy and confocal microscopy, as well as commercial applications. Our
VITESSE laser, for example, uses this technology for semiconductor measurement
applications.
SALES AND MARKETING
We market our products domestically through a direct sales force. Our foreign
sales are made principally to customers in Europe, Japan and other Asia-Pacific
countries. We sell internationally through direct sales personnel located in
Japan, the United Kingdom, Germany, Italy, Austria, France, Belgium, the
Netherlands, Sweden, Finland, the People's Republic of China and Hong Kong, as
well as through independent representatives in other parts of the world. Foreign
sales accounted for 58% of our total net sales in fiscal 1999 and 59% of our
total net sales during the first six months of fiscal 2000. Sales made to
independent representatives and distributors are generally priced in US dollars.
Foreign sales that we make directly are generally priced in local currencies and
are therefore subject to currency exchange fluctuations. Foreign sales are also
subject to other normal risks of foreign operations, such as protective tariffs,
export and import controls and political instability. Our products are broadly
distributed, and no one customer accounted for more than 3% of total net sales
during fiscal 1999 or the first half of fiscal 2000.
We maintain a customer support and field service staff in major markets in the
United States, Europe, Japan and other Asia-Pacific countries. This organization
works closely with customers, customer
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groups and independent representatives in servicing equipment, training
customers to use our products and exploring additional applications of our
technologies. We have also implemented a 24-hour-a-day service station, where
customers can call a number at any time and receive service on their particular
products.
We typically provide one year parts and service warranties on our lasers, laser
systems, optical and laser components, precision optics, and related accessories
and services. Warranties on some of our products and services may be longer than
one year. To date, warranty reserves, as reflected on our balance sheet, have
been sufficient to cover product warranty repair and replacement costs.
RESEARCH AND DEVELOPMENT
We are committed to the development of new products as well as the improvement
and refinement of existing products. We are primarily focusing our research and
development efforts on the development of excimer lasers for DUV lithography,
component products for the optical telecommunications and semiconductor-related
markets and new medical products. Expenditures for the first half of fiscal 2000
were $26.8 million, or 10% of net sales, compared to $21.7 million, also 10% of
net sales, for the same period in fiscal 1999. We maintain separate research and
development staffs for each of our three reportable business segments. We work
closely with customers, both individually and through our sponsored seminars, to
develop products to meet customer application and performance needs. In
addition, we are working with leading research and educational institutions to
develop new photonics-based solutions.
MANUFACTURING
STRATEGIES
One of our core strategies is to tightly control our supply of key parts,
components and assemblies. We believe this is essential to maintain high quality
and enable rapid development and deployment of new products and technologies.
Committed to quality and customer satisfaction, we design and produce many of
our own components and sub-assemblies to retain quality control. We provide
customers with 24-hour technical expertise and quality that is ISO 9000
certified at our principal manufacturing sites.
We have designed and implemented proprietary manufacturing tools, equipment and
techniques in an effort to provide products that are differentiable from our
competitors' products. These proprietary manufacturing techniques are utilized
in a number of our product lines, including both ion and CO(2) laser production,
optics fabrication, coating and assembly operations, as well as the wafer growth
for our semiconductor laser product family.
Raw materials or sub-components required in the manufacturing process are
generally available from several sources. However, we currently purchase several
key components and materials, including exotic materials and crystals, used in
the manufacture of our products from sole source or limited source suppliers.
Some of these suppliers are relatively small private companies that may
discontinue their operations at any time. We typically purchase our components
and materials through purchase orders and we have no guaranteed supply
arrangement with any of these suppliers. We may fail to obtain these supplies in
a timely manner in the future. We may experience difficulty identifying
alternative sources of supply for certain components used in our products. Once
identified, we would experience further delays from evaluating and testing the
products of these potential alternative suppliers. Furthermore, financial or
other difficulties faced by these suppliers or significant changes in
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demand for these components or materials could limit their availability. Any
interruption or delay in the supply of any of these components or materials, or
the inability to obtain these components and materials from alternate sources at
acceptable prices and within a reasonable amount of time, would impair our
ability to meet scheduled product deliveries to our customers and could cause
customers to cancel orders.
We rely exclusively on our own production capability to manufacture certain
strategic components, optics and optical systems, semiconductor lasers, lasers
and laser-based systems. Because we manufacture, package and test these
components, products and systems at our own facilities, and such components,
products and systems are not readily available from other sources, any
interruption in our manufacturing would adversely affect our business. In
addition, our failure to achieve adequate manufacturing yields at our
manufacturing facilities may materially and adversely affect our operating
results and financial condition.
OPERATIONS
Our electro-optical products are manufactured at sites in Santa Clara and Auburn
California; Lubeck, Germany; Leicester and Watford, England; Glasgow, Scotland;
Barendrecht, the Netherlands and Tampere, Finland. Our ion and CO(2) lasers,
some of our DPSS lasers, such as VERDI, AVIA and VITESSE, semiconductor lasers
and ultrafast scientific lasers are manufactured in Santa Clara, California. Our
optical component products and laser instrumentation products are manufactured
at our facility in Auburn, California.
Our LIGHTSHEER family of hair removal products are manufactured in Pleasanton,
California. The remainder of our medical products are manufactured at our
facility in Santa Clara, California.
Our excimer laser products, including the lasers used in DUV lithography
systems, are manufactured at Lambda Physik's facility in Gottingen, Germany.
Lambda Physik's DPSS product is manufactured in Fort Lauderdale, Florida.
We make DPSS lasers at our facility in Lubeck, Germany, including the 315M and
501Q lasers. Our facility in Tampere, Finland grows the aluminum-free materials
that are incorporated into our semiconductor lasers. Additional optical
fabrication, coatings and electro-optical assemblies are processed and
manufactured at our sites in Leicester and Watford, England. We make a range of
advanced solid-state lasers used in developing applications, including
scientific research and semiconductor test equipment, in Glasgow, Scotland. Our
newest facility is in Barendrecht, the Netherlands, where we manufacture
micro-machining systems that incorporate lasers manufactured in Santa Clara,
California.
INTELLECTUAL PROPERTY
We rely on a combination of patent, copyright, trademark and trade secret laws
and restrictions on disclosure to protect our intellectual property rights. We
currently hold approximately 325 US and foreign patents, and we have
approximately 240 additional pending patent applications that have been filed.
The issued patents cover various products in all of the major markets that we
serve.
As part of our acquisition of Star Medical in December 1999, we acquired a
non-exclusive sublicense of a patent that covers a method for hair removal using
contact cooling. Under the terms of the sublicense agreement, we pay royalties
at a rate equal to 7.5% of net sales of the LIGHTSHEER product family.
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In September 1988, we entered into several patent license agreements with Patlex
Corporation relating to laser-related patents owned by Dr. Gordon Gould that had
been assigned to Patlex. Under the terms of the agreements, we pay royalties to
Patlex ranging from 3.5% to 5% for specified categories of domestic sales and 2%
of specified categories of international sales, subject to some exceptions and
limitations. Royalty expense under these agreements was $0.7 million in fiscal
1999, $0.9 million in fiscal 1998 and $1.1 million in fiscal 1997. The patents
expire on various dates through May 2005.
We cannot assure you that our patent applications will be approved, that any
patents that may issue will protect our intellectual property or that any issued
patents will not be challenged by third parties. Other parties may independently
develop similar or competing technology or design around any patents that may be
issued to us. We cannot be certain that the steps we have taken will prevent the
misappropriation of our intellectual property, particularly in foreign countries
where the laws may not protect our proprietary rights as fully as in the United
States.
We believe that we own or have the right to use the basic patents covering our
products. However, the laser industry is characterized by a very large number of
patents, many of which are of questionable validity and some of which appear to
overlap with other issued patents. As a result, there is a significant amount of
uncertainty in the industry regarding patent protection and infringement.
Because patent applications are maintained in secrecy in the United States until
such patents are issued and are maintained in secrecy for a period of time
outside the United States, we can conduct only limited searches to determine
whether our technology infringes any patents or patent applications of others.
In recent years, there has been a significant amount of litigation in the United
States involving patents and other intellectual property rights. In the future,
we may be a party to litigation to protect our intellectual property or as a
result of an alleged infringement of others' intellectual property. These claims
and any resulting lawsuit, if successful, could subject us to significant
liability for damages and invalidation of our proprietary rights. These
lawsuits, regardless of their success, would likely be time-consuming and
expensive to resolve and would divert management time and attention. Any
potential intellectual property litigation also could force us to do one or more
of the following:
- stop selling, incorporating or using our products that use the infringed
intellectual property;
- obtain from the owner of the infringed intellectual property right a license
to sell or use the relevant technology, which license may not be available
on reasonable terms, or at all; or
- redesign the products that use the technology.
If we are forced to take any of these actions, our business may be seriously
harmed. Although we carry general liability insurance, our insurance may not
cover potential claims of this type or may not be adequate to indemnify us for
all liability that may be imposed.
We may in the future initiate claims or litigation against third parties for
infringement of our proprietary rights to protect these rights or to determine
the scope and validity of our proprietary rights or the proprietary rights of
competitors. These claims could result in costly litigation and the diversion of
our technical and management personnel.
COMPETITION
Competition in the various laser markets in which we provide products is very
intense. In the semiconductor and related manufacturing market, we compete
against a number of companies, including SDL, Inc., Spectra-Physics
Lasers, Inc., Cymer, Inc. and Komatsu Ltd. In the optical telecommunications
market, we compete, or expect to compete, against SDL, Inc., JDS Uniphase
Corporation and Spectra-Physics Lasers, Inc., among others. Our medical products
compete against
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products offered by ESC Medical Systems Ltd., Candela Corporation and The Carl
Zeiss Group, among others. Some of our competitors are large companies that have
significant financial, technical, marketing and other resources. These
competitors may be able to devote greater resources than we can to the
development, promotion, sale and support of their products. Several of our
competitors have large market capitalizations or cash reserves, and are much
better positioned than we are to acquire other companies in order to gain new
technologies or products that may displace our product lines. Any of these
acquisitions could give our competitors a strategic advantage. Any business
combinations or mergers among our competitors, forming larger competitors with
greater resources, could result in increased competition, price reductions,
reduced margins or loss of market share, any of which could materially and
adversely affect our business, results of operations and financial condition.
Additional competitors may enter the market, and we are likely to compete with
new companies in the future. We expect to encounter potential customers that,
due to existing relationships with our competitors, are committed to the
products offered by these competitors. As a result of the foregoing factors, we
expect that competitive pressures may result in price reductions, reduced
margins and loss of market share. For a more detailed discussion of our
competition, see "Business -- Competition."
GOVERNMENT REGULATION
MEDICAL DEVICE REGULATION
Our medical products are subject to various federal, state and international
rules and regulations governing the medical products industry. In the United
States, we are subject to the federal regulation by the Food and Drug
Administration, or FDA, pursuant to the Federal Food, Drug and Cosmetic Act. The
FDA regulates the clinical testing, manufacture, labeling, sale, distribution
and promotion of medical devices.
The FDA classifies medical devices into one of three classes on the basis of the
controls deemed to be necessary to reasonably ensure their safety and
effectiveness:
- Class I -- general controls -- including labeling, pre-market notification
and adherence to good manufacturing practices, or GPM, quality system
regulation;
- Class II -- general controls and special controls -- including performance
standards and post-market surveillance; and
- Class III -- pre-market approval.
Before being introduced into the market, our products must obtain market
clearance through either the 510(k) pre-market notification process or the
pre-market approval, or PMA, application process. Approvals may include clinical
testing, limitations on the number of sales, controls of end-user purchase price
and controls on the extent of product commercialization. A 510(k) clearance
typically will be granted if a company demonstrates to the FDA that its device
is substantially equivalent in intended use, safety and effectiveness to a
legally marketed Class I or II medical device or to a Class III device marketed
prior to 1976 for which the FDA has not yet required the submission of a PMA. In
some cases, clinical trials may be required to support a claim of substantial
equivalence. It generally takes from four to 12 months from the date of
submission to obtain clearance of a 510(k) submission, but it may take longer.
After a device receives 510(k) clearance, any modification that could
significantly affect its safety or effectiveness, or that would constitute a
major change in its intended use, requires a new 510(k) clearance or could
require a PMA approval. The FDA requires each manufacturer to make this
determination in the first instance, but the FDA can review such decision. If
the FDA disagrees with
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the manufacturer's decision, the agency may retroactively require the
manufacturer to seek 510(k) clearance or PMA approval. The FDA also can require
the manufacturer to cease marketing and/or recall the modified device until
clearance or approval is obtained.
If a medical device does not qualify for the 510(k) pre-market notification
process, a company must file a PMA application. The PMA application process
requires more extensive pre-filing testing than required for a 510(k) pre-market
notification and is more costly, lengthy and uncertain. The PMA application
process requires the manufacturer to prove the safety and effectiveness of the
device to the FDA's satisfaction through extensive pre-clinical and clinical
trial data, as well as information about the device and its components,
including, among other things, device design, manufacturing and labeling. After
any PMA approval, a new PMA application or PMA supplement is required in the
event of certain modifications to the device, its labeling, intended use or
indication, or its manufacturing process.
ADDITIONAL FDA REGULATION
Numerous regulatory requirements apply to our marketed devices. These
requirements include the FDA's quality system regulation, or QSR, which requires
manufacturers to follow elaborate design testing, control, documentation and
other quality assurance procedures; the Medical Device Reporting regulation,
which requires that manufacturers report to the FDA certain types of adverse
events involving their products; and labeling regulations, which prohibit
promotion of products for unapproved or off-label uses. Unanticipated changes in
existing regulatory requirements or adoption of new requirements could hurt our
business, financial condition and results of operations.
Compliance with regulatory requirements is expensive and time-consuming.
Non-compliance with applicable requirements can result in, among other things,
fines, injunctions, civil penalties, recall or seizure of products, total or
partial suspension of production, failure of the government to grant pre-market
clearance or pre-market approval for devices, withdrawal of marketing approvals
and criminal prosecution. The FDA also has the authority to require that we
repair, replace, recall or withdraw our existing products from the market.
Our medical products are also subject to state and local laws and additional
similar regulations in most of the international markets in which we sell our
products. Our competitors in the medical device field are subject to the same
regulations.
Changes to existing US or international medical rules and regulations could
adversely affect our ability to sell our current line of medical products in the
United States and internationally, could increase our costs resulting from
FDA-mandated repair, replacement or recall programs and could materially
adversely impact our results of operations.
ENVIRONMENTAL REGULATION
Our operations are also subject to various federal, state and local
environmental protection regulations governing the use, storage, handling and
disposal of hazardous materials, chemicals, various radioactive materials and
certain waste products. In the United States, we are subject to the federal
regulation and control of the Environmental Protection Agency. Comparable
authorities are involved in other countries. We believe that compliance with
federal, state and local environmental protection regulations will not have a
material adverse effect on our capital expenditures, earnings and competitive
and financial position.
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Although we believe that our safety procedures for using, handling, storing and
disposing of such materials comply with the standards required by state and
federal laws and regulations, we cannot completely eliminate the risk of
accidental contamination or injury from these materials.
BACKLOG
At April 1, 2000, our backlog of orders scheduled for shipment was approximately
$131.9 million, compared to $101.6 million at October 2, 1999 and $87.8 million
at September 26, 1998. Orders used to compute backlog are generally cancelable
without substantial penalties. Historically, the rate of cancellation
experienced by us has not been significant; however, since orders are
cancelable, the backlog of orders, at any one time, is not necessarily
indicative of future revenues. We anticipate filling the present backlog within
the next 12 months. Backlog at April 1, 2000 was higher than backlog at
October 2, 1999 in the Electro-Optics and Lambda Physik reportable business
segments. Backlog at October 2, 1999 was higher than at September 26, 1998, in
all three operating segments.
FACILITIES
Our corporate headquarters and major Electro-Optics facility is located in Santa
Clara, California, consisting of approximately 8.5 acres of land and a 200,000
square-foot building that we own.
Additional Electro-Optics facilities are located in Auburn, California. The
Auburn facilities consist of two 60,000 square-foot buildings and a 50,000
square-foot building, all of which we own, as well as two buildings totaling
10,124 square feet under short-term leases.
Our principal Medical products facility is located in Santa Clara, California,
consisting of a building of approximately 216,000 square feet of floor area
leased until December 2001.
During fiscal 1999, we acquired Star Medical Technologies, Inc., which leases
four buildings totaling 28,581 square feet in Pleasanton, California. The leases
expire from September 2002 to 2003.
Our foreign subsidiaries have facilities in Florida, Germany, Japan, England and
Finland, most of which are leased, but some of which are owned. We also maintain
sales and service offices under varying leases expiring from 2003 through 2005
in France and the Netherlands, and under short-term leases in Mexico, Hong Kong,
Sweden, Italy and the People's Republic of China.
In general, our facilities are considered both suitable and adequate to provide
for current and near term requirements.
EMPLOYEES
As of April 1, 2000, we had 2,587 full-time employees. Approximately 338 are
involved in research and development, 1,156 in operations, manufacturing and
quality assurance, and 1,093 in finance, legal, sales, marketing and other
administrative functions. Our success will depend in large part upon our ability
to attract and retain employees. We face competition in this regard from other
companies, research and academic institutions, government entities and other
organizations.
LEGAL PROCEEDINGS
We are not currently subject to any material legal proceedings.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
Set forth below is the name, age, position and a brief account of the business
experience of each of our executive officers and directors.
