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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Fiscal Year Ended September 30, 1995
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number: 0-5255
COHERENT, INC.
DELAWARE 94-1622541
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5100 PATRICK HENRY DRIVE, SANTA CLARA, CALIFORNIA 95054
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (408) 764-4000
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
------------------- -------------------
None None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
Common Stock Purchase Rights
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. X
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As of November 30, 1995, 10,954,655 shares of common stock were
outstanding. The aggregate market value of the voting shares (based on the
closing price reported by the NASDAQ National Market System on November 30,
1995) of Coherent, Inc., held by nonaffiliates was $394,526,202. For purposes
of this disclosure, shares of common stock held by persons who own 5% or more of
the outstanding common stock and shares of common stock held by each officer and
director have been excluded in that such persons may be deemed to be
"affiliates" as that term is defined under the Rules and Regulations of the Act.
This determination of affiliate status is not necessarily conclusive.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive proxy statement to be filed prior to
January 29, 1996, pursuant to Regulation 14A of the Securities Exchange Act of
1934 are incorporated by reference into Part III of this Form 10-K.
PART I
ITEM 1. BUSINESS
GENERAL DEVELOPMENT OF BUSINESS
THE LASER COMPANY
Coherent, Inc., a Delaware corporation, (herein referred to as "Coherent"
or "Company") is a leading designer, manufacturer and supplier of electro-
optical systems and medical instruments utilizing laser, precision optic and
microelectronic technologies. The Company integrates these technologies into a
wide variety of products and systems designed to meet the productivity and
performance needs of its customers. Major markets include the scientific
research community, medical institutions, clinics and private practices, and
commercial and OEM (original equipment manufacturer) applications ranging from
semiconductor processing and disk mastering to light shows and entertainment.
Coherent also produces and sells optical and laser components to other laser
system manufacturers.
The word "laser" is the acronym for "light amplification by stimulated
emission of radiation". The emitted radiation oscillates within an optical
resonator and is amplified by an active media, resulting in a monochromatic beam
of light which is narrow, highly coherent and thus can be focused to a small
spot with a high degree of precision.
INDUSTRY LEADERSHIP
Since inception in 1966, the Company has grown through a combination of
internal expansion, joint ventures and strategic acquisitions of companies with
related technologies and products. Coherent is a technical leader in every
market it serves. Driven by new product application innovations, Coherent has
more than 130 U.S. patents in force, and over the past several years has
committed approximately 11% of annual revenues to research and development
efforts.
During its most recently completed fiscal year, more than half of the
growth in annual sales came from products that were introduced within the last
two years. Committed to quality and customer satisfaction, Coherent designs and
produces its own components to retain complete quality control. Coherent
provides customers with around-the-clock technical expertise and quality that is
ISO 9000 certified at its principal domestic manufacturing sites.
MISSION AND GOALS
Coherent is focused on laser product innovations. Leveraging its
competitive strengths in laser technology development, new product applications,
engineering R&D and manufacturing expertise, Coherent is dedicated to customer
satisfaction, quality and service. Coherent's mission is to continue its
tradition of providing medical, scientific and commercial customers with cost
effective laser products that provide performance breakthroughs and application
innovations.
Coherent's goals are to serve its customers, employees and stockholders.
Specific goals include providing:
- Customers with innovative products, superb technology, total quality,
support and satisfaction.
- Employees with a challenging, fulfilling place to work while expanding
their skills and horizons.
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- Stockholders with consistent returns on equity capital and long-term
growth in sales and earnings.
FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
The sales and operating results of both industry segments and the
identifiable assets attributable to both industry segments for the three years
ended September 30, 1995 are set forth in Note 13, "Business Segments", of the
Notes to Consolidated Financial Statements.
PRODUCTS
BUSINESS STRUCTURE
Coherent's business structure reflects its two major business or market
segments, Medical and Electro-Optical. Medical serves the medical-surgical
community, while Electro-Optical serves the needs of scientific and commercial
customers (both end users and OEM's), including customers who purchase
components.
PRODUCT AND MARKET APPLICATIONS
Coherent currently produces more than 150 laser, laser system, precision
optics and component products. Medical products range in price from $25,000 to
$500,000. Scientific and commercial products range from $20,000 to $450,000.
Component products (including diodes) range in price from $500 to $50,000 and
consist of precision optics, thin film coatings, accessories, laser measurement
and testing instruments. The number of applications in Coherent's market
segments are abundant as shown in the table below:
APPLICATIONS BY MARKET
MEDICAL ELECTRO-OPTICAL
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SCIENTIFIC COMMERCIAL
---------- ----------
Ophthalmology Spectroscopy Optics & Optical Coating
Aesthetic Surgery Chemistry Semiconductor Microlithography
Dermatology Photochemistry Analytical Instrumentation
Cosmetic Reconstructive Physics Materials Processing
Surgery Viral Research Interferometric Wafer Inspection
Orthopedics Genetics Floptical Disk Manufacturing
Urology Environmental Research Audio & Video Disk Mastering
Gynecology Semiconductor Research Stereolithography
Otolaryngology Biology Graphic & Architectural Displays
Neurological Surgery Biochemistry Multimedia Entertainment
Oral Maxillofacial Engineering Micromachining
Oncology Forensics Cytofluoresence
Podiatry Holography
General Surgery Isotope Separation
Medical Therapy Metrology
Non-destructive Testing
Reprographics
PRODUCT NARRATIVE
MEDICAL
Coherent's Medical Group (CMG) develops, manufactures and distributes a
broad line of medical laser systems used in ophthalmology, dermatology,
gynecology, plastic surgery, aesthetic
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surgery, orthopedics, otolaryngology, neurological surgery, urology, podiatry,
oncology and other surgical specialties. These lasers are designed to improve
the quality of patient care, frequently decreasing overall health-care costs
compared to conventional procedures. Most of these products also make it
possible to perform treatments in a doctor's office, surgi-centers or outpatient
centers in hospitals instead of requiring inpatient hospitalization.
SURGICAL PRODUCTS
Coherent has developed two groundbreaking families of laser instruments
that are changing the way surgery is performed--the UltraPulse-Registered
Trademark- laser system for aesthetic surgery and the VersaPulse-Registered
Trademark- laser system for orthopedic and urologic surgery.
The UltraPulse high energy laser for surgical applications represents a
true departure in design and performance from conventional CO(2) lasers. This
technology, on which Coherent owns eight U.S. patents, offers significant
advantages in terms of laser effect on tissue and surgical precision. Because
this high energy laser cleanly and precisely vaporizes tissue, it has clinical
advantages for the treatment of a variety of skin conditions. The UltraPulse
5000C laser, with the Computerized Pattern Generator, is particularly suitable
for applications in skin-resurfacing and in other aesthetic surgery procedures.
Since its introduction in 1994, it has become the largest selling laser to
aesthetic surgeons for this application, making it the fastest growing product
that Coherent has ever introduced. Managing this growth has been one of
Coherent Medical Group's biggest challenges during the past year.
Almost all of the sales of the UltraPulse 5000C have been in the United
States. However, in fiscal 1995, Coherent introduced an international version
of this product that is qualified for sale in all European countries.
In addition to the UltraPulse 5000C, Coherent offers a full line of
UltraPulse lasers for a wide range of surgical specialties and applications.
All of these lasers utilize new sealed tube technology which greatly increases
tube life over other designs and does not require external gas or water
supplies. Coherent's lasers are used by specialists in dermatology, plastic and
reconstructive surgery, gynecology, otolaryngology, oncology, podiatry,
oral/maxillofacial surgery, neurological surgery and general surgery. New
applications for lasers in the above referenced specialties are continually
under development. The Company's UltraPulse lasers offer a range of power from
60 to 100 watts, and are capable of generating unprecedented high pulse energies
not available on competing CO(2) lasers.
Coherent's VersaPulse-Registered Trademark- holmium solid-state lasers have
emerged as the laser of choice for orthopedic and urologic surgery. The
VersaPulse, which is fiber-optically delivered, is an ideal laser for cutting,
ablating and smoothing meniscal and cartilaginous tissue with optimum hemostasis
and minimum bleeding. With delivery devices much smaller than conventional
instruments, these systems are expanding the range of procedures that can employ
new minimally invasive techniques.
In the fall of 1993, a new generation called the VersaPulse Select-TM- was
introduced. This system doubled the power available to the arthroscopic surgeon
while reducing system size to nearly half that of the first generation designs.
VersaPulse is approved by the FDA for joint arthroscopy, for open and endoscopic
procedures in general surgery and for lower back surgery.
In the spring of 1994, Coherent introduced the dual wavelength VersaPulse
Select for urology. This system combines the Ho:YAG and the Nd:YAG lasers and
is the first system to offer tissue cutting and coagulation and stone management
(lithotripsy) in a single package. The DuoTome-TM- fiber delivery systems allow
delivery of either the Ho:YAG or the Nd:YAG laser energy through the same fiber.
These systems provide much greater flexibility and are finding unique
applications in the rapidly growing laser prostatectomy market.
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Coherent was issued two U.S. patents on the use of the holmium laser for
arthroscopy and endoscopy through fiber delivery devices in a liquid
environment. In addition, Coherent holds a number of key patents on the fiber
optic delivery systems used with these lasers.
OPHTHALMIC PRODUCTS
Coherent pioneered the use of lasers in the ophthalmology market segment 25
years ago and is still the leader. CMG offers argon, krypton and dye lasers or
combinations of these lasers for photocoagulation and treatment of retinal
disease and glaucoma. The company's Nd:YAG lasers for photodisruption are used
for treatment of secondary cataracts. Coherent also sells an excimer refractive
surgery system in many countries in the world other than the U.S. for correction
of vision disorders including myopia, hyperopia and astigmatism.
Coherent's argon photocoagulator was the first such device to achieve
widespread acceptance by the medical community for treatment of diabetic
retinopathy, retinal detachments and glaucoma. The argon photocoagulator is
also used in treatment of age related macular degeneration.
The Ultima-Registered Trademark- 2000 and Novus-Registered Trademark- 2000
photocoagulator product lines utilize a patented "power-on-demand" laser tube
design where power is on only when required for treatment by the physician.
This innovation substantially extends the laser tube life and eliminates the
need for an external water supply. A broad line of accessories allows these
products to provide Laser Indirect Opthalmoscopic laser treatment and surgical
endophotocoagulation with Acculite-TM- probes in addition to slit lamp
applications with the LaserLink-TM- Adapter. The portable design of the Ultima
2000 product line allows the system to be transported to the patient for
treatment in convalescent or retirement care facilities, or used in the
operating room, as well as in intensive care nurseries for retinopathy of
prematurity.
The Novus Omni-TM-, introduced in fiscal 1994, attains a new level of
compactness, reliability, and flexibility in ophthalmic multi-wavelength
applications. With instantaneous switching among red, yellow, and green
treatment options, the retinal surgeon can now benefit from the proven
technology improvements in the Novus and Ultima lasers.
Coherent's Nd:YAG laser photodisruptors are used primarily for posterior
capsulotomies. These solid-state, Q-switched lasers provide ophthalmologists
with a method for treating secondary cataracts in a non-invasive manner. Unlike
the argon, krypton and dye lasers used in photocoagulation, Nd:YAG lasers
produce high power pulses as short as ten billionths of a second. These brief
but powerful pulses produce an "optical breakdown" effect which disrupts (cuts
or perforates) the tissue rather than producing a thermal burn. Nd:YAG lasers
are also used for iridotomies, a procedure used in the treatment of closed angle
glaucoma, whereby the laser makes a hole in the iris facilitating the outflow of
fluid trapped in the eye. This outflow relieves pressure which, if left
untreated, could cause damage to the optic nerve.
In March 1994, Coherent and Herbert Schwind GmbH & Co. KG entered into a
marketing and sales agreement which gives Coherent the exclusive right to sell
the Keratom-TM- excimer refractive surgery system in many countries of the
world. This product uses a high energy argon fluoride excimer laser from Lambda
Physik, a wholly owned Coherent subsidiary in Germany, to obtain a high quality
laser beam that is more uniform, and optical components that are simpler, more
reliable and more durable than competing machines. Keratom uses the patented
HaloPure-TM- generator to provide ultra-pure halogen as needed, from a self-
contained, solid-state source through a computer controlled chemical reaction.
Also in fiscal 1994, clinical trials began on a new erbium laser for the
most delicate forms of retinal and vitreal surgery. This product is allowing
surgeons to perform very delicate surgical procedures for removing vitro-retinal
membranes without impacting the retina, thus restoring vision.
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The trials have expanded to include several leading vitro-retinal surgeons
around the world to allow international experts to participate in this surgical
advance.
