UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
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(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Fiscal Year Ended October 1, 1994
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number: 0-5255
COHERENT, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 94-1622541
(State or other jurisdiction of (I.R.S.Employer
incorporation or organization) Identification No.)
5100 PATRICK HENRY DRIVE, SANTA CLARA, CALIFORNIA 95054
(Address of principal executive offices) (Zip Code)
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
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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, 1994, 10,476,288 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,
1994) of Coherent, Inc., held by nonaffiliates was $133,224,276. 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,
1995, 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
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 customers. Major markets include the scientific research
community; medical institutions, clinics and private practices; and lasers also
support commercial applications ranging from semiconductors 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. Lasers are characterized by the active
media or materials that produce the energy beams.
Since inception in 1966, the Company has grown through a combination of
internal expansion, joint ventures and acquisition of companies with related
technologies and products.
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 October 1, 1994 are set forth in Note 13, "Business Segments", of the
Notes to Consolidated Financial Statements.
PRODUCTS
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 lasers produced by the Company's
Electro-Optical segment are argon and krypton ion, excimer and carbon dioxide
(CO(2)), liquid dye, Neodymium:Yttrium-aluminum-garnet (Nd:YAG),
Titanium:Sapphire (Ti:Sapphire), and diode-pumped solid state (DPSS). 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 commercial applications to both end users and original equipment
manufacturers (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 and CO(2)
lasers for the scientific, OEM and
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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, interferometric wafer
inspection, optical disk manufacturing, analytical instrumentation, floptical
disk manufacturing and laser light shows.
During fiscal 1994, CLG added two new products to its Ultrafast product
line. The first, the OPA 9400, is an Optical Parametric Amplifier which, used
in conjunction with the Mira[Registered Trademark] Ti:Sapphire oscillator and a
RegA 9000[Trademark] amplifier, extends the wavelength range of Ultrafast
systems from 450 nanometers to 2.6 micrometers. By using these systems
scientists can use high energy femtosecond pulses to investigate many previously
unexplored fields in physics, chemistry, biology, semiconductor technology and
other materials sciences. The second product, called Synchrolock[Trademark],
allows accurate synchronization of two Mira lasers or a Mira and an external
clock.
In fiscal 1994, the DPSS 532 product line was expanded to include a 400
milliwatts green version. This laser will expand the applications of DPSS
lasers to holography, non-destruction testing, analytical instrumentation and
reprographics.
Fiscal 1994 marked the entry of Coherent into the high-energy solid-state
pulsed Q-Switched laser market. Using novel technology, based on phase
conjugate mirrors, the new laser, called Infinity[Trademark], is capable of
producing high energy nanosecond pulses at repetition rates previously
unattainable. Most initial applications of this laser will be in the scientific
field and in materials processing.
During the current fiscal year, the Company also solidified its position in
the deep ultraviolet (DUV) (257-207 nanometers) market by advancing the
technology from milliwatt to multiwatt power levels. Applications include
writing gratings on fibers, optical inspection and lithography. Particular
attention was also paid to better servicing the needs of the Company's core
businesses. This effort resulted in further refinement of products offered in
the principal market segments. These markets include optical lithography,
microscopy, optical inspection, instrumentation and manufacturing.
In 1994, CLG also continued to expand both the product and capability range
of the Diamond[Trademark] CO(2) laser technology. This technology has now been
incorporated into several customer processes in the expanding area of
micromachining.
Coherent's subsidiary, Lambda Physik, GmbH, develops and manufactures
excimer and pulsed dye lasers. The excimer laser is an efficient means of
producing coherent UV light. Initially limited to research applications, the
excimer laser is now also used for materials processing applications in the
semiconductor industry, other commercial markets and in medical applications.
The Lambda 1000 (medium power) and the Lambda 3000 (high power) XeCl lasers are
particularly suitable for processing of multichip modules and high density
printed circuit boards for mainframe computers.
As a breakthrough in excimer laser technology in general, in fiscal 1994,
Lambda Physik brought NovaTube[Trademark] to the market enabling customers to
attain extremely high gas and components lifetimes. NovaTube together with the
new integrated Halogen generator, introduced in 1994, results in a quasi-sealed
excimer laser system.
The new LITHO excimer laser directed on industrial microlithography
applications, reaches a bandwidth below one picometer and an average power of 8
watts. With these specifications, the laser technologically exceeds the
performance of all available lithography lasers.
Also in fiscal 1994, Lambda Physik introduced as new products the
COMPex[Trademark] laser series, a compact excimer laser, the MINex[Trademark], a
small size, low energy excimer laser and the SCANmate[Trademark] OPPO, a hybrid
tunable laser consisting of a dye oscillator and a solid state amplifier. The
SCANmate
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OPPO expands the tuning range far into the infrared down to 2.5 microns with the
same bandwidth as the original dye laser.
In fiscal 1993, Lambda Physik introduced the first commercially
manufactured high pulse energy femtosecond (fs) laser system, the LPD 500fs.
The LPD 500fs brings even more performance and simplified operation to the
Lambda Physik dye laser product line. Lambda Physik's ongoing commitment to dye
lasers has produced some of the most respected models in the world: the FL
2002, the FL 3002 and the LPD 3002. The 1993 model, the Lambda SCANmate narrow
band pulsed dye laser series, is 60% smaller than its predecessor and features
an optional built-in Nd:YAG pump laser.
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 1994, the Company purchased the business and net assets of Vinten
Electro-Optics Ltd. (VEOL), a wholly-owned subsidiary of Vinten Group plc
located in Leicester, England which is now operating as Coherent Optics Europe
Ltd. (COEL). COEL is the leading supplier of optical components and windows for
infra-red imaging systems built in Western Europe. These systems are sold to
both military and commercial customers. COEL has become the Company's center
for optics manufacturing and sales in Europe.
CAG also designs and manufactures laser measurement instruments and
accessories that are used to measure and maximize the performance of laser
systems. During the current fiscal year, the Company purchased the beam
diagnostic product line of Big Sky Laser Technologies, Inc., in Bozeman,
Montana. The beam profilers pioneered by Big Sky are complementary to
Coherent's beam propagation analyzers. Also during the year, Ultima, a dual
channel power and energy meter was introduced which allows customers to perform
simultaneous measurement and statistical analysis on multiple laser beams.
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.
MEDICAL
Coherent's Medical Group (CMG) develops, manufactures and distributes a
broad line of surgical laser systems used in ophthalmology, gynecology, urology,
dermatology, ear, nose and throat (ENT) surgery, orthopedics, general surgery,
cosmetic reconstructive, oral maxillofacial, neurology, oncology,
otolaryngology, podiatry, medical therapy and other medical specialties. These
lasers are designed to improve the quality of patient care, frequently
decreasing overall treatment cost compared to conventional procedures. Most of
these products also make it possible to perform treatments in a doctor's office,
surgery centers or outpatient centers in hospitals instead of requiring
inpatient hospitalization.
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Ophthalmic products:
In ophthalmology, a market segment in which Coherent pioneered and is still
the leader, CMG offers argon, krypton and dye lasers or combinations of these
lasers for photocoagulation and treatment of glaucoma as well as Nd:YAG lasers
for photodisruption. Coherent now sells an excimer refractive surgery system in
many countries in the world.
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 disease.
Coherent's Nd:YAG laser photodisruptors are used primarily for posterior
capsulotomies. These solid-state, pulsed-wave 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[Trademark] excimer refractive surgery system in many countries of
the world. Clinical testing for regulatory approval in the United States and
Japan will begin in fiscal 1995. This product uses an argon fluoride laser from
Lambda Physik to obtain high energy, excellent reliability and safe operation.
Keratom uses the Coherent patented HaloPure[Trademark] generator to provide
ultra-pure halogen as needed, from a self-contained, solid-state, chemical
reaction.
The Novus[Registered Trademark] Omni[Trademark], 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
technology improvements which have satisfied the broader photocoagulator market
for years.
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 techniques that were concepts only a few months ago. The
trials are expanding to ten sites around the world to allow international
experts to participate in this surgical advance.
The Ultima[Registered Trademark] 2000 SE was introduced in fiscal 1993.
Capitalizing on power-on-demand technology, the Ultima 2000 SE extends the
product line's versatility to include both Laser Indirect Opthalmoscopic laser
treatment and surgical endophotocoagulation with Acculite[Trademark] probes in
addition to slit lamp applications with the LaserLink[Trademark] Adapter. The
system can 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.
In fiscal 1990, Coherent introduced the Novus 2000, its first internally
liquid cooled argon photocoagulator. The Novus 2000 requires no external water
supply and utilizes a new 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. During fiscal 1991, the Novus
product line was expanded with the addition of several accessories and a
specially designed and internationally certified export model. A new disposable
Acculite endophotocoagulation probe was also introduced for use during
vitrectomy surgery.