<TABLE>
<CAPTION>
NAME AGE POSITION
---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Bernard J. Couillaud, PhD............ 56 President and Chief Executive Officer
Robert J. Quillinan.................. 53 Executive Vice President and Chief Financial Officer
John R. Ambroseo, PhD................ 39 Executive Vice President, President and General
Manager, Coherent Laser Group
Vittorio Fossati-Bellani, PhD........ 52 Executive Vice President, President and General
Manager, Coherent Semiconductor Group
James Taylor......................... 51 Executive Vice President, President and General
Manager, Coherent Medical Group
Kevin McCarthy....................... 44 Executive Vice President and Chief Information Officer
Ron Victor........................... 55 Executive Vice President, Human Resources
Scott H. Miller...................... 45 Senior Vice President and General Counsel
Henry E. Gauthier.................... 59 Chairman of the Board
Charles W. Cantoni................... 65 Director
Frank P. Carrubba.................... 62 Director
John H. Hart......................... 54 Director
Thomas Sloan Nelsen, MD.............. 73 Director
Jerry E. Robertson................... 67 Director
</TABLE>
BERNARD J. COUILLAUD, PHD Dr. Couillaud has served as our President and Chief
Executive Officer as well as a member of our board of directors since
July 1996. Dr. Couillaud served as Vice President and General Manager of the
Coherent Laser Group from March 1992 to July 1996. From July 1990 to
March 1992, Dr. Couillaud served as Manager of our Advanced Systems Business
Unit, and from September 1987 to July 1990 he served as Director of Research and
Development for the Coherent Laser Group. From November 1983, when he joined us,
to September 1987, Dr. Couillaud held various managerial positions with us.
Dr. Couillaud received his PhD in Chemistry from Bordeaux University, Bordeaux,
France.
ROBERT J. QUILLINAN Mr. Quillinan has served as our Executive Vice President
and Chief Financial Officer since July 1984. Mr. Quillinan served as Vice
President and Treasurer from March 1982 to July 1984 and as Corporate Controller
from May 1980 to March 1982. Mr. Quillinan received his MS degree in Accounting
from Clarkson University and is a CPA.
JOHN R. AMBROSEO, PHD Dr. Ambroseo has served as our Executive Vice President
and as President and General Manager of the Coherent Laser Group since
September 1997. From March 1997 to September 1997, Dr. Ambroseo served as our
Scientific Business Unit Manager. From August 1988, when Dr. Ambroseo joined us,
until March 1997, he served as a Sales Engineer, Product Marketing Manager,
National Sales Manager and Director of European Operations. Dr. Ambroseo
received his PhD in Chemistry from the University of Pennsylvania.
VITTORIO FOSSATI-BELLANI, PHD Dr. Fossati-Bellani has served as our Executive
Vice President and as President and General Manager of the Coherent
Semiconductor Group since September 1997. From
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May 1992 to September 1997, Dr. Fossati-Bellani served as our Diode Laser
Business Unit Manager. From December 1979, when he joined our Italian office, to
May 1992, Dr. Fossati-Bellani served in the capacity of Scientific Sales
Engineer, Product Manager, Director of Marketing, Director of Business
Development, Scientific Business Unit Manager and Diode Laser Business Unit
Manager for the Coherent Laser Group. Dr. Fossati-Bellani received his PhD
degree in Physics from the University of Milano, Italy.
JAMES TAYLOR Mr. Taylor has served as our Executive Vice President and as
President and General Manager of the Coherent Medical Group since
February 1999. From April 1997 to February 1999, Mr. Taylor served as President
and Chief Executive Officer of Andros, Inc., an analytical instruments company
headquartered in Berkeley, California. From January 1995 through April 1997,
Mr. Taylor served as President of the Medical Systems Division of Ohmeda
Medical, Inc., a manufacturer of anesthesia delivery and monitoring systems and
from April 1993 to December 1994 as Vice President, Marketing of the Medical
Systems Division of Ohmeda. Mr. Taylor received a BS degree from the US Naval
Academy in 1970, a MS degree from John Hopkins University in 1982 and attended
the Stanford Executive Institute.
KEVIN MCCARTHY Mr. McCarthy was appointed our Executive Vice President and
Chief Information Officer in May 2000. From August 1999 to May 2000, he was
Chief Information Officer for Unisphere Solutions, Inc., a subsidiary of Siemens
AG, a large diversified industrial company. From September 1993 to July 1999, he
was Vice President Information Technology for General Instrument, Inc., a
company that develops and sells interactive video, voice and data products.
RON VICTOR Mr. Victor was appointed our Executive Vice President of Human
Resources in May 2000. From August 1999 to May 2000, he was our Corporate Vice
President of Human Resources. He was Vice President of Human Resources for the
Coherent Medical Group from September 1997 to August 1999. Between
November 1996 and September 1997, he was Vice President Human Resources for
Netsource Communication, Inc., an internet advertisement and communication
company. From November 1995 to November 1996, Mr. Victor served as Vice
President of Human Resources for Micronics Computers, Inc., a manufacturer of
computer components. Between January 1982 and September 1995 he was Vice
President of Human Resources of Syntex, a pharmaceutical company. Mr. Victor
received a BA degree from American International College and a MA degree from
Springfield College.
SCOTT H. MILLER Mr. Miller has served as our General Counsel since
October 1988 and as our Senior Vice President since March 1994. Mr. Miller
received a BA degree in Economics from UCLA and a JD from Stanford Law School.
HENRY E. GAUTHIER Mr. Gauthier has served on our board of directors since March
1983 and as our Chairman of the Board since 1997. From August 1988 until his
retirement in June 1996, Mr. Gauthier served as our President and Chief
Operating Officer. He served as President and Chief Executive Officer of
Coherent, Inc. from March 1983 through July 1988 and as President of Coherent
General, Inc. from June 1986 through January 1987. Mr. Gauthier served as
General Manager of the Coherent Medical Group from May 1987 through July 1988.
CHARLES W. CANTONI Mr. Cantoni has served on our board of directors since 1983.
Since June 1998, Mr. Cantoni has been providing management and medical
consulting services through Cantoni Consulting, of which Mr. Cantoni is the
founder. From October 1994 to June 1998, Mr. Cantoni served as Vice President of
Quinton Instruments, Inc., a manufacturer of medical instrumentation products.
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MANAGEMENT
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FRANK P. CARRUBBA Mr. Carrubba has served on our board of directors since 1989.
From April 1991 to April 1997, Mr. Carrubba served as Executive Vice President
and Chief Technology Officer of Phillips Electronics, N.V., a large consumer
electronics company. Mr. Carrubba is currently retired. Mr. Carrubba serves as a
member of the board of directors of Exar Corporation, a manufacturer of
mixed-signal integrated circuits for the communications and video and imaging
markets.
JOHN H. HART Mr. Hart has served on our board of directors since March 2000.
Since September 1990, Mr. Hart has served as Senior Vice President and Chief
Technical Officer of 3Com Corporation, a manufacturer of data network systems.
THOMAS SLOAN NELSEN, MD Dr. Nelsen has served on our board of directors since
1983. Dr. Nelsen retired as a Professor of Surgery at Stanford University School
of Medicine in 1988.
JERRY E. ROBERTSON Mr. Robertson has served on our board of directors since
1994. From 1986 to 1994, Mr. Robertson served as Executive Vice President of the
Life Sciences Sector and Corporate Services Division of 3M, a large diversified
company whose businesses include selling health care products. Mr. Robertson
serves as a member of the board of directors of Cardinal Health, Inc., Steris
Corporation and Choice Hotels International. Mr. Robertson is currently retired.
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<PAGE>
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PRINCIPAL STOCKHOLDERS
The following table sets forth certain information with respect to beneficial
ownership of our common stock as of June 1, 2000 and as adjusted to reflect the
sale of our common stock offered by this prospectus by:
- each of our directors and the chief executive officer and our other four
most highly compensated executive officers;
- all of our directors and executive officers as a group; and
- each person or entity who is known by us to beneficially own more than 5% of
our common stock.
Percentage of ownership prior to the offering is based on 25,395,479 shares of
common stock outstanding as of June 1, 2000. Percentage of ownership after the
offering is based on the shares of common stock outstanding as of June 1, 2000,
includes the 3,000,000 shares issued in this offering and assumes no exercise of
the underwriters' over-allotment option.
<TABLE>
<CAPTION>
NUMBER OF PERCENTAGE PERCENTAGE
SHARES BENEFICIALLY OWNERSHIP PRIOR OWNERSHIP
NAME AND ADDRESS OWNED(1) TO OFFERING AFTER OFFERING
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
FIVE PERCENT STOCKHOLDERS:
Oppenheimer Funds, Inc.(2)................................ 3,022,000 11.9% 10.6%
Two World Trade Center, 31st Floor
New York, NY 10048
PRIMECAP Management Company(3)............................ 2,420,000 9.5 8.5
225 S. Lake Ave., #400
Pasadena, CA 91101
Franklin Advisers, Inc.(4)................................ 2,145,678 8.4 7.6
777 Mariners Blvd.
San Mateo, CA 94404
DIRECTORS AND EXECUTIVE OFFICERS:
Bernard J. Couillaud(5)................................... 156,618 * *
Henry E. Gauthier(6)...................................... 102,130 * *
Robert J. Quillinan(7).................................... 75,678 * *
Scott H. Miller(8)........................................ 46,598 * *
Jerry E. Robertson(9)..................................... 15,000 * *
John Ambroseo(10)......................................... 44,353 * *
Vittorio Fossati-Bellani(11).............................. 34,096 * *
Frank Carrubba(12)........................................ 25,000 * *
Thomas Sloan Nelsen(13)................................... 10,500 * *
Charles W. Cantoni(14).................................... 5,000 * *
John H. Hart.............................................. 0 * *
All directors and executive officers as a group
(14 persons)(15)........................................ 538,945 2.1% 1.9%
</TABLE>
---------
* Represents less than 1%.
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64
<PAGE>
PRINCIPAL STOCKHOLDERS
--------------------------------------------------------------------------------
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission, and generally includes voting or
investment power with respect to the securities. In computing the number of
shares beneficially owned by a person and the percentage ownership of that
person, each share of common stock subject to options held by that person
that will be exercisable within 60 days of June 1, 2000, which is July 30,
2000, are deemed outstanding. Such shares, however, are not deemed
outstanding for the purpose of computing the percentage ownership of any
other person.
(2) Based on Schedule 13G as filed with the SEC by Oppenheimer Management Corp.
on May 9, 2000. Oppenheimer Funds, Inc. shares the power to dispose of
3,022,000 shares with the board of directors or trustees of investment
companies. Oppenheimer Global Growth and Income Fund retains sole voting
power with respect to, and shares the power to dispose of, 2,580,000
shares.
(3) Based on Schedule 13G as filed with the SEC by PRIMECAP Management Company
on February 25, 2000. PRIMECAP Management Company has the sole power to
dispose of 2,420,000 shares.
(4) Based on Schedule 13G as filed with the SEC by Franklin Resources Inc. on
January 19, 2000. Franklin Advisers, Inc. retains sole voting power with
respect to, and sole power to dispose of, 2,063,400 shares which are
beneficially owned by one or more investment companies that it manages.
Franklin Management, Inc., also an investment adviser, retains the sole
power to dispose of 82,278 shares.
(5) Includes 108,000 shares issuable upon exercise of options held by
Mr. Couillaud that are currently exercisable or will become exercisable
within 60 days of June 1, 2000.
(6) Includes 59,000 shares issuable upon exercise of options held by
Mr. Gauthier that are currently exercisable or will become exercisable
within 60 days of June 1, 2000.
(7) Includes 33,744 shares issuable upon exercise of options held by
Mr. Quillinan that are currently exercisable or will become exercisable
within 60 days of June 1, 2000 and 62 shares owned by his children.
(8) Includes 2,590 shares owned by Mr. Miller's children.
(9) Includes 5,000 shares issuable upon exercise of options held by
Mr. Robertson that are currently exercisable or will become exercisable
within 60 days of June 1, 2000.
(10) Includes 25,000 shares issuable upon exercise of options held by
Mr. Ambroseo that are currently exercisable or will become exercisable
within 60 days of June 1, 2000.
(11) Includes 5,000 shares issuable upon exercise of options held by
Mr. Fossati-Bellani that are currently exercisable or will become
exercisable within 60 days of June 1, 2000.
(12) Includes 10,000 shares issuable upon exercise of options held by
Mr. Carrubba that are currently exercisable or will become exercisable
within 60 days of June 1, 2000.
(13) Includes 10,000 shares issuable upon exercise of options held by
Dr. Nelsen that are currently exercisable or will become exercisable
within 60 days of June 1, 2000.
(14) Includes 10,000 shares issuable upon exercise of options held by
Mr. Cantoni that are currently exercisable or will become exercisable
within 60 days of June 1, 2000.
(15) Includes an aggregate of 287,744 options that are currently exercisable or
will become exercisable within 60 days of June 1, 2000.
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65
<PAGE>
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DESCRIPTION OF CAPITAL STOCK
Our authorized capital stock consists of 50,000,000 shares of common stock, par
value $0.01 per share.
COMMON STOCK
As of April 1, 2000, there were 25,117,673 shares of common stock outstanding
held of record by approximately 1,841 holders. At all elections of our
directors, the holders of our common stock are entitled to as many votes as
equal the number of shares held multiplied by the number of directors being
elected, and may cast all votes for a single candidate or may distribute their
votes among any two or more candidates, or cumulative voting. For all other
matters to be voted upon by the stockholders, the holders of common stock are
entitled to one vote for each share held of record. Holders of common stock may
receive ratably any dividends that our board of directors may declare out of
funds legally available for that purpose. In the event of our liquidation,
dissolution or winding up, the holders of our common stock are entitled to share
ratably in all assets remaining after the payment of our liabilities. Holders of
common stock have no preemptive rights or rights to convert their common stock
into any other securities. There are no redemption or sinking fund provisions
applicable to the common stock.
COMMON SHARES RIGHTS PLAN
On December 16, 1988, our board of directors authorized and declared a dividend
distribution of one share purchase right for each share of our common stock
outstanding as of the close of business on January 6, 1989 and each share of
common stock issued thereafter, subject to certain limitations. The First
Amended and Restated Common Shares Rights Agreement dated June 24, 1998
provides, among other things, that each stock purchase right entitles the
registered holder to purchase one share of our common stock initially at a price
of $80.00. The purchase price of the shares of common stock and number of shares
of common stock issuable upon exercise of the rights are subject to adjustment
for stock splits, combinations, recapitalizations and reclassifications of our
capital stock. Until the right is exercised, the holder of the right will have
no rights as a stockholder with regard to the shares of our common stock
issuable upon exercise of the rights.
The stock purchase rights will expire December 16, 2008, unless earlier redeemed
or exchanged, and will become exercisable and transferable separately from the
common stock upon the earlier of:
- ten days following a public announcement that a person or group has acquired
or obtained the right to acquire, beneficial ownership of 20% or more of our
outstanding common stock; or
- ten business days or such later date as may be determined by a majority of
directors commencement of, or announcement of a tender offer or exchange
offer, the consummation of which would result in the beneficial ownership by
a person or group of 20% or more of our outstanding common stock.
If an acquirer obtains 20% or more of our common stock, then each stock purchase
right will, to the extent such stock purchase right is then exercisable, entitle
the holder thereof to purchase at the then-current purchase price, a number of
shares of our common stock having a value equal to two times the purchase price.
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66
<PAGE>
DESCRIPTION OF CAPITAL STOCK
--------------------------------------------------------------------------------
If we are acquired in a merger, consolidation or other business transaction or
we sell 50% or more of our consolidated assets or earning power, then each stock
purchase right will, to the extent such stock purchase right is then
exercisable, entitle the holder thereof to purchase at the then-current purchase
price, a number of shares of the common stock of the acquiring company having a
then-current market value equal to two times the purchase price. Our successor
or acquiror is required to assume all of our obligations and duties under the
common shares rights plan upon a merger, consolidation or other transaction
resulting in our change of control.
The stock purchase rights are redeemable at our option for $0.001 per stock
purchase right at any time on or prior to the earlier of the distribution date
or the final expiration date of the stock purchase right; however, if a majority
of our board of directors is elected by stockholder action by written consent,
then for a period of 180 days following such election the stock purchase right
cannot be redeemed if such redemption is reasonable likely to have the purpose
or effect of facilitating our acquisition.
In the event that we do not have sufficient shares of our common stock available
to exercise all outstanding rights, we may instead substitute cash, assets or
other securities for the shares of our common stock which otherwise would have
been issuable upon exercise of the rights.
Although the stock purchase rights should not interfere with a business
combination approved by our board of directors in the manner set forth in the
Common Shares Rights Plan, the rights may cause substantial dilution to a person
or group that attempts to acquire control of us without prior approval of our
board.
DELAWARE ANTI-TAKEOVER LAW AND OTHER ANTI-TAKEOVER PROVISIONS
DELAWARE LAW
We are subject to Section 203 of the Delaware General Corporation Law, which
regulates acquisitions of Delaware corporations. In general, Section 203
prohibits a publicly-held Delaware corporation from engaging in any business
combination with any interested stockholder for a period of three years
following the date the person became an interested stockholder, unless:
- prior to the date of the transaction, the board of directors approved either
the business combination or the transaction which resulted in the
stockholder becoming an interested stockholder;
- upon consummation of the transaction that resulted in the stockholder
becoming an interested stockholder, the interested stockholder owned at
least 85% of the voting stock outstanding at the time the transaction
commenced excluding for purposes of determining the number of shares
outstanding the shares owned by directors and officers and shares owned by
employee stock plans in which employee participants do not have the right to
determine confidentially whether shares held subject to the plan will be
tendered in a tender or exchange offer; or
- on or following the date of the transaction, the business combination is
approved by the board of directors and authorized at an annual or special
meeting of stockholders by the affirmative vote of at least 66% of the
outstanding voting stock that is not owned by the interested stockholder.