The medical laser systems manufactured by Coherent's Medical Group are
subject to regulation and control by the U.S. Food and Drug Administration and
other international regulatory agencies. See "Impact of Medical Device
Regulation".
The laser systems manufactured by the Medical Group typically range in
price from $25,000 to $500,000.
ELECTRO-OPTICAL
Coherent's electro-optical products include lasers and laser systems for
scientific, medical research, micromachining, commercial applications,
precision optics and related accessories. The principal types of lasers
produced by the Company's Electro-Optical segment are argon and krypton ion,
excimer, carbon dioxide (CO(2)), liquid dye, Nd:YAG, Titanium:Sapphire
(Ti:Sapphire), diode-pumped solid-state (DPSS), and semiconductor lasers
(laser diodes). These lasers have a broad range of power and operate in the
visible (V), ultraviolet (UV) and infrared (IR) portions of the
electromagnetic spectrum. The Company's optics and optical products include
special purpose lenses, mirrors and advanced optical coatings. Coherent's
electro-optical products are sold for scientific, medical and (OEMs).
SCIENTIFIC GROUP
Coherent's Laser Group (CLG) and Lambda Physik, GmbH, the Company's 80%
owned subsidiary in Gottingen, Germany, comprise the Scientific Group.
CLG is headquartered in Santa Clara, California and is a leading
developer and manufacturer of ion, dye, solid-state Nd:YAG, Ti:Sapphire,
DPSS, diode and CO(2) lasers for the scientific, OEM and micromachining
markets. The lasers sold by CLG are used in basic and applied research in
medicine, chemistry, physics, biology, biochemistry, engineering and forensic
sciences and in a variety of commercial applications including materials
processing, semiconductor microlithography, stereolithography,
interferometric wafer inspection, printing, reprographics, optical disk
manufacturing, analytical instrumentation, laser light shows, and
manufacturing process control.
In fiscal 1995, applications for the DPSS product line expanded
dramatically in various markets such as printing, reprographics, and
instrumentation. CLG introduced a series of new service programs worldwide to
provide improved support to its commercial customers. In March 1995, the
Company acquired the non-telecommunication business and some intellectual
property rights of ATx Telecom Systems, Inc. (AMOCO). In June 1995, the Company
acquired the business and net assets of Adlas GmbH and Co. KG (Adlas), in
Lubeck, Germany, a manufacturer of CW infrared, green and Q- switched lasers
whose products complement the DPSS product line. With these two acquisitions
and the creation of the new Diode Pumped Business Unit (DPBU), CLG has
consolidated its patent position in the DPSS area, increased its portfolio of
product offerings to better address the commercial and micromachining markets,
and has opened up a manufacturing and service entity in Europe.
In July 1995, the Company acquired the laser diode operations of Uniphase.
With this acquisition, the Company added high power semiconductor laser diodes
with wavelength emissions from 670 to 980 nanometers to it's product lines.
These laser diodes are key components for the Company's growing segment of diode
pumped laser products, thereby reducing its dependence on outside vendors.
Laser diodes are also widely used in medical, printing, OEM instrumentation,
remote sensing, and machine vision industries.
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During fiscal 1995, the Nd:YAG laser Infinity-TM-, coupled with Lambda
Physik's OPO (optical parametric oscillator), established itself as a leading
pulsed laser system for high end scientific applications. Infinity has also
opened up new applications in the medical and OEM markets.
Fiscal 1995 included Coherent's introduction of Sabre-TM-, a new and fully
automated high power ion laser. This product will replace the successful Innova
400 product family in established scientific and commercial applications and
position the Company well for emerging opportunities in lithography, holography,
and semiconductor applications. Broadening the configurations in all product
platforms during the year has allowed access to a variety of new applications
and to address changing market needs.
The lasers and laser systems produced by CLG, with the exception of
semiconductor lasers, typically range in price from $10,000 to $250,000.
Semiconductor laser diode prices range from $500 to $3,000.
Coherent's subsidiary, Lambda Physik, GmbH, develops and manufactures
excimer and pulsed laser sources for dye lasers and OPO's. The excimer laser
is an efficient means of producing UV light without the need of complex
frequency conversion techniques. The excimer laser is strongly gaining market
share in industrial and medical applications.
In fiscal 1995, Lambda Physik completed a 2000 sq. ft. clean room in its
Gottingen facility for the production of laser components. Today all of the
excimer products use the proprietary, award winning NovaTube-TM- technology,
which has stimulated the sales of all excimer laser series: LPX, ComPex and
LAMBDA.
Also in fiscal 1995, the COMPex 150, the new model of injection locked
excimer laser, was introduced. This model brings new state of the art
performance in a significantly smaller package compared to previous models.
Aside from the known combustion analysis and ozone lidar applications, this
laser is also used for fiber grating production.
Complementary to the known narrow bandwidth lithography laser applications
covered by the LITHO laser, a new field for quasi-broadband, high repetition
rates lasers in step and scan lithography, has been opened in fiscal 1995 with
good future prospects.
Lambda Physik has produced some of the most respected pulse laser models
for spectroscopy in the world. The present SCANmate narrow band pulsed dye
laser series is 60% smaller than its predecessor and features an optional built-
in Nd:YAG pump laser. With the broadband OPO, a new promising product for the
spectroscopy application has been introduced to the market in fiscal year 1995.
The lasers and laser systems produced by the Scientific Group typically
range in price from $20,000 to $450,000.
COMPONENTS GROUP
Coherent's Auburn Group (CAG) manufactures optics, thin film coatings for
high-performance laser optics, laser accessories and electro-optical components
for the Company as well as other manufacturers.
Optics and thin film coatings, which consist of mirrors and lenses used for
imaging and directing a laser beam, are used in the Company's own laser
products, in low-loss coated optics for OEMs and other commercial applications.
During fiscal 1995, a new generation of "Q-Plate" processes were put into
production in California which further extend Coherent's ability to increase the
laser damage threshold of its optical components. In England, our Leicester
facility introduced a coating process for
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infrared imaging optics with reduced environmental impact, while performing at a
significantly higher level than competing products. This advance is
particularly attractive to OEM customers in the European Union who have goals to
reduce their own systems' environmental impact.
CAG also designs and manufactures laser measurement instruments and
accessories that are used to measure and maximize the performance of laser
systems. During fiscal 1995 a record number of new products were introduced by
the Instruments Division. These products provided new solutions to beam
diagnostic problems and extended the range of power measurement products. For
example, the LaserGauge includes a CCD (charge coupled device) imaging system
plus a dedicated and flexible CPU which, for the first time, provides a user
with a complete system for laser beam analysis at a price point of less than
$3,000.
Products made by CAG typically range in price from $500 to $50,000 and are
sold through CAG's field and telemarketing sales force and through an
international network of independent distributors as well as other Coherent
sales groups.
MARKETING, DISTRIBUTION AND CUSTOMER SERVICE & SUPPORT
Coherent markets its products domestically through direct sales forces
having separate primary responsibility for scientific, component and medical
product lines. Coherent's products are sold internationally through direct
sales personnel located in the United Kingdom, Germany, France, Belgium, The
Netherlands, Japan (Lambda Physik products for OEM and micromachining only) and
Hong Kong, as well as through independent representatives in other parts of the
world. The Company's foreign sales are made principally to customers in Europe,
Japan and Asia Pacific, but sales are also made to customers in Canada, Mexico,
Latin America, Australia, the Middle East and Africa. Sales made to independent
representatives and distributors (except for Japanese distribution for the
Medical segment) are generally priced in U.S. dollars. Foreign sales made
directly by the Company 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
and export/import controls. Coherent's products are broadly distributed and no
one customer accounted for more than 10% of total sales during fiscal 1995.
The Company gives various warranties on its products and offers service on
a contractual basis after the initial product warranty has expired.
Coherent maintains a customer support and field service staff in major
markets in the United States, Mexico, Europe, Japan and Asia Pacific. This
organization works closely with customers and customer groups in servicing
equipment, training customers to use the Company's products and exploring
additional applications of the Company's technologies.
PRODUCTION AND SOURCES AND AVAILABILITY OF MATERIALS
The Company's production operations consist primarily of assembling and
testing its products, although the Company manufactures substantially all of its
laser tubes and optics. The Company depends upon outside suppliers for most
product components, many of which are manufactured to the Company's
specifications. The Company has not experienced any significant difficulty in
obtaining raw materials and components in the past. There is always a
possibility of periodic, short-term disruption of supplies of critical, high
technology components; however, the Company does not believe that such
disruptions would have a material adverse impact on the Company's financial
position or results of operations.
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PATENTS AND LICENSES
Coherent has a significant number of U.S. and foreign patents for
technology incorporated into its products. The Company believes it owns or has
the right to use the basic patents covering its products. However, each year
there are hundreds of patents granted in the world related to lasers and their
applications and from time to time the Company has been notified that it may be
infringing patents owned by others. In the past, the Company has been able to
obtain patent licenses for patents related to its products on commercially
reasonable terms. The failure to obtain a key patent license from a third party
could cause the Company to incur liabilities for patent infringement and, in the
extreme case, to discontinue manufacturing the products that infringe upon the
patent. Management believes that none of the Company's current products
infringe upon a valid claim of any patents owned by third parties, where the
failure to license the patent would have a material and adverse effect on the
Company's financial position or results of operations.
BACKLOG
At September 30, 1995, the Company's backlog of orders scheduled for
shipment was approximately $67,195,000, compared with $41,131,000 at October 1,
1994. Orders used to compute backlog are generally cancelable without
substantial penalties. Historically, the rate of cancellation experienced by the
Company has not been significant; however, since orders are cancelable, the
backlog of orders at any point in time is not necessarily indicative of future
revenues. The Company anticipates filling the present backlog during fiscal
1996. Backlog at September 30, 1995 was higher than at October 1, 1994 in both
the Medical and Electro-Optical business segments.
COMPETITION
Coherent is the largest laser company in each of its business segments. No
competitor offers the range of products that are manufactured and sold by
Coherent. However, competition is intense in both business segments because
there are a number of smaller laser companies that sell products that compete
directly with one or more Coherent products.
The markets in which Coherent is engaged are subject to intense competition
and rapid technological change. The principal factors of competition for all
products are reliability, price, performance, service, marketing and
distribution, technological achievement and human resources. Coherent believes
that it competes favorably as to these factors, but that continued emphasis upon
development of new and improved products and the continued development of
successful channels of distribution will be necessary to maintain or increase
the Company's share of the laser markets in which it competes.
RESEARCH AND DEVELOPMENT
Coherent maintains separate research and development staffs in both of its
major business segments. Development of new and improved electro-optical and
medical products is primarily the responsibility of engineering development and
applications staffs located in the U.S., Germany and the United Kingdom. Such
engineering staffs design and develop both new products and enhancements to
existing products. Coherent works closely with customers, individually and
through Company sponsored seminars, to develop products to meet customer
application and performance needs.
The Company operates in an industry which is subject to rapid technological
change and the Company's ability to compete and operate successfully depends
upon, among other things, its ability to react to such change. Accordingly,
Coherent is committed to the development of new products as well as the
improvement and refinement of existing products. Fiscal 1995 expenditures for
research and development were $29,981,000, or 11% of sales compared to
$24,740,000, 11% of sales, and $21,674,000, 11% of sales, during fiscal 1994 and
1993, respectively.
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IMPACT OF ENVIRONMENTAL REGULATION
The Company believes that compliance with federal, state and local
environmental protection regulations will not have a material adverse effect on
the capital expenditures, earnings, competitive and financial position of the
Company. The Company is a respondent under Remedial Action Orders issued by the
California Department of Toxic Substance Control relating to an investigation
and remediation of soil and groundwater contamination at its former facility in
the Stanford Industrial Park, Palo Alto, California. See Note 12, "Commitments
and Contingencies", of the Notes to Consolidated Financial Statements.
IMPACT OF MEDICAL DEVICE REGULATIONS
The Company's medical products are subject to regulation and control by the
Center for Devices and Radiological Health, a branch of the Food and Drug
Administration (FDA) within the Department of Health and Human Services. The
FDA medical device regulations require either an Investigational Device
Exemption (IDE), Pre-Market Approval (PMA) or 510(K) approval before new
products can be marketed to, or utilized by, the general public. The Company's
medical products are subject to similar regulations in its major international
markets. Complying with these regulations is necessary for the Company's
strategy of expanding the markets for and sales of its products into these
countries.