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Surgical products:
Coherent has developed two groundbreaking families of laser
instruments that are changing the way surgery is performed. With delivery
devices much smaller than conventional instruments, these systems are expanding
the range of procedures that can employ new minimally invasive techniques. The
UltraPulse[Registered Trademark] system is a breakthrough in surgical precision
for CO(2) lasers. Because this high energy laser cleanly vaporizes tissue
without scarring, it is preferred by gynecologists for performing delicate
infertility procedures. The VersaPulse[Registered Trademark] Holmium:Yttrium-
aluminum-garnet (Ho:YAG) wavelength provides excellent surgical properties that
can be delivered through an optical fiber. Since its introduction, this laser
has been used for over 80,000 arthroscopic procedures. Our new VersaPulse
Select[Trademark] is a powerful, innovative system designed for the flexibility
to easily meet surgical needs - today and in the future.
Coherent offers a line of CO(2) 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 gynecology, dermatology, plastic and reconstructive surgery,
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 CO(2)
lasers offer a range of power from 45 to 100 watts.
In the spring of 1994, Coherent introduced the dual wavelength
VersaPulse[Registered Trademark] Select[Trademark] 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 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.
During fiscal 1991, Coherent introduced the UltraPulse[Registered
Trademark] CO(2) laser, a new generation, high energy CO(2) laser for surgical
applications. UltraPulse lasers represent a true departure in design and
performance from conventional CO(2) lasers. This new technology offers
significant advantages in terms of laser effect on tissue and surgical
precision. The same high-pulse energy that is advantageous for gynecology has
clinical advantages for the treatment of a variety of skin conditions, thereby
opening market opportunities in cosmetic surgery and dermatology.
Coherent's VersaPulse holmium solid state lasers began shipment in late
fiscal 1990 and have emerged as the technology of choice for orthopedic surgery.
The VersaPulse, which is fiber-optically delivered, is an ideal laser for
cutting, ablating and sculpting meniscal and cartilaginous tissue with optimum
hemostasis and lack of bleeding. Coherent was issued a U.S. patent on the use
of the holmium laser for arthroscopy through fiber delivery devices in a liquid
environment. In addition, Coherent holds a number of key patents describing the
fiber optic delivery systems used with these lasers. Since 1991, Coherent has
expanded the VersaPulse line of lasers with higher-power systems for
arthroscopy, and has introduced an extensive range of disposable fiber products
for several surgical specialties. In the fall of 1993, a new generation called
the VersaPulse Select 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 intra-abdominal procedures in general surgery and for
lower back surgery.
Additional approvals for soft-tissue urology and functional endoscopic
sinus surgery have been granted FDA approval. During 1994, approvals for
gynecology and lithotripsy were added to this expanding list of VersaPulse
applications. During this fiscal year, Coherent was the first company granted
government approval to market a holmium laser for orthopedics in Japan.
6
The medical laser systems manufactured by Coherent's Medical Group are
subject to regulation and control by the 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 $30,000 to $500,000.
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. During fiscal 1993, the Company disposed of its Industrial
segment (see Note 2, "Discontinued Operations" of the Notes to the Consolidated
Financial Statements). Coherent's products are sold internationally through
direct sales personnel located in the United Kingdom, Germany, France, 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
and Japan, but sales are also made to customers in Canada, Latin America, the
Peoples Republic of China, other parts of Asia, 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 1994.
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, Europe, Hong Kong and Japan. 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.
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
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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 October 1, 1994, the Company's backlog of orders scheduled for shipment
was approximately $41,131,000, compared with $24,395,000 at September 25, 1993.
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 1995. Backlog
at October 1, 1994 was higher than at September 25, 1993 in both the Electro-
Optical and Medical business segments.
COMPETITION
The laser industry is fragmented, with numerous companies providing one or
more products in each of the Company's business segments. No single competitor
is dominant in any of the Company's business segments, principally because of
the Company's diversity of products and product applications.
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. Several of the
Company's present competitors have substantially greater financial and other
resources than the Company.
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 1994 expenditures for
research and development were $24,740,000, 11% of sales, compared to
$21,674,000, 11% of sales, and $21,519,000, 11% of sales, during fiscal 1993 and
1992, respectively.
IMPACT OF ENVIRONMENTAL REGULATION
The Company believes that compliance with federal, state and local
environmental protection regulations will not have a material 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.
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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, particularly Japan and France. 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 October 1, 1994, Coherent employed 1,291 persons on a full-time basis.
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 October 1, 1994, 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.
Lambda Physik GmbH's facilities in Gottingen, Germany consist of two
buildings totaling 54,000 square feet, which are owned by the Company.
Additional electro-optical facilities are located in Auburn, California.
The Auburn facilities consist of a 60,000 square-foot building and a 50,000
square-foot building both owned by the Company.
The Company's principal medical products facilities are located in Palo
Alto, California, in two buildings totaling approximately 100,000 square feet of
floor area under leases expiring in 1999.
Coherent GmbH's facilities in Dieburg, Germany consist of a 19,800 square
foot building leased by the Company until 1999 with a five year renewal option.
9
Coherent Optics Europe Ltd.'s facilities consist of two leased buildings in
Leiceseter, England totaling 15,820 square feet with leases expiring in 2007.
During fiscal 1993, the Company sold the net assets of Coherent General,
Inc. whose main manufacturing facilities are located in Sturbridge,
Massachusetts. 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. This building is currently leased (until August
1997) to the acquirer of Coherent General, Inc. while it is being held for sale.
The Company also maintains sales and service offices under short-term
leases in the United States, Germany, the United Kingdom, France, The
Netherlands, Hong Kong 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.
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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
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Fiscal 1994 Fiscal 1993
------------------------------------- ---------------------------------------
Dec. 25 Apr. 2 July 2 Oct. 1 Dec. 26 Mar. 27 June 26 Sept. 25
------------------------------------- ---------------------------------------
Closing Price:
High $15.00 $14.75 $13.75 $14.63 $11.75 $13.75 $14.50 $16.00
Low $11.50 $11.50 $12.25 $12.13 $7.75 $10.25 $12.25 $13.38
The number of stockholders of record as of November 30, 1994 was 2,675. 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
----------------------------------------------------------------------------------
Oct. 1, Sept. 25, Sept. 26, Sept. 28, Sept. 29,
1994 1993 1992 1991 1990
------------------------------------------------------------------------------------
(In thousands, except per share amounts)
Net sales $215,367 $196,883 $192,213 $179,316 $162,295
- --------------------------------------------------------------------------------------------------------------------
Income from continuing operations 10,301 9,319 5,227 887 1,383
- --------------------------------------------------------------------------------------------------------------------
Discontinued operations:
Loss from discontinued
operations, net of taxes (1,592) (2,583) (660) (1,832)
Gain (loss) on disposal of segment,
net of taxes 1,154 (2,817)
- --------------------------------------------------------------------------------------------------------------------
Gain (loss) from discontinued
operations 1,154 (4,409) (2,583) (660) (1,832)
- --------------------------------------------------------------------------------------------------------------------
Cumulative effect of change in
accounting for income taxes 5,637
- --------------------------------------------------------------------------------------------------------------------
Net income (loss) 11,455 10,547 2,644 227 (449)
- --------------------------------------------------------------------------------------------------------------------
Per share data:
Income from continuing operations 1.00 .93 .55 .09 .15
- -------------------------------------------------------------------------------------------------------------------
Gain (loss) from discontinued
operations .11 (.44) (.27) (.07) (.20)
- -------------------------------------------------------------------------------------------------------------------
Cumulative effect of change
in accounting for income taxes .56
- -------------------------------------------------------------------------------------------------------------------
Net income (loss) 1.11 1.05 .28 .02 (.05)
- -------------------------------------------------------------------------------------------------------------------
Total assets 210,980 193,796 183,292 162,948 157,278
- -------------------------------------------------------------------------------------------------------------------
Long-term obligations 8,865 14,122 15,559 6,590 6,960
- -------------------------------------------------------------------------------------------------------------------
Other long-term liabilities 6,003 2,883 4,613 8,479 7,936
- -------------------------------------------------------------------------------------------------------------------
Minority interest in subsidiaries 4,089 3,806 3,813 3,342 2,898
- -------------------------------------------------------------------------------------------------------------------
Stockholders' equity 133,464 117,023 103,476 96,882 96,295
- -------------------------------------------------------------------------------------------------------------------
11
No dividends have been declared in any of the periods presented. See "Item
5" for a discussion of the Company's dividend history.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
CONSOLIDATED SUMMARY
During fiscal 1994, net income increased to $11.5 million ($1.11 per share)
compared to $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 are no longer required
relating to the Industrial operations discontinued in 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 $2.7 million (19%) to $16.8 million for the year
ended October 1, 1994 compared to $14.1 million for the prior fiscal year. This
increase was primarily due to higher sales volumes. The Company's effective tax
rate increased to 39% in fiscal 1994 compared to 34% in the prior fiscal year,
resulting in income from continuing operations of $10.3 million ($1.00 per
share) and $9.3 million ($.93 per share) for the current year and prior fiscal
year, respectively.