An interested stockholder is a person who, together with affiliates and
associates, owns or, within three years prior to the determination of interested
stockholder status, did own 15% or more of a corporation's outstanding voting
securities. We expect the existence of this provision to have an anti-
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67
<PAGE>
DESCRIPTION OF CAPITAL STOCK
--------------------------------------------------------------------------------
takeover effect with respect to transactions that our board of directors do not
approve in advance. We also anticipate that Section 203 may also discourage
attempts that might result in a premium over the market price for the shares of
common stock held by stockholders. A Delaware corporation may opt out of Section
203 with an express provision in its original certificate of incorporation or an
express provision in its certification of incorporation or bylaws resulting from
amendments approved by the holders of at least a majority of the corporation's
outstanding voting shares. We have not opted out of Section 203.
CERTIFICATE OF INCORPORATION AND BYLAW PROVISIONS
Provisions of our certificate of incorporation and bylaws may have the effect of
making it more difficult for a third party to acquire, or of discouraging a
third party from attempting to acquire, control of us. These provisions are
expected to discourage coercive takeover practices and inadequate takeover bids
and to encourage persons seeking to acquire control of us to first obtain the
prior approval of our board of directors. We believe that the benefits of
increased protection of our ability to negotiate with the proponent of an
unfriendly or unsolicited acquisition proposal outweigh the disadvantages of
discouraging these proposals because, among other things, negotiation will
result in an improvement of their terms. These provisions could limit the price
that investors might be willing to pay in the future for shares of our common
stock. These provisions include:
- ability of our board of directors to alter our bylaws without stockholder
approval;
- limiting the ability of our stockholders to call special meetings;
- limiting the ability of our stockholders to act by written consent;
- ability of the board of directors to fix, in advance, a record date for the
purpose of determining the stockholders entitled to notice of or to vote at
any meeting of stockholders and to consent to corporate action in writing;
and
- establishing advance notification requirements for nominations for election
to our board of directors or for proposing matters that can be acted on by
stockholders at a stockholder meeting.
These and other provisions contained in our certificate of incorporation and
bylaws could have the effect of delaying or preventing a change in control.
CHANGE OF CONTROL SEVERANCE PLAN
Our Change of Control Severance Plan, or Severance Plan, adopted and extended
since November 1990, provides cash severance benefits to eligible employees upon
an involuntary termination or voluntary termination for good reason within two
years of a change of control. A change of control is defined as the occurrence
of any of the following:
- a business combination including a consolidation or merger pursuant to which
more than 50% of our voting stock is transferred to different holders, the
sale of more than 50% of our assets or a whole or partial liquidation
involving more than 50% of our assets;
- the acquisition of 50% or more of the combined voting power of the
outstanding shares of our capital stock entitled to vote generally in the
election of directors; or
- a change in the composition of our board of directors, as a result of which
fewer than 50% of the directors are incumbent directors.
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68
<PAGE>
DESCRIPTION OF CAPITAL STOCK
--------------------------------------------------------------------------------
In general, the amount of cash severance payment is based upon on the sum of an
employee's base salary and bonus pay for one year with maximum and minimum
payments depending on the employee's position and length of service with us. Our
successor or acquiror, whether direct or indirect and whether by purchase,
merger, consolidation, or otherwise are bound under the Severance Plan in the
same manner and to the same extent as us. The Severance Plan terminates two
years from the effective date designated by our board of directors unless
extended for an additional period by resolution adopted by our board of
directors.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock is BankBoston, N.A.
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69
<PAGE>
--------------------------------------------------------------------------------
UNDERWRITING
Coherent and the underwriters for the offering named below have entered into an
underwriting agreement concerning the shares being offered. Subject to
conditions, each underwriter has severally agreed to purchase the number of
shares indicated in the following table. UBS Warburg LLC, CIBC World Markets
Corp., U.S. Bancorp Piper Jaffray Inc. and BlueStone Capital Partners, L.P. are
the representatives of the underwriters.
<TABLE>
<CAPTION>
UNDERWRITERS NUMBER OF SHARES
------------------------------------------------------------------------------
<S> <C>
UBS Warburg LLC.............................................
CIBC World Markets Corp. ...................................
U.S. Bancorp Piper Jaffray Inc. ............................
BlueStone Capital Partners, L.P. ...........................
--------------
Total................................................... 3,000,000
==============
</TABLE>
If the underwriters sell more shares than the total number set forth in the
table above, the underwriters have a 30-day option to buy from us up to an
additional 450,000 shares at the initial public offering price less the
underwriting discounts and commissions to cover these sales. If any shares are
purchased under this option, the underwriters will severally purchase shares in
approximately the same proportion as set forth in the table above.
The following table shows the per share and total underwriting discounts and
commissions we will pay to the underwriters. These amounts are shown assuming
both no exercise and full exercise of the underwriters' option to purchase up to
an additional 450,000 shares.
<TABLE>
<CAPTION>
NO EXERCISE FULL EXERCISE
-----------------------------------------------------------------------------------------
<S> <C> <C>
Per share................................................... $ $
Total..................................................... $ $
</TABLE>
We estimate that the total expenses of the offering payable by us, excluding
underwriting discounts and commissions, will be approximately $800,000.
Shares sold by the underwriters to the public will initially be offered at the
public offering price set forth on the cover of this prospectus. Any shares sold
by the underwriters to securities dealers may be sold at a discount of up to
$ per share from the public offering price. Any of these securities
dealers may resell any shares purchased from the underwriters to other brokers
or dealers at a discount of up to $ per share from the public
offering price. If all the shares are not sold at the public offering price, the
representatives may change the offering price and the other selling terms.
The underwriters have informed us that they do not expect discretionary sales to
exceed 5% of the shares of common stock to be offered.
We have agreed with the underwriters not to offer, sell, contract to sell, hedge
or otherwise dispose of, directly or indirectly, any of our common stock or
securities convertible into or exchangeable for shares of common stock during
the period from the date of this prospectus continuing through the date 90 days
after the date of this prospectus, without the prior written consent of UBS
Warburg LLC.
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<PAGE>
UNDERWRITING
--------------------------------------------------------------------------------
Our executive officers and directors have also agreed to such restrictions with
respect to 80% of the aggregate number of shares of common stock beneficially
owned by them.
In connection with this offering, the underwriters may purchase and sell shares
of common stock in the open market. These transactions may include short sales,
stabilizing transactions and purchases to cover positions created by short
sales. Short sales involve the sale by the underwriters of a greater number of
shares than they are required to purchase in the offering. Stabilizing
transactions consist of bids or purchases made for the purpose of preventing or
retarding a decline in the market price of the common stock while the offering
is in progress.
The underwriters also may impose a penalty bid. This occurs when a particular
underwriter repays to the underwriters a portion of the underwriting discount
received by it because the representatives have repurchased shares sold by or
for the account of that underwriter in stabilizing or short covering
transactions.
These activities by the underwriters may stabilize, maintain or otherwise affect
the market price of the common stock. As a result, the price of the common stock
may be higher than the price that otherwise might exist in the open market. If
these activities are commenced, they may be discontinued by the underwriters at
any time. These transactions may be effected on the Nasdaq National Market, in
the over-the-counter market or otherwise.
We have agreed to indemnify the several underwriters against some liabilities,
including liabilities under the Securities Act of 1933, and to contribute to
payments that the underwriters may be required to make in respect thereof.
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<PAGE>
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LEGAL MATTERS
The validity of the common stock offered hereby will be passed upon for us by
Wilson Sonsini Goodrich & Rosati, Professional Corporation, Palo Alto,
California. Certain legal matters relating to the offering will be passed upon
for the underwriters by Dewey Ballantine LLP, Los Angeles, California.
EXPERTS
The financial statements as of October 2, 1999 and September 26, 1998, and for
each of the three years in the period ended October 2, 1999, included and
incorporated by reference in this prospectus and the related financial statement
schedule incorporated by reference in the registration statement have been
audited by Deloitte & Touche LLP, independent auditors, as stated in their
report appearing herein and incorporated by reference in the registration
statement, and have been so included in reliance upon the reports of such firm
given upon their authority as experts in accounting and auditing.
The statements in this prospectus as set forth under the captions "Risk factors
-- We may not be able to protect our proprietary technology, which could
adversely affect our competitive advantage," "Risk factors -- We could become
subject to litigation regarding intellectual property rights, which could
seriously harm our business" and in "Business -- Intellectual Property" have
been passed upon by Limbach & Limbach, L.L.P., our patent counsel and expert on
such matters, and are included herein in reliance upon its review and approval.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We have filed with the SEC a registration statement on Form S-3, including the
exhibits and schedules thereto, under the Securities Act with respect to the
shares to be sold in this offering. This prospectus does not contain all the
information set forth in the registration statement. For further information
about us and the shares to be sold in this offering, please refer to the
registration statement. Statements contained in this prospectus as to the
contents of any contract, agreement or other document are not necessarily
complete, and in each instance please refer to the copy of the contract,
agreement or other document filed as an exhibit to the registration statement,
each statement being qualified in all respects by this reference.
We file annual, quarterly and special reports, proxy statements and other
information with the SEC. You may read and copy all or any portion of the
registration statement or any reports, proxy statements or other information we
file with the SEC at the SEC's public reference room at Room 1024, Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the regional
offices of the SEC located at Seven World Trade Center, 13th Floor, New York,
New York 10048 and the Northwestern Atrium Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661. You can request copies of these documents
upon payment of a duplicating fee, by writing to the SEC. Please call the SEC at
1-800-SEC-0330 for further information on the operation of the public reference
rooms. Our SEC filings, including the registration statement, will also be
available to you on the SEC's Web site. The address of this site is
http://www.sec.gov.
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DOCUMENTS INCORPORATED BY REFERENCE
The SEC allows us to incorporate by reference into this Prospectus the
information we file with the SEC, which means that we can disclose important
information to you by referring you to those documents. The information
incorporated by reference is considered to be part of this prospectus, and
information we file later with the SEC will automatically update and supersede
this information. We incorporate by reference the documents listed below and any
future filings made by us with the SEC under Sections 13(a), 13(c), 14 or 15(d)
of the Securities Exchange Act of 1934 until the sale of all of the shares of
common stock that are part of this offering. The documents we are incorporating
by reference are as follows:
- our Proxy Statement for the 2000 Annual Meeting of Stockholders, as filed
with the SEC on February 23, 2000;
- our Annual Report on Form 10-K for the year ended October 2, 1999, as filed
with the SEC on December 15, 1999, as amended by our Form 10-K/A filed with
the SEC on January 28, 2000;
- our Quarterly Reports on Form 10-Q for the quarters ended January 1, 2000,
as filed with the SEC on February 9, 2000, and April 1, 2000, as filed with
the SEC on May 9, 2000;
- the description of our common stock contained in our registration statement
on Form 8-A including any amendments or reports filed for the purpose of
updating that description; and
- the description of the common stock purchase rights for our common stock,
par value $0.01 per share, contained in our registration statement on Form
8-A/A filed with the SEC on July 1, 1998.
Any statement contained in a document that is incorporated by reference will be
modified or superseded for all purposes to the extent that a statement contained
in this prospectus (or in any other document that is subsequently filed with the
SEC and incorporated by reference) modifies or is contrary to that previous
statement. Any statement so modified or superseded will not be deemed a part of
this prospectus except as so modified or superseded.
You may request a copy of these filings at no cost (other than exhibits unless
such exhibits are specifically incorporated by reference) by writing or
telephoning our investor relations department at the following address and
telephone number:
Coherent, Inc.
5100 Patrick Henry Drive
Santa Clara, California 95054
(408) 764-4000
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<PAGE>
Coherent, Inc. and subsidiaries
--------------------------------------------------------------------------------
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----------------------------------------------------------------------
<S> <C>
Independent Auditors' Report................................ F-2
Consolidated Balance Sheets as of September 26, 1998,
October 2, 1999 and
April 1, 2000 (unaudited)................................. F-3
Consolidated Statements of Income*.......................... F-4
Consolidated Statements of Stockholders' Equity*............ F-5
Consolidated Statements of Cash Flows*...................... F-6
Notes to Consolidated Financial Statements.................. F-7
</TABLE>
---------
* For the fiscal years ended September 27, 1997, September 26, 1998 and
October 2, 1999, and the six months ended April 3, 1999 and April 1, 2000
(unaudited).
--------------------------------------------------------------------------------
F-1
<PAGE>
Coherent, Inc. and subsidiaries
--------------------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT
To the Stockholders and Board of Directors of Coherent, Inc.:
We have audited the accompanying consolidated balance sheets of Coherent, Inc.
and its subsidiaries, as of October 2, 1999 and September 26, 1998, and the
related consolidated statements of income, stockholders' equity and cash flows
for each of the three years in the period ended October 2, 1999. These financial
statements are the responsibility of Coherent's management. Our responsibility
is to express an opinion on the financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Coherent, Inc. and its subsidiaries
at October 2, 1999 and September 26, 1998, and the results of their operations
and their cash flows for each of the three years in the period ended October 2,
1999 in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
San Jose, California
November 1, 1999
--------------------------------------------------------------------------------
F-2
<PAGE>
Coherent, Inc. and subsidiaries
--------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PAR VALUE)
<TABLE>
<CAPTION>
SEPT. 26, OCT. 2, APRIL 1,
1998 1999 2000
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
(UNAUDITED)
ASSETS
Current assets:
Cash and equivalents...................................... $ 15,944 $ 38,279 $ 27,797
Short-term investments.................................... 16,954 30,637 48,804
Accounts receivable--net of allowances of $4,817 (1998),
$4,592 (1999) and $5,454 (2000).......................... 86,822 95,003 113,520
Inventories............................................... 103,541 97,902 112,480
Prepaid expenses and other assets......................... 22,895 18,738 15,569
Deferred tax assets....................................... 26,618 37,014 38,791
-------- -------- --------
Total current assets...................................... 272,774 317,573 356,961
-------- -------- --------
Property and equipment...................................... 147,775 165,630 172,264
Accumulated depreciation and amortization................... (64,918) (75,676) (80,853)
-------- -------- --------
Property and equipment--net............................... 82,857 89,954 91,411
-------- -------- --------
Goodwill--net of accumulated amortization of $6,912 (1998),
$9,372 (1999) and $11,735 (2000).......................... 11,595 39,490 38,909
Other assets................................................ 23,535 48,451 54,745
-------- -------- --------
$390,761 $495,468 $542,026
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings..................................... $ 11,645 $ 14,371 $ 23,599
Current portion of long-term obligations.................. 788 8,599 7,749
Accounts payable.......................................... 17,851 18,343 22,806
Income taxes payable...................................... 9,160 8,221 4,125
Other current liabilities................................. 59,603 73,120 80,046
-------- -------- --------
Total current liabilities................................. 99,047 122,654 138,325
-------- -------- --------
Long-term obligations....................................... 12,828 74,745 76,497
Other long-term liabilities................................. 12,599 16,819 19,465
Minority interest in subsidiaries........................... 3,664 3,945 5,367
Stockholders' equity:
Common stock, par value $.01:
Authorized--50,000 shares
Outstanding--23,736 (1998), 24,142 (1999) and 25,118
(2000)................................................. 236 240 250
Additional paid-in capital................................ 102,469 106,748 119,078
Notes receivable from stock sales......................... (310) (557) (949)
Accumulated other comprehensive income.................... 1,331 136 (1,821)
Retained earnings......................................... 158,897 170,738 185,814
-------- -------- --------
Total stockholders' equity................................ 262,623 277,305 302,372
-------- -------- --------
$390,761 $495,468 $542,026
======== ======== ========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
--------------------------------------------------------------------------------
F-3
<PAGE>
Coherent, Inc. and subsidiaries
--------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FISCAL YEARS ENDED SIX MONTHS ENDED
----------------------------------- ---------------------
SEPT. 27, SEPT. 26, OCT. 2, APRIL 3, APRIL 1,
1997 1998 1999 1999 2000
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
Net sales............................. $391,038 $410,449 $468,869 $222,168 $263,875
Cost of sales......................... 185,536 212,584 248,203 116,960 133,069
-------- -------- -------- -------- --------
Gross profit...................... 205,502 197,865 220,666 105,208 130,806
-------- -------- -------- -------- --------
Operating expenses:
Research and development............ 39,406 44,534 46,759 21,694 26,762
In-process research and
development........................ 9,315 16,000
Selling, general and
administrative..................... 110,813 124,555 134,129 67,048 75,482
Intangibles amortization............ 3,658 4,644 5,701 2,212 4,401
-------- -------- -------- -------- --------
Total operating expenses............ 163,192 173,733 202,589 90,954 106,645
-------- -------- -------- -------- --------
Income from operations............ 42,310 24,132 18,077 14,254 24,161
-------- -------- -------- -------- --------
Other income (expense):
Interest and dividend income........ 1,404 1,274 3,042 1,406 2,598
Interest expense.................... (1,226) (1,236) (3,755) (868) (3,194)
Foreign exchange loss............... (350) (711) (163) (3) (355)
Other--net.......................... 4,656 246 (971) (828) (366)
-------- -------- -------- -------- --------
Total other income (expense), net... 4,484 (427) (1,847) (293) (1,317)
-------- -------- -------- -------- --------
Income before income taxes............ 46,794 23,705 16,230 13,961 22,844
Provision for income taxes............ 20,502 4,894 4,389 4,315 7,768
-------- -------- -------- -------- --------
Net income............................ $ 26,292 $ 18,811 $ 11,841 $ 9,646 $ 15,076
======== ======== ======== ======== ========
Net income per share:
Basic............................... $ 1.16 $ 0.80 $ 0.49 $ 0.40 $ 0.61
Diluted............................. $ 1.12 $ 0.79 $ 0.48 $ 0.40 $ 0.57
Shares used in computation:
Basic............................... 22,664 23,374 23,957 23,861 24,705
Diluted............................. 23,480 23,749 24,633 24,378 26,594
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
--------------------------------------------------------------------------------
F-4
<PAGE>
Coherent, Inc. and subsidiaries
--------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FISCAL YEARS ENDED SEPTEMBER 27, 1997, SEPTEMBER 26, 1998 AND
OCTOBER 2, 1999 AND THE SIX MONTHS ENDED APRIL 1, 2000
(IN THOUSANDS)
<TABLE>
<CAPTION>
NOTES
RECEIVABLE ACCUMULATED
COMMON STOCK ADDITIONAL FROM OTHER
-------------------- PAID-IN STOCK RETAINED COMPREHENSIVE
SHARES PAR VALUE CAPITAL SALES EARNINGS INCOME TOTAL
<S> <C> <C> <C> <C> <C> <C> <C>
----------------------------------------------------------------------------------------------------------------------------------
BALANCE, SEPTEMBER 28, 1996............. 22,422 $222 $ 82,828 $(845) $113,794 $ 1,588 $197,587
Net income.............................. 26,292 26,292
Other comprehensive income, translation
adjustment, net of tax................ (1,321) (1,321)
Total comprehensive income............