These approvals may include clinical testing, limitations on the number of
sales, controls of end user purchase price and the extent of product
commercialization. In certain instances, these constraints can delay planned
shipment schedules as design and engineering modifications are made in response
to regulatory concerns and requests. The Company's competitors in the medical
field are subject to the same regulations.
The Company believes that its long established working relationship with
the medical community and the high quality of its products allow it to work
effectively within these regulatory constraints.
EMPLOYEES
At September 30, 1995, Coherent employed 1,528 persons. The Company's
continued success will depend in large measure on its ability to attract and
retain highly skilled employees, who are in great demand.
FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT SALES
Financial information relating to foreign and domestic operations for the
three years ended September 30, 1995, is set forth in Note 13, "Business
Segments", of the Notes to Consolidated Financial Statements.
ITEM 2. PROPERTIES
The Company's corporate headquarters and major electro-optical facility is
located in Santa Clara, California, consisting of approximately 8.5 acres of
land and a 200,000 square foot building owned by the Company.
An additional electro-optical facility is located in Auburn, California.
The Auburn facility consists of a 60,000 square-foot building and a 50,000
square-foot building both owned by the Company.
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The Company's principal medical products facility is located in Palo Alto,
California, consisting of two buildings totaling approximately 100,000 square
feet of floor area under leases expiring in 1999.
During fiscal 1995, the Company purchased its former Laser Group Porter
Drive facility in the Stanford Industrial Park, Palo Alto, California. This
facility is 95,000 square feet and is currently being remodeled. It is the
Company's intention to lease this facility in fiscal 1996.
During fiscal 1993, the Company sold the net assets of Coherent General,
Inc. The sale did not include land consisting of approximately 36 acres (11
developed acres) and facilities consisting of a 58,000 square foot building
owned by the Company in Sturbridge, Massachusetts. This building is currently
leased (until August 1998) to the acquirer of Coherent General, Inc.
Lambda Physik GmbH's facility in Gottingen, Germany consist of two
buildings totaling 54,000 square feet, which are owned by the Company.
Coherent GmbH's facility in Dieburg, Germany consists of a 16,740 square
foot building leased by the Company until 1999 with a five year renewal option.
Coherent Lubeck's (formerly Adlas) facility in Lubeck, Germany consists of
a 8,960 square foot building leased by the Company until 1999 with a five year
renewal option.
Coherent Optics Europe Ltd.'s facility consists of one leased building
(three units) in Leiceseter, England totaling 21,258 square feet with leases
expiring from 2005 to 2007.
The Company also maintains sales and service offices under short-term
leases in the United States, Mexico, Germany, the United Kingdom, France,
Belgium, The Netherlands, Hong Kong, Peoples Republic of China and Japan.
In general, the Company's facilities are considered both suitable and
adequate to provide for future requirements.
ITEM 3. LEGAL PROCEEDINGS
The Company has been named as a respondent under Remedial Action Orders
issued by the California Department of Toxic Substance Control in connection
with the investigation and remediation of soil and ground water contamination at
its former facility in the Stanford Industrial Park, Palo Alto, California. See
Note 12, "Commitments and Contingencies", of the Notes to Consolidated Financial
Statements.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
11
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Coherent's Common Stock is traded on the NASDAQ National Market System
under the symbol COHR. The table below sets forth the high and low closing
prices for each quarterly period during the past two fiscal years as reported by
the National Association of Securities Dealers, Inc.
Quarters Ended
--------------------------------------------------------------------------------------
Fiscal 1995 Fiscal 1994
-------------------------------------- ------------------------------------
Dec. 31 Apr. 1 July 1 Sept. 30 Dec. 25 Apr. 2 July 2 Oct. 1
-------------------------------------- ------------------------------------
Closing Price:
High $17.25 $28.25 $30.75 $41.25 $15.00 $14.75 $13.75 $14.63
Low $13.75 $16.50 $24.25 $28.75 $11.50 $11.50 $12.25 $12.13
The number of stockholders of record as of November 30, 1995 was 2,197. No
cash dividends have been declared or paid since Coherent was founded and the
Company has no present intention to declare or pay cash dividends. The
Company's agreements with its banks restrict the payment of dividends on the
Company's Common Stock. See Note 6, "Short-term Borrowings", of the Notes to
Consolidated Financial Statements.
ITEM 6. SELECTED FINANCIAL DATA
Years Ended
-----------------------------------------------------------------------
Sept. 30, Oct. 1, Sept. 25, Sept. 26, Sept. 28,
1995 1994 1993 1992 1991
- ----------------------------------------------------------------------------------------------------------------------
(In thousands, except per share amounts)
Net sales $285,499 $215,367 $196,883 $192,213 $179,316
- ----------------------------------------------------------------------------------------------------------------------
Gross profit 142,483 105,429 97,300 90,738 81,125
- ----------------------------------------------------------------------------------------------------------------------
Income from continuing operations 19,323 10,301 9,319 5,227 887
- ----------------------------------------------------------------------------------------------------------------------
Gain (loss) from discontinued
operations 1,154 (4,409) (2,583) (660)
- ----------------------------------------------------------------------------------------------------------------------
Cumulative effect of change in
accounting for income taxes 5,637
- ----------------------------------------------------------------------------------------------------------------------
Net income 19,323 11,455 10,547 2,644 227
- ----------------------------------------------------------------------------------------------------------------------
Common and equivalent per share data:
Income from continuing operations 1.75 1.00 .93 .55 .09
- ----------------------------------------------------------------------------------------------------------------------
Gain (loss) from discontinued
operations .11 (.44) (.27) (.07)
- ----------------------------------------------------------------------------------------------------------------------
Cumulative effect of change
in accounting for income taxes .56
- ----------------------------------------------------------------------------------------------------------------------
Net income 1.75 1.11 1.05 .28 .02
- ----------------------------------------------------------------------------------------------------------------------
Total assets 255,874 211,766 194,381 183,699 163,193
- ----------------------------------------------------------------------------------------------------------------------
Long-term obligations 5,139 8,865 14,122 15,559 6,590
- ----------------------------------------------------------------------------------------------------------------------
Other long-term liabilities 9,597 6,789 3,468 5,020 8,724
- ----------------------------------------------------------------------------------------------------------------------
Minority interest in subsidiaries 1,782 4,089 3,806 3,813 3,342
- ----------------------------------------------------------------------------------------------------------------------
Stockholders' equity 161,191 133,464 117,023 103,476 96,882
- ----------------------------------------------------------------------------------------------------------------------
No dividends have been declared in any of the periods presented. See "Item
5" for a discussion of the Company's dividend history.
12
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
GENERAL
The Company operates in a technologically advanced, dynamic and highly
competitive environment. The Company's future operating results are and will
continue to be subject to quarterly variations based on a variety of factors,
many of which are beyond the Company's control, including fluctuations in
customer orders and foreign currency exchange rates, among others. While the
Company attempts to identify and respond to these conditions in a timely manner,
such conditions represent significant risks to the Company's performance. In
particular, the Company has experienced in recent quarters significant increases
in orders, sales and profits which it believes has contributed to the increase
in its stock price over this period. However, if the level of orders diminishes
during the next, or any future quarter, or if for any reason the Company's
shipments are disrupted (particularly near a quarter-end when the Company
typically ships a significant portion of its sales), it would have a material
adverse effect on sales and earnings, and a corresponding adverse effect on the
market price of the Company's stock.
Similarly, the Company conducts a significant portion of its business
internationally. International sales accounted for more than 50% of the
Company's sales for fiscal 1995 and 1994. The Company expects that
international sales will continue to account for a significant portion of its
net sales in the future. A significant amount of the these sales occur through
its international subsidiaries, some of which also perform research,
development, manufacturing and service functions. As a result of the Company's
international sales and operations, it is subject to the risks of conducting
business internationally, including fluctuations in foreign exchange rates,
which could affect the sales price in local currencies of the Company's products
in foreign markets as well as the Company's local costs and expenses of its
foreign operations. The Company uses forward exchange and currency swap
contracts, and other risk management techniques, to hedge its exposure to
currency fluctuations relating to its intercompany transactions and certain firm
foreign currency commitments; however, its international subsidiaries remain
exposed to the economic risks of foreign currency fluctuations. For example,
the weakening of the U.S. dollar against certain major European and Japanese
currencies had the effect of increasing sales for the current fiscal year ended
September 30, 1995 by approximately $9.9 million compared to the corresponding
prior year period. This impact is partially offset by the impact of the weaker
U.S. dollar compared to other currencies relative to local product costs and
operating expenses. There can be no assurance that such factors will not
adversely impact the Company's operations in the future or require the Company
to modify its current business practices.
RESULTS OF OPERATIONS
CONSOLIDATED SUMMARY
During fiscal 1995, net income increased to $19.3 million ($1.75 per share)
compared to $11.5 million ($1.11 per share) for fiscal 1994 and $10.5 million
($1.05 per share) for fiscal 1993. Fiscal 1994 results reflect a $1.2 million
($.11 per share) gain from the reversal of inventory valuation reserves and
certain accruals that were no longer required relating to the discontinuation of
the Industrial operations in fiscal 1993. Fiscal 1993 net income includes a
one-time favorable adjustment of $5.6 million ($.56 per share) resulting from
the implementation of Statement of Financial Accounting Standards (SFAS) 109,
"Accounting for Income Taxes". Also during fiscal 1993, the Company sold the
net assets of its Industrial segment and recorded a loss of $4.4 million ($.44
per share) from discontinued operations, which included a loss on the disposal
of the segment and a loss from discontinued operations of $2.8 million and $1.6
million, respectively. Income from continuing operations before income taxes
increased $15.0 million (90%) to $31.8 million for fiscal 1995 compared to $16.8
million for fiscal 1994, which was $2.7 million (19%) higher than fiscal 1993.
These increases resulted primarily from higher sales volumes in both business
segments. The Company's effective tax rate was 39% for fiscal 1995 and 1994 and
34% for
13
fiscal 1993, resulting in income from continuing operations of $19.3 million
($1.75 per share), $10.3 million ($1.00 per share) and $9.3 million ($.93 per
share) for fiscal 1995, 1994 and 1993, respectively.
1995 COMPARED TO 1994
NET SALES AND GROSS PROFIT
CONSOLIDATED
During fiscal 1995, net sales increased $70.1 million (33%) to $285.5
million from $215.4 million in fiscal 1994, resulting primarily from higher
sales volumes of products introduced in the past two years in both the Electro-
Optical and Medical business segments. Increased international sales in both
business segments, were also due in part to the weaker U.S. dollar against the
German deutschemark, British pound and Japanese yen in fiscal 1995 compared to
fiscal 1994. International sales increased $37.5 million (34%) to $146.9
million while domestic sales increased $32.6 million (31%) to $138.6 million.
International sales were 51% of net sales for the current fiscal year, the same
as the prior fiscal year.
The gross profit rate improved to 50% for the current fiscal year compared
to 49% for fiscal 1994. The improvement was primarily associated with higher
sales volumes of higher margin Medical segment products in certain territories
that experience higher gross profits. The improvement, primarily in the Medical
segment, is also due in part to translation gains affecting gross profit because
of the weaker U.S. dollar in fiscal 1995 compared to fiscal 1994 against other
major currencies. Translation gains from Electro-Optical segment international
sales were offset by the impact of higher product costs from translation losses
due to certain of its products manufactured in Germany and sold in the U.S. and
other countries where the respective currencies were weaker than the
deutschemark. However, the Medical segment's gross profit benefits from the
translation gains from its foreign currency denominated sales as its product
costs are primarily dollar denominated.
ELECTRO-OPTICAL
Electro-Optical net sales increased $33.3 million (26%) to $159.3 million
from $126.0 million in fiscal 1994. International sales increased $24.3 million
(35%) to $94.7 million (59% of total sales) for the current fiscal year.
Domestic sales increased $9.0 million (16%) to $64.6 million for the current
fiscal year. The increase in net sales resulted primarily from higher sales
volumes in the Coherent Laser Group , Coherent Auburn Group and Lambda Products
Group.
The gross profit rate remained at 50% compared to the prior fiscal year.
MEDICAL
Medical net sales increased $36.8 million (41%) to $126.2 million from
$89.4 million in the prior year. International sales increased $13.2 million
(33%) to $52.2 million and domestic sales increased $23.6 million (47%) to $74.0
million. The increase in international sales was primarily attributable to
increased sales volumes in Europe, Japan, Asia Pacific, Mexico, Latin America
and Canada. On a product line basis, the acceptance of the Ultrapulse for
dermatology and the Ultima for ophthalmology accounted for the increased sales
volumes.