All prior year amounts reflect the reclassification of the discontinued
operations of the Company's Industrial segment.
NET SALES AND GROSS PROFITS
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 the current fiscal year compared
to 49% in the prior fiscal year. Fiscal 1994 is the first year where
international sales exceeded 50% of net sales.
The gross profit rate was 49% for both the current and preceding fiscal
years.
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 the current fiscal year. 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
Vinten Electro-Optics Ltd. (VEOL), located in Leicester England, now operating
as Coherent Optics Europe Ltd. (COEL).
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.
12
MEDICAL
Medical net sales increased $6.7 million (8%) to $89.4 million from $82.7
million in fiscal 1993. International sales increased $6.0 million (18%) to
$39.0 million from $33.0 million in the prior year 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 current year
domestic sales was primarily due to higher service contract revenue.
The gross profit rate decreased to 49% 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 the prior fiscal year.
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 the
prior fiscal year. Selling and marketing expenses increased $3.3 million (8%)
during the current year. This increase was associated with higher sales
volumes, additional headcount, 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.
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 the prior fiscal year 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 the Company's investment in Palomar Medical.
13
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 1994 was higher than the
federal statutory tax rate because of state income taxes, an increase in the
deferred tax asset valuation allowance and results from certain of the Company's
profitable foreign operations that could not be offset against losses of other
entities offset by tax credits relating to foreign income and research and
development expenses.
During fiscal 1993, the Company elected early adoption of Statement of
Financial Accounting Standards (SFAS) 109, "Accounting for Income Taxes". This
statement superseded the previous accounting standard for income taxes, SFAS 96,
which the Company adopted in fiscal 1988. Both SFAS 96 and SFAS 109 require the
use of the liability method for recording deferred income taxes. However, under
SFAS 96, deferred tax assets could not be recognized unless they offset
reversals of deferred tax liabilities or could be recovered as income tax
refunds through existing loss carryback provisions. Under SFAS 109, the Company
recognizes deferred tax assets 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.
1993 COMPARED TO 1992
CONSOLIDATED SUMMARY
During fiscal 1993, net income increased to $10.5 million ($1.05 per share)
compared to $2.6 million ($.28 per share) for fiscal 1992. 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". During the 1993 fiscal year, the Company also
sold the net assets of its Industrial segment and recorded a loss of $4.4
million ($.44 per share) from these 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 $5.4 million (62%) to $14.1 million for the year
ended September 25, 1993 compared to $8.7 million for the prior fiscal year.
This increase was primarily due to higher sales volumes and a higher gross
profit rate. An effective tax rate of 34% resulted in income from continuing
operations of $9.3 million ($.93 per share) for fiscal 1993 compared to an
effective tax rate of 40% resulting in income from continuing operations of $5.2
million ($.55 per share) for the prior fiscal year.
NET SALES AND GROSS PROFITS
CONSOLIDATED
During fiscal 1993, net sales increased $4.7 million (2%) to $196.9 million
from $192.2 million in fiscal 1992, resulting primarily from higher sales
volumes in the Electro-Optical segment principally in the international
marketplace.
The gross profit rate increased to 49% from 47% in fiscal 1992. This
increase primarily resulted from manufacturing efficiencies, the non-recurrence
of a $1.0 million charge for obsolete medical inventory in fiscal 1992 and
continued enhancement of cost management in the Company's Medical segment.
14
ELECTRO-OPTICAL
Electro-Optical net sales increased $6.1 million (6%) to $114.2 million
from $108.l million in fiscal 1992. This increase resulted primarily from
higher sales volumes of the ion, solid state and CO(2) technology based laser
products manufactured at the Coherent Laser Group, higher sales volumes of
optics and instruments products manufactured at the Coherent Auburn Group and
higher net sales at the Lambda Physik Group.
The gross profit rate decreased to 49% from 52% in fiscal 1992. This
decrease was primarily the result of competitive pricing pressures, the effect
of a stronger U.S. dollar against the major western European currencies and high
initial manufacturing costs associated with certain new products manufactured at
the Lambda Physik Group in Germany.
MEDICAL
Medical net sales decreased $1.4 million (2%) to $82.7 million from $84.1
million in fiscal 1992. International sales increased $5.6 million (20%) to
$33.0 million from $27.4 million during fiscal 1992 while domestic sales
decreased $7.0 million (12%) to $49.7 million from $56.7 million during the
prior fiscal year. The increase in international sales was primarily
attributable to increased sales volumes due to a shift from a joint venture
approach to direct selling in Japan, greater focus by senior management on the
international market and higher sales volumes particularly in Asia Pacific,
Latin America and Canada. On a product line basis, international net sales
increased from the prior year primarily because of increased shipments of the
VersaPulse surgical laser system and the UltraPulse CO(2) surgical laser system.
The decrease in fiscal 1993 domestic sales was primarily due to lower sales
volumes as a result of customers deferring capital equipment purchases due to
uncertainties over the pending proposals to reform the healthcare system.
Additionally, revenue during the first quarter of fiscal 1992 was favorably
impacted by the large backlog at the end of fiscal 1991.
The gross profit rate increased to 50% from 42% in fiscal 1992. The
improved margin was primarily due to increased sales volumes of higher margin
surgical products, curtailment of the sale of low margin surgical products
manufactured in Palo Alto, California, a $1.0 million charge for obsolete
inventory in fiscal 1992 and continued enhancement of cost management during
fiscal 1993.
OPERATING EXPENSES
Years Ended
Sept. 25, Sept. 26,
1993 1992
------ ------
(in thousands)
Research & development $ 21,674 $ 21,519
Selling, general & administrative 61,714 60,518
-------- --------
Total operating expenses $ 83,388 $ 82,037
-------- --------
-------- --------
Total operating expenses increased $1.4 million (2%) but as a percentage of
sales decreased to 42% in fiscal 1993 from 43% in the prior fiscal year. Fiscal
1993 research and development (R&D) expenses increased in absolute dollars by
$0.2 million (.1%) from fiscal 1992. The slight increase in R&D expenses
resulted primarily from increased spending for specific developmental projects
in the Electro-Optical segment. This increase was partially offset by decreased
spending in the Company's Medical segment due to cost reduction efforts and the
completion of several projects. As a percentage of sales, R&D expenses remained
at 11% compared to the same period in the preceding year, reflecting the
Company's continued commitment to innovation and technical leadership.
15
Selling, general and administrative expenses increased $1.2 million (2%)
compared to fiscal 1992 but decreased to 31% of sales from 32% of sales in the
prior fiscal year. Selling and marketing expenses increased $0.5 million (1%)
during the fiscal 1993 primarily due to increased spending associated with the
marketing of new products in the Electro-Optical segment, partially offset by
general cost reduction measures implemented in both the Electro-Optical and
Medical segments. General and administrative expenses increased $0.7 million
(3%) compared to fiscal 1992 primarily due to provisions made for potential
repayments of R&D grants previously given by the German government to the
Company's subsidiary, Lambda Physik GmbH, partially offset by the effect of
general cost reductions in the Medical segment.
OTHER INCOME (EXPENSE)
The increase in total other income, net of $0.2 million was primarily
attributable to an increase of $0.6 million in the minority interest due to
higher fiscal 1993 losses for such entities compared to the preceding year,
higher other income, net of $0.5 million primarily resulting from the first
quarter gain ($0.4 million) recorded for the Company's investment in Palomar
Medical and higher interest and dividend income of $0.1 million partially offset
by $0.6 million higher interest expense associated with increased borrowings for
the new electro-optical and corporate facility and $0.4 million higher foreign
exchange losses.
INCOME TAXES
The Company's effective tax rate for fiscal 1993 was 34% compared to 40%
in fiscal 1992. The lower effective tax rate primarily resulted from lower
effective tax rates in certain foreign jurisdictions and lower current year
state income taxes offset by lower current year research and development tax
credits. The effective tax rate in fiscal 1992 was higher than the federal
statutory tax rate because of state income taxes, goodwill and results from
certain of the Company's profitable foreign operations that could not be offset
against losses of other entities offset by lower effective income tax rates in
certain foreign jurisdictions and lower research and development tax credits.
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 $43.8 million at October 1, 1994. Additional sources of
liquidity are the Company's multi-currency line of credit and bank credit
facilities totaling $21.3 million as of October 1, 1994, of which $18.9 million
is unused and available under these credit facilities. During fiscal 1994, such
facilities have been used in Europe and Japan. Because of the Company's low
debt to equity ratio (.13:1), 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 1995.
CHANGES IN FINANCIAL CONDITION
Cash and equivalents decreased by $0.7 million (2%) from September 25,
1993. Operations and changes in exchange rates generated $13.9 million; short-
term investments increased $7.3 million.
16
Investing activities used $12.0 million; $10.3 million was used to acquire
property and equipment (net of proceeds from disposition of property and
equipment), and other net, used $1.7 million. Financing activities used $2.6
million; increased repayments on borrowings, net, used $5.9 million partially
offset by sales of shares under employee benefit plans (including tax benefits),
net, which generated $3.2 million.