Sales of shares under Employee Stock
Option Plan........................... 310 4 2,358 2,362
Productivity Incentive Plan
distributions......................... 38 730 730
Sales of shares under Employee Stock
Purchase Plan......................... 156 2 2,435 2,437
Tax benefit of Employee Stock Option
Plan.................................. 1,505 1,505
Acquisition of business................. 894 894
Collection of notes receivable.......... 747 747
------ ---- -------- ----- -------- ------- --------
BALANCE, SEPTEMBER 27, 1997............. 22,926 228 90,750 (98) 140,086 267 231,233
Net income.............................. 18,811 18,811
Other comprehensive income, translation
adjustment, net of tax................ 1,064 1,064
Total comprehensive income............
Sales of shares under Employee Stock
Option Plan........................... 459 5 3,692 (212) 3,485
Productivity Incentive Plan
distributions......................... 17 401 401
Sales of shares under Employee Stock
Purchase Plan......................... 209 2 3,355 3,357
Tax benefit of Employee Stock Option
Plan.................................. 1,397 1,397
Issuance of shares pursuant to 1995
business acquisition.................. 125 1 2,874 2,875
------ ---- -------- ----- -------- ------- --------
BALANCE, SEPTEMBER 26, 1998............. 23,736 236 102,469 (310) 158,897 1,331 262,623
Net income.............................. 11,841 11,841
Other comprehensive income, translation
adjustment, net of tax................ (1,195) (1,195)
Total comprehensive income............
Sales of shares under Employee Stock
Option Plan........................... 201 2 1,974 (247) 1,729
Productivity Incentive Plan
distributions......................... 25 329 329
Sales of shares under Employee Stock
Purchase Plan......................... 180 2 1,540 1,542
Tax benefit of Employee Stock Option
Plan.................................. 436 436
------ ---- -------- ----- -------- ------- --------
BALANCE, OCTOBER 2, 1999................ 24,142 240 106,748 (557) 170,738 136 277,305
Net income*............................. 15,076 15,076
Other comprehensive income, translation
adjustment, net of tax*............... (1,957) (1,957)
Total comprehensive income*...........
Sales of shares under Employee Stock
Option Plan* 544 6 8,573 (736) 7,843
Productivity Incentive Plan
distributions*........................ 11 257 257
Sales of shares under Employee Stock
Purchase Plan*........................ 421 4 3,128 3,132
Tax benefit of Employee Stock Option
Plan*................................. 372 372
Collection of notes receivable*......... 344 344
------ ---- -------- ----- -------- ------- --------
BALANCE, APRIL 1, 2000*................. 25,118 $250 $119,078 $(949) $185,814 $(1,821) $302,372
====== ==== ======== ===== ======== ======= ========
<CAPTION>
TOTAL
COMPREHENSIVE
INCOME
<S> <C>
----------------------------------------
BALANCE, SEPTEMBER 28, 1996.............
Net income.............................. $26,292
Other comprehensive income, translation
adjustment, net of tax................ (1,321)
-------
Total comprehensive income............ $24,971
=======
Sales of shares under Employee Stock
Option Plan...........................
Productivity Incentive Plan
distributions.........................
Sales of shares under Employee Stock
Purchase Plan.........................
Tax benefit of Employee Stock Option
Plan..................................
Acquisition of business.................
Collection of notes receivable..........
BALANCE, SEPTEMBER 27, 1997.............
Net income.............................. $18,811
Other comprehensive income, translation
adjustment, net of tax................ 1,064
-------
Total comprehensive income............ $19,875
=======
Sales of shares under Employee Stock
Option Plan...........................
Productivity Incentive Plan
distributions.........................
Sales of shares under Employee Stock
Purchase Plan.........................
Tax benefit of Employee Stock Option
Plan..................................
Issuance of shares pursuant to 1995
business acquisition..................
BALANCE, SEPTEMBER 26, 1998.............
Net income.............................. $11,841
Other comprehensive income, translation
adjustment, net of tax................ (1,195)
-------
Total comprehensive income............ $10,646
=======
Sales of shares under Employee Stock
Option Plan...........................
Productivity Incentive Plan
distributions.........................
Sales of shares under Employee Stock
Purchase Plan.........................
Tax benefit of Employee Stock Option
Plan..................................
BALANCE, OCTOBER 2, 1999................
Net income*............................. $15,076
Other comprehensive income, translation
adjustment, net of tax*............... (1,957)
-------
Total comprehensive income*........... $13,119
=======
Sales of shares under Employee Stock
Option Plan*
Productivity Incentive Plan
distributions*........................
Sales of shares under Employee Stock
Purchase Plan*........................
Tax benefit of Employee Stock Option
Plan*.................................
Collection of notes receivable*.........
BALANCE, APRIL 1, 2000*.................
</TABLE>
-------------
* Unaudited
See accompanying Notes to Consolidated Financial Statements.
--------------------------------------------------------------------------------
F-5
<PAGE>
Coherent, Inc. and subsidiaries
--------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FISCAL YEARS ENDED SIX MONTHS ENDED
------------------------------------ ---------------------
SEPT. 27, SEPT. 26, OCT. 2, APRIL 3, APRIL 1,
1997 1998 1999 1999 2000
--------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................ $ 26,292 $ 18,811 $ 11,841 $ 9,646 $ 15,076
Adjustments to reconcile net income to net cash provided
by (used for) operating activities:
Purchased in-process research and development........... 9,315 16,000
Write-off of impaired intangible asset.................. 1,014
Purchases of short-term trading investments............. (82,605) (139,943) (118,933) (60,249) (115,032)
Proceeds from sales of short-term trading investments... 98,400 133,171 105,250 49,200 96,850
Depreciation and amortization........................... 10,932 12,535 14,155 6,930 7,989
Intangibles amortization................................ 3,658 4,644 5,701 2,273 4,401
Issuance of common stock under Productivity Incentive
Plan................................................... 730 401 329 142 257
Deferred income taxes................................... 710 (4,229) (10,453) (5,565) (1,674)
Minority interest in subsidiaries....................... 1,610 909 1,118 454 970
Dividends paid to minority stockholders................. (1,421) (1,196)
Equity in (income) loss of joint ventures............... (287) (131) (436) 25 (181)
Changes in assets and liabilities:
Accounts receivable................................... (12,830) 8,958 (824) (2,156) (20,279)
Inventories........................................... (19,803) (16,030) 7,914 1,078 (16,372)
Prepaid expenses and other assets..................... (7,571) (3,887) 387 (474) 2,720
Accounts payable...................................... 5,952 (500) (895) (949) 5,084
Other current liabilities............................. (5,187) 5,064 8,662 (268) 506
-------- --------- --------- -------- --------
Net Cash Provided By (Used For) Operating Activities...... 29,316 18,352 38,620 87 (18,671)
-------- --------- --------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment....................... (24,864) (22,351) (24,225) (12,916) (12,404)
Dispositions of property and equipment, net............... 541 102 2,934 2,048 1,548
Sale of Porter Drive facility............................. 9,631
Acquisition of businesses, net of cash acquired........... (15,351) (841) (64,012) (3,109)
Other--net................................................ (2,215) (3,126) (4,910) 887 (5,796)
-------- --------- --------- -------- --------
Net Cash Used for Investing Activities.................... (32,258) (26,216) (90,213) (9,981) (19,761)
-------- --------- --------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Long-term debt borrowings................................. 3,444 4,301 71,784 1,155 2,926
Long-term debt repayments................................. (3,372) (1,347) (1,333) (771) (1,351)
Short-term borrowings..................................... 40,107 24,018 18,271 13,277 21,208
Short-term repayments..................................... (24,432) (30,843) (17,084) (7,697) (11,388)
Cash overdrafts........................................... (7,957) 694 1,582 2,653
Repayments of capital lease obligations................... (24) (163) (49) (228)
Sales of shares under employee stock option and purchase
plans, net............................................... 4,799 6,842 3,271 1,331 10,975
Collection of notes receivable from stock sales........... 747 344
-------- --------- --------- -------- --------
Net Cash Provided by Financing Activities................. 13,312 2,971 75,440 8,828 25,139
-------- --------- --------- -------- --------
Effect of exchange rate changes on cash and equivalents..... 1,871 (618) (1,512) 127 2,811
-------- --------- --------- -------- --------
Net increase (decrease) in cash and equivalents............. 12,241 (5,511) 22,335 (939) (10,482)
Cash and equivalents, beginning of period................. 9,214 21,455 15,944 15,944 38,279
-------- --------- --------- -------- --------
Cash and equivalents, end of period......................... $ 21,455 $ 15,944 $ 38,279 $ 15,005 $ 27,797
======== ========= ========= ======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest................................................ $ 1,226 $ 1,236 $ 3,755 $ 868 $ 3,194
Income taxes............................................ $ 26,644 $ 10,282 $ 14,972 $ 11,091 $ 14,466
======== ========= ========= ======== ========
NONCASH INVESTING AND FINANCING ACTIVITIES:
Issuance of common stock for 1995 acquisition
obligation............................................. $ 2,875
Equipment acquired under capital leases................. $ 1,278 $ 946 $ 1,351
Issuance of common stock for notes receivable........... $ 212 $ 247 $ 154 $ 736
======== ========= ========= ======== ========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
--------------------------------------------------------------------------------
F-6
<PAGE>
Coherent, Inc. and subsidiaries
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FISCAL YEARS ENDED SEPTEMBER 27, 1997, SEPTEMBER 26, 1998,
OCTOBER 2, 1999, AND THE SIX MONTHS ENDED APRIL 3, 1999 AND APRIL 1, 2000
(INFORMATION AS OF APRIL 1, 2000 AND FOR THE SIX MONTHS ENDED APRIL 3, 1999
AND APRIL 1, 2000 IS UNAUDITED)
1. SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Coherent, Inc. and
its majority owned subsidiaries (collectively, the Company or Coherent). All
significant intercompany balances and transactions have been eliminated.
Investments in business entities in which Coherent does not have control, but
has the ability to exercise significant influence over operating and financial
policies (generally 20-50% ownership), are accounted for by the equity method.
FISCAL YEAR
Coherent's fiscal year for 1999 included 53 weeks; fiscal 1998 and 1997 each
included 52 weeks.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period. Such
estimates include, but are not limited to, allowances for uncollectible accounts
receivable and sales returns reserves, inventory reserves, warranty costs,
depreciation and amortization, taxes and contingencies. Actual results could
differ from those estimates.
ADOPTION OF NEW ACCOUNTING STANDARDS
Coherent adopted Financial Accounting Standards Board Statement (SFAS) No. 131,
"Disclosure about Segments of an Enterprise and Related Information," in fiscal
1999. The statement requires certain financial and descriptive information about
operating segments, profit or loss, certain specific revenue and expense items
and segment assets. (See Note 13). The adoption of SFAS No. 131 has no impact on
the Company's net income, balance sheet or stockholders' equity.
RECENTLY ISSUED ACCOUNTING STANDARDS
In December 1999, the staff of the Securities and Exchange Commission (SEC)
issued Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial
Statements" (SAB 101). SAB 101 summarizes certain of the SEC's views in applying
generally accepted accounting principles (GAAP) to revenue recognition in
financial statements. The Company is required to adopt SAB 101 in the first
quarter of 2001. Although the Company believes its revenue recognition policies
are in accordance with GAAP, the Company is currently studying SAB 101 and has
not yet determined its impact, if any, on the Company's financial statements.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." This statement
requires companies to record
--------------------------------------------------------------------------------
F-7
<PAGE>
COHERENT, INC. AND SUBSIDIARIES
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FISCAL YEARS ENDED SEPTEMBER 27, 1997, SEPTEMBER 26, 1998,
OCTOBER 2, 1999, AND THE SIX MONTHS ENDED APRIL 3, 1999 AND APRIL 1, 2000
(INFORMATION AS OF APRIL 1, 2000 AND FOR THE SIX MONTHS ENDED APRIL 3, 1999
AND APRIL 1, 2000 IS UNAUDITED)
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 2001. Management believes that this statement will not have a significant
impact, if any, on Coherent's financial position or results of operations.
FOREIGN CURRENCY TRANSLATION
The functional currencies of Coherent's foreign subsidiaries are their
respective local currencies. Accordingly, gains and losses from the translation
of the financial statements of the foreign subsidiaries are reported as a
separate component of accumulated other comprehensive income. Foreign currency
transaction gains and losses are included in net earnings.
CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
Coherent's policy is to invest in various short-term debt instruments including
certificates of deposit, bankers acceptances and repurchase agreements of major
banks and institutions, obligations of the U.S. Treasury and U.S. Government
agencies, tax-exempt municipal securities and commercial paper with credit
ratings of A1 and P1. All highly liquid debt instruments purchased with a
remaining maturity of three months or less are classified as cash equivalents.
INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out) or market.
Inventories are as follows (in thousands):
<TABLE>
<CAPTION>
SEPT. 26, OCT. 2, APRIL 1,
1998 1999 2000
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Purchased parts and assemblies.............................. $ 30,421 $26,200 $ 34,586
Work-in-process............................................. 33,684 33,098 37,478
Finished goods.............................................. 39,436 38,604 40,416
-------- ------- --------
Inventories................................................. $103,541 $97,902 $112,480
======== ======= ========
</TABLE>
--------------------------------------------------------------------------------
F-8
<PAGE>
COHERENT, INC. AND SUBSIDIARIES
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FISCAL YEARS ENDED SEPTEMBER 27, 1997, SEPTEMBER 26, 1998,
OCTOBER 2, 1999, AND THE SIX MONTHS ENDED APRIL 3, 1999 AND APRIL 1, 2000
(INFORMATION AS OF APRIL 1, 2000 AND FOR THE SIX MONTHS ENDED APRIL 3, 1999
AND APRIL 1, 2000 IS UNAUDITED)
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and are generally depreciated or
amortized using the straight-line method. Cost and estimated useful lives are as
follows (in thousands):
<TABLE>
<CAPTION>
SEPT. 26, OCT. 2, APRIL 1,
1998 1999 2000 USEFUL LIFE
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Land......................................... $ 7,282 $ 7,212 $ 7,230
Buildings and improvements................... 41,217 41,939 43,252 20-31 years
Equipment, furniture and fixtures............ 88,942 103,373 108,823 3-10 years
Leasehold improvements....................... 10,334 13,106 12,959 Terms of lease
-------- -------- --------
Property and equipment....................... $147,775 $165,630 $172,264
======== ======== ========
</TABLE>
GOODWILL
Goodwill relates to acquired subsidiaries and is being amortized on a
straight-line basis over estimated useful lives of three to forty years.
Coherent evaluates its long-lived assets, including goodwill, for impairment
whenever events or changes in circumstances indicate that the carrying value of
an asset may not be recoverable.
INTANGIBLE ASSETS
Intangible assets, recorded as other assets, include distribution rights,
acquired existing technology, licenses and patents and are amortized on a
straight-line basis over estimated useful lives of two to seventeen years.
Coherent evaluates its long-lived assets, including intangible assets, for
impairment whenever events or changes in circumstances indicate that the
carrying value of an asset may not be recoverable.
WARRANTY
Coherent warrants certain of its products and provides for estimated product
warranty costs at the time of sale.
REVENUE RECOGNITION
Coherent generally recognizes revenue from product sales upon shipment or title
transfer, if later, and from service upon performance or over the terms of the
service contract as appropriate.
CONCENTRATION OF CREDIT RISK
Financial instruments which may potentially subject Coherent to concentrations
of credit risk consist principally of cash equivalents, short-term investments
and accounts receivable. Coherent invests only in U.S. Treasury obligations or
with high credit quality financial institutions and, by policy, limits the
--------------------------------------------------------------------------------
F-9
<PAGE>
COHERENT, INC. AND SUBSIDIARIES
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FISCAL YEARS ENDED SEPTEMBER 27, 1997, SEPTEMBER 26, 1998,
OCTOBER 2, 1999, AND THE SIX MONTHS ENDED APRIL 3, 1999 AND APRIL 1, 2000
(INFORMATION AS OF APRIL 1, 2000 AND FOR THE SIX MONTHS ENDED APRIL 3, 1999
AND APRIL 1, 2000 IS UNAUDITED)
amount of credit exposure to any one institution. At October 2, 1999, the
majority of its short-term investments are in repurchase agreements, corporate
obligations and federal agency obligations. The majority of Coherent's accounts
receivable are derived from sales to customers for commercial, medical and
scientific research applications. Coherent performs ongoing credit evaluations
of its customers' financial condition and limits the amount of credit extended
when deemed necessary but generally requires no collateral. Coherent maintains
reserves for potential credit losses.
INCOME TAXES
Coherent accounts for income taxes using the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences of temporary differences between the financial statement carrying
amounts and the tax bases of assets and liabilities. A valuation allowance is
established to reduce the deferred tax asset if it is "more likely than not"
that the related tax benefits will not be realized in the future.