The gross profit rate increased to 50% from 48% in fiscal 1994. The
increase in margin was primarily due to higher sales volumes of higher margin
products, a more favorable geographic mix, and the impact of international sales
denominated in strong foreign currencies, while product costs of such
international sales are primarily denominated in dollars.
14
OPERATING EXPENSES
Years Ended
Sept. 30, Oct. 1,
1995 1994
-------- --------
(in thousands)
Research & development $ 29,981 $ 24,740
Selling, general & administrative 82,590 64,383
-------- --------
Total operating expenses $112,571 $ 89,123
-------- --------
-------- --------
Total operating expenses increased $23.4 million (26%) but decreased as a
percentage of sales to 39% in fiscal 1995 from 41% in the prior fiscal year.
Current year research and development (R&D) expenses increased in absolute
dollars by $5.2 million (21%) from fiscal 1994. The increase in R&D expenses
occurred primarily in the Medical segment due to increased personnel and related
costs associated with an increased number of products under development and
increased spending for clinical development activities. As a percentage of
sales, R&D expenses remained at 11% compared to the same period a year ago,
reflecting the Company's continued commitment to innovation and technical
leadership.
Selling, general and administrative (SG&A) expenses increased $18.2 million
(28%) compared to fiscal 1994 but decreased to 29% of sales from 30% of sales in
the prior fiscal year. Selling and marketing expenses increased $12.1 million
(29%) during the current year but remained at 19% as a percentage of sales to
compared to the prior fiscal year. The dollar increase was associated with
higher sales volumes, additional personnel, and increased facilities expenses.
General and administrative expenses also increased by $6.1 million (27%)
compared to fiscal 1994, but remained at 10% as a percentage of sales. In
addition, total SG&A expenses were higher in both segments due in part to the
translation of costs denominated in strong foreign currencies relative to the
U.S. dollar, compared to the same period a year ago.
OTHER INCOME (EXPENSE)
Total other income, net increased by $1.5 million primarily due to a
decrease of $0.7 million in interest expense due to lower average interest
rates and the nonrecurrence of fiscal 1994 prepayment penalties associated with
debt refinancing and an increase in other income of $0.7 million primarily due
to a gain on the sale of an investment.
INCOME TAXES
The Company's effective tax rate for fiscal 1995 and fiscal 1994 remained
at 39%.
1994 COMPARED TO 1993
NET SALES AND GROSS PROFIT
CONSOLIDATED
During fiscal 1994, net sales increased $18.5 million (9%) to $215.4
million from $196.9 million in fiscal 1993, resulting primarily from higher
sales volumes in both the Electro-Optical and Medical business segments.
International sales were 51% of net sales for fiscal 1994 compared to 49% in
fiscal 1993. Fiscal 1994 is the first year where international sales exceeded
50% of net sales.
The gross profit rate was 49% for both fiscal 1994 and 1993.
15
ELECTRO-OPTICAL
Electro-Optical net sales increased $11.8 million (10%) to $126.0 million
from $114.2 million in fiscal 1993. International sales were $70.4 million and
56% of total sales for fiscal 1994. The increase in net sales resulted
primarily from higher sales volumes in the Coherent Laser Group and higher sales
volumes in the Coherent Auburn Group. The sales increase for the Coherent
Auburn Group was also due in part to the first quarter purchase of Coherent
Optics Europe Ltd. (COEL), located in Leicester, England.
The gross profit rate increased to 50% from 49% in fiscal 1993. This
increase was primarily the result of improved variances and manufacturing
efficiencies associated with the higher sales volumes.
MEDICAL
Medical net sales increased $6.7 million (8%) to $89.4 million in fiscal
1994 from $82.7 million in fiscal 1993. International sales increased $6.0
million (18%) to $39.0 million from $33.0 million in fiscal 1993 while domestic
sales increased $0.7 million (1%) to $50.4 million from $49.7 million in the
prior fiscal year. The increase in international sales was primarily
attributable to increased sales volumes in Europe, Asia Pacific, Latin America
and Canada. On a product line basis, the acceptance of the Ultima and the
VersaPulse Select accounted for the increased sales volumes. The increase in
fiscal 1994 domestic sales was primarily due to higher service contract revenue.
The gross profit rate decreased to 49% in fiscal 1994 from 50% in fiscal
1993. The decline in margin was primarily due to lower average selling prices
on VersaPulse upgrades. Such sales resulted from the replacement of existing
VersaPulse lasers for the new VersaPulse Select.
OPERATING EXPENSES
Years Ended
Oct. 1, Sept. 25,
1994 1993
-------- --------
(in thousands)
Research & development $ 24,740 $ 21,674
Selling, general & administrative 64,383 61,714
-------- --------
Total operating expenses $ 89,123 $ 83,388
-------- --------
-------- --------
Total operating expenses increased $5.7 million (7%) but decreased as a
percentage of sales to 41% in fiscal 1994 from 42% in fiscal 1993. Current
year research and development (R&D) expenses increased in absolute dollars by
$3.1 million (14%) from fiscal 1993. The increase in R&D expenses resulted
primarily from increased costs in the Medical segment associated with an
increased number of products under development. As a percentage of sales, R&D
expenses remained at 11% compared to the same period a year ago, reflecting the
Company's continued commitment to innovation and technical leadership.
Selling, general and administrative expenses increased $2.7 million (4%)
compared to fiscal 1993 but decreased to 30% of sales from 31% of sales in
fiscal 1993. Selling and marketing expenses increased $3.3 million (8%) during
the current year. This increase was associated with higher sales volumes,
additional personnel, and increased facilities expenses. The sales and
marketing expense increase was partially offset by a decrease in general and
administrative expenses of $0.6 million (3%) compared to fiscal 1993. This
decrease was primarily due to certain nonrecurring expenses at Lambda Physik,
GmbH for fiscal 1993, relating to the repayment of R&D grants to the German
Federal Ministry for Research and Technology and the reserve for bad debts
associated with an advance to a vendor.
16
OTHER INCOME (EXPENSE)
The increase in total other income, net of $0.2 million was primarily due
to an increase in interest income of $0.7 million due to the increased cash and
investments from fiscal 1993 and an increase in foreign exchange gains of $0.2
million. These increases were partially offset by lower minority interest
income of $0.4 million and lower other income, net of $0.3 million due primarily
to the 1993 gain on an investment.
INCOME TAXES
The Company's effective tax rate for fiscal 1994 was 39% compared to 34%
in fiscal 1993. The effective tax rate in fiscal 1993 was lower than fiscal
1994 due primarily to certain fiscal 1993 foreign taxes lower than U.S. taxes.
During fiscal 1993, the Company elected early adoption of Statement of
Financial Accounting Standards (SFAS) 109, "Accounting for Income Taxes". SFAS
109 requires the use of the liability method for recording deferred income
taxes. Deferred tax assets are recognized if it is more likely than not that a
benefit will be realized.
The cumulative effect of this accounting change, which resulted in
recognizing previously unrecognized tax benefits for years prior to fiscal 1993,
increased net earnings for fiscal 1993 by $5,637,000 or $.56 per share. Income
taxes for 1992 have not been restated for this change.
OTHER
Inflation has not had a significant impact on the Company's results of
operations during the past three fiscal years because general price level
increases have been modest. Increases in per unit material and labor costs have
generally been offset by improved yields and other efficiencies.
FINANCIAL CONDITION
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of liquidity are cash and short-term
investments of $44.7 million at September 30, 1995. Additional sources of
liquidity are the Company's multi-currency line of credit and bank credit
facilities totaling $25.3 million as of September 30, 1995, of which $23.7
million is unused and available under these credit facilities. During fiscal
1995, such facilities have been used in Europe and Japan. Because of the
Company's low debt to equity ratio (.11:1), management believes 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 fiscal 1996. The Company has
certain financial covenants related to this debt. At September 30, 1995, the
Company is in compliance with these covenants (see Note 6 "Short-term
Borrowings" of the Notes to Consolidated Financial Statements").
CHANGES IN FINANCIAL CONDITION
Cash and equivalents decreased by $6.8 million (25%) from October 1, 1994.
Operations and changes in exchange rates generated $9.3 million; short-term
investments increased $7.7 million. Investing activities used $18.5 million;
$7.7 million was used to acquire property and equipment (net of proceeds from
disposition of property and equipment), $4.5 million was used to purchase
certain assets and license certain patents from Amoco, $4.3 million was used to
purchase the former Porter Drive facility and $1.9 million was used for the
purchase of the net assets of Adlas (see Note 3 "Acquisitions" of the Notes to
Consolidated Financial Statements). Financing activities provided $2.4 million,
sales
17
of shares under employee benefit plans and collection of notes receivable from
stock sales generated $6.2 million, partially offset by increased repayments on
borrowings, net of $3.8 million.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Item 14(a) for an index to the consolidated financial statements and
supplementary financial information which are attached hereto.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
18
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information regarding Registrant's directors will be set forth under the
caption "Election of Directors - Nominees" in Registrant's proxy statement for
use in connection with the Annual Meeting of Stockholders to be held in March,
1996, (the "1995 Proxy Statement") and is incorporated herein by reference. The
1996 Proxy Statement will be filed with the Securities and Exchange Commission
within 120 days after the end of the Registrant's fiscal year.
The following table sets forth the names, ages and office of all of the
executive officers of the Company:
Name Age Office Held
- --------------------------------------------------------------------------------
James L. Hobart, Ph.D. 62 Chairman of the Board of
Directors, Chief Executive
Officer and General Manager,
Coherent Medical Group
Henry E. Gauthier 55 President and Chief Operating
Officer
Robert J. Quillinan 48 Vice President and Chief
Financial Officer
Bernard J. Couillaud, Ph.D. 51 Vice President and General
Manager, Coherent Laser Group
Robert M. Gelber 50 Vice President and General
Manager, Coherent Auburn Group
Dennis C. Bucek 50 Treasurer and Assistant
Secretary
Scott H. Miller 41 Vice President and General
Counsel
Larry W. Sonsini 54 Secretary
There are no family relationships between any of the executive officers and
directors.
Dr. Hobart served as the President of the Company from 1968 through June
1974 and from January 1976 through March 1983. From June 1974 to January 1976
he served as the Company's Chief Scientist. He has served as a director of the
Company since 1966, as Chairman of the Board of Directors since 1974, as Chief
Executive Officer since August 1988, and as General Manager of the Medical Group
since August 1994.
Mr. Gauthier has served as President and Chief Operating Officer of the
Company since August 1988. He served as President and Chief Executive Officer
of the Company from March 1983 through July 1988, as President of Coherent
General, Inc., from June 1986 through January 1987 and as General Manager of the
Medical Group from May 1987 through July 1988. In July 1983 he was elected to
the Board of Directors.
19
Mr. Quillinan has served as Vice President and Chief Financial Officer
since July 1984. He served as Vice President and Treasurer from March 1982 to
July 1984 and as Corporate Controller from April 1980 to March 1982.
Dr. Couillaud has served as Vice President and General Manager of Coherent
Laser Group since March 1992. From 1990 to March 30, 1992, he served as Manager
of the Advanced Systems Business Unit, and from 1987 to 1990 served as Director
of R&D for the Coherent Laser Group.
Mr. Gelber has served as Vice President and General Manager, Coherent
Auburn Group since August 1986.
Mr. Bucek has served as Treasurer and Assistant Secretary since August
1985.
Mr. Miller has served as General Counsel to the Company since October 1988
and as Vice President since March 1994.
For over five years, Mr. Sonsini has served as the Company's Secretary and
has been a member of Wilson, Sonsini, Goodrich & Rosati, P.C., general counsel
to the Company.
ITEM 11. EXECUTIVE COMPENSATION
Information regarding remuneration of Registrant's directors and executive
officers will be set forth under the caption "Election of Directors - Executive
Compensation" in Registrant's 1996 Proxy Statement and is incorporated herein by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information regarding security ownership of certain beneficial owners and
management will be set forth under the captions "Information Concerning
Solicitation and Voting - Record Date and Share Ownership" and "Election of
Directors - Security Ownership of Management" in Registrant's 1996 Proxy
Statement and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information regarding certain relationships and related transactions will
be set forth under the caption "Election of Directors - Certain Transactions" in
Registrant's 1996 Proxy Statement and is incorporated herein by reference.