Accounts receivable, net increased $5.3 million (12%) from September 25,
1993 primarily due to higher sales volumes.
Net inventories increased $3.0 million (8%) from September 25, 1993
primarily due to increased demonstration inventory due to new product
introductions in the Medical business segment and increased sales volumes in
both the Medical and Electro-Optical business segments.
Prepaid expenses and other assets decreased $3.4 million (23%) from
September 25, 1993 as the Company had prepaid taxes at September 25, 1993 which
were used for current year estimated tax payments and due to collections on
notes receivable from Transfer Technology Group plc (TTG), the acquiror of
Coherent General, Inc.
Short-term borrowings decreased $1.3 million (23%) from September 25, 1993
due to management's efforts to generally reduce worldwide outside borrowings.
Income taxes payable increased $2.5 million (181%) from September 25, 1993
primarily due to tax provisions associated with higher estimated income for the
year ended October 1, 1994 when compared to the prior year.
Long-term obligations decreased $5.3 million (37%) from September 25, 1993
due to payments on long-term debt, refinancing of the Patrick Henry Drive
building loan and the pay-off of several equipment financing loans, partially
offset by increased borrowings to finance the purchase of the Company's
previously leased optics manufacturing facility in Auburn, California.
Other long-term liabilities increased $3.1 million (108%) from September
25, 1993 primarily due to the reclassification of certain costs associated with
the clean-up of the soil and groundwater contamination of the Company's former
facility in the Stanford Industrial Park (see Note 12 "Commitments and
Contingencies" of the Notes to Consolidated Financial Statements).
Additional paid-in capital increased $4.2 million (7%) from September 25,
1993 primarily due to sales of shares under employee stock option and purchase
plans.
Accumulated translation adjustment increased $1.5 million (136%) from
September 25, 1993 primarily due to the weakening of the U.S. dollar
particularly against the Japanese yen, German deutschemark and French franc.
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.
17
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
1995, (the "1995 Proxy Statement") and is incorporated herein by reference. The
1995 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. 61 Chairman of the Board of Directors,
Chief Executive Officer and
General Manager, Coherent Medical
Group
Henry E. Gauthier 54 President
and Chief Operating Officer
Robert J. Quillinan 47 Vice President
and Chief Financial Officer
Bernard J. Couillaud, Ph.D. 50 Vice President and General Manager,
Coherent Laser Group
Robert M. Gelber 49 Vice President and General Manager,
Coherent Auburn Group
Dennis C. Bucek 49 Treasurer and Assistant Secretary
Scott H. Miller 40 Vice President and General Counsel
Larry W. Sonsini 53 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 and as
Chief Executive Officer since August 1988. Dr. Hobart is currently serving as
General Manager of the Medical Group.
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 addition, in July 1983 he was
elected to the Board of Directors.
18
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 was appointed as Vice President in 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 1995 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 1995 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 1995 Proxy Statement and is incorporated herein by reference.
19
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 24
Consolidated Balance Sheets - October 1, 1994
and September 25, 1993 25
Consolidated Statements of Income - Years ended
October 1, 1994, September 25, 1993
and September 26, 1992 26
Consolidated Statements of Stockholders' Equity -
Years ended October 1, 1994, September 25, 1993,
and September 26, 1992 27
Consolidated Statements of Cash Flows - Years ended
October 1, 1994, September 25, 1993
and September 26, 1992 28
Notes to Consolidated Financial Statements 30
2. CONSOLIDATED FINANCIAL STATEMENT SCHEDULES
Schedule II - Amounts Receivable from Employees 45
Schedule VIII - Valuation and Qualifying Accounts 46
Schedule IX - Short-term Borrowings 47
Schedule X - Supplemental Income Statement Information 48
Schedules I through XIII 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
October 1, 1994.
20
(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.)
21
(c) EXHIBITS CONTINUED
Exhibit
Numbers
-------
10.36* Equipment Financing Agreement by and between Coherent, Inc.
and New England Capital Corporation dated March 6, 1992.
(Previously filed as Exhibit 2 to Form 10-Q for the fiscal
quarter ended June 27, 1992.)
10.37* Loan and Security Agreement by and between Coherent, Inc.
and Household Insurance of California, Inc. dated May 22,
1992. (Previously filed as Exhibit 3 to Form 10-Q for the
fiscal quarter ended June 27, 1992.)
21.1 Subsidiaries.
23.1 Independent Auditors' Consent.
24.1 Power of Attorney.
* These exhibits were previously filed with the Commission as indicated and
are incorporated herein by reference.
22
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:
JAMES L. HOBART December 16, 1994
- ----------------------------------------------- ------------------
James L. Hobart Date
(Director, Chairman of the Board &
Chief Executive Officer)
HENRY E. GAUTHIER December 16, 1994
- ----------------------------------------------- ------------------
Henry E. Gauthier Date
(Director, President & Chief Operating Officer)
ROBERT J. QUILLINAN December 16, 1994
- ----------------------------------------------- ------------------
Robert J. Quillinan Date
(Vice President & Chief Financial Officer)
CHARLES W. CANTONI December 16, 1994
- ----------------------------------------------- ------------------
Charles W. Cantoni Date
(Director)
FRANK CARRUBBA December 16, 1994
- ----------------------------------------------- ------------------
Frank Carrubba Date
(Director)
THOMAS SLOAN NELSEN December 16, 1994
- ----------------------------------------------- ------------------
Thomas Sloan Nelsen Date
(Director)
JERRY E. ROBERTSON December 16, 1994
- ----------------------------------------------- ------------------
Jerry E. Robertson Date
(Director)
23
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 schedules 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 schedules based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Coherent, Inc. and its
subsidiaries at October 1, 1994 and September 25, 1993, and the results of their
operations and their cash flows for each of the three years in the period ended
October 1, 1994 in conformity with generally accepted accounting principles.
Also, in our opinion, such financial statement schedules, when considered in
relation to the basic consolidated financial statements taken as a whole,
present 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
November 2, 1994
24
COHERENT, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
OCTOBER 1, September 25,
1994 1993
- -------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS:
Cash and equivalents $ 27,239 $ 27,923
Short-term investments 16,534 9,195
Accounts receivable - net of allowances
of $2,384 in 1994 and $3,025 in 1993 49,074 43,806
Inventories 38,829 35,792
Prepaid expenses and other assets 11,066 14,422
Deferred tax assets 13,527 13,119
- -------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 156,269 144,257
- -------------------------------------------------------------------------------
PROPERTY AND EQUIPMENT 82,569 72,582
ACCUMULATED DEPRECIATION AND AMORTIZATION (39,362) (33,976)
- -------------------------------------------------------------------------------
Property and equipment - net 43,207 38,606
- -------------------------------------------------------------------------------
GOODWILL - net of accumulated amortization of
$3,497 in 1994 and $2,949 in 1993 4,964 4,772
ASSETS HELD FOR SALE 1,544 1,700
OTHER ASSETS 4,996 4,461
- -------------------------------------------------------------------------------
$210,980 $193,796
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term borrowings $ 4,361 $ 5,666
Current portion of long-term obligations 4,708 3,832
Accounts payable 8,012 7,041
Income taxes payable 3,809 1,355
Other current liabilities 37,669 38,068
- -------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 58,559 55,962
- -------------------------------------------------------------------------------
LONG-TERM OBLIGATIONS 8,865 14,122
OTHER LONG-TERM LIABILITIES 6,003 2,883
MINORITY INTEREST IN SUBSIDIARIES 4,089 3,806
STOCKHOLDERS' EQUITY:
Common stock, par value $.01:
Authorized - 50,000 shares
Outstanding - 10,338 in 1994 and 9,913 in 1993 103 99
Additional paid-in capital 68,646 64,456
Notes receivable from stock sales (1,981) (1,310)
Retained earnings 64,157 52,702
Accumulated translation adjustment 2,539 1,076
- -------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 133,464 117,023
- -------------------------------------------------------------------------------
$210,980 $193,796
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
25
COHERENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
Years Ended
-----------------------------
OCT. 1, Sept. 25, Sept. 26,
1994 1993 1992
------ ------ ------
NET SALES $215,367 $196,883 $192,213
COST OF SALES 109,938 99,583 101,475
- -------------------------------------------------------------------------------
GROSS PROFIT 105,429 97,300 90,738
- -------------------------------------------------------------------------------
OPERATING EXPENSES:
Research and development 24,740 21,674 21,519
Selling, general and administrative 64,383 61,714 60,518
- -------------------------------------------------------------------------------
TOTAL OPERATING EXPENSES 89,123 83,388 82,037
- -------------------------------------------------------------------------------
INCOME FROM OPERATIONS 16,306 13,912 8,701
OTHER INCOME (EXPENSE):
Interest and dividend income 2,108 1,403 1,309
Interest expense (1,879) (1,964) (1,345)
Other - net 215 765 29
- -------------------------------------------------------------------------------
TOTAL OTHER INCOME (EXPENSE), NET 444 204 (7)
- -------------------------------------------------------------------------------
INCOME FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES 16,750 14,116 8,694
PROVISION FOR INCOME TAXES 6,449 4,797 3,467
- -------------------------------------------------------------------------------
INCOME FROM CONTINUING OPERATIONS 10,301 9,319 5,227
- -------------------------------------------------------------------------------