Federal income taxes have not been provided on a portion of the unremitted
earnings of foreign subsidiaries either because such earnings are intended to be
permanently reinvested or because foreign tax credits are available to offset
any planned distributions of such earnings. The total amount of unremitted
earnings of foreign subsidiaries was approximately $46,142,000 at October 2,
1999. Withholding taxes of approximately $2,270,000 would be payable upon
repatriation of such earnings which would result in additional foreign tax
credits.
DERIVATIVES
Coherent enters into forward exchange contracts to minimize the short-term
impact of foreign currency fluctuations on assets and liabilities and firm
commitments denominated in currencies other than the functional currency of the
reporting entity. All foreign exchange forward contracts are designated as and
effective as a hedge and are highly inversely correlated to the hedged item as
required by generally accepted accounting principles. Gains and losses on the
contracts that hedge foreign currency assets and liabilities are included in
other income and offset foreign exchange gains or losses from the revaluation of
intercompany balances or other current assets and liabilities denominated in
currencies other than the functional currency of the reporting entity. The cash
flow impact of Coherent's derivative hedges offsets the cash flow impact of the
foreign exchange movements on the underlying exposed asset and liability. Gains
and losses on contracts that hedge firm commitments of foreign currency
purchases or sales are deferred and recognized at the time the hedged
transaction is recorded as an offset to the amount of the related purchase or
sale. Fair values of exchange contracts are determined by obtaining quoted
market prices of comparable contracts, adjusted through interpolation where
necessary for maturity differences.
--------------------------------------------------------------------------------
F-10
<PAGE>
COHERENT, INC. AND SUBSIDIARIES
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FISCAL YEARS ENDED SEPTEMBER 27, 1997, SEPTEMBER 26, 1998,
OCTOBER 2, 1999, AND THE SIX MONTHS ENDED APRIL 3, 1999 AND APRIL 1, 2000
(INFORMATION AS OF APRIL 1, 2000 AND FOR THE SIX MONTHS ENDED APRIL 3, 1999
AND APRIL 1, 2000 IS UNAUDITED)
EARNINGS PER SHARE
Earnings per share (EPS) are computed as basic EPS using the weighted average
number of common shares outstanding and diluted EPS using the weighted average
number of common and dilutive common shares outstanding, in accordance with SFAS
128 (See Note 10).
COMPREHENSIVE INCOME
On September 27, 1998, Coherent adopted SFAS No. 130, "Reporting Comprehensive
Income," which establishes standards for reporting and displaying comprehensive
income and its components. Comprehensive income is defined as the change in
equity of a business enterprise during a period from transactions and other
events and circumstances from non-owner sources.
STOCK-BASED COMPENSATION
As permitted under SFAS 123, "Accounting for Stock-Based Compensation," Coherent
accounts for stock-based awards to employees using the intrinsic value method in
accordance with Accounting Principles Board Opinion No. 25 (APB 25), "Accounting
for Stock Issued to Employees." (See Note 9).
UNAUDITED INTERIM FINANCIAL INFORMATION
The unaudited interim financial information as of April 1, 2000 and for the six
months ended April 3, 1999 and April 1, 2000 has been prepared on the same basis
as the audited financial statements. In the opinion of management, such
unaudited information includes all adjustments (consisting only of normal
recurring accruals) necessary for a fair presentation of this interim
information. Operating results for the six months ended April 1, 2000 are not
necessarily indicative of the results that may be expected for the year ending
September 30, 2000.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform with the current
year presentation. Such reclassifications had no impact on net income or
stockholders' equity for any year presented.
2. ACQUISITIONS
During the three fiscal years ended October 2, 1999 and the six months ended
April 1, 2000, Coherent made the acquisitions described in the following
paragraphs, each of which has been accounted for as a purchase. The consolidated
financial statements include the operating results of each business from the
date of acquisition. Pro forma results of operations have not been presented,
except for the acquisition of Star Medical Technologies, Inc., because the
effects of these acquisitions were not material on either an individual or an
aggregate basis. The amounts allocated to purchased in-process research and
development were determined through established valuation techniques in the high
technology industry and were expensed upon acquisition, because technological
feasibility had not been established and no future alternative uses existed.
Research and development costs to complete
--------------------------------------------------------------------------------
F-11
<PAGE>
COHERENT, INC. AND SUBSIDIARIES
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FISCAL YEARS ENDED SEPTEMBER 27, 1997, SEPTEMBER 26, 1998,
OCTOBER 2, 1999, AND THE SIX MONTHS ENDED APRIL 3, 1999 AND APRIL 1, 2000
(INFORMATION AS OF APRIL 1, 2000 AND FOR THE SIX MONTHS ENDED APRIL 3, 1999
AND APRIL 1, 2000 IS UNAUDITED)
development of the research and development from these acquired companies to
technological feasibility are not expected to have a material impact on
Coherent's future results of operations or cash flows. Amounts allocated to
goodwill and other intangibles arising from such acquisitions are amortized on a
straight-line basis over periods ranging from three to fifteen years.
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 recorded the approximately $2.2 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 years.
In April 1999, Coherent acquired all of the outstanding shares of Star Medical
Technologies, Inc. (Star) for approximately $67.0 million (consisting of $65.0
million in cash, $1.7 million of unamortized distribution rights and $0.3
million of acquisition costs) from Palomar Medical Technologies, Inc. and from
certain Star employees. Star, based in Pleasanton, California, manufactures
LightSheer-TM- laser diode systems, which have received FDA approval for hair
removal and the treatment of leg veins. The acquisition was treated as a
purchase and, accordingly, the acquired assets and liabilities were recorded at
their fair market values at the date of acquisition.
The aggregate purchase price of $67.0 million (including acquisition costs) has
been allocated to the assets and in-process research and development acquired.
The total purchase price was allocated among the assets acquired (including
acquired in-process research and development) as follows (in thousands):
<TABLE>
<S> <C>
----------------------------------------------------------------------
Purchase price allocation:
Tangible assets............................................. $ 11,214
In-process research and development......................... 16,000
Intangible assets:
Goodwill................................................ 30,868
Existing technology..................................... 19,200
Workforce............................................... 1,700
Liabilities assumed......................................... (10,841)
Deferred tax liabilities.................................... (1,170)
--------
Total....................................................... $ 66,971
========
</TABLE>
The goodwill is being amortized over its estimated useful life of 15 years. The
existing technology and workforce assets are being amortized over their
estimated useful lives of 7 and 3 years, respectively.
--------------------------------------------------------------------------------
F-12
<PAGE>
COHERENT, INC. AND SUBSIDIARIES
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FISCAL YEARS ENDED SEPTEMBER 27, 1997, SEPTEMBER 26, 1998,
OCTOBER 2, 1999, AND THE SIX MONTHS ENDED APRIL 3, 1999 AND APRIL 1, 2000
(INFORMATION AS OF APRIL 1, 2000 AND FOR THE SIX MONTHS ENDED APRIL 3, 1999
AND APRIL 1, 2000 IS UNAUDITED)
The purchase price allocation and intangible valuation was based on management's
estimates of the after-tax net cash flows and gave explicit consideration to the
Securities and Exchange Commission's views on purchased in-process research and
development as set forth in its September 9, 1998 letter to the American
Institute of Certified Public Accountants. Specifically, the valuation gave
consideration to the following: (i) the employment of a fair market value
premise excluding any Coherent-specific considerations which could result in
estimates of investment value for the subject assets; (ii) comprehensive due
diligence concerning all potential intangible assets including trademarks/trade
names, patents, copyrights, non-compete agreements, assembled workforce,
customer relationships and sales channel; (iii) the value of existing technology
was specifically addressed, with a view toward ensuring the relative allocations
to existing technology and in-process research and development were consistent
with the relative contributions of each to the final product; and (iv) the
allocation to in-process research and development was based on a calculation
that considered only the efforts completed as of the transaction date, and only
the cash flow associated with said completed efforts for one generation of the
products currently in process.
As indicated above, Coherent recorded a one-time charge of $16,000,000
($10,734,000 net of tax) in 1999 for purchased in-process research and
development related to five development projects. The charge related to the
portion of these products, excluding existing technology, that had not reached
technological feasibility, had no alternative future use and for which
successful development was uncertain. Management's conclusion that the
in-process development effort had no alternative future use was reached in
consultation with the engineering personnel from both Coherent and Star.
The first of these projects is a new product in the LightSheer family that
results in a 50% increase in power and twice the coverage by incorporating a new
heat exchanger, thermoelectric cooling system, sapphire tip and software. At the
time of acquisition, the development was 86% complete and the estimated cost to
complete was $0.2 million. Coherent began shipping the product in May 1999. The
second of these projects is a next generation LightSheer product that
incorporates a new microprocessor and touch-screen as well as redesigns the
packaging to improve serviceability. At the time of acquisition, the development
was 78% complete and the estimated cost to complete was $0.5 million. Coherent
began shipping the product in July 1999. The third of these projects is a new
product in the LightSheer family that will result in increased coverage and will
require a new clinical trial. At the time of acquisition, the development was
72% complete and the estimated cost to complete was $0.6 million. Management
expects that the product will become available for sale in fiscal 2000. The
fourth project is a new application of the semiconductor diode array technology,
originally developed for hair removal, in a laser-based diagnostic system. At
the time of acquisition, the development was 58% complete and the estimated cost
to complete was $1.0 million. Management expects that the product will become
available for sale in fiscal 2001. The fifth development project is an ensemble
of diode array products. At the time of acquisition, the development was 54%
complete and the estimated cost to complete was $1.4 million. Management expects
that the product will become available for sale in fiscal 2001; however, no
assurances can be given as to the availability, if any.
--------------------------------------------------------------------------------
F-13
<PAGE>
COHERENT, INC. AND SUBSIDIARIES
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FISCAL YEARS ENDED SEPTEMBER 27, 1997, SEPTEMBER 26, 1998,
OCTOBER 2, 1999, AND THE SIX MONTHS ENDED APRIL 3, 1999 AND APRIL 1, 2000
(INFORMATION AS OF APRIL 1, 2000 AND FOR THE SIX MONTHS ENDED APRIL 3, 1999
AND APRIL 1, 2000 IS UNAUDITED)
Coherent will begin to benefit from the acquired research and development of
these products once they begin shipping. Failure to reach successful completion
of these projects could result in impairment of the associated capitalized
intangible assets and could require Coherent to accelerate the time period over
which the intangibles are being amortized, which could have a material adverse
effect on Coherent's business, financial condition or results of operations.
Significant assumptions used to determine the value of in-process research and
development included several factors, including the following: (i) forecast of
net cash flows that were expected to result from the development effort using
projections prepared by Coherent's and Star's management; (ii) percentage
complete for the projects estimated by considering a number of factors,
including the costs invested to date relative to total cost of the development
effort and the amount of progress completed as of the acquisition date, on a
technological basis, relative to the overall technological achievements required
to achieve the functionality of the eventual product. The technological issues
were addressed by engineering representatives from both Coherent and Star, and
when estimating the value of the technology, the projected financial results of
the acquired assets were estimated on a stand-alone basis without any
consideration to potential synergistic benefits or "investment value" related to
the acquisition. Accordingly, separate projected cash flows were prepared for
both the existing as well as the in-process projects. These projected results
were based on the number of units sold times average selling price less the
associated costs. After preparing the estimated cash flows from the products
being developed, a portion of these cash flows were attributed to the existing
technology, which was embodied in the in-process product lines and enabled a
quicker and more cost-effective development of these products. When estimating
the value of the existing and in-process technologies, discount rates of 15% and
30% were used, respectively. The discount rates considered both the status and
risks associated with the respective cash flows at the acquisition date.
Selected unaudited pro forma combined results of operations for the years ended
September 26, 1998 and October 2, 1999, assuming the Star acquisition had
occurred on September 28, 1997, are as follows:
<TABLE>
<CAPTION>
1998 1999
(IN THOUSANDS, EXCEPT PER
SHARE AMOUNTS)
----------------------------------------------------------------------------------------
<S> <C> <C>
Net sales................................................... $422,387 $485,617
Net income.................................................. 980 22,334
Net income per diluted share................................ $ 0.04 $ 0.91
</TABLE>
In May 1999, Coherent issued $70 million of Senior Notes in a private bond
placement to finance the acquisition of Star. Of the Senior Notes, $44 million
is payable in annual installments from May 2000 through May 2006, at an interest
rate of 6.7%, and $26 million is payable in annual installments from May 2004
through May 2006, at an interest rate of 6.91%.
In December 1997, Coherent entered into a joint venture agreement with Fiber
Optic Network Solutions Corporation (FONS) and Fiber Optic Transmission Systems
Corporation to engage in the
--------------------------------------------------------------------------------
F-14
<PAGE>
COHERENT, INC. AND SUBSIDIARIES
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FISCAL YEARS ENDED SEPTEMBER 27, 1997, SEPTEMBER 26, 1998,
OCTOBER 2, 1999, AND THE SIX MONTHS ENDED APRIL 3, 1999 AND APRIL 1, 2000
(INFORMATION AS OF APRIL 1, 2000 AND FOR THE SIX MONTHS ENDED APRIL 3, 1999
AND APRIL 1, 2000 IS UNAUDITED)
business of the design, development, production and marketing of fiber optic
transmission and distribution systems in the field of CATV, telecommunications
and high-speed data transmission. A limited liability company was formed, CFX
Communication Systems, LLC, to which Coherent paid $0.5 million to FONS' owners
in exchange for 60% ownership of CFX. Coherent recorded $0.4 million of goodwill
associated with the purchase. The CFX joint venture was unable to achieve its
business objectives and ceased operations in May 1999. The related goodwill has
been fully amortized.
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, Coherent has recorded the approximately $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.
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 was a manufacturer of 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 for these entities 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.
In March 1998, Coherent issued 124,645 shares of Company stock ($2,875,000) as
payment for the remaining obligation relating to the 1995 acquisition of Adlas
GmbH and Co. KG, located in Lubeck, Germany.
--------------------------------------------------------------------------------
F-15
<PAGE>
COHERENT, INC. AND SUBSIDIARIES
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FISCAL YEARS ENDED SEPTEMBER 27, 1997, SEPTEMBER 26, 1998,
OCTOBER 2, 1999, AND THE SIX MONTHS ENDED APRIL 3, 1999 AND APRIL 1, 2000
(INFORMATION AS OF APRIL 1, 2000 AND FOR THE SIX MONTHS ENDED APRIL 3, 1999
AND APRIL 1, 2000 IS UNAUDITED)
3. BALANCE SHEET DETAILS
Prepaid expenses and other assets consist of the following (in thousands):
<TABLE>
<CAPTION>
SEPT. 26, OCT. 2, APRIL 1,
1998 1999 2000
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Prepaid income taxes........................................ $10,275 $ 4,943 $ 1,367
Prepaid expenses and other.................................. 12,620 13,795 14,202
------- ------- -------
Prepaid expenses and other assets........................... $22,895 $18,738 $15,569
======= ======= =======
</TABLE>
Other assets consist of the following (in thousands):
<TABLE>
<CAPTION>
SEPT. 26, OCT. 2, APRIL 1,
1998 1999 2000
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Intangible assets........................................... $ 8,609 $24,729 $22,087
Other assets................................................ 13,419 22,470 31,443
Assets held for investment.................................. 1,507 1,252 1,215
------- ------- -------
Other assets................................................ $23,535 $48,451 $54,745
======= ======= =======
</TABLE>
Assets held for investment at September 26, 1998, October 2, 1999 and April 1,
2000 include Coherent's former manufacturing facility in Sturbridge,
Massachusetts, which Coherent is leasing to Convergent Prima, Inc. Accumulated
amortization of intangible assets is $6,713,000 at September 26, 1998,
$8,534,000 at October 2, 1999 and $11,065,000 at April 1, 2000.
Other current liabilities consist of the following (in thousands):
<TABLE>
<CAPTION>
SEPT. 26, OCT. 2, APRIL 1,
1998 1999 2000
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Accrued payroll and benefits................................ $20,803 $25,132 $25,161
Accrued expenses and other.................................. 14,495 22,567 24,472
Reserve for warranty........................................ 10,938 13,269 14,149
Deferred income............................................. 10,517 9,695 10,701
Customer deposits........................................... 2,850 2,457 5,563
------- ------- -------
Other current liabilities................................... $59,603 $73,120 $80,046
======= ======= =======
</TABLE>
--------------------------------------------------------------------------------
F-16
<PAGE>
COHERENT, INC. AND SUBSIDIARIES
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FISCAL YEARS ENDED SEPTEMBER 27, 1997, SEPTEMBER 26, 1998,
OCTOBER 2, 1999, AND THE SIX MONTHS ENDED APRIL 3, 1999 AND APRIL 1, 2000
(INFORMATION AS OF APRIL 1, 2000 AND FOR THE SIX MONTHS ENDED APRIL 3, 1999
AND APRIL 1, 2000 IS UNAUDITED)
Other long-term liabilities consist of the following (in thousands):
<TABLE>
<CAPTION>
SEPT. 26, OCT. 2, APRIL 1,
1998 1999 2000
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Deferred compensation....................................... $ 8,200 $11,233 $14,402
Deferred income and other................................... 3,082 3,435 2,912
Environmental remediation costs............................. 1,269 1,169 1,169
Deferred tax liabilities.................................... 48 982 982
------- ------- -------
Other long-term liabilities................................. $12,599 $16,819 $19,465
======= ======= =======
</TABLE>
4. FINANCIAL INSTRUMENTS
FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments for which it is practicable to estimate that
value.
Cash equivalents and short-term investments are stated at fair market value
based on quoted market prices.
The recorded carrying amount of Coherent's long-term obligations approximates
fair market value.
The carrying amount and fair value of foreign exchange contracts was $29.5
million and $30.0 million at September 26, 1998, respectively. The carrying
amount and fair value of foreign exchange contracts was $24.1 million at October
2, 1999. The fair value of foreign exchange contracts is estimated by obtaining
quoted market prices of comparable contracts, adjusted through interpolation
where necessary for maturity differences.