20
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND FORM 8-K REPORTS
PAGE
----
(a) 1. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
The following Consolidated Financial Statements of
Coherent, Inc. and its subsidiaries are filed
as part of this report on Form 10-K:
Independent Auditors' Report 25
Consolidated Balance Sheets - September 30, 1995
and October 1, 1994 26
Consolidated Statements of Income - Years ended
September 30, 1995, October 1, 1994,
and September 25, 1993 27
Consolidated Statements of Stockholders' Equity -
Years ended September 30, 1995, October 1, 1994,
and September 25, 1993 28
Consolidated Statements of Cash Flows - Years ended
September 30, 1995, October 1, 1994,
and September 25, 1993 29
Notes to Consolidated Financial Statements 31
2. CONSOLIDATED FINANCIAL STATEMENT SCHEDULES
Schedule II - Valuation and Qualifying Accounts 46
Schedules not listed above have been omitted because the matter or
conditions are not present or the information required to be set forth
therein is included in the Consolidated Financial Statements hereto.
(b) REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the three months ended
September 30, 1995.
21
(c) EXHIBITS
Exhibit
Numbers
-------
2.1* Agreement and Plan of Merger. (Previously filed as
Exhibit 2.1 to Form 10-K for the fiscal year ended
September 29, 1990.)
3.1* Restated and Amended Certificate of Incorporation.
(Previously filed as Exhibit 3.1 to Form 10-K for the
fiscal year ended September 29, 1990.)
3.2* Bylaws, as amended. (Previously filed as Exhibit 3.2
to Form 10-K for the fiscal year ended September 29,
1990.)
4.1* Amended and Restated Common Shares Rights Agreement
dated November 2, 1989 between the Company and the Bank
of Boston. (Previously filed as Exhibit 4.1 to Form 8K
filed on November 3, 1989.)
10.5* Leases dated January 10, 1979, between the Company and
John D. Banks, Allen W. Koering, Frank Lee Crist, Jr.,
George McKee and West Bayshore Associates. (Previously
filed as Exhibit 10.5 to Form 8, Amendment No. 1 to
Annual Report on Form 10-K for the fiscal year ended
September 25, 1982.)
10.17* 1981 Incentive Stock Option Plan, as amended, and forms
of agreement. (Previously filed as Exhibits to the
Company's Registration Statement on Form S-8
No. 2-96838 filed April 2, 1985.)
10.18* 1987 Incentive Stock Option Plan and forms of
agreement. (Previously filed as Exhibit 10.18 to Form
10-K for the fiscal year ended September 30, 1989.)
10.19* Productivity Incentive Plan, as amended. (Previously
filed as Exhibit 10.19 to Form 10K for the fiscal year
ended October 1, 1988.)
10.20* Employee Stock Purchase Plan and form of Subscription
Agreement, as amended. (Previously filed as Exhibit
10.20 to Form 10K for the fiscal year ended October 1,
1988.)
10.21* Coherent Employee Retirement and Investment Plan.
(Previously filed as Exhibit 10.23 to Form 8, Amendment
No. 1 to Annual Report on Form 10-K for the fiscal year
ended September 25, 1982.)
10.30* Patent License Agreements by and between Coherent, Inc.
and Patlex Corporation, effective as of July 1, 1988.
(Previously filed as Exhibit 10.30 to Form 10K for the
fiscal year ended October 1, 1988.)
10.31* Agreement by and between Coherent, Inc. and Dr. Dirk
Basting, dated as of September 15, 1988. (Previously
filed as Exhibit 10.31 to Form 10K for the fiscal year
ended October 1, 1988.)
10.33* 1990 Directors' Option Plan and Form of Agreement.
(Previously filed as Exhibit 10.33 to Form 10-K for the
fiscal year ended September 29, 1990.)
22
(c) EXHIBITS CONTINUED
Exhibit
Numbers
21.1 Subsidiaries.
23.1 Independent Auditors' Consent.
24.1 Power of Attorney.
27.1 Financial Data Schedules.
* These exhibits were previously filed with the Commission as indicated and
are incorporated herein by reference.
23
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized on December 16, 1994.
COHERENT, INC.
JAMES L. HOBART
-----------------------
By: James L. Hobart
Chairman of the Board &
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Henry E. Gauthier and Robert J. Quillinan,
jointly and severally, his attorneys-in-fact, each with the power of
substitution for him in any and all capacities, to sign any amendments to this
report, and to file the same, with exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, hereby
ratifying and confirming that each of said attorneys-in-fact, or his substitute
or substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
/s/ JAMES L. HOBART December 18, 1995
- ----------------------------------------------- -------------------------
James L. Hobart Date
(Director, Chairman of the Board &
Chief Executive Officer)
/s/ HENRY E. GAUTHIER December 18, 1995
- ----------------------------------------------- -------------------------
Henry E. Gauthier Date
(Director, President & Chief Operating Officer)
/s/ ROBERT J. QUILLINAN December 18, 1995
- ----------------------------------------------- -------------------------
Robert J. Quillinan Date
(Vice President & Chief Financial Officer)
/s/ CHARLES W. CANTONI December 18, 1995
- ----------------------------------------------- -------------------------
Charles W. Cantoni Date
(Director)
/s/ FRANK CARRUBBA December 18, 1995
- ----------------------------------------------- -------------------------
Frank Carrubba Date
(Director)
/s/ THOMAS SLOAN NELSEN December 18, 1995
- ----------------------------------------------- -------------------------
Thomas Sloan Nelsen Date
(Director)
/s/ JERRY E. ROBERTSON December 18, 1995
- ----------------------------------------------- -------------------------
Jerry E. Robertson Date
(Director)
24
INDEPENDENT AUDITORS' REPORT
To the Stockholders and Board of Directors of Coherent, Inc.:
We have audited the accompanying consolidated financial statements of
Coherent, Inc. and its subsidiaries, listed in Item 14.(a)1. Our audits also
included the consolidated financial statement schedule listed in Item 14.(a)2.
These financial statements and financial statement schedules are the
responsibility of the Company's management. Our responsibility is to express an
opinion on the financial statements and financial statement schedule 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 September 30, 1995 and October 1, 1994, and the results of their
operations and their cash flows for each of the three years in the period ended
September 30, 1995 in conformity with generally accepted accounting principles.
Also, in our opinion, such financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
As discussed in Notes 1 and 7 to the consolidated financial statements, in
fiscal 1993 the Company changed its method of accounting for income taxes to
conform with Statement of Financial Accounting Standards 109.
DELOITTE & TOUCHE LLP
San Jose, California
October 31, 1995
25
COHERENT, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
September 30, October 1,
1995 1994
- --------------------------------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS:
Cash and equivalents $ 20,426 $ 27,239
Short-term investments 24,242 16,534
Accounts receivable - net of allowances
of $2,834 in 1995 and $2,384 in 1994 62,374 49,074
Inventories 52,004 38,829
Prepaid expenses and other assets 11,173 11,066
Deferred tax assets 14,733 13,527
- --------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 184,952 156,269
- --------------------------------------------------------------------------------------------------------
PROPERTY AND EQUIPMENT 91,300 82,569
ACCUMULATED DEPRECIATION AND AMORTIZATION (46,427) (39,362)
- --------------------------------------------------------------------------------------------------------
Property and equipment - net 44,873 43,207
- --------------------------------------------------------------------------------------------------------
GOODWILL - net of accumulated amortization of
$4,237 in 1995 and $3,497 in 1994 10,152 4,964
OTHER ASSETS 15,897 7,326
- --------------------------------------------------------------------------------------------------------
$255,874 $211,766
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term borrowings $ 7,016 $ 2,423
Current portion of long-term obligations 5,285 4,708
Accounts payable 11,688 8,012
Income taxes payable 4,165 3,809
Other current liabilities 50,011 39,607
- --------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 78,165 58,559
- --------------------------------------------------------------------------------------------------------
LONG-TERM OBLIGATIONS 5,139 8,865
OTHER LONG-TERM LIABILITIES 9,597 6,789
MINORITY INTEREST IN SUBSIDIARIES 1,782 4,089
STOCKHOLDERS' EQUITY:
Common stock, par value $.01:
Authorized - 50,000 shares
Outstanding - 10,869 in 1995 and 10,338 in 1994 108 103
Additional paid-in capital 76,225 68,646
Unrealized gain on investments 171
Notes receivable from stock sales (1,218) (1,981)
Retained earnings 83,480 64,157
Accumulated translation adjustment 2,425 2,539
- --------------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 161,191 133,464
- --------------------------------------------------------------------------------------------------------
$255,874 $211,766
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
26
COHERENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
Years Ended
------------------------------------------
Sept. 30, Oct. 1, Sept. 25,
1995 1994 1993
- --------------------------------------------------------------------------------------------------------
NET SALES $285,499 $215,367 $196,883
COST OF SALES 143,016 109,938 99,583
- --------------------------------------------------------------------------------------------------------
GROSS PROFIT 142,483 105,429 97,300
- --------------------------------------------------------------------------------------------------------
OPERATING EXPENSES:
Research and development 29,981 24,740 21,674
Selling, general and administrative 82,590 64,383 61,714
- --------------------------------------------------------------------------------------------------------
TOTAL OPERATING EXPENSES 112,571 89,123 83,388
- --------------------------------------------------------------------------------------------------------
INCOME FROM OPERATIONS 29,912 16,306 13,912
OTHER INCOME (EXPENSE):
Interest and dividend income 2,392 2,108 1,403
Interest expense (1,148) (1,879) (1,964)
Other - net 668 215 765
- --------------------------------------------------------------------------------------------------------
TOTAL OTHER INCOME, NET 1,912 444 204
- --------------------------------------------------------------------------------------------------------
INCOME FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES 31,824 16,750 14,116
PROVISION FOR INCOME TAXES 12,501 6,449 4,797
- --------------------------------------------------------------------------------------------------------
INCOME FROM CONTINUING OPERATIONS 19,323 10,301 9,319
- --------------------------------------------------------------------------------------------------------
DISCONTINUED OPERATIONS:
Loss from discontinued operations (net of tax
benefits of $317) (1,592)
Gain (loss) on disposal of discontinued
operations (net of tax of $715 and tax benefit
of $4,030, respectively) 1,154 (2,817)
- --------------------------------------------------------------------------------------------------------
GAIN (LOSS) FROM DISCONTINUED OPERATIONS 1,154 (4,409)
- --------------------------------------------------------------------------------------------------------
INCOME BEFORE CUMULATIVE
EFFECT OF CHANGE IN ACCOUNTING
FOR INCOME TAXES 19,323 11,455 4,910
CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING FOR INCOME TAXES 5,637
- --------------------------------------------------------------------------------------------------------
NET INCOME $ 19,323 $ 11,455 $ 10,547
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
COMMON AND EQUIVALENT PER SHARE DATA:
INCOME FROM CONTINUING
OPERATIONS $ 1.75 $ 1.00 $ .93
GAIN (LOSS) FROM DISCONTINUED
OPERATIONS .11 (.44)
CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING FOR INCOME TAXES .56
- --------------------------------------------------------------------------------------------------------
NET INCOME $ 1.75 $ 1.11 $ 1.05
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
27
COHERENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years ended September 30, 1995, October 1, 1994, and September 25, 1993
(In thousands)
Common Stock Add. Unreal. Notes Rec. Accum
Par Paid-in Gain on From Stock Retain. Trans.
Shares Val. Capital Investmts. Sales Earnings Adj.