DISCONTINUED OPERATIONS:
Loss from discontinued operations
(net of tax benefits of $317 and
$658 for 1993 and 1992, respectively) (1,592) (2,583)
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) (2,583)
- -------------------------------------------------------------------------------
INCOME BEFORE CUMULATIVE
EFFECT OF CHANGE IN ACCOUNTING
FOR INCOME TAXES 11,455 4,910 2,644
CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING FOR INCOME TAXES 5,637
- -------------------------------------------------------------------------------
NET INCOME $11,455 $ 10,547 $2,644
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
COMMON AND COMMON EQUIVALENT PER SHARE DATA:
INCOME FROM CONTINUING OPERATIONS $1.00 $.93 $ .55
GAIN (LOSS) FROM DISCONTINUED OPERATIONS .11 (.44) (.27)
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING FOR
INCOME TAXES .56
- -------------------------------------------------------------------------------
NET INCOME $1.11 $1.05 $.28
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
26
COHERENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years ended October 1, 1994, September 25, 1993 and September 26, 1992
(In thousands)
Common Stock Notes
----------------------- Additional Receivable Accumulated
Par Paid-in From Stock Retained Translation
Shares Value Capital Sales Earnings Adjustment
- -------------------------------------------------------------------------------------------------------------------------------
BALANCE, SEPTEMBER 29, 1991 9,107 $ 91 $56,383 $(1,367) $39,511 $2,264
Sales of shares under employee
stock option plans 124 1 1,126 (367)
Productivity Incentive Plan
distributions 11 143
Sales of shares under Employee
Stock Purchase Plan 195 2 1,522
Tax benefit of stock option
transactions 281
Collection of notes receivable 296
Translation adjustment 946
Net income 2,644
- -------------------------------------------------------------------------------------------------------------------------------
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
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
27
COHERENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Years Ended
----------------------------------------
OCT. 1, Sept. 25, Sept. 26,
1994 1993 1992
- ----------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH AND EQUIVALENTS:
OPERATING ACTIVITIES:
Net income $11,455 $ 10,547 $2,644
Adjustments to reconcile to net cash
provided by (used for) operating activities:
(Gain) loss on disposal of segment (1,154) 2,817
Discontinued operations 1,592 2,583
Cumulative effect of change in accounting
for income taxes (5,637)
Purchases of short-term investments (64,470)
Proceeds from sales of short-term investments 57,131
Depreciation and amortization 7,862 7,274 6,612
Issuance of common stock under
Productivity Incentive Plan 291 230 143
Deferred income taxes 319 5,297 (3,641)
Minority interest in subsidiaries 283 424 471
Dividends paid to minority stockholders (431)
Equity in (income) loss of joint ventures (202) (47)
Deferred income 219 (1,076) (767)
Changes in assets and liabilities:
Accounts receivable (3,741) 2,065 3,790
Inventories (1,702) 3,232 (1,352)
Prepaid expenses and other assets 3,602 (7,300) 805
Other current liabilities 3,882 4,663 3,349
- ----------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 13,775 23,697 14,590
- ----------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES:
Purchases of short-term investments (61,702) (62,991)
Proceeds from sales of short-term investments 63,944 62,047
Purchases of property and equipment (10,728) (12,855) (14,673)
Dispositions of property and equipment, net 380 986 355
Dividends received from joint ventures 1,138
Proceeds from disposal of segment:
Cash 4,414
Receivables (4,222)
Other - net (1,663) (1,923) (1,063)
- ----------------------------------------------------------------------------------------------------------
NET CASH USED FOR INVESTING ACTIVITIES (12,011) (11,358) (15,187)
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
(continued)
28
COHERENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(CONCLUDED)
(In thousands)
Years Ended
----------------------------------------
OCT. 1, Sept. 25, Sept. 26,
1994 1993 1992
- ----------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES:
Long-term debt borrowings $8,926 $ 2,732 $12,403
Long-term debt repayments (12,762) (2,850) (1,280)
Notes payable borrowings 6,742 8,626 37,764
Notes payable repayments (8,190) (15,121) (36,391)
Repayments of capital lease obligations (587) (513) (426)
Sales of shares under employee stock option
and purchase plans, net 3,232 4,280 2,565
Collection of notes receivable from stock sales 624 296
- ----------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES (2,639) (2,222) 14,931
- ----------------------------------------------------------------------------------------------------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH
AND EQUIVALENTS 191 163 (582)
- ----------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS (684) 10,280 13,752
Cash and equivalents beginning of year 27,923 17,643 3,891
- ----------------------------------------------------------------------------------------------------------
CASH AND EQUIVALENTS END OF YEAR $27,239 $ 27,923 $17,643
- ----------------------------------------------------------------------------------------------------------
NONCASH INVESTING AND FINANCING ACTIVITIES:
Property acquired under capital leases $10 $37 $ 287
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the year for:
Interest $1,718 $2,023 $1,740
Income taxes $2,905 $5,987 $5,300
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
29
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.
CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
The Company's policy is to invest in various short-term instruments
including certificates of deposit, bankers acceptances and repurchase agreements
of major banks and institutions, obligations of the 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 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 on prior years'
retained earnings was not significant.
INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out) or
market. Inventories are as follows:
1994 1993
- --------------------------------------------------------------------------------
(In thousands)
Purchased parts and assemblies $12,020 $11,556
Work-in-process 14,714 12,859
Finished goods 12,095 11,377
- --------------------------------------------------------------------------------
$38,829 $35,792
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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:
1994 1993 Useful Life
- --------------------------------------------------------------------------------
(In thousands)
Land $ 5,828 $ 6,194
Buildings and improvements 27,126 20,186 20-31 years
Equipment, furniture and fixtures 47,146 41,859 3-10 years
Leasehold improvements 2,469 4,343 Terms of lease
- --------------------------------------------------------------------------------
$82,569 $72,582
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
30
Included in equipment, furniture and fixtures is equipment under capital
leases with a cost of $2,136,000 at October 1, 1994 (accumulated amortization of
$1,337,000) and $2,126,000 at September 25, 1993 (accumulated amortization of
$1,014,000).
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 the
completion of sale and transfer of title 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 with high credit quality financial institutions and, by policy, limits the
amount of credit exposure to any one institution. 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.
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 fair value of the Company's long-term obligations, excluding capital
leases, is estimated based on the quoted market prices for the same or similar
issues or on the current rates offered to the Company for debt of the same
remaining maturities. The carrying amount of the Company's long-term
obligations at October 1, 1994 approximates its fair value.
The fair value of foreign exchange contracts is estimated by obtaining
quotes from banks. The market value was approximately the same as the carrying
value as of October 1, 1994.
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
31
unremitted earnings of foreign subsidiaries was approximately $1,660,000 at
October 1, 1994. Withholding taxes of approximately $36,000 would be payable
upon repatriation of such earnings which would result in additional foreign tax
credits.
During fiscal 1993, the Company elected early adoption of Statement of
Financial Accounting Standards (SFAS) 109, "Accounting for Income Taxes". This
statement superseded the previous accounting standard for income taxes, SFAS 96,
which the Company adopted in fiscal 1988. Both SFAS 96 and SFAS 109 require the
use of the liability method for recording deferred income taxes. Under SFAS 96,
deferred tax assets could not be recognized unless they offset reversals of
deferred tax liabilities or could be recovered as income tax refunds through
existing loss carryback provisions. Under SFAS 109, the 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.
COMMON AND COMMON EQUIVALENT PER SHARE DATA
Common and common equivalent per share data is based upon the weighted
average number of common shares outstanding during the period including dilutive
common share equivalents and shares issuable under the Productivity Incentive
Plan. Common share equivalents represent 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 shares used were 10,342,000 in
1994, 10,073,000 in 1993, and 9,567,000 in 1992.
RECLASSIFICATION
Certain prior year amounts have been reclassified to conform with the
current year presentation.
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 the current fiscal year, 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% is due and payable in August 1995. The Company has an
additional note receivable of $444,000 from TTG for purchased inventory (March
1994) at 4%, due and payable in equal monthly installments until November 1994.
The balance of these notes receivable at October 1, 1994 was $2,827,000 (see
Note 4). 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 Japan 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. Included in other
current liabilities at September 25, 1993 is an accrual of $3,337,000 for costs
directly associated with disposing 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
32
reversal of inventory valuation reserves and certain accruals in excess of
amounts required. Revenues of the Industrial segment for 1993 and 1992 were
$14,269,000 and $23,214,000, respectively.