FOREIGN EXCHANGE CONTRACTS
In the normal course of business, Coherent has exposures to foreign currency
fluctuations arising from foreign currency sales and purchases and intercompany
transactions, among other things. Coherent uses foreign exchange forward
contracts to limit its exposure to foreign exchange losses arising from
nonfunctional currency payables and receivables and firm commitments. Coherent
evaluates its net exposure therefrom and enters into forward contracts to hedge
the net exposure over a specified amount. These contracts are executed with
credit-worthy financial institutions and are denominated in currencies of major
industrial nations. Gains and losses on these contracts serve as hedges in that
they offset fluctuations that would otherwise impact Coherent's financial
results. Costs associated with entering into such contracts are generally
amortized over the life of the instruments and are not material to Coherent's
financial results.
--------------------------------------------------------------------------------
F-17
<PAGE>
COHERENT, INC. AND SUBSIDIARIES
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FISCAL YEARS ENDED SEPTEMBER 27, 1997, SEPTEMBER 26, 1998,
OCTOBER 2, 1999, AND THE SIX MONTHS ENDED APRIL 3, 1999 AND APRIL 1, 2000
(INFORMATION AS OF APRIL 1, 2000 AND FOR THE SIX MONTHS ENDED APRIL 3, 1999
AND APRIL 1, 2000 IS UNAUDITED)
At September 26, 1998 and October 2, 1999, Coherent had foreign currency forward
contracts outstanding to hedge foreign currency accounts receivable and accounts
payable and sales backlog usually shippable within 90 days. These contracts have
maturities which typically range from 90 to 360 days and are intended to reduce
exposure to foreign currency exchange risk. The aggregate fair value and
unrealized gain (loss) of foreign exchange contracts are as follows (in
thousands):
<TABLE>
<CAPTION>
SEPT. 26, 1998 OCT. 2, 1999
------------------------ ------------------------
UNREALIZED UNREALIZED
FAIR VALUE GAIN (LOSS) FAIR VALUE GAIN (LOSS)
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Euro............................................... $ 9,635 $ 302
Japanese Yen....................................... $10,317 $ 106 8,528 703
British Pound Sterling............................. 978 23 3,060 80
Swedish Krone...................................... 622 (6) 1,511 27
Hong Kong Dollar................................... 699 (15) 579
Danish Kroner...................................... 404 9
Norwegian Kroner................................... 486 (20) 234 7
Canadian Dollar.................................... 172 2 169
German Deutschemark................................ 9,465 (184)
French Franc....................................... 6,241 (322)
Austrian Schilling................................. 1,529 (51)
Belgian Franc...................................... 406 (30)
Finnish Mark....................................... (314) 21
Dutch Guilder...................................... (610) 34
------- ----- ------- ------
$29,991 $(442) $24,120 $1,128
======= ===== ======= ======
</TABLE>
5. SHORT-TERM BORROWINGS
Short-term borrowings consist of the following (in thousands):
<TABLE>
<CAPTION>
SEPT. 26, OCT. 2, APRIL 1,
1998 1999 2000
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Borrowings under bank lines................................. $ 9,479 $11,850 $21,404
Note payable to minority stockholder in subsidiary.......... 2,166 2,521 2,195
------- ------- -------
Short-term borrowings....................................... $11,645 $14,371 $23,599
======= ======= =======
</TABLE>
The note payable to stockholder interest in subsidiary is due upon four weeks
notice from the note holder and bears interest at EURIBOR (Euro Interbank
Offered Rate) plus 0.5% with a maximum of 9.0%.
--------------------------------------------------------------------------------
F-18
<PAGE>
COHERENT, INC. AND SUBSIDIARIES
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FISCAL YEARS ENDED SEPTEMBER 27, 1997, SEPTEMBER 26, 1998,
OCTOBER 2, 1999, AND THE SIX MONTHS ENDED APRIL 3, 1999 AND APRIL 1, 2000
(INFORMATION AS OF APRIL 1, 2000 AND FOR THE SIX MONTHS ENDED APRIL 3, 1999
AND APRIL 1, 2000 IS UNAUDITED)
Coherent maintains lines of credit worldwide with several banks. Coherent's
primary domestic line of credit is a $20,000,000 unsecured revolving account
from Bank of America that expires April 23, 2002. In addition, Coherent has
several foreign lines of credit, which allow it to borrow in the applicable
local currency. At October 2, 1999, these lines of credit totaled $38,852,000
and were concentrated in Germany and Japan. Coherent's lines of credit generally
provide borrowing at the bank reference rate or better, which varies depending
on the country where the funds are borrowed. Amounts outstanding at October 2,
1999 were at a weighted average interest rate of 2.4%. The Company's domestic
lines of credit are generally subject to standard covenants related to financial
ratios, profitability and dividend payments. Coherent was in compliance with all
financial covenants at October 2, 1999 and April 1, 2000.
6. INCOME TAXES
The provision for income taxes consists of the following (in thousands):
<TABLE>
<CAPTION>
1997 1998 1999
--------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Currently payable:
Federal................................................... $ 9,789 $ 5,126 $ 5,138
State..................................................... 1,666 65 (853)
Foreign................................................... 10,660 7,171 10,367
------- ------- --------
22,115 12,362 14,652
------- ------- --------
Deferred:
Federal................................................... 1,601 (7,069) (9,772)
State..................................................... (35) (757) (342)
Foreign................................................... (3,179) 358 (149)
------- ------- --------
(1,613) (7,468) (10,263)
------- ------- --------
Provision for income taxes.................................. $20,502 $ 4,894 $ 4,389
======= ======= ========
</TABLE>
The components of income before income taxes consist of (in thousands):
<TABLE>
<CAPTION>
1997 1998 1999
--------------------------------------------------------------------------------------------
<S> <C> <C> <C>
United States............................................... $31,244 $ 8,037 $(3,769)
Foreign..................................................... 15,550 15,668 19,999
------- ------- -------
Income before income taxes.................................. $46,794 $23,705 $16,230
======= ======= =======
</TABLE>
--------------------------------------------------------------------------------
F-19
<PAGE>
Coherent, Inc. and subsidiaries
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FISCAL YEARS ENDED SEPTEMBER 27, 1997, SEPTEMBER 26, 1998,
OCTOBER 2, 1999, AND THE SIX MONTHS ENDED APRIL 3, 1999 AND APRIL 1, 2000
(INFORMATION AS OF APRIL 1, 2000 AND FOR THE SIX MONTHS ENDED APRIL 3, 1999
AND APRIL 1, 2000 IS UNAUDITED)
The reconciliation of the statutory federal income tax rate to the effective
rate is as follows:
<TABLE>
<CAPTION>
1997 1998 1999
% OF % OF % OF
PRETAX PRETAX PRETAX
INCOME INCOME INCOME
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Federal statutory tax rate.................................. 35.0% 35.0% 35.0%
Benefit from favorable IRS ruling........................... (10.3)
Non-deductible purchased in-process research and
development............................................... 6.3
Foreign tax rates in excess of U.S. rates................... 4.4 7.8 19.8
Foreign tax credit.......................................... (1.8) (8.6) (13.6)
Foreign sales corporation benefit........................... (1.8)
State income taxes, net of federal income tax benefit....... 2.3 (1.9) (4.8)
Goodwill.................................................... 0.3 1.1
Research and development credit............................. (2.9) (4.7) (2.6)
Other....................................................... 0.2 2.2 (5.0)
---- ----- -----
Provision for income taxes.................................. 43.8% 20.6% 27.0%
==== ===== =====
</TABLE>
The significant components of deferred tax assets and liabilities were (in
thousands):
<TABLE>
<CAPTION>
SEPT. 26, OCT. 2,
1998 1999
-----------------------------------------------------------------------------------
<S> <C> <C>
DEFERRED TAX ASSETS:
Reserves and accruals not currently deductible.............. $18,402 $26,600
Operating loss carry forwards and tax credits............... 6,683 6,464
Intercompany profit......................................... 1,179 2,240
Deferred service revenue.................................... 2,462 2,813
State taxes................................................. 1,114
Depreciation and amortization............................... 620 5,891
Other....................................................... 2,456 2,685
------- -------
32,916 46,693
Valuation allowance......................................... (3,567) (2,300)
------- -------
29,349 44,393
DEFERRED TAX LIABILITIES:
Other....................................................... 2,779 2,735
------- -------
2,779 2,735
------- -------
Total deferred tax assets and liabilities................... $26,570 $41,658
======= =======
</TABLE>
Coherent decreased its valuation allowance in fiscal 1999 by $1,267,000 to
utilize the reserve on foreign tax credit carry forwards that expired.
--------------------------------------------------------------------------------
F-20
<PAGE>
COHERENT, INC. AND SUBSIDIARIES
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FISCAL YEARS ENDED SEPTEMBER 27, 1997, SEPTEMBER 26, 1998,
OCTOBER 2, 1999, AND THE SIX MONTHS ENDED APRIL 3, 1999 AND APRIL 1, 2000
(INFORMATION AS OF APRIL 1, 2000 AND FOR THE SIX MONTHS ENDED APRIL 3, 1999
AND APRIL 1, 2000 IS UNAUDITED)
The total net deferred tax asset is classified on the balance sheet as follows
(in thousands):
<TABLE>
<CAPTION>
SEPT. 26, OCT. 2,
1998 1999
----------------------------------------------------------------------------------
<S> <C> <C>
Current deferred income tax assets.......................... $26,618 $37,014
Non-current deferred income tax assets...................... 5,626
Non-current deferred income tax liabilities................. (48) (982)
------- -------
Net deferred tax assets..................................... $26,570 $41,658
======= =======
</TABLE>
Total net operating losses of $1,855,000 for tax return purposes expire in 2004.
Of the total tax credits of $923,000 for tax return purposes, $759,000 expires
in fiscal 2003 and $164,000 expires in fiscal 2004.
Utilization of certain of these carryforwards is subject to restrictions
relating to taxable income of subsidiaries not previously consolidated for
income tax purposes.
7. LONG-TERM OBLIGATIONS
The components of long-term obligations are as follows (in thousands):
<TABLE>
<CAPTION>
SEPT. 26, OCT. 2, APRIL 1,
1998 1999 2000
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Notes payable............................................... $ 8,292 $77,142 $77,880
Bonds payable............................................... 2,200 1,800 1,800
Capital leases.............................................. 19 1,297 2,501
Deferred acquisition payment (Note 2)....................... 3,105 3,105 2,065
------- ------- -------
13,616 83,344 84,246
Current portion............................................. (788) (8,599) (7,749)
------- ------- -------
Long-term obligations....................................... $12,828 $74,745 $76,497
======= ======= =======
</TABLE>
NOTES PAYABLE--At October 2, 1999, notes payable consists of $70.0 million
($44.0 million at 6.7% and $26.0 million at 6.9%) to finance the Star
acquisition, $2.1 million at 8.0% for the mortgage on the CEEL facility, $3.1
million at 1.0% to 8.2% of outside financing for Tutcore and $2.0 million at
4.5% of outside financing by Lambda Physik GmbH. Notes payable are generally
secured by the related assets financed.
BONDS PAYABLE--Bonds payable were issued to finance the construction of certain
facilities and acquisition of equipment, which secure repayment of the bonds.
The bonds are payable in installments through 2008 with a variable interest rate
(4.71% at October 2, 1999) not to exceed 12%. The bonds are guaranteed by a
letter of credit issued by Union Bank with an annual fee of 1.5%.
--------------------------------------------------------------------------------
F-21
<PAGE>
COHERENT, INC. AND SUBSIDIARIES
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FISCAL YEARS ENDED SEPTEMBER 27, 1997, SEPTEMBER 26, 1998,
OCTOBER 2, 1999, AND THE SIX MONTHS ENDED APRIL 3, 1999 AND APRIL 1, 2000
(INFORMATION AS OF APRIL 1, 2000 AND FOR THE SIX MONTHS ENDED APRIL 3, 1999
AND APRIL 1, 2000 IS UNAUDITED)
Annual maturities of debt are: $8,349,000 in 2000, $7,523,000 in 2001,
$9,663,000 in 2002, $7,452,000 in 2003, $15,826,000 in 2004 and thereafter
$33,234,000.
8. STOCKHOLDERS' EQUITY
Each outstanding share of Coherent's common stock carries a stock purchase right
(right) issued pursuant to a dividend distribution declared by Coherent's Board
of Directors and distributed to stockholders of record on November 17, 1989.
When exercisable, each right entitles the stockholder to buy one share of
Coherent's common stock at an exercise price of $80. The rights will become
exercisable following the tenth day after a person or group announces
acquisition of 20% or more of Coherent's common stock or announces commencement
of a tender offer, the consummation of which would result in ownership by the
person or group of 20% or more of the common stock. Coherent will be entitled to
redeem the rights at $.01 per right at any time on or before the 10th day
following the acquisition by a person or group of 20% or more of Coherent's
common stock.
If, prior to redemption of the rights, Coherent is acquired in a merger or other
business combination in which Coherent is the surviving corporation, or a person
or group acquires 20% or more of Coherent's common stock, each right owned by a
holder of less than 20% of the common stock will entitle its owner to purchase,
at the right's then current exercise price, a number of shares of common stock
of Coherent having a fair market value equal to twice the right's exercise
price. If Coherent sells more than 50% of its assets or earning power or is
acquired in a merger or other business combination in which it is not the
surviving corporation, the acquiring person must assume the obligations under
the rights and the rights will become exercisable to acquire common stock of the
acquiring person at the discounted price.
9. EMPLOYEE STOCK OPTION AND BENEFIT PLANS
PRODUCTIVITY INCENTIVE PLAN
The Productivity Incentive Plan (Plan) provides for quarterly distributions of
common stock and cash to each eligible employee. The amounts of the
distributions are based on consolidated pre-tax profit, the market price of
Coherent's common stock and the employee's salary. The fair market value of
common stock and cash that are earned under the Plan are charged to expense. For
fiscal 1997, 30,616 shares (fair market value of $686,029) and $4,247,005 were
accrued for the benefit of employees. For fiscal 1998, 20,674 shares (fair
market value of $346,889) and $2,467,724 were accrued for the benefit of
employees. For fiscal 1999, 25,097 shares (fair market value of $402,003) and
$3,080,306 were accrued for the benefit of employees. At October 2, 1999,
Coherent had 25,397 shares of its common stock reserved for future issuance
under the Plan.
COHERENT EMPLOYEE RETIREMENT AND INVESTMENT PLAN
Under the Coherent Employee Retirement and Investment Plan, Coherent matches
employee contributions to the Plan up to a maximum of 6% of the employee's
individual earnings. Employees
--------------------------------------------------------------------------------
F-22
<PAGE>
COHERENT, INC. AND SUBSIDIARIES
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FISCAL YEARS ENDED SEPTEMBER 27, 1997, SEPTEMBER 26, 1998,
OCTOBER 2, 1999, AND THE SIX MONTHS ENDED APRIL 3, 1999 AND APRIL 1, 2000
(INFORMATION AS OF APRIL 1, 2000 AND FOR THE SIX MONTHS ENDED APRIL 3, 1999
AND APRIL 1, 2000 IS UNAUDITED)
become eligible for participation and for Company matching contributions after
completing one year of service. Coherent's contributions (net of forfeitures)
for fiscal 1997, 1998 and 1999 were $3,057,000, $3,322,000 and $3,757,000,
respectively.
SUPPLEMENTAL RETIREMENT PLAN
Coherent has a Supplemental Retirement Plan for senior management personnel
which permits the participants to contribute up to 24% of their before tax
earnings to a trust. Coherent will match these contributions up to an amount
equal to 6% of such participants' earnings less any amounts contributed by
Coherent to such participant under the Coherent Employee Retirement and
Investment Plan. Coherent's contributions (net of forfeitures) for fiscal 1997,
1998 and 1999 were $17,834, $13,602 and $18,117, respectively.
EMPLOYEE STOCK PURCHASE PLAN
Coherent has an Employee Stock Purchase Plan whereby eligible employees may
authorize payroll deductions of up to 10% of their regular base salary to
purchase shares at the lower of 85% of the fair market value of the common stock
on the date of commencement of the offering or on the last day of the
twelve-month offering period. In fiscal 1997, 155,206 shares were purchased by
and distributed to employees at an average price of $15.69 per share. In fiscal
1998, 208,270 shares were purchased by and distributed to employees at an
average price of $16.11 per share. In fiscal 1999, 180,295 shares were purchased
by and distributed to employees at an average price of $8.55 per share.
At October 2, 1999, $3,686,000 had been contributed by employees that will be
used to purchase a maximum of 559,988 shares in fiscal 2000 at a price
determined under the terms of the Plan. At October 2, 1999, Coherent had
2,223,000 shares of its common stock reserved for future issuance under the
plan.
STOCK OPTION PLANS
Coherent has two stock option plans and a non-employee Directors' Stock Option
Plan. Under these plans, Coherent may grant options to purchase up to 9,000,000
and 400,000 shares of common stock, respectively. Employee options are generally
exercisable three years from the grant date, at the fair market value of the
common stock on the date of the grant; however, initial grants to employees vest
25% annually. Director options are automatically granted to non-employee
directors of Coherent. Such directors initially receive a stock option for
20,000 shares exercisable over a four-year period. Additionally, the
non-employee directors receive an annual grant of 5,000 shares exercisable four
years from the date of grant. Grants under all plans expire six years from the
original grant date.