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE, SEPTEMBER 26, 1992 9,437 $ 94 $59,455 $ $(1,438) $42,155 $3,210
Sales of shares under employee
stock option plans 324 4 3,175 (496)
Productivity Incentive Plan
distributions 19 230
Sales of shares under Employee
Stock Purchase Plan 133 1 1,179
Tax benefit of stock option
transactions 417
Collection of notes receivable 624
Translation adjustment (2,134)
Net income 10,547
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE, SEPTEMBER 25, 1993 9,913 99 64,456 (1,310) 52,702 1,076
Sales of shares under employee
stock option plans 202 2 2,066 (671)
Productivity Incentive Plan
distributions 21 291
Sales of shares under Employee
Stock Purchase Plan 202 2 1,617
Tax benefit of stock option
transactions 216
Translation adjustment 1,463
Net income 11,455
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE, OCTOBER 1, 1994 10,338 103 68,646 (1,981) 64,157 2,539
Sales of shares under employee
stock option plans 359 3 3,615 (326)
Productivity Incentive Plan
distributions 21 422
Sales of shares under Employee
Stock Purchase Plan 151 2 1,772
Tax benefit of stock option
transactions 1,770
Change in unrealized gain on
investments 171
Collection of notes receivable 1,089
Translation adjustment (114)
Net income 19,323
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE, SEPTEMBER 30, 1995 10,869 $108 $76,225 $171 $(1,218) $83,480 $2,425
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
28
COHERENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Years Ended
-----------------------------------------------
Sept. 30, Oct. 1, Sept. 25,
1995 1994 1993
- --------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH AND EQUIVALENTS:
OPERATING ACTIVITIES:
Net income $19,323 $11,455 $10,547
Adjustments to reconcile to net cash
provided by operating activities:
(Gain) loss on disposal of segment (1,154) 2,817
Discontinued operations 1,592
Cumulative effect of change in accounting
for income taxes (5,637)
Purchases of short-term trading investments (87,137) (64,470)
Proceeds from sales of short-term trading
investments 79,600 57,131
Depreciation and amortization 8,955 7,862 7,274
Issuance of common stock under
Productivity Incentive Plan 422 291 230
Deferred income taxes 1,601 319 5,297
Minority interest in subsidiaries (2,307) 283 424
Dividends paid to minority stockholders (431)
Equity in (income) loss of joint ventures 80 (202)
Changes in assets and liabilities:
Accounts receivable (10,980) (3,741) 2,065
Inventories (10,383) (1,702) 3,232
Prepaid expenses and other assets 125 3,602 (7,300)
Accounts payable 3,504 250 399
Other current liabilities 8,410 4,095 5,329
- --------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 11,213 14,019 25,838
- --------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES:
Purchases of short-term investments (61,702)
Proceeds from sales of short-term investments 63,944
Purchases of property and equipment (8,384) (10,728) (12,855)
Dispositions of property and equipment, net 654 380 986
Purchase of Amoco assets (4,520)
Purchase of Porter Drive facility (4,311)
Cash paid for acquisition of Adlas (1,941)
Proceeds from disposal of segment:
Cash 4,414
Receivables (4,222)
Other - net 43 (1,663) (1,923)
- --------------------------------------------------------------------------------------------------------
NET CASH USED FOR INVESTING ACTIVITIES (18,459) (12,011) (11,358)
- --------------------------------------------------------------------------------------------------------
(continued)
29
COHERENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(CONCLUDED)
(In thousands)
Years Ended
--------------------------------------------
Sept. 30, Oct. 1, Sept. 25,
1995 1994 1993
- --------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES:
Long-term debt borrowings $ 940 $ 8,926 $ 2,732
Long-term debt repayments (5,670) (12,762) (2,850)
Short-term borrowings 2,960 84 4,510
Short-term repayments (2,026) (1,560) (12,729)
Repayments of capital lease obligations (587) (513)
Sales of shares under employee stock option
and purchase plans, net 5,066 3,016 3,863
Collection of notes receivable from stock sales 1,089 624
- --------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES 2,359 (2,883) (4,363)
- --------------------------------------------------------------------------------------------------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH
AND EQUIVALENTS (1,926) 191 163
- --------------------------------------------------------------------------------------------------------
NET DECREASE IN CASH AND EQUIVALENTS (6,813) (684) 10,280
Cash and equivalents beginning of year 27,239 27,923 17,643
- --------------------------------------------------------------------------------------------------------
CASH AND EQUIVALENTS END OF YEAR $ 20,426 $ 27,239 $ 27,923
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
NONCASH INVESTING AND FINANCING ACTIVITIES:
Purchase of Adlas net assets:
Purchase obligation due $ 4,996
Cash paid 1,941
Net tangible assets acquired (1,015)
---------
Goodwill acquired $ 5,922
---------
---------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the year for:
Interest $ 1,032 $ 1,718 $ 2,023
Income taxes $ 13,417 $ 2,905 $ 5,987
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
30
COHERENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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). All
significant intercompany balances and transactions have been eliminated. The
functional currency of the Company's foreign subsidiaries is 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 stockholders' equity. Investments in business entities in which
the Company 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.
The Company's fiscal year ends on the Saturday nearest to September 30.
Consequently, the Company's fiscal years for 1995 and 1993 included 52 weeks and
fiscal year 1994 included 53 weeks.
CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
The Company'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.
During fiscal 1994, the Company elected early adoption of Statement of
Financial Accounting Standards (SFAS) 115, "Accounting for Certain Investments
in Debt and Equity Securities." Accordingly, the Company has classified its
short-term investments in debt instruments as trading securities and the
carrying value of such securities has been adjusted to fair market value, which
was not materially different from cost. The cumulative effect of initial
adoption was not significant.
During fiscal 1995 the Company classified an investment in marketable
equity securities as available for sale and recorded an unrealized gain of
$171,000 in stockholders' equity at September 30, 1995. The cost of such
investment had been written off in previous years when such securities were
restricted and recoverability was doubtful.
INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out) or
market. Inventories are as follows:
1995 1994
- --------------------------------------------------------------------------------
(In thousands)
Purchased parts and assemblies $14,840 $12,020
Work-in-process 19,836 14,714
Finished goods 17,328 12,095
- --------------------------------------------------------------------------------
Inventories $52,004 $38,829
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
31
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:
1995 1994 Useful Life
- --------------------------------------------------------------------------------
(In thousands)
Land $5,852 $5,828
Buildings and improvements 28,665 27,126 20-31 years
Equipment, furniture and fixtures 53,883 47,146 3-10 years
Leasehold improvements 2,900 2,469 Terms of lease
- --------------------------------------------------------------------------------
Property and equipment $91,300 $82,569
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Included in equipment, furniture and fixtures is equipment under capital
leases with a cost of $1,676,000 at September 30, 1995 (accumulated
amortization of $1,335,000) and $2,136,000 at October 1, 1994 (accumulated
amortization of $1,337,000).
GOODWILL
Goodwill relates to acquired subsidiaries and is being amortized on a
straight-line basis over estimated useful lives of three to forty years.
WARRANTY
The Company warrants certain of its products and provides for estimated
product warranty costs at the time of sale.
REVENUE RECOGNITION
The Company generally recognizes revenue from product sales upon shipment
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 the Company to
concentrations of credit risk consist principally of cash equivalents, short-
term investments and accounts receivable. The Company places its investments
only in U.S. Treasury obligations or with high credit quality financial
institutions and, by policy, limits the amount of credit exposure to any one
institution. The majority of its short-term investments are in U.S. Treasury
bills and notes at September 30, 1995. The majority of the Company's accounts
receivable are derived from sales to customers for medical and surgical
applications, scientific research applications, and OEM's. The Company performs
ongoing credit evaluations of its customers' financial condition and limits the
amount of credit extended when deemed necessary but generally requires no
collateral. The Company maintains reserves for potential credit losses, and all
such losses to date have been within management's expectations.
INCOME TAXES
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 $4,390,000 at September 30,
1995. Withholding taxes of approximately $139,000 would be payable upon
repatriation of such earnings which would result in additional foreign tax
credits.
32
During fiscal 1993, the Company elected early adoption of Statement of
Financial Accounting Standards (SFAS) 109, "Accounting for Income Taxes". SFAS
109 requires the use of an asset and liability method for recording deferred
income taxes. Deferred tax assets are recognized if it is more likely than not
that a benefit will be realized.
The cumulative effect of this accounting change, which resulted in
recognizing previously unrecognized tax benefits for years prior to fiscal 1993,
increased net earnings for fiscal 1993 by $5,637,000 or $.56 per share.
COMMON AND EQUIVALENT PER SHARE DATA
Common and equivalent per share data is based upon the weighted average
number of common shares outstanding during the period plus dilutive common share
equivalents and shares issuable under the Productivity Incentive Plan. Dilutive
common share equivalents include outstanding stock options when the exercise
price is less than the average market price and shares subscribed under the
Employee Stock Purchase Plan. The number of common and dilutive common
equivalent shares used were 11,062,000 in 1995, 10,342,000 in 1994, and
10,073,000 in 1993.
RECLASSIFICATION
Certain prior year amounts have been reclassified to conform with the
current year presentation. Such reclassification had no impact on net income or
retained earnings for any year presented.
2. DISCONTINUED OPERATIONS
During fiscal 1993, the Company disposed of its Industrial segment. The
sale was recorded in three separate transactions. Effective June 26, 1993,
certain assets, liabilities and the business of Coherent General, Inc., a
manufacturer and developer of industrial laser products primarily for the
automotive, electronics, aerospace and consumer industries, located in
Sturbridge, Massachusetts were sold to Transfer Technology Group plc (TTG) for
cash of $500,000 and a note of $3,722,000 plus imputed interest of 7.5%, due in
August 1994. During fiscal 1994, the Company refinanced the remaining balance
of the note ($2,000,000), and included the purchase of additional inventory by
TTG of $600,000. The new note of $2,600,000 plus imputed interest of 6.73% was
due and paid in August 1995. Also effective June 26, 1993, the net assets of the
industrial business of the Company's subsidiary in Hull, England were sold to
Lumonics Ltd. for $4,281,000, including $500,000 of minimum future royalties.
Effective August 31, 1993, the Company substantially completed its disposition
of the operating assets of the Industrial segment when it sold the net assets of
its Coherent General subsidiary in to Eimac Co., Ltd. for $132,000.
The loss on disposition of the segment has been accounted for as
discontinued operations and prior years' financial statements have been restated
to reflect the discontinuation of the Industrial segment. During fiscal 1994,
the Company substantially completed its plan of disposition which resulted in a
net gain of $1.2 million from the reversal of inventory valuation reserves and
certain accruals in excess of amounts required. Net sales of the Industrial
segment for 1993 were $14,269,000.
3. ACQUISITIONS
Effective June 30, 1995, the Company acquired the business and net assets
of Adlas GmbH and Co. KG (Adlas), located in Lubeck, Germany for approximately
$6.9 million. The Company paid $1.9 million in cash and recorded a $3.5 million
note payable due December 31, 1995 and a $1.5 million deferred payment due
December 31, 1997. This deferred payment does not accrue interest and is
contingent on achieving certain net sales goals which the Company believes are
probable of being attained. The acquisition has been accounted for as a
purchase and, accordingly, the Company has
33
recorded the $5.9 million excess of the purchase price over the fair value of
net tangible assets acquired as goodwill which is being amortized over ten
years. Adlas is a leading manufacturer of DPSS lasers used in commercial
applications such as semiconductor inspection, reprographics, materials
processing, and analytical instrumentation. The results of Adlas are included
in the Company's results for the fourth quarter of fiscal 1995. The proforma
unaudited net sales, net income and earnings per share for fiscal 1995 giving
effect to the acquisition as if it had occurred on October 2, 1994 were
$290,699,000, $19,460,000 and $1.76, respectively, The proforma net sales, net
income and earnings per share for fiscal 1994 as if Adlas had been acquired on
September 26, 1993 were $220,167,000, $11,545,000, and $1.12, respectively .
Effective March 24, 1995, Coherent and ATx Telecom Systems, Inc. (AMOCO)
entered into an "Asset Purchase and Sale Agreement" whereby Coherent purchased
certain assets (consisting primarily of patents and technology licenses)
relating to Amoco's diode pumped solid-state laser technology for $4.5 million
in cash. The intangible assets acquired of $4.3 million are being amortized
primarily over a ten year period.
In October 1993, the Company acquired the business and net assets of Vinten
Electro-Optics Ltd. (VEOL), a wholly-owned subsidiary of Vinten Group plc
located in Leicester, England, for approximately $1.5 million in cash. The
acquisition has been accounted for as a purchase and accordingly, the Company
has recorded the excess of the purchase price over the fair value of net
tangible assets acquired as $0.3 million of goodwill which is being amortized
over five years. VEOL is a supplier of optical components and windows for
infra-red imaging systems and is operating as Coherent Optics Europe Ltd.
(COEL). VEOL's results of operations have been included in the Consolidated
Statements of Operations for all of fiscal 1995 and 1994. The pro forma
unaudited net sales for fiscal 1993 giving effect to the acquisition as if it
had occurred on September 27, 1992 were $200,873,000.
4. BALANCE SHEET DETAILS
Prepaid expenses and other assets consist of the following:
1995 1994
- --------------------------------------------------------------------------------
(In thousands)
Prepaid income taxes $ 5,690 $ 4,686
Prepaid expenses and other 5,483 3,553
Notes receivable from Transfer
Technology Group plc 2,827
- --------------------------------------------------------------------------------
Prepaid expenses and other assets $11,173 $11,066
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Other assets consist of the following:
1995 1994
- --------------------------------------------------------------------------------
(In thousands)
Assets held for investment $ 6,726 $ 1,760
Intangibles and other assets 9,171 5,566
- --------------------------------------------------------------------------------
Other assets $15,897 $7,326
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Assets held for investment at September 30, 1995 includes the Company's
former Porter Drive facility purchased for $4.3 million and at September 30,
1995 and October 1, 1994 include the Company's former manufacturing facility in
Sturbridge, Massachusetts which the Company is leasing to TTG (see Note 2).