Net assets of discontinued operations at October 1, 1994 and September 25,
1993 consisted of the Company's former manufacturing facility in Sturbridge,
Massachusetts which the Company is leasing to TTG while it is held for sale
(classified as assets held for sale in the Consolidated Balance Sheets). In
addition, net assets of discontinued operations at September 25, 1993 included
$137,000 of accounts receivable (included in prepaid expenses and other assets
in the Consolidated Balance Sheets).
3. ACQUISITION
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 approximately $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 the entire current fiscal year. 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 DETAIL
Prepaid expenses and other assets consist of the following:
1994 1993
- ---------------------------------------------------------------------------
(In thousands)
Prepaid income taxes $ 4,686 $ 7,549
Prepaid expenses and other 3,553 3,151
Notes receivables from TTG 2,827 3,722
- ---------------------------------------------------------------------------
Prepaid expenses and other assets $11,066 $14,422
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
Other current liabilities consist of the following:
1994 1993
- ---------------------------------------------------------------------------
Accrued payroll and benefits $12,407 $ 9,288
Accrued expenses and other 10,924 10,803
Deferred service income 7,359 7,135
Reserve for warranty 5,418 5,814
Environmental remediation costs 1,062 1,691
Discontinued operations 499 3,337
- ---------------------------------------------------------------------------
Other current liabilities $37,669 $38,068
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
Other long-term liabilities consist of the following:
1994 1993
- ---------------------------------------------------------------------------
Environmental remediation costs $2,573
Deferred tax liabilities 1,952 $1,543
Deferred income 1,478 1,340
- ---------------------------------------------------------------------------
Other long-term liabilities $6,003 $2,883
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
33
5. 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.
At October 1, 1994, the Company had Japanese yen, German deutschemark and
French franc forward contracts outstanding. Yen contracts were for the
conversion of Y170,000,000 to U.S. dollars ($1,719,000 at October 1, 1994) with
maturity dates from October 3, 1994 through December 14, 1994 to hedge yen
receivables and backlog. Deutschemark contracts were for the conversion of DM
6,600,000 to U.S. dollars ($4,258,000 at October 1, 1994) with maturity dates
from October 17, 1994 through February 15, 1995 to hedge deutschemark
receivables and backlog. French franc contracts were for the conversion of FRF
13,500,000 to U.S. dollars ($2,557,000 at October 1, 1994) with maturity dates
from October 17, 1994 through December 15, 1994 to hedge French franc
receivables.
6. SHORT-TERM BORROWINGS
At October 1, 1994, credit was available under an unsecured multi-currency
revolving line of credit in the amount of $10,000,000 with Bank of America. The
syndicated line of credit expires March 31, 1995, and the Company is required to
maintain certain financial ratios and levels of working capital, achieve
profitability at least three quarters each year and achieve a quarterly net loss
no greater than a specified amount and restrict payment of dividends. Overseas
borrowings bear interest at LIBOR (5.06% at October 1, 1994) plus 1%. At
October 1, 1994, there were no borrowings under this agreement. In addition to
the $10,000,000 line of credit, Bank of America provides a $500,000 unsecured
revolving line of credit for real estate bridge loans to Coherent's employees,
fully guaranteed by Coherent.
At October 1, 1994, lines of credit in the amount of $6,613,000 with
Bethmann Bank, Commerzbank and Sparkasse Dieburg were extended to the Company's
subsidiary in Dieburg, Germany. At October 1, 1994, there were no borrowings
under these agreements. At October 1, 1994, a line of credit in the amount of
$86,000 was extended to the Company's subsidiary in The Netherlands. At October
1, 1994, there were no borrowings under this agreement. The Company's
$2,525,000 line of credit with Deutsche Bank AG in Tokyo services a subsidiary
in Japan. At October 1, 1994, borrowings under this credit line were $2,196,000
at an interest rate of 3.75%. These credit facilities have no fixed termination
dates and interest is charged at the rate determined at the time of the
borrowings. At October 1, 1994, lines of credit in the amount of $1,355,000
with Sparkasse Gottingen, and Deutsche Bank Gottingen, have also been extended
to the Company's subsidiary in Gottingen, Germany. Interest is charged at the
rate determined at the time of the borrowings. At October 1, 1994, there were
no borrowings under these credit facilities. This subsidiary also has
borrowings of $227,000 from an R&D company in which it has an equity interest,
with an interest rate of 3.5%.
The Company had $1,938,000 at October 1, 1994 and $1,920,000 at September
25, 1993 included in short-term borrowings that represented the reclassification
of outstanding checks in excess of related bank balances.
34
7. INCOME TAXES
The provision for income taxes from continuing operations consists of the
following:
1994 1993 1992
- ------------------------------------------------------------------------------------------------------------------------------
(In thousands)
CURRENTLY PAYABLE:
Federal $ 6,920 $ 3,568 $ 3,414
State 1,309 713 1,137
Foreign (2,099) (1,293) 2,285
- ------------------------------------------------------------------------------------------------------------------------------
6,130 2,988 6,836
- ------------------------------------------------------------------------------------------------------------------------------
DEFERRED CHARGE (CREDIT):
Federal (77) 2,089 (1,184)
State 59
Foreign 337 (280) (2,185)
- ------------------------------------------------------------------------------------------------------------------------------
319 1,809 (3,369)
- ------------------------------------------------------------------------------------------------------------------------------
PROVISION FOR INCOME TAXES FROM CONTINUING OPERATIONS $ 6,449 $4,797 $ 3,467
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
The components of income (loss) from continuing operations before income
taxes consist of:
1994 1993 1992
- ------------------------------------------------------------------------------------------------------------------------------
(In thousands)
United States $17,378 $ 16,698 $ 9,437
Foreign (628) (2,582) (743)
- ------------------------------------------------------------------------------------------------------------------------------
INCOME FROM CONTINUING OPERATIONS $16,750 $ 14,116 $ 8,694
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
The reconciliation of the statutory federal income tax rate to the
effective rate for continuing operations is as follows:
1994 1993 1992
- ------------------------------------------------------------------------------------------------------------------------------
% of % of % of
Pretax Pretax Pretax
Income Income Income
- ------------------------------------------------------------------------------------------------------------------------------
Federal statutory tax rate 35.0% 34.8% 34.0%
Foreign taxes higher (lower) than U.S. taxes 2.3 (13.2) (4.6)
Foreign tax credit (10.0) (0.1)
Increase in valuation allowance 7.9
Foreign losses in excess of available tax benefits (0.2) 7.6 8.0
State income taxes, net of federal income tax benefit 5.3 4.6 8.4
Research and Development credit, net of recapture (1.2) (1.8) (9.6)
Effect of graduated rate (0.8)
Other (0.6) 2.8 3.8
- ------------------------------------------------------------------------------------------------------------------------------
PROVISION FOR INCOME TAXES FROM CONTINUING OPERATIONS 38.5% 34.0% 39.9%
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
35
The significant components of deferred tax assets and liabilities as of the
beginning and end of fiscal 1994 were:
October 1, September 26,
1994 1993
- --------------------------------------------------------------------------------
(in thousands)
Deferred tax assets:
Reserves and accruals not currently deductible $ 6,184 $ 7,655
Operating loss carryforwards and tax credits 5,870 5,075
Intercompany dividends 3,044
Intercompany profit 617 707
Deferred service revenue 2,071 2,289
Inventory capitalization 439 870
Retirement benefits 282 225
Other 213 196
- --------------------------------------------------------------------------------
15,676 20,061
Valuation allowance (1,817) (500)
- --------------------------------------------------------------------------------
13,859 19,561
Deferred tax liabilities:
Depreciation 1,945 1,504
Intercompany dividends 3,789
Other 657 2,692
- --------------------------------------------------------------------------------
2,602 7,985
- --------------------------------------------------------------------------------
Total deferred tax assets and liabilities $11,257 $11,576
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The Company increased its valuation allowance in fiscal 1994 by $1,317,000
to partially reserve for the current year benefit of foreign tax credit
carryforwards for which realization is not assured.
The total net deferred tax asset is classified on the balance sheet at
October 1, 1994 and September 25, 1993 as follows (in thousands):
- --------------------------------------------------------------------------------
Current deferred income tax assets $13,527 $13,119
Current deferred income tax liabilities (318)
Non-current deferred income tax liabilities (1,952) (1,543)
- --------------------------------------------------------------------------------
Net deferred tax assets $11,257 $11,576
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Total net operating losses of $6,242,000 for tax return purposes expire as
follows: 1997 - $591,000, 1998 - $3,575,000, and 1999 $2,076,000. Total tax
credits of $6,192,000 for tax return purposes expire as follows: 1996 -
$391,000, 1997 - $178,000, 1999 - $3,974,000 and thereafter $1,649,000.
Utilization of certain of these carryforwards and credits are subject to
restrictions relating to taxable income of subsidiaries not previously
consolidated for income tax purposes.