--------------------------------------------------------------------------------
F-23
<PAGE>
COHERENT, INC. AND SUBSIDIARIES
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FISCAL YEARS ENDED SEPTEMBER 27, 1997, SEPTEMBER 26, 1998,
OCTOBER 2, 1999, AND THE SIX MONTHS ENDED APRIL 3, 1999 AND APRIL 1, 2000
(INFORMATION AS OF APRIL 1, 2000 AND FOR THE SIX MONTHS ENDED APRIL 3, 1999
AND APRIL 1, 2000 IS UNAUDITED)
Option activity for all plans is summarized as follows:
<TABLE>
<CAPTION>
OUTSTANDING OPTIONS
----------------------------
WEIGHTED AVERAGE
NUMBER OF EXERCISE PRICE
SHARES PER SHARE
------------------------------------------------------------------------------------------
<S> <C> <C>
OUTSTANDING, SEPTEMBER 28, 1996 (462,200 EXERCISABLE AT A
WEIGHTED AVERAGE PRICE OF $6.51).......................... 2,180,600 $13.17
Options granted (weighted average fair value of $9.00)...... 898,100 20.56
Options exercised........................................... (315,200) 7.64
Options canceled............................................ (143,700) 17.24
--------- ------
OUTSTANDING, SEPTEMBER 27, 1997 (634,900 EXERCISABLE AT A
WEIGHTED AVERAGE PRICE OF $8.58).......................... 2,619,800 16.17
Options granted (weighted average fair value of $5.25)...... 983,900 11.71
Options exercised........................................... (473,800) 8.68
Options canceled............................................ (247,600) 18.56
--------- ------
OUTSTANDING, SEPTEMBER 26, 1998 (757,500 EXERCISABLE AT A
WEIGHTED AVERAGE PRICE OF $14.00)......................... 2,882,300 15.67
Options granted (weighted average fair value of ($6.82)..... 1,405,300 14.71
Options exercised........................................... (201,000) 9.83
Options canceled............................................ (393,100) 17.58
--------- ------
OUTSTANDING, OCTOBER 2, 1999 (1,099,000 EXERCISABLE AT A
WEIGHTED AVERAGE PRICE OF $16.59)......................... 3,693,500 15.40
Options granted............................................. 1,145,900 47.89
Options exercised........................................... (546,400) 15.90
Options canceled............................................ (113,500) 14.95
--------- ------
OUTSTANDING, APRIL 1, 2000 (675,600 EXERCISABLE AT A
WEIGHTED AVERAGE PRICE OF $17.45)......................... 4,179,500 $24.25
-------- ------
-------- ------
</TABLE>
--------------------------------------------------------------------------------
F-24
<PAGE>
COHERENT, INC. AND SUBSIDIARIES
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FISCAL YEARS ENDED SEPTEMBER 27, 1997, SEPTEMBER 26, 1998,
OCTOBER 2, 1999, AND THE SIX MONTHS ENDED APRIL 3, 1999 AND APRIL 1, 2000
(INFORMATION AS OF APRIL 1, 2000 AND FOR THE SIX MONTHS ENDED APRIL 3, 1999
AND APRIL 1, 2000 IS UNAUDITED)
At October 2, 1999, 2,821,500 options were available for future grant under all
plans. The following table summarizes information about fixed stock options
outstanding at October 2, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------------- ------------------------------
WEIGHTED AVERAGE
REMAINING
RANGE OF EXERCISE NUMBER CONTRACTUAL LIFE WEIGHTED AVERAGE NUMBER WEIGHTED AVERAGE
PRICES OUTSTANDING (YEARS) EXERCISE PRICE EXERCISABLE EXERCISE PRICE
--------------------- ------------------------------------------------- ------------------------------
<S> <C> <C> <C> <C> <C>
$ 6.00 - 6.56........ 110,170 0.60 $ 6.44 110,180 $ 6.44
6.75 - 8.94........ 672,650 4.89 8.92 95,850 8.85
9.00 - 13.06....... 397,760 5.41 12.61 10,250 9.83
13.19 - 14.50....... 621,540 3.95 14.15 245,650 13.75
14.63 - 15.88....... 510,440 5.54 15.69 8,500 15.81
15.94 - 19.56....... 441,340 3.27 18.99 301,450 19.49
19.63 - 19.63....... 455,050 3.57 19.63 81,700 19.63
19.94 - 24.13....... 371,050 3.68 22.12 175,120 21.69
24.25 - 27.44....... 92,300 3.50 24.46 49,900 24.46
27.75 - 27.75....... 21,200 2.61 27.75 20,400 27.75
--------------------- --------- ---- ------ --------- ------
$ 6.00 - 27.75....... 3,693,500 4.22 $15.40 1,099,000 $16.59
========= =========
</TABLE>
SFAS No. 123, "Accounting for Stock-Based Compensation," requires the disclosure
of pro forma net income (loss) and earnings (loss) per share had Coherent
adopted the fair value method as of the beginning of fiscal 1996. Under SFAS
123, the fair value of stock-based awards to employees is calculated through the
use of option pricing models, even though such models were developed to estimate
the fair value of freely tradable, fully transferable options without vesting
restrictions, which significantly differ from Coherent's stock option awards.
These models also require subjective assumptions, including future stock price
volatility and expected time to exercise, which greatly affect the calculated
values.
Coherent's calculations were made using the Black-Scholes option pricing model
with the following weighted average assumptions:
<TABLE>
<CAPTION>
1997 1998 1999
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Expected life in years............................ 3.85 - 4.07 3.87 - 3.98 3.82 - 4.08
Expected volatility............................... 46.7% 50.2% 52.3%
Risk-free interest rate........................... 6.2% 5.5% 5.3%
Expected dividends................................ none none none
</TABLE>
Coherent's calculations are based on a single option valuation approach and
forfeitures are recognized as they occur. If the computed fair values of the
1997, 1998 and 1999 awards had been amortized to
--------------------------------------------------------------------------------
F-25
<PAGE>
COHERENT, INC. AND SUBSIDIARIES
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FISCAL YEARS ENDED SEPTEMBER 27, 1997, SEPTEMBER 26, 1998,
OCTOBER 2, 1999, AND THE SIX MONTHS ENDED APRIL 3, 1999 AND APRIL 1, 2000
(INFORMATION AS OF APRIL 1, 2000 AND FOR THE SIX MONTHS ENDED APRIL 3, 1999
AND APRIL 1, 2000 IS UNAUDITED)
expense over the vesting period of the awards, pro forma net income and earnings
per share would appear as follows (in thousands, except per share data):
<TABLE>
<CAPTION>
1997 1998 1999
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net income As reported........................ $26,292 $18,811 $11,841
Pro forma.......................... $23,765 $15,283 $ 7,306
Net income per diluted share As reported........................ $ 1.12 $ 0.79 $ 0.48
Pro forma.......................... $ 1.01 $ 0.64 $ 0.30
</TABLE>
The impact of outstanding non-vested stock options granted prior to fiscal 1996
has been excluded from the pro forma calculation; accordingly, the fiscal 1997,
1998 and 1999 pro forma amounts are not indicative of future period pro forma
amounts, when the calculation will apply to all applicable stock options.
NOTES RECEIVABLE FROM STOCK SALES
Notes receivable from stock sales result from the exercise of stock options for
notes. The notes are full recourse promissory notes bearing interest at 4.7 to
7.1% and are collateralized by the stock issued upon exercise of the stock
options. Interest is payable annually and principal is due through 2004.
10. 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.
--------------------------------------------------------------------------------
F-26
<PAGE>
COHERENT, INC. AND SUBSIDIARIES
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FISCAL YEARS ENDED SEPTEMBER 27, 1997, SEPTEMBER 26, 1998,
OCTOBER 2, 1999, AND THE SIX MONTHS ENDED APRIL 3, 1999 AND APRIL 1, 2000
(INFORMATION AS OF APRIL 1, 2000 AND FOR THE SIX MONTHS ENDED APRIL 3, 1999
AND APRIL 1, 2000 IS UNAUDITED)
The following table presents information necessary to calculate basic and
diluted earnings per common and common equivalent share (in thousands, except
per share data):
<TABLE>
<CAPTION>
SIX MONTHS ENDED
FISCAL YEARS ---------------------
------------------------------ APRIL 3, APRIL 1,
1997 1998 1999 1999 2000
---------------------------------------------------------------------------- ---------------------
<S> <C> <C> <C> <C> <C>
Weighted average shares
outstanding--basic........................ 22,664 23,374 23,957 23,861 24,705
Common stock equivalents.................. 755 354 435 322 1,702
Employee stock purchase plan
equivalents.............................. 61 21 241 195 187
------- ------- ------- ------- -------
Weighted average shares and
equivalents--diluted...................... 23,480 23,749 24,633 24,378 26,594
======= ======= ======= ======= =======
Net income for basic and diluted earnings
per share computation..................... $26,292 $18,811 $11,841 $ 9,646 $15,076
======= ======= ======= ======= =======
Net income per share--basic................. $ 1.16 $ 0.80 $ 0.49 $ 0.40 $ 0.61
Net income per share--diluted............... $ 1.12 $ 0.79 $ 0.48 $ 0.40 $ 0.57
</TABLE>
A total of 69,000, 1,546,000, 1,602,000 and 316,000 anti-dilutive weighted
shares have been excluded from the dilutive share equivalents calculation at
September 27, 1997, September 26, 1998, October 2, 1999 and April 1, 2000,
respectively.
11. OTHER INCOME (EXPENSE)
Other income (expense) is as follows (in thousands):
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
FISCAL YEARS ---------------------
------------------------------ APRIL 3, APRIL 1,
1997 1998 1999 1999 2000
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Gain on sale of facility.......................... $ 3,526
Minority interest in subsidiaries................. (1,324) $(908) $(1,118) $(454) $(970)
Royalty income.................................... 951 683 328 178 176
Equity in income (loss) of joint ventures......... 287 131 436 (25) (181)
Gain (loss) on investments, net................... (41) 45 (224) (84) (57)
Other--net........................................ 1,257 295 (393) (443) 666
------- ----- ------- ----- -----
Other income (expense) net........................ $ 4,656 $ 246 $ (971) $(828) $(366)
======= ===== ======= ===== =====
</TABLE>
--------------------------------------------------------------------------------
F-27
<PAGE>
COHERENT, INC. AND SUBSIDIARIES
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FISCAL YEARS ENDED SEPTEMBER 27, 1997, SEPTEMBER 26, 1998,
OCTOBER 2, 1999, AND THE SIX MONTHS ENDED APRIL 3, 1999 AND APRIL 1, 2000
(INFORMATION AS OF APRIL 1, 2000 AND FOR THE SIX MONTHS ENDED APRIL 3, 1999
AND APRIL 1, 2000 IS UNAUDITED)
12. COMMITMENTS AND CONTINGENCIES
COMMITMENTS
Coherent leases several of its facilities under operating leases. In addition,
Coherent leases the land for its Auburn manufacturing facilities under long-term
fixed leases.
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 $24.0
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 $20.8 million, and $20.8
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 $20.8 million
(included in future minimum lease payments below). 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 October 2, 1999.
Future minimum payments under Coherent's leases at October 2, 1999 are as
follows (in thousands):
<TABLE>
<CAPTION>
CAPITAL OPERATING
FISCAL YEARS ENDING LEASES LEASES
----------------------------------------------------------------------------------
<S> <C> <C>
2000........................................................ $ 308 $ 5,766
2001........................................................ 303 3,096
2002........................................................ 303 23,443
2003........................................................ 303 1,054
2004........................................................ 226 555
Thereafter.................................................. 4,894
------ -------
Total....................................................... 1,443 $38,808
=======
Amount representing interest................................ 146
------
Present value of minimum lease payments..................... $1,297
======
</TABLE>
Rent expense was $7,462,000 in fiscal 1997, $7,593,000 in fiscal 1998 and
$8,986,000 in fiscal 1999.
In September 1988, Coherent entered into several patent license agreements with
Patlex Corporation (Patlex) relating to laser-related patents owned by
Dr. Gordon Gould that had been assigned to Patlex. Under the terms of the
agreements, Coherent pays royalties to Patlex ranging from 3.5% to 5.0% for
specified categories of domestic sales and 2.0% of specified categories for
international sales, subject to certain exceptions and limitations. Royalty
expense under these agreements was $1,131,000 in fiscal 1997, $893,000 in fiscal
1998 and $699,000 in fiscal 1999. The patents expire on various dates through
May 2005.
--------------------------------------------------------------------------------
F-28
<PAGE>
COHERENT, INC. AND SUBSIDIARIES
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FISCAL YEARS ENDED SEPTEMBER 27, 1997, SEPTEMBER 26, 1998,
OCTOBER 2, 1999, AND THE SIX MONTHS ENDED APRIL 3, 1999 AND APRIL 1, 2000
(INFORMATION AS OF APRIL 1, 2000 AND FOR THE SIX MONTHS ENDED APRIL 3, 1999
AND APRIL 1, 2000 IS UNAUDITED)
CONTINGENCIES
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, has been named as a party to a
remedial action order issued by the California Department of Toxic Substance
Control relating to soil and groundwater contamination at and in the vicinity of
the Stanford Industrial Park in Palo Alto, California, where 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, Palo
Alto and the bordering site at 3300 Hillview Avenue, Palo Alto.
Management believes that Coherent's probable, nondiscounted net liability at
October 2, 1999 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 minimum probable recoveries of $0.3 million included in
other assets from other parties named to the order.
13. OPERATING SEGMENTS
In fiscal 1999, Coherent adopted SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information." The statement establishes standards for
reporting information about operating segments and related disclosures about
products, geographic information and major customers.
Coherent is organized around four separately managed business units: the Laser
Group, the Semiconductor Group, the Medical Group and Lambda Physik. Consistent
with the rules of SFAS No. 131, we have aggregated these four business units
into three reportable segments. The Semiconductor Group was combined with the
Laser Group in the Electro-Optics segment as they have similar economic
characteristics and are similar in the following: nature of products/services,
nature of production process, type/class of customer, distribution methods and
nature of regulatory environment. The Electro-Optics segment produces lasers and
laser systems for scientific, medical research,
--------------------------------------------------------------------------------
F-29
<PAGE>
COHERENT, INC. AND SUBSIDIARIES
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FISCAL YEARS ENDED SEPTEMBER 27, 1997, SEPTEMBER 26, 1998,
OCTOBER 2, 1999, AND THE SIX MONTHS ENDED APRIL 3, 1999 AND APRIL 1, 2000
(INFORMATION AS OF APRIL 1, 2000 AND FOR THE SIX MONTHS ENDED APRIL 3, 1999
AND APRIL 1, 2000 IS UNAUDITED)
micromachining, commercial applications, semiconductor inspection,
telecommunications, precision optics and related accessories, including optics
and optical products such as special purpose lenses, mirrors and advanced
optical coatings. The Medical segment develops, manufactures and distributes a
broad line of medical laser systems used in ophthalmology, dermatology,
gynecology, plastic surgery, aesthetic surgery, orthopedics, otolaryngology,
neurological surgery, urology, podiatry, oncology, and other surgical
specialties. The Lambda Physik segment develops and manufactures excimer, DPSS,
and tunable lasers including dye lasers and optical parametric oscillators.
Coherent's Chief Executive Officer and Chief Financial Officer have been
identified as the chief operating decision makers (CODMs) for SFAS 131 purposes
as they assess the performance of the business units and decide how to allocate
resources to the business units. Pretax income is the measure of profit and loss
that our CODMs use to assess performance and make decisions. Pretax income
represents the sales less the cost of sales and direct expenses incurred within
the operating segments. In addition, Coherent's corporate expenses, except for
depreciation of corporate assets and general legal expenses, are allocated to
the operating segments and are included in the results below. Corporate expenses
not allocated to the groups (depreciation of corporate assets and general legal
expenses) are included in Corporate and Other in the reconciliation of operating
results. Further, interest expense, interest income and the provision for income
taxes are included in Corporate and Other in the reconciliation of operating
results.
Intersegment sales are accounted for primarily at domestic selling prices. As
the CODMs monitor headcount, depreciation and amortization expense and capital
expenditures by operating segment, these amounts are presented below. The CODMs
do not review total assets by segment, but they do review net trade receivables,
net inventories and net property and equipment by operating segment. The
accounting policies for reported segments are the same as for Coherent as a
whole (see Note 1).