34
Other current liabilities consist of the following:
1995 1994
- --------------------------------------------------------------------------------
(In thousands)
Accrued expenses and other $16,085 $13,635
Accrued payroll and benefits 15,889 12,407
Deferred service income 8,595 7,359
Reserve for warranty 6,856 5,418
Customer deposits 2,586 788
- --------------------------------------------------------------------------------
Other current liabilities $50,011 $39,607
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Other long-term liabilities consist of the following:
1995 1994
- --------------------------------------------------------------------------------
(In thousands)
Deferred tax liabilities $ 4,679 $ 1,952
Environmental remediation costs 2,469 2,573
Deferred income and other 2,449 2,264
- --------------------------------------------------------------------------------
Other long-term liabilities $ 9,597 $ 6,789
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
5. 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 the Company's long-term obligations
approximates fair market value.
The carrying amount and fair value of foreign exchange contracts were $23.6
million and $23.5 million, respectively, at September 30, 1995. The carrying
amount and fair value of foreign exchange contracts was $8.5 million at October
1, 1994. The Company held no foreign exchange contracts at October 1, 1994.
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, the Company has exposures to foreign
currency fluctuations arising from foreign currency sales and purchases and
intercompany transactions, among other things. The Company uses foreign
exchange forward contracts to limit its exposure to foreign exchange losses
arising from nonfunctional currency payables and receivables and firm
commitments. 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 the Company's financial results. Costs
associated with entering into such contracts are generally amortized over the
life of the instruments and are not material to the Company's financial results.
35
At September 30, 1995 and October 1, 1994, the Company had foreign currency
forward contracts outstanding to hedge accounts receivable and backlog, which
mature at various dates, to reduce exposure to foreign currency exchange risk.
The aggregate contract value of instruments used to buy U.S. dollars in exchange
for Japanese yen was $3,726,000 at September 30, 1995 and $1,719,000 at October
1, 1994. The aggregate contract value of instruments used to buy U.S. dollars
in exchange for German deutschemarks was $14,216,000 at September 30, 1995 and
$4,258,000 at October 1, 1994. The aggregate contract value of instruments used
to buy U.S. dollars in exchange for French francs was $5,126,000 at September
30, 1995 and $2,557,000 at October 1, 1994. The aggregate contract value of
instruments used to buy U.S. dollars in exchange for British pounds sterling was
$475,000 at September 30, 1995.
6. SHORT-TERM BORROWINGS
Short-term borrowings consist of the following:
1995 1994
- --------------------------------------------------------------------------------
(In thousands)
Note payable for Adlas acquisition (see Note 3) $ 3,472
Note payable due to minority interest in subsidiary 2,003 $ 227
Borrowings under bank credit lines 1,541 2,196
- --------------------------------------------------------------------------------
Short-term borrowings $ 7,016 $ 2,423
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The note payable to minority interest in subsidiary is due upon four weeks
notice from the noteholder and bears interest at FIBOR (Frankfurt Interbank
Offered Rate) plus 0.5% with a maximum of 9.0%.
The Company maintains lines of credit worldwide with several banks. The
Company's primary domestic line of credit is a $10,000,000 unsecured revolving
account from Bank of America which expires March 31, 1996. In addition, the
Company has several foreign lines of credit which allow it to borrow in the
applicable local currency. These lines of credit total $15,276,000 and are
concentrated in Germany. The Company'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. The Company's domestic lines of credit
are generally subject to standard covenants related to financial ratios,
profitability and dividend payments. The Company was in compliance with all
financial covenants at September 30, 1995.
7. INCOME TAXES
The provision for income taxes from continuing operations consists of the
following:
1995 1994 1993
- --------------------------------------------------------------------------------
(In thousands)
CURRENTLY PAYABLE:
Federal $ 5,749 $ 6,920 $ 3,568
State 1,249 1,309 713
Foreign 2,694 (2,099) (1,293)
- --------------------------------------------------------------------------------
9,692 6,130 2,988
- --------------------------------------------------------------------------------
DEFERRED CHARGE (CREDIT):
Federal 3,439 (77) 2,089
State (125) 59
Foreign (505) 337 (280)
- --------------------------------------------------------------------------------
2,809 319 1,809
- --------------------------------------------------------------------------------
Provision for income taxes from
continuing operations $12,501 $ 6,449 $ 4,797
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
36
The components of income (loss) from continuing operations before income
taxes consist of:
1995 1994 1993
- --------------------------------------------------------------------------------
(In thousands)
United States $27,282 $17,378 $16,698
Foreign 4,542 (628) (2,582)
- --------------------------------------------------------------------------------
Income from continuing operations $31,824 $16,750 $14,116
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The reconciliation of the statutory federal income tax rate to the
effective rate for continuing operations is as follows:
1995 1994 1993
- --------------------------------------------------------------------------------
% of % of % of
Pretax Pretax Pretax
Income Income Income
- --------------------------------------------------------------------------------
Federal statutory tax rate 35.0% 35.0% 34.8%
Foreign taxes higher (lower)
than U.S. taxes 1.9 2.3 (13.2)
Foreign tax credit (2.2) (10.0)
Increase in valuation allowance 7.9
Foreign losses in excess of
available tax benefits (0.2) 7.6
State income taxes, net of federal
income tax benefit 2.3 5.3 4.6
Research and Development credit,
net of recapture (2.0) (1.2) (1.8)
Effect of graduated rate (0.8)
Other 4.3 (0.6) 2.8
- --------------------------------------------------------------------------------
Provision for income taxes from
continuing operations 39.3% 38.5% 34.0%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The significant components of deferred tax assets and liabilities were:
September 30, October 1,
1995 1994
- --------------------------------------------------------------------------------
(in thousands)
Deferred tax assets:
Reserves and accruals not currently deductible $ 7,020 $ 5,779
Operating loss carryforwards and tax credits 3,715 5,870
Intercompany profit 696 617
Deferred service revenue 2,260 2,071
Other 1,922 1,339
- --------------------------------------------------------------------------------
15,613 15,676
Valuation allowance (1,817) (1,817)
- --------------------------------------------------------------------------------
13,796 13,859
Deferred tax liabilities:
Depreciation 1,975 1,945
Other 1,767 657
- --------------------------------------------------------------------------------
3,742 2,602
- --------------------------------------------------------------------------------
Total deferred tax assets and liabilities $10,054 $11,257
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The total net deferred tax asset is classified on the balance sheet at September
30, 1995 and October 1, 1994 as follows (in thousands):
1995 1994
- --------------------------------------------------------------------------------
Current deferred income tax assets $14,733 $13,527
Current deferred income tax liabilities (318)
Non-current deferred income tax liabilities (4,679) (1,952)
- --------------------------------------------------------------------------------
Net deferred tax assets $10,054 $11,257
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
37
8. LONG-TERM OBLIGATIONS
The components of long-term obligations are as follows:
1995 1994
- --------------------------------------------------------------------------------
(In thousands)
Notes payable $ 5,862 $ 9,609
Bonds payable:
1981 12 66
1984 302 381
1988 2,600 2,800
Capital leases (Note 12) 123 717
Deferred acquisition payment (Note 3) 1,525
- --------------------------------------------------------------------------------
10,424 13,573
Current portion (5,285) (4,708)
- --------------------------------------------------------------------------------
Long-term obligations $ 5,139 $ 8,865
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTES PAYABLE - At September 30, 1995, notes payable consists of $0.3
million at 5.5% for the mortgage on the facilities of Lambda Physik, GmbH, $3.8
million for the mortgage on the Santa Clara CLG and Corporate facility as well
as for general working capital requirements at an interest rate of 6.3%, $1.6
million for the financing of equipment with varying interest rates from 7.6% to
9.2% and $0.2 million of other notes with interest at 6.0%. 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 1981 and 1984 bonds are payable in installments through 1996 and
1999, respectively, with interest (7.9% and 6.1%, respectively, at September 30,
1995) adjusted periodically based on 70-85% of the prime rate. The average
interest rate on these bonds was 5.3% during fiscal 1995 and 5.7% during fiscal
1994. The 1988 bonds are payable in installments through 2008 with a variable
interest rate (4.18% at September 30, 1995) not to exceed 12%. The 1988 bonds
are guaranteed by a letter of credit issued by Union Bank with an annual fee of
1.5%.
Annual maturities of debt (excluding capital leases) are: 1996 -
$5,188,000, 1997 - $2,052,000, 1998 - $1,524,000, 1999 - $262,000, 2000 -
$200,000 and thereafter $1,600,000.
9. STOCKHOLDERS' EQUITY
Each outstanding share of the Company's common stock carries a stock
purchase right (right) issued pursuant to a dividend distribution declared by
the Company'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 the Company'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 the Company's common stock or announces
commencement of a tender offer, the consummation of which would result in
ownership by the person or group of 30% or more of the common stock. The
Company 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 the Company's common stock.
If, prior to redemption of the rights, the Company is acquired in a merger
or other business combination in which the Company is the surviving corporation,
or a person or group acquires 30% or more of the Company'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 the Company having a fair market value equal to twice
the right's exercise price. If the Company 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
38
obligations under the rights and the rights will become exercisable to acquire
common stock of the acquiring person at the discounted price.
10. EMPLOYEE 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 the
Company'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 1995, 18,593 shares (fair market value of $482,672) and $2,597,904
were accrued for the benefit of employees. For fiscal 1994, 23,200 shares (fair
market value of $302,500) and $1,547,000 were accrued for the benefit of
employees. For fiscal 1993, 19,400 shares (fair market value of $254,000) and
$1,253,000 were accrued for the benefit of employees. At September 30, 1995,
the Company had 67,023 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, the Company
matches employee contributions to the Plan up to a maximum of 6% of the
employee's individual earnings. Employees become eligible for after tax
participation and for Company matching contributions after completing one year
of service. The Company's contributions (net of forfeitures) for fiscal 1995,
1994, and 1993 were $2,385,000, $2,307,000, and $2,312,000, respectively.
SUPPLEMENTAL RETIREMENT PLAN
The Company 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. The Company will match these contributions up to an
amount equal to 6% of such participants' earnings less any amounts contributed
by the Company to such participant under the Coherent Employment Retirement and
Investment Plan. The Company's contributions (net of forfeitures) for fiscal
1995, 1994, and 1993 were $12,344, $11,359, and $10,739, respectively.
EMPLOYEE STOCK PURCHASE PLAN
The Company 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 1995, 150,300 shares were purchased by and
distributed to employees at an average price of $11.80 per share. In fiscal
1994, 201,800 shares were purchased by and distributed to employees at an
average price of $8.02 per share. In fiscal 1993, 133,000 shares were purchased
by and distributed to employees at an average price of $8.87 per share.
At September 30, 1995, $1,405,000 had been contributed by employees that
will be used to purchase a maximum of 129,000 shares in fiscal 1996 at a price
determined under the terms of the Plan. At September 30, 1995, the Company had
503,900 shares of its common stock reserved for future issuance under the plan.
STOCK OPTIONS
Under the Company's stock option plans, non-statutory or incentive stock
options to purchase common stock may be granted to officers and other key
employees, who also may be directors. The option price is the fair market value
at the grant date. Under the plans, options expire not more than
39
six years after the date of grant and become exercisable as determined by the
Board of Directors. At September 30, 1995, 1,243,000 shares of the Company's
common stock were reserved for issuance under the plans.
Under the Company's 1990 Directors' Option Plan, non-statutory stock
options are automatically granted to non-employee directors of the Company.
Such directors initially receive a stock option for 10,000 shares exercisable
over a four year period. Additionally the non-employee directors receive an
annual grant of 2,500 shares exercisable four years from the date of grant.
These options are exercisable at the fair market value of the common stock on
the date of grant and expire six years thereafter. At September 30, 1995, there
were options outstanding for 57,500 shares under the plan and 20,000 shares
remain available for future grants.
Additional information with respect to the stock option plans is as
follows:
Option Exercise Price
----------------------------------------
Range Per Share
Number --------------------
of Shares Low High Total
- ----------------------------------------------------------------------------------------------------
OUTSTANDING, SEPTEMBER 26, 1992 1,281,000 $8.00 $15.63 $12,853,000
Granted 233,000 9.00 15.25 3,225,000
Exercised (324,000) 8.63 13.50 (3,180,000)
Canceled (153,000) 8.63 15.63 (1,562,000)
- ----------------------------------------------------------------------------------------------------
OUTSTANDING, SEPTEMBER 25, 1993 1,037,000 8.00 15.25 11,336,000
Granted 283,000 12.00 14.75 3,700,000
Exercised (201,000) 8.00 13.00 (2,067,000)
Canceled (82,000) 8.63 14.50 (965,000)
- ----------------------------------------------------------------------------------------------------
OUTSTANDING, OCTOBER 1, 1994 1,037,000 8.00 15.25 12,004,000
Granted 293,400 14.25 35.00 7,970,000
Exercised (359,000) 8.00 15.25 (3,618,000)
Canceled (46,400) 8.63 27.50 (649,000)
- ----------------------------------------------------------------------------------------------------
OUTSTANDING, SEPTEMBER 30, 1995 925,000 8.63 35.00 15,707,000
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
At September 30, 1995, options for approximately 186,800 shares were
exercisable and 322,100 shares were available for future option grants.