In fiscal 1993, the Company elected early adoption of Statement of
Financial Accounting Standards (SFAS) 109, "Accounting for Income Taxes". This
statement superseded the previous accounting standard for income taxes, SFAS 96,
which the Company adopted in fiscal 1988. Both SFAS 96 and SFAS 109 require the
use of the liability method for recording deferred income taxes. However, under
SFAS 96, deferred tax assets could not be recognized unless they offset
reversals of deferred tax liabilities or could be recovered as income tax
refunds through existing loss carryback provisions. Under SFAS 109, the Company
recognizes deferred tax assets if it is more likely than not that a benefit will
be realized.
36
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.
8. LONG-TERM OBLIGATIONS
The components of long-term obligations are as follows:
1994 1993
- --------------------------------------------------------------------------------
(In thousands)
Notes payable $ 9,609 $12,980
Bonds payable:
1981 66 116
1984 381 461
1988 2,800 3,100
Capital leases (Note 12) 717 1,297
- --------------------------------------------------------------------------------
13,573 17,954
Current portion (4,708) (3,832)
- --------------------------------------------------------------------------------
Long-term obligations $ 8,865 $14,122
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTES PAYABLE - At October 1, 1994, notes payable consists of $0.6 million
at 5.5% for the mortgage on the facilities of Lambda Physik, GmbH, $6.4 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%, $2.2 million
for the financing of equipment with varying interest rates from 7.6% to 9.2% and
$0.4 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 (5.8% and 5.1%, respectively, at October 1,
1994) adjusted periodically based on 70-85% of the prime rate. The average
interest rate on these bonds was 5.7% during fiscal 1994 and 4.8% during fiscal
1993. The 1988 bonds are payable in installments through 2008 with a variable
interest rate (3.3% at October 1, 1994) 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: 1995 -
$4,108,000, 1996 - $4,142,000, 1997 - $2,047,000, 1998 - $498,000, 1999 -
$261,000 and thereafter $1,800,000.
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
37
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
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 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 issued and the cash distributed is charged to expense. 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. For
fiscal 1992, 12,000 shares (fair market value of $139,000) and $552,000 were
accrued for the benefit of employees. At October 1, 1994, the Company had
87,300 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 1994,
1993, and 1992 were $2,202,000, $2,312,000, and $2,128,000, 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
1994, 1993, and 1992 were $11,359, $10,739, and $6,091, 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 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. In fiscal 1992, 195,000 shares were purchased
by and distributed to employees at an average price of $7.84 per share.
At October 1, 1994, $1,348,000 had been contributed by employees that will
be used to purchase a maximum of 165,400 shares in fiscal 1995 at a price
determined under the terms of the Plan. At October 1, 1994, the Company had
617,600 shares of its common stock reserved for future issuance under the plan.
38
STOCK OPTIONS AND WARRANTS
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 six years
after the date of grant and become exercisable as determined by the Board of
Directors. At October 1, 1994, 1,606,000 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 October 1, 1994, there
were options outstanding for 70,000 shares under the plan and 30,000 shares
remain available for future grants.
Additional information with respect to the stock option plans and
outstanding warrants is as follows:
Option/Warrant Price
-----------------------------------------
Range Per Share
Number --------------------
of Shares Low High Total
- ---------------------------------------------------------------------------------------------------------------
OUTSTANDING, SEPTEMBER 29, 1991 1,147,000 $ 8.00 $ 15.75 $11,836,000
Granted 324,000 8.63 15.13 2,847,000
Exercised (124,000) 8.00 12.13 (1,127,000)
Canceled (66,000) 8.63 15.75 (703,000)
- ---------------------------------------------------------------------------------------------------------------
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
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
At October 1, 1994, options and warrants for approximately 333,000 shares
were exercisable and 569,300 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 5.3% to 8.2% and are collateralized by the stock
issued upon exercise of the stock options. Interest is payable annually and
principal is due from 1995 through 1999.
39
11. OTHER INCOME (EXPENSE)
Other income (expense) is as follows:
Years Ended
--------------------------------
Oct. 1, Sept. 25, Sept. 26,
1994 1993 1992
- -----------------------------------------------------------------------------
Minority interest in subsidiaries $(176) $ 246 $(388)
Royalty income 88 99 272
Foreign exchange gain (loss) 71 (95) 273
Equity in income of joint ventures 202 47
Gain on investment 402
Other - net 30 113 (175)
- -----------------------------------------------------------------------------
Other income - net $ 215 $ 765 $ 29
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
12. COMMITMENTS AND CONTINGENCIES
COMMITMENTS
The Company leases several of its facilities under operating leases,
certain of which expire in 1995. The Company believes that leases may be
renewed or alternative facilities may be arranged as the lease terms expire.
In addition, the Company leases certain equipment under capital lease
agreements.
Future minimum payments under the Company's leases are as follows (in
thousands):
Capital Operating
Fiscal Year Ending Leases Leases
------------------------------------------------------------------
1995 $643 $ 2,903
1996 100 2,280
1997 24 1,771
1998 1,705
1999 1,343
Thereafter 3,788
------------------------------------------------------------------
Total $767 $13,790
-------
-------
Amounts representing interest 50
----
Present value of minimum lease payments $717
----
----
Rent expense was $3,797,000 in fiscal 1994, $4,125,000 in fiscal 1993, and
$4,783,000 in fiscal 1992.
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
$1,149,000 in fiscal 1994, $1,093,000 in fiscal 1993, and $1,192,000 in fiscal
1992. As a result of a patent expiration in October 1994, the Company's royalty
rates for certain solid state lasers have been reduced to 3.5% and 2.0% of
certain defined domestic sales and international sales, respectively, subject to
certain exceptions and limitations. The remaining patents expire on various
dates through May 2005.
40
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 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 one remedial system and the construction of three additional
remedial systems is scheduled for completion in December 1994. The Company has
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 and Feasibility
Study Reports prepared by the Company for this site. The Company has been
operating remedial systems at the site to remove subsurface chemicals since
April 1992. The Company has submitted a draft Remedial Action Plan to the
State of California which defines the supplemental systems needed to complete
remedial work.
Management believes that the Company's probable, nondiscounted net
liability at October 1, 1994 for remaining costs associated with the above
environmental matters is $1.6 million which has been previously accrued. This
amount consists of total estimated probable costs of $3.6 million ($1.0 million
included in accrued expenses and $2.6 million included in other long-term
liabilities) reduced by estimated minimum probable recoveries of $2.0 million
included in Other Assets from other parties named to the order. Based on
currently available information, the Company 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. All amounts have been restated to
reflect the disposition of the Industrial segment. 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.
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.
The functional currency for all foreign entities is the local currency.
The accounts of the foreign entities are maintained in local currency.