--------------------------------------------------------------------------------
F-30
<PAGE>
COHERENT, INC. AND SUBSIDIARIES
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FISCAL YEARS ENDED SEPTEMBER 27, 1997, SEPTEMBER 26, 1998,
OCTOBER 2, 1999, AND THE SIX MONTHS ENDED APRIL 3, 1999 AND APRIL 1, 2000
(INFORMATION AS OF APRIL 1, 2000 AND FOR THE SIX MONTHS ENDED APRIL 3, 1999
AND APRIL 1, 2000 IS UNAUDITED)
REPORTABLE OPERATING SEGMENTS
Information on reportable segments for the three years ended September 27, 1997,
September 26, 1998 and October 2, 1999 and the six months ended April 3, 1999
and April 1, 2000 is as follows (dollars in thousands):
<TABLE>
<CAPTION>
ELECTRO- LAMBDA CORPORATE
1997 OPTICS MEDICAL PHYSIK AND OTHER TOTAL
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales............................... $161,787 $169,952 $59,299 $391,038
Intersegment net sales.................. 19,563 152 1,959 21,674
Gross profit............................ 83,081 92,626 29,795 205,502
Research and development expenses....... 17,878 14,994 6,534 39,406
In-process research and development..... 9,315 9,315
Selling, general and administrative..... 38,594 57,489 14,081 $ 649 110,813
Intangibles amortization................ 2,096 1,322 240 3,658
-------- -------- ------- ------- --------
Total operating expenses................ 67,883 73,805 20,855 649 163,192
Income (loss) before income taxes....... 15,138 19,771 8,216 3,669 46,794
Depreciation and amortization........... 8,144 4,194 1,466 786 14,590
Capital expenditures.................... 19,910 2,400 2,307 247 24,864
Net trade receivables................... 35,303 46,979 13,684 (122) 95,844
Net inventories......................... 36,996 35,224 14,251 (25) 86,446
Net property & equipment................ $ 58,663 $ 6,029 $ 6,687 $ 445 $ 71,824
Headcount............................... 1,186 686 220 39 2,131
</TABLE>
--------------------------------------------------------------------------------
F-31
<PAGE>
COHERENT, INC. AND SUBSIDIARIES
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FISCAL YEARS ENDED SEPTEMBER 27, 1997, SEPTEMBER 26, 1998,
OCTOBER 2, 1999, AND THE SIX MONTHS ENDED APRIL 3, 1999 AND APRIL 1, 2000
(INFORMATION AS OF APRIL 1, 2000 AND FOR THE SIX MONTHS ENDED APRIL 3, 1999
AND APRIL 1, 2000 IS UNAUDITED)
<TABLE>
<CAPTION>
ELECTRO- LAMBDA CORPORATE
1998 OPTICS MEDICAL PHYSIK AND OTHER TOTAL
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales............................... $193,438 $155,690 $61,321 $410,449
Intersegment net sales.................. 23,612 566 2,688 26,866
Gross profit............................ 91,284 75,584 30,997 197,865
Research and development expenses....... 20,472 15,427 8,635 44,534
Selling, general and administrative..... 46,911 61,105 15,874 $ 665 124,555
Intangibles amortization................ 2,280 2,183 181 4,644
-------- -------- ------- ------- --------
Total operating expenses................ 69,663 78,715 24,690 665 173,733
Income (loss) before income taxes....... 21,761 (2,667) 4,416 195 23,705
Depreciation and amortization........... 10,361 4,698 1,742 378 17,179
Capital expenditures.................... 12,166 4,295 5,647 243 22,351
Net trade receivables................... 37,096 35,658 14,190 (122) 86,822
Net inventories......................... 43,398 41,143 19,025 (25) 103,541
Net property and equipment.............. $ 63,463 $ 7,843 $11,157 $ 394 $ 82,857
Headcount............................... 1,276 656 279 50 2,261
<CAPTION>
ELECTRO- LAMBDA CORPORATE
1999 OPTICS MEDICAL PHYSIK AND OTHER TOTAL
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales............................... $233,057 $162,719 $73,093 $468,869
Intersegment net sales.................. 20,823 934 999 22,756
Gross profit............................ 109,291 78,662 32,713 220,666
Research and development expenses....... 22,694 14,661 9,404 46,759
In-process research and development..... 4,000 12,000 16,000
Selling, general and administrative..... 55,679 60,616 17,109 $ 725 134,129
Intangibles amortization................ 2,241 3,295 165 5,701
-------- -------- ------- ------- --------
Total operating expenses................ 84,614 90,572 26,678 725 202,589
Income (loss) before income taxes....... 23,998 (11,633) 5,480 (1,615) 16,230
Depreciation and amortization........... 10,747 5,848 2,624 637 19,856
Capital expenditures.................... 16,456 2,754 3,587 1,428 24,225
Net trade receivables................... 43,529 30,673 21,135 (334) 95,003
Net inventories......................... 45,404 34,599 17,924 (25) 97,902
Net property and equipment.............. $ 67,971 $ 7,631 $11,668 $ 2,684 $ 89,954
Headcount............................... 1,347 698 291 81 2,417
</TABLE>
--------------------------------------------------------------------------------
F-32
<PAGE>
COHERENT, INC. AND SUBSIDIARIES
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FISCAL YEARS ENDED SEPTEMBER 27, 1997, SEPTEMBER 26, 1998,
OCTOBER 2, 1999, AND THE SIX MONTHS ENDED APRIL 3, 1999 AND APRIL 1, 2000
(INFORMATION AS OF APRIL 1, 2000 AND FOR THE SIX MONTHS ENDED APRIL 3, 1999
AND APRIL 1, 2000 IS UNAUDITED)
<TABLE>
<CAPTION>
ELECTRO- LAMBDA CORPORATE
SIX MONTHS ENDED APRIL 3, 1999 OPTICS MEDICAL PHYSIK AND OTHER TOTAL
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales............................... $112,864 $ 75,952 $33,352 $222,168
Intersegment net sales.................. 9,898 396 511 10,805
Gross profit............................ 52,800 37,359 15,049 105,208
Research and development expenses....... 10,537 6,715 4,442 21,694
Selling, general and administrative..... 28,363 29,461 8,882 $ 342 67,048
Intangibles amortization................ 971 1,163 78 2,212
-------- -------- ------- ------- --------
Total operating expenses................ 39,871 37,339 13,402 342 90,954
Income (loss) before income taxes....... 12,366 (64) 1,577 82 13,961
Depreciation and amortization........... 4,939 1,477 2,558 229 9,203
Capital expenditures.................... 8,483 2,352 1,389 692 12,916
Net trade receivables................... 43,155 30,648 15,091 (122) 88,772
Net inventories......................... 45,455 36,861 18,707 (25) 100,998
Net property and equipment.............. $ 64,555 $ 7,078 $11,597 $ 2,228 $ 85,458
Headcount............................... 1,300 644 266 71 2,281
<CAPTION>
ELECTRO- LAMBDA CORPORATE
SIX MONTHS ENDED APRIL 1, 2000 OPTICS MEDICAL PHYSIK AND OTHER TOTAL
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales............................... $124,843 $ 97,379 $41,653 $263,875
Intersegment net sales.................. 13,113 831 590 14,534
Gross profit............................ 62,093 49,118 19,595 130,806
Research and development expenses....... 12,771 8,287 5,704 26,762
Selling, general and administrative..... 32,188 34,619 8,241 $ 434 75,482
Intangibles amortization................ 1,633 2,690 78 4,401
-------- -------- ------- ------- --------
Total operating expenses................ 46,592 45,596 14,023 434 106,645
Income (loss) before income taxes....... 15,238 3,795 4,586 (775) 22,844
Depreciation and amortization........... 6,594 1,208 4,029 559 12,390
Capital expenditures.................... 7,208 2,661 1,536 999 12,404
Net trade receivables................... 45,539 40,558 27,545 (122) 113,520
Net inventories......................... 47,189 40,149 25,167 (25) 112,480
Net property and equipment.............. $ 68,730 $ 7,618 $11,823 $ 3,240 $ 91,411
Headcount............................... 1,476 703 315 93 2,587
</TABLE>
GEOGRAPHIC INFORMATION
Coherent's foreign operations consist primarily of sales offices and
manufacturing facilities in Europe and Asia-Pacific. Sales, marketing and
customer service activities are conducted through sales
--------------------------------------------------------------------------------
F-33
<PAGE>
COHERENT, INC. AND SUBSIDIARIES
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FISCAL YEARS ENDED SEPTEMBER 27, 1997, SEPTEMBER 26, 1998,
OCTOBER 2, 1999, AND THE SIX MONTHS ENDED APRIL 3, 1999 AND APRIL 1, 2000
(INFORMATION AS OF APRIL 1, 2000 AND FOR THE SIX MONTHS ENDED APRIL 3, 1999
AND APRIL 1, 2000 IS UNAUDITED)
subsidiaries throughout the world. Geographic sales information presented below
is based on the location of the end customer. Geographic long-lived asset
information is based on the physical location of the assets at the end of each
fiscal period.
Sales to unaffiliated customers are as follows (in thousands):
<TABLE>
<CAPTION>
SIX MONTHS ENDED
FISCAL YEARS ---------------------
--------------------------------- APRIL 3, APRIL 1,
1997 1998 1999 1999 2000
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
United States......................... $177,803 $185,004 $198,599 $ 91,372 $107,220
Japan................................. 73,049 75,464 104,096 50,431 59,480
Europe, other......................... 53,476 61,089 70,632 34,854 44,911
Germany............................... 45,895 49,584 57,124 27,468 26,689
Asia-Pacific, other................... 23,973 22,274 19,793 9,703 13,746
Rest of World......................... 16,842 17,034 18,625 8,340 11,829
-------- -------- -------- -------- --------
Total sales........................... $391,038 $410,449 $468,869 $222,168 $263,875
======== ======== ======== ======== ========
</TABLE>
For the fiscal years 1997, 1998 and 1999, and the six months ended April 3, 1999
and April 1, 2000, no one customer accounted for 10% or more of total net sales.
Long-lived assets by geographic region are as follows (in thousands):
<TABLE>
<CAPTION>
SEPT. 27, SEPT. 26, OCT. 2, APRIL 1,
1997 1998 1999 2000
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
United States...................................... $67,361 $72,641 $ 77,896 $ 81,828
Germany............................................ 6,831 11,382 12,605 12,821
Europe, other...................................... 6,782 9,217 11,781 12,528
Asia-Pacific....................................... 3,251 3,316 4,190 3,830
------- ------- -------- --------
Total Long-lived assets............................ $84,225 $96,556 $106,472 $111,007
======= ======= ======== ========
</TABLE>
--------------------------------------------------------------------------------
F-34
<PAGE>
COHERENT, INC. AND SUBSIDIARIES
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FISCAL YEARS ENDED SEPTEMBER 27, 1997, SEPTEMBER 26, 1998,
OCTOBER 2, 1999, AND THE SIX MONTHS ENDED APRIL 3, 1999 AND APRIL 1, 2000
(INFORMATION AS OF APRIL 1, 2000 AND FOR THE SIX MONTHS ENDED APRIL 3, 1999
AND APRIL 1, 2000 IS UNAUDITED)
14. QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial data for fiscal 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
YEAR ENDED OCTOBER 2, 1999:
Net sales........................................ $105,631 $116,537 $115,051 $131,650
Gross profit..................................... 50,959 54,249 54,745 60,713
Net income (loss)................................ 4,266 5,380 (5,064) 7,259
Net income (loss) per diluted share.............. 0.18 0.22 (0.21) 0.29
Net income (loss) per basic share................ 0.18 0.22 (0.21) 0.30
============================================================================================
YEAR ENDED SEPTEMBER 26, 1998:
Net sales........................................ $101,369 $105,881 $ 98,552 $104,647
Gross profit..................................... 52,450 52,696 44,691 48,028
Net income (loss)................................ 7,510 6,838 (1,727) 6,190
Net income (loss) per diluted share.............. 0.32 0.29 (0.07) 0.26
Net income (loss) per basic share................ 0.33 0.29 (0.07) 0.26
============================================================================================
</TABLE>
--------------------------------------------------------------------------------
F-35
<PAGE>
[LOGO]
<PAGE>
--------------------------------------------------------------------------------
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses in connection with the
sale and distribution of the securities being registered, other than
underwriting discounts and commissions. All of the amounts shown are estimates
except the Securities and Exchange Commission registration fee.
<TABLE>
<CAPTION>
TO BE PAID BY
THE REGISTRANT
----------------------------------------------------------------------------
<S> <C>
SEC Registration Fee........................................ $ 54,591
NASD Fee.................................................... 21,178
Blue Sky fees and expenses.................................. 15,000
Accounting fees and expenses................................ 125,000
Legal fees and expenses..................................... 400,000
Printing and engraving...................................... 150,000
Registrar and transfer agent fees........................... 5,000
Nasdaq National Market listing fee.......................... 17,500
Miscellaneous fees and expenses............................. 11,731
-----------
Total................................................... $ 800,000
===========
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law, or DGCL, permits
indemnification of officers, directors and other corporate agents under certain
circumstances and subject to certain limitations. Our Certificate of
Incorporation and Bylaws provide that we shall indemnify our directors, officers
and agents to the fullest extent permitted by the DGCL against judgments and
monetary damages as a result of such individual serving as a director, officer
or agent, including in circumstances in which indemnification is otherwise
discretionary under such law. Our Bylaws also provide that we shall advance
expenses incurred by a director, officer or agent in advance of a final
disposition of such action provided we receive an undertaking by such individual
to repay the amounts advanced if it is ultimately determined that he is not
entitled to be indemnified. In addition, with the approval of our Board of
Directors and our stockholders, we have entered into separate indemnification
agreements with our directors, officers and certain employees that require us,
among other things, to indemnify them to the fullest extent permitted by law
against any judgments, amounts paid in settlement and all expenses incurred in
connection with defending any action that may arise by reason of their status or
service (other than liabilities arising from willful misconduct of a culpable
nature) and to obtain directors' and officers' insurance, if available on
reasonable terms. We are required to advance expenses incurred by a party to
such indemnification agreement in advance of a determination or judgment subject
to a determination by our Board of Directors or another party who is not a party
or defendants to such claim that the party to the indemnification agreement
would not be permitted to be indemnified under applicable law. Parties to the
indemnification agreements would not be indemnified for any acts, omissions or
transactions for which they are prohibited from receiving indemnification under
applicable law.
--------------------------------------------------------------------------------
II-1
<PAGE>
PART II
--------------------------------------------------------------------------------
These indemnification provisions may be sufficiently broad to permit
indemnification of our officers, directors and other corporate agents for
liabilities (including reimbursement of expenses incurred) arising under the
Securities Act of 1933.
ITEM 16. EXHIBITS
The following exhibits are filed with this Registration Statement:
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
----------------------------------------------------------------------------------------
<C> <S>
1.1** Form of Underwriting Agreement
4.1 Form of Common Stock Certificate
4.2* First Amended and Restated Common Shares Rights Agreement
dated as of June 24, 1998, between Coherent and
BankBoston, N.A.
5.1 Opinion of Wilson Sonsini Goodrich & Rosati, Professional
Corporation
10.1 Employee Stock Purchase Plan, as amended
10.2 1995 Stock Plan and form of agreement, as amended
10.3 1998 Director Option Plan
10.4** Productivity Incentive Plan, as amended
23.1** Independent auditors' consent
23.2 Consent of Wilson Sonsini Goodrich & Rosati, Professional
Corporation (included in Exhibit 5.1)
23.3 Consent of Limbach & Limbach, L.L.P.
24.1** Power of Attorney
</TABLE>
---------
* Incorporated by reference from Exhibit 1 (included in our registration
statement on Form 8-A/A filed as of July 1, 1998 (File No. 000-05255)).
** Previously filed.
ITEM 17. UNDERTAKINGS
A. We hereby undertake that, for purposes of determining any liability under
the Securities Act of 1933, each filing of our annual report pursuant to
Section 13(a) or section 15(d) of the Securities Exchange Act of 1934 (and
where applicable, each filing of an employee benefit plan's annual report
pursuant to section 15(d) of the Securities Exchange Act of 1934) that is
incorporated by reference in the registration statement shall be deemed to
be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
B. Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to our directors, officers, and controlling persons
pursuant to the foregoing provisions, or otherwise, we have been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by us of
expenses incurred or paid by a director, officer or controlling person of
ours in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with
the securities being registered, we will, unless in the opinion of our
counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification
by it is against public policy as
--------------------------------------------------------------------------------
II-2
<PAGE>
PART II
--------------------------------------------------------------------------------
expressed in the Securities Act of 1933 and will be governed by the final
adjudication of such issue.
C. We hereby undertake that:
(1) For the purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as
part of this registration statement in reliance upon Rule 430A and
contained in a form of prospectus filed by us pursuant to Rule 424(b)(1)
or (4) or 497(h) under the Securities Act shall be deemed to be part of
this registration statement as of the time it was declared effective.
(2) For the purposes of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
--------------------------------------------------------------------------------
II-3
<PAGE>
--------------------------------------------------------------------------------
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, we certify that we
have reasonable grounds to believe that we meet all of the requirements for
filing on Form S-3 and have duly caused this Amendment No. 1 to the Registration
Statement to be signed on our behalf by the undersigned, thereunto duly
authorized in the City of Santa Clara, State of California on June 22, 2000.
<TABLE>
<S> <C> <C>
COHERENT, INC.
By: /s/ BERNARD J. COUILLAUD
------------------------------------------
Bernard J. Couillaud
PRESIDENT AND CHIEF EXECUTIVE OFFICER
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement has been signed by the following persons in
the capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
/s/ BERNARD J. COUILLAUD Director, President and Chief Executive June 22, 2000
---------------------------------- Officer (Principal Executive Officer)
Bernard J. Couillaud
/s/ ROBERT J. QUILLINAN Executive Vice President and Chief June 22, 2000
---------------------------------- Financial Officer (Principal Financial
Robert J. Quillinan and Accounting Officer)
* Director June 22, 2000
----------------------------------
Henry E. Gauthier
* Director June 22, 2000
----------------------------------
Charles W. Cantoni
Director
----------------------------------
Frank P. Carrubba
* Director June 22, 2000
----------------------------------
Thomas Sloan Nelsen
Director
----------------------------------
Jerry E. Robertson
* Director June 22, 2000
----------------------------------
John H. Hart
</TABLE>
<TABLE>
<S> <C> <C> <C>
*By: /s/ ROBERT J. QUILLINAN
------------------------------------------
Robert J. Quillinan
ATTORNEY-IN-FACT
</TABLE>
--------------------------------------------------------------------------------
II-4
<PAGE>
--------------------------------------------------------------------------------
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
----------------------------------------------------------------------------------------
<C> <S>
1.1** Form of Underwriting Agreement
4.1 Form of Common Stock Certificate
4.2* First Amended and Restated Common Shares Rights Agreement
dated as of June 24, 1998, between Coherent and
BankBoston, N.A.
5.1 Opinion of Wilson Sonsini Goodrich & Rosati, Professional
Corporation
10.1 Employee Stock Purchase Plan, as amended
10.2 1995 Stock Plan and form of agreement, as amended
10.3 1998 Director Option Plan
10.4** Productivity Incentive Plan, as amended
23.1** Independent auditors' consent
23.2 Consent of Wilson Sonsini Goodrich & Rosati, Professional
Corporation (included in Exhibit 5.1)
23.3 Consent of Limbach & Limbach, L.L.P.
24.1** Power of Attorney
</TABLE>
---------
* Incorporated by reference from Exhibit 1 (included in our registration
statement on Form 8-A/A filed as of July 1, 1998 (File No. 000-05255)).
** Previously filed.