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
variable rates ranging from 5.34% to 7.88% and are collateralized by the stock
issued upon exercise of the stock options. Interest is payable annually and
principal is due from 1996 through 1999.
40
11. OTHER INCOME (EXPENSE)
Other income (expense) is as follows:
Years Ended
-------------------------------------
Sept. 30, Oct. 1, Sept. 25,
1995 1994 1993
- --------------------------------------------------------------------------------
Minority interest in subsidiaries $(282) $(176) $ 246
Royalty income 134 88 99
Foreign exchange gain (loss) 112 71 (95)
Equity in income (loss) of joint ventures (80) 202
Gain on investment, net 487 402
Other - net 297 30 113
- --------------------------------------------------------------------------------
Other income - net $ 668 $ 215 $ 765
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
12. COMMITMENTS AND CONTINGENCIES
COMMITMENTS
The Company leases several of its facilities under operating leases. In
addition, the Company leases the land for its Auburn manufacturing facilities
under long-term fixed leases.
In addition, the Company leases certain equipment under capital lease
agreements (see Note 1).
Future minimum payments under the Company's leases are as follows (in
thousands):
Capital Operating
Fiscal Year Ending Leases Leases
- -------------------------------------------------------------------------
1996 $104 $3,028
1997 27 2,464
1998 1,975
1999 1,404
2000 567
Thereafter 3,537
- -------------------------------------------------------------------------
Total $131 $12,975
-------
-------
Amounts representing interest 8
----
Present value of minimum lease payments $123
----
----
Rent expense was $3,015,000 in fiscal 1995, $3,797,000 in fiscal 1994, and
$4,125,000 in fiscal 1993.
In September 1988, the Company entered into several agreements with Patlex
Corporation (Patlex) whereby the Company was granted a license to several laser
related patents developed by Dr. Gordon Gould and assigned to Patlex. Under the
terms of the agreements, the Company pays royalties to Patlex of 5% and 2% of
certain defined domestic sales and international sales, respectively, subject to
certain exceptions and limitations. Royalty expense under these agreements was
$1,123,000 in fiscal 1995, $1,149,000 in fiscal 1994, and $1,093,000 in fiscal
1993. The remaining patents expire on various dates through May 2005.
CONTINGENCIES
Certain claims and lawsuits arising in the ordinary course of business have
been filed or are pending against the Company. In the opinion of management,
all such matters have been adequately
41
provided for, are without merit, or are of such kind that if disposed of
unfavorably, would not have a material adverse effect on the Company's
consolidated financial position or results of operations.
The Company, along with several other companies, 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 a
former facility was located. The responding parties to the Regional Order
(including the Company) 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.
The Company was also named, along with other parties, to a remedial action
order for the former 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 the Company for this site. The Company has been operating remedial
systems at the site to remove subsurface chemicals since April 1992.
Management believes that the Company's probable, nondiscounted net
liability at September 30, 1995 for remaining costs associated with the above
environmental matters is $1.7 million which has been previously accrued. This
amount consists of total estimated probable costs of $3.1 million ($0.6 million
included in accrued expenses and $2.5 million included in other long-term
liabilities) reduced by estimated minimum probable recoveries of $1.4 million
included in Other Assets from other parties named to the order. The Company
filed a lawsuit in November, 1995 in the District Court of Northern California
against these other parties seeking contribution for these expenses. The
Company believes that it is probable that it will be successful in obtaining a
judgment at least in the amount of the accrual. Based on currently available
information, management believes that costs in excess of amounts accrued, if
any, relating to the investigation and remedial action which may be required by
the agencies of the State of California, will not have a material adverse effect
on the consolidated financial position or results of operations of the Company.
13. BUSINESS SEGMENTS
During fiscal 1993, the Company sold its Industrial business segment and
now operates in two industry segments. The Company designs, manufactures and
markets electro-optical products such as lasers, optics and related accessories,
and medical products such as laser and optical systems used for surgical and
therapeutic applications.
Intersegment sales are accounted for primarily at domestic selling prices.
Intercompany sales between geographic areas are accounted for at a discount from
domestic selling prices. Corporate assets are principally those not
identifiable to a segment and include such items as cash and equivalents, short-
term investments, certain receivables, prepaid expenses, deferred income taxes,
certain property and equipment, assets held for sale and other assets.
Corporate expenses include depreciation of corporate assets and general legal
expenses. Net assets of discontinued operations include all assets and
liabilities, net, of the discontinued Industrial segment.
42
Information concerning the Company's operations by industry segment and
geographic area is as follows:
- ---------------------------------------------------------------------------------------------
INDUSTRY SEGMENT DATA 1995 1994 1993
- ---------------------------------------------------------------------------------------------
NET SALES, INCLUDING (In thousands)
INTERSEGMENT SALES:
Electro-Optical products $175,557 $138,096 $120,514
Medical products 126,308 89,376 82,688
Intersegment sales (16,366) (12,105) (6,319)
- ---------------------------------------------------------------------------------------------
NET SALES $285,499 $215,367 $196,883
- ---------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------
INCOME FROM OPERATIONS:
Electro-Optical products $ 22,681 $ 14,039 $ 8,464
Medical products 7,930 2,881 6,400
Corporate expenses (699) (614) (952)
- ---------------------------------------------------------------------------------------------
INCOME FROM OPERATIONS $ 29,912 $ 16,306 $ 13,912
- ---------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------
IDENTIFIABLE ASSETS:
Electro-Optical products $126,803 $105,261 $101,010
Medical products 59,850 46,085 44,759
Eliminations (4,516) (2,926) (3,372)
- ---------------------------------------------------------------------------------------------
Total identifiable assets 182,137 148,420 142,397
Corporate assets 73,737 63,346 51,847
Net assets of discontinued operations 137
- ---------------------------------------------------------------------------------------------
TOTAL ASSETS $255,874 $211,766 $194,381
- ---------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------
DEPRECIATION AND AMORTIZATION:
Electro-Optical products $ 6,407 $ 5,810 $ 5,022
Medical products 2,379 1,675 2,103
Corporate 169 377 149
- ---------------------------------------------------------------------------------------------
TOTAL DEPRECIATION AND AMORTIZATION $ 8,955 $ 7,862 $ 7,274
- ---------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------
CAPITAL EXPENDITURES:
Electro-Optical products $ 5,450 $ 7,264 $ 11,665
Medical products 2,719 3,119 1,129
Corporate 215 345 61
- ---------------------------------------------------------------------------------------------
TOTAL CAPITAL EXPENDITURES $ 8,384 $ 10,728 $ 12,855
- ---------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------
43
GEOGRAPHIC REGION INFORMATION 1995 1994 1993
- ---------------------------------------------------------------------------------------------
NET SALES TO UNAFFILIATED CUSTOMERS (In thousands)
BY GEOGRAPHIC REGION:
United States $200,057 $152,115 $144,599
Europe 78,094 59,774 49,926
Far East and other 7,348 3,478 2,358
- ---------------------------------------------------------------------------------------------
NET SALES $285,499 $215,367 $196,883
- ---------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------
SALES TO AFFILIATES (ELIMINATED IN
CONSOLIDATION) BY GEOGRAPHIC REGION:
United States $ 29,278 $ 22,933 $ 22,150
Europe 13,627 10,920 9,648
- ---------------------------------------------------------------------------------------------
NET SALES $ 42,905 $ 33,853 $ 31,798
- ---------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------
INCOME FROM OPERATIONS:
United States $ 31,439 $ 16,869 $ 16,409
International 647 (223) (1,064)
Corporate expenses (700) (869) (841)
Transfers between geographic areas (1,474) 529 (592)
- ---------------------------------------------------------------------------------------------
INCOME FROM OPERATIONS $ 29,912 $ 16,306 $ 13,912
- ---------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------
IDENTIFIABLE ASSETS:
United States $127,621 $101,556 $ 97,249
International 59,032 49,790 48,520
Eliminations (4,516) (2,926) (3,372)
- ---------------------------------------------------------------------------------------------
Total identifiable assets 182,137 148,420 142,397
Corporate assets 73,737 63,346 51,847
Net assets of discontinued operations 137
- ---------------------------------------------------------------------------------------------
TOTAL ASSETS $255,874 $211,766 $194,381
- ---------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------
EXPORT SALES:
Far East $ 44,312 $ 29,870 $ 28,579
Other 17,140 16,843 16,337
- ---------------------------------------------------------------------------------------------
TOTAL EXPORT SALES $ 61,452 $ 46,713 $ 44,916
- ---------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------
NET SALES TO GEOGRAPHIC REGION:
United States $138,605 $105,402 $ 99,683
International 146,894 109,965 97,200
- ---------------------------------------------------------------------------------------------
NET SALES $285,499 $215,367 $196,883
- ---------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------
Net assets of foreign subsidiaries as of year-end were as follows:
1995 1994 1993
- ---------------------------------------------------------------------------------------------
(In thousands)
Total assets $ 59,032 $ 49,702 $ 51,311
Net assets of discontinued operations 137
Total liabilities (41,615) (39,436) (38,240)
- ---------------------------------------------------------------------------------------------
NET ASSETS $ 17,417 $ 10,266 $ 13,208
- ---------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------
44
14. QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial data for fiscal 1995 and 1994 are as
follows:
First Second Third Fourth
Quarter Quarter Quarter Quarter
- ----------------------------------------------------------------------------------------------------------
(In thousands, except per share amounts)
YEAR ENDED SEPTEMBER 30, 1995:
Net sales $ 58,583 $ 66,456 $ 76,247 $ 84,213
Gross profit 29,738 32,554 38,141 42,050
Net income 3,486 4,389 5,117 6,331
Net income per share .33 .40 .46 .56
- ----------------------------------------------------------------------------------------------------------
YEAR ENDED OCTOBER 1, 1994 (1):
Net sales $ 47,026 $ 55,215 $ 55,257 $ 57,869
Gross profit 22,935 27,323 26,719 28,452
Income from continuing operations 1,429 2,956 2,896 3,020
Net income 1,429 2,956 2,896 4,174
Net income per share:
Income from continuing operations $ .14 $ .29 $ .28 $ .29
Net income .14 .29 .28 .40
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
(1) Net earnings for the fourth quarter of 1994 included a gain of $1,154,000
($.11 per share), (net of taxes of $715,000), from the reversal of inventory
valuation reserves and certain accruals that were no longer required relating to
the operations discontinued in fiscal 1993.
45
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED SEPTEMBER 30, 1995, OCTOBER 1, 1994,
AND SEPTEMBER 25, 1993
(In thousands)
Additions
Balance at Charged to Deductions Balance
Beginning Costs and from at End
of Period Expenses Reserves (1) of Period
- ----------------------------------------------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30, 1995:
Accounts receivable allowances $2,384 $1,461 $(1,011) $2,834
Warranty 5,418 10,010 (8,572) 6,856
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
YEAR ENDED OCTOBER 1, 1994:
Accounts receivable allowances $3,025 $1,384 $2,025 $2,384
Warranty 5,814 8,209 8,605 5,418
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
YEAR ENDED SEPTEMBER 25, 1993:
Accounts receivable allowances $2,964 $1,320 $1,259 $3,025
Warranty 6,515 8,618 9,319 5,814
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
(1) Reductions from the reserves are for the purpose for which the reserves were
created.
46
Securities and Exchange Commission
Washington, D.C. 20549
Form 10-K Annual Report
Pursuant to Section 13 or 15 (d)
of the Securities Exchange Act of 1934
For the fiscal year ended September 30, 1995
- ------------------------------------------------
COHERENT, INC.
EXHIBITS
- ------------------------------------------------
47
INDEX TO EXHIBITS
Sequentially
Exhibit Numbered
Number Exhibit Page
------ ------- ------------
21.1 Subsidiaries See page 49
23.1 Independent Auditors' Consent See page 50
24.1 Power of Attorney See page 24
27.1 Financial Data Schedules See page 51
All other exhibits required to be filed as part of this report have been
incorporated by reference. See item 14(c) for a complete index of such
exhibits.
48