41
Information concerning the Company's operations by industry segment and
geographic area is as follows:
- ----------------------------------------------------------------------------------------------------------
INDUSTRY SEGMENT DATA 1994 1993 1992
- ----------------------------------------------------------------------------------------------------------
(In thousands)
NET SALES, INCLUDING
INTERSEGMENT SALES:
Electro-Optical products $138,096 $ 120,514 $114,098
Medical products 89,376 82,688 84,085
Intersegment sales (12,105) (6,319) (5,970)
- ----------------------------------------------------------------------------------------------------------
NET SALES $215,367 $ 196,883 $192,213
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS:
Electro-Optical products $ 14,039 $ 8,464 $ 11,864
Medical products 2,881 6,400 (1,683)
Corporate expenses (614) (952) (1,480)
- ----------------------------------------------------------------------------------------------------------
INCOME FROM OPERATIONS $ 16,306 $ 13,912 $ 8,701
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
IDENTIFIABLE ASSETS:
Electro-Optical products $105,261 $ 101,010 $ 92,143
Medical products 46,085 44,759 46,873
Eliminations (2,926) (3,372) (3,500)
- ----------------------------------------------------------------------------------------------------------
Total identifiable assets 148,420 142,397 135,516
Corporate assets 62,560 51,262 37,738
Net assets of discontinued operations 137 10,038
- ----------------------------------------------------------------------------------------------------------
TOTAL ASSETS $210,980 $ 193,796 $183,292
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
DEPRECIATION:
Electro-Optical products $ 4,891 $ 4,223 $ 4,301
Medical products 1,382 1,121 1,197
Corporate 165 149 177
- ----------------------------------------------------------------------------------------------------------
TOTAL DEPRECIATION $ 6,438 $ 5,493 $ 5,675
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
CAPITAL EXPENDITURES:
Electro-Optical products $ 7,264 $ 11,665 $ 13,226
Medical products 3,119 1,129 1,316
Corporate 345 61 131
- ----------------------------------------------------------------------------------------------------------
TOTAL CAPITAL EXPENDITURES $ 10,728 $ 12,855 $ 14,673
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
42
- ----------------------------------------------------------------------------------------------------------
GEOGRAPHIC REGION INFORMATION 1994 1993 1992
- ----------------------------------------------------------------------------------------------------------
(In thousands)
NET SALES TO UNAFFILIATED CUSTOMERS
BY GEOGRAPHIC REGION:
United States $152,115 $144,599 $144,443
Europe, Far East and other 63,252 52,284 47,770
- ----------------------------------------------------------------------------------------------------------
NET SALES $215,367 $196,883 $192,213
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
SALES TO AFFILIATES (ELIMINATED IN
CONSOLIDATION) BY GEOGRAPHIC REGION:
United States $ 22,933 $ 22,150 $ 16,262
Europe 10,920 9,648 9,336
- ----------------------------------------------------------------------------------------------------------
NET SALES $ 33,853 $ 31,798 $ 25,598
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS:
United States $ 16,869 $ 16,409 $ 8,331
Europe (223) (1,064) 1,348
Corporate expenses (869) (841) (705)
Transfers between geographic areas 529 (592) (273)
- ----------------------------------------------------------------------------------------------------------
INCOME FROM OPERATIONS $ 16,306 $ 13,912 $ 8,701
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
IDENTIFIABLE ASSETS:
United States $101,556 $ 97,249 $ 98,939
Europe 49,790 48,520 40,077
Eliminations (2,926) (3,372) (3,500)
- ----------------------------------------------------------------------------------------------------------
Total identifiable assets 148,420 142,397 135,516
Corporate assets 62,560 51,262 37,738
Net assets of discontinued operations 137 10,038
- ----------------------------------------------------------------------------------------------------------
TOTAL ASSETS $210,980 $193,796 $183,292
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
EXPORT SALES:
Far East $ 29,870 $ 28,579 $ 22,220
Other 16,843 16,337 16,980
- ----------------------------------------------------------------------------------------------------------
TOTAL EXPORT SALES $ 46,713 $ 44,916 $ 39,200
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
NET SALES TO GEOGRAPHIC REGION:
United States $105,402 $ 99,683 $105,243
International 109,965 97,200 86,970
- ----------------------------------------------------------------------------------------------------------
NET SALES $215,367 $196,883 $192,213
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
Net assets of foreign subsidiaries as of year-end were as follows:
1994 1993 1992
- -------------------------------------------------------------------------------
(In thousands)
Total assets $ 49,702 $ 51,311 $ 39,615
Net assets of discontinued operations 137 5,748
Total liabilities (39,436) (38,240) (32,966)
- -------------------------------------------------------------------------------
NET ASSETS $ 10,266 $ 13,208 $ 12,397
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
43
14. QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial data for fiscal 1994 and 1993 are as
follows:
First Second Third Fourth
Quarter Quarter Quarter Quarter
- ------------------------------------------------------------------------------------------------------------
(In thousands, except per share amounts)
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
Income per share:
Income from continuing operations $ .14 $ .29 $ .28 $ .29
Net income .14 .29 .28 .40
- ------------------------------------------------------------------------------------------------------------
YEAR ENDED SEPTEMBER 25, 1993 (2) (3):
Net sales $46,748 $51,329 $47,212 $51,594
Gross profit 23,240 25,514 23,812 24,734
Income from continuing operations 2,480 2,889 1,700 2,250
Net income (loss) 7,464 2,000 1,723 (640)
Income (loss) per share:
Income from continuing operations $ .25 $ .29 $ .17 $ .22
Net income (loss) .75 .20 .17 (.06)
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
<FN>
(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 are no longer required relating to
the operations discontinued in fiscal 1993.
(2) Net earnings for the first quarter of 1993 included the cumulative effect
of $5,637,000 ($.57 per share) due to the change in accounting for income taxes.
(3) Net earnings for the fourth quarter of 1993 included a charge of $2,817,000
($.27 per share), (net of a tax benefit of $4,030,000), related to the
disposition of the Company's Industrial segment.
44
SCHEDULE II
AMOUNTS RECEIVABLE FROM EMPLOYEES
FOR THE YEARS ENDED OCTOBER 1, 1994, SEPTEMBER 25, 1993,
AND SEPTEMBER 26, 1992
(In thousands)
Balance at Balance at
Beginning Amounts End of
Name of Period Additions Collected Period
- --------------------------------------------------------------------------------
YEAR ENDED
OCTOBER 1, 1994:
Robert J. Quillinan $225 $169 $394
James L. Hobart 487 487
Henry E. Gauthier 507 171 678
Leonard C. DeBenedictis 111 211 322
Dennis C. Bucek 57 57
Bernard Couillaud 56 56
Robert M. Gelber 131 49 180
- --------------------------------------------------------------------------------
$1,461 $713 $2,174
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
YEAR ENDED
SEPTEMBER 25, 1993
Robert J. Quillinan $144 $81 $225
James L. Hobart 497 136 $146 487
Henry E. Gauthier 791 134 418 507
Leonard C. DeBenedictis 111 44 44 111
Dennis C. Bucek 24 24
Robert M. Gelber 131 131
- --------------------------------------------------------------------------------
$1,543 $550 $632 $1,461
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
YEAR ENDED
SEPTEMBER 26, 1992:
Robert J. Quillinan $201 $78 $135 $144
James L. Hobart 382 115 497
Henry E. Gauthier 704 192 105 791
Leonard C. DeBenedictis 65 46 111
Dennis C. Bucek 63 63
- --------------------------------------------------------------------------------
$1,415 $431 $303 $1,543
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<FN>
The notes were received pursuant to the exercise of stock options and include
related taxes of $193,000. The loans are evidenced by full recourse promissory
notes bearing interest at variable rates ranging from 5.3% to 8.2%. Interest is
payable annually and the principal is due on various dates for Mr. Quillinan
(February 1996 to August 1999), Dr. Hobart (January 1995 to March 1998), Mr.
Gauthier (February 1996 to March 1999), Mr. DeBenedictis (August 1995), Mr.
Bucek (March 1999), Dr. Couillaud (September 1998 to February 1999) and Mr.
Gelber (February 1998 to August 1999).
45
SCHEDULE VIII
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED OCTOBER 1, 1994, SEPTEMBER 25, 1993,
AND SEPTEMBER 26, 1992
(In thousands)
Additions
Balance at Charged to Deductions Balance
Beginning Costs and from at End
of Period Expenses Reserves (1) of Period
- ------------------------------------------------------------------------------------------------
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
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
YEAR ENDED SEPTEMBER 26, 1992:
Accounts receivable allowances $2,489 $ 1,414 $939 $2,964
Warranty 6,119 10,105 9,709 6,515
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
<FN>
(1) Reductions from the reserves are for the purpose for which the reserves
were created.
46
SCHEDULE IX
SHORT-TERM BORROWINGS
FOR THE YEARS ENDED OCTOBER 1, 1994, SEPTEMBER 25, 1993,
AND SEPTEMBER 26, 1992
(Dollars in thousands)
Weighted
Maximum Average Average
amount amount interest
Balance Weighted outstanding outstanding rate
Category of at end of average during the during the during the
borrowings period interest rate period period (2) period (3)
- ------------------------------------------------------------------------------------------------------
YEAR ENDED
OCTOBER 1, 1994:
Bank notes payable(1) $2,196 3.8% $ 2,873 $2,346 5.4%
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
YEAR ENDED
SEPTEMBER 25, 1993:
Bank notes payable(1) $2,874 4.9% $ 8,531 $5,896 8.0%
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
YEAR ENDED
SEPTEMBER 26, 1992:
Bank notes payable(1) $11,160 7.8% $ 12,795 $9,130 9.8%
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
<FN>
(1) Bank notes payable represent borrowings under lines of credit and
other credit facility borrowing arrangements. Lines of credit may be
canceled by either the bank or the Company or have specific expiration
dates. The other credit facilities have no fixed termination dates
and are due upon bank notification.
(2) The average amount outstanding during the period was computed by
dividing the total of month-end outstanding principal balances by the
number of months outstanding.
(3) The weighted average interest rate during the period was computed by
dividing the actual interest expense by average bank notes payable
outstanding.
47
SCHEDULE X
SUPPLEMENTAL INCOME STATEMENT INFORMATION
FOR THE YEARS ENDED OCTOBER 1, 1994, SEPTEMBER 25, 1993,
AND SEPTEMBER 26, 1992
(In thousands)
Charged to Costs and Expenses
1994 1993 1992
- --------------------------------------------------------------------------------
Advertising Costs $2,747 $2,435 $3,373
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The other costs and expenses required to be reported on the schedule are
either disclosed in the financial statements or are less than 1% of consolidated
net sales and therefore are not required to be disclosed.
48
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 October 1, 1994
---------------------------------------
COHERENT, INC.
EXHIBITS
---------------------------------------
49
INDEX TO EXHIBITS
Sequentially
Exhibit
Numbered
Number Exhibit Page
- -------- ------- ------------
21.1 Subsidiaries See page 51
23.1 Independent Auditors' Consent See page 52
24.1 Power of Attorney See page 23
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.
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