Coherent, Inc. Reports Second Fiscal Quarter Results

Three Months Ended

Six Months Ended

March 31,

December 30,

April 1,

March 31,

April 1,

2018

2017

2017

2018

2017

GAAP Results

(in millions except per share data)

Net sales

$

481.1

$

477.6

$

422.8

$

958.7

$

768.9

Net income

$

65.3

$

41.9

$

41.8

$

107.2

$

72.3

Diluted EPS

$

2.61

$

1.67

$

1.69

$

4.29

$

2.93

Non-GAAP Results

(in millions except per share data)

Net income

$

84.3

$

88.6

$

72.1

$

172.9

$

135.5

Diluted EPS

$

3.37

$

3.54

$

2.91

$

6.91

$

5.49

Three Months Ended

Six Months Ended

March 31,

December 30,

April 1,

March 31,

April 1,

2018

2017

2017

2018

2017

Net sales

$

481,118

$

477,565

$

422,833

$

958,683

$

768,906

Cost of sales^{(A)(B)(D)(E)(F)}

265,688

260,542

243,318

526,230

447,877

Gross profit

215,430

217,023

179,515

432,453

321,029

Operating expenses:

Research & development^(A)(B)(F)

34,783

31,392

30,536

66,175

57,620

Selling, general & administrative^{(A)(B)(E)(F)(G)}

77,146

73,437

72,451

150,583

146,219

Gain from business combination^(C)

—

—

—

—

(5,416)

Other impairment charges(recoveries) ^(I)

(110)

265

—

155

—

  Amortization of intangible assets^(D)

2,950

2,606

5,439

5,556

9,317

   Total operating expenses

114,769

107,700

108,426

222,469

207,740

Income from operations

100,661

109,323

71,089

209,984

113,289

Other income (expense), net^{(B) (H)}

(9,510)

(8,500)

(10,255)

(18,010)

(5,083)

Income from continuing operations, before income taxes

91,151

100,823

60,834

191,974

108,206

Provision for income taxes ^(J)

25,849

58,920

18,646

84,769

35,320

Net income from continuing operations

65,302

41,903

42,188

107,205

72,886

Income (loss) from discontinued operations, net of income taxes

—

(2)

(343)

(2)

(633)

Net income

$

65,302

$

41,901

$

41,845

$

107,203

$

72,253

Net income (loss) per share:

Basic from continuing operations

2.64

1.70

1.72

4.34

2.98

Basic from discontinued operations

—

—

(0.01)

—

(0.03)

Basic earnings per share

$

2.64

$

1.70

$

1.71

$

4.34

$

2.96

Diluted from continuing operations

2.61

1.67

1.70

4.29

2.95

Diluted from discontinued operations

—

—

(0.01)

—

0.03

Diluted earnings per share

$

2.61

$

1.67

$

1.69

$

4.29

$

2.93

Shares used in computations:

Basic

24,761

24,635

24,496

24,698

24,422

Diluted

25,010

25,025

24,757

25,018

24,700

(A)

Stock-based compensation expense included in operating results is summarized below (all footnote amounts are unaudited, in thousands, except per share data):

Stock-based compensation expense

Three Months Ended

Six Months Ended

March 31,

December 30,

April 1,

March 31,

April 1,

2018

2017

2017

2018

2017

Cost of sales

$

1,018

$

988

$

778

$

2,006

$

1,738

Research & development

872

668

597

1,540

1,650

Selling, general & administrative

6,520

5,420

5,308

11,940

12,950

Impact on income from operations

$

8,410

$

7,076

$

6,683

$

15,486

$

16,338

For the quarters ended March 31, 2018, December 30, 2017 and April 1, 2017, the impact on net income, net of tax was $7,235 ($0.29 per diluted share), $5,467 ($0.22 per diluted share) and $4,868 ($0.20 per diluted share), respectively. For the six months ended March 31, 2018 and April 1, 2017, the impact on net income, net of tax was $12,702 ($0.51 per diluted share) and $13,034 ($0.53 per diluted share), respectively.

(B)

Changes in deferred compensation plan liabilities are included in cost of sales and operating expenses while gains and losses on deferred compensation plan assets are included in other income (expense), net.  Deferred compensation expense (benefit) included in operating results is summarized below:

Deferred compensation expense (benefit)

Three Months Ended

Six Months Ended

March 31,

December 30,

April 1,

March 31,

April 1,

2018

2017

2017

2018

2017

Cost of sales

$

28

$

78

$

69

$

106

$

70

Research & development

128

359

308

487

333

Selling, general & administrative

602

1,627

1,430

2,229

1,368

Impact on income from operations

$

758

$

2,064

$

1,807

$

2,822

$

1,771

For the quarters ended March 31, 2018, December 30, 2017 and April 1, 2017, the impact on other income (expense), net from gains or losses on deferred compensation plan assets was income of $768, $1,906 and $1,812, respectively. For the six months ended March 31, 2018 and April 1, 2017, the impact on other income (expense) net from gains or losses on deferred compensation plan assets was income of $2,674 and $1,822, respectively.

(C)

For the six months ended April 1, 2017, the gain from business combination was $5,416 ($3,426 net of tax ($0.14 per diluted share)).

(D)

For the quarters ended March 31, 2018, December 30, 2017 and April 1, 2017, the impact of amortization of intangibles expense was $15,329 ($10,931 net of tax ($0.44 per diluted share)), $15,100 ($10,773 net of tax ($0.43 per diluted share)) and $16,763 ($12,573 net of tax ($0.51 per diluted share)), respectively. For the six months ended March 31, 2018 and April 1, 2017, the impact of amortization of intangible expense was $30,429 ($21,704 net of tax ($0.87 per diluted share)) and $28,851 ($20,299 net of tax ($0.82 per diluted share)), respectively.

(E)

For the quarter ended March 31, 2018 and April 1, 2017, the impact of inventory and favorable lease step-up costs related to acquisitions was $411 ($293 net of tax ($0.01 per diluted share)) and $13,019 ($9,401 net of tax ($0.38 per diluted share)). For six months ended March 31, 2018 and April 1, 2017, the impact of inventory and favorable lease step-up costs related to acquisitions was $411 ($293 net of tax ($0.01 per diluted share)) and $22,323 ($15,870 net of tax ($0.64 per diluted share)).

(F)

For the quarters ended March 31, 2018, December 30, 2017 and April 1, 2017, the impact of restructuring charges was $726 ($555 net of tax ($0.02 per diluted share)), $1,160 ($850 net of tax ($0.04 per diluted share)) and $557 ($378 net of tax ($0.02 per diluted share)) respectively. For the six months ended March 31, 2018 and April 1, 2017, the impact of restructuring charges was $1,886 ($1,405 net of tax ($0.05 per diluted share)) and $7,619 ($4,978 net of tax ($0.20 per diluted share)).

(G) 

For the quarters ended March 31, 2018 and April 1, 2017, the impact of costs related to acquisitions included $400 ($400 net of tax ($0.01 per diluted share) and $2,933 ($2,664 net of tax ($0.11 per diluted share)). For the six months ended March 31, 2018 and April 1, 2017, it included $400 ($400 net of tax ($0.01 per diluted share)) and $17,161 ($17,156 net of tax ($0.69 per diluted share)) of costs related to the acquisition of Rofin.

(H) 

For the six months ended April 1, 2017, the gain on our hedge of the debt commitment and issuance of the debt was $11,298 ($7,147 net of tax ($0.29 per diluted share)) and interest expense on the debt commitment was $2,665 ($1,844 net of tax ($0.07 per diluted share)).

(I)

For the quarters ended March 31, 2018 and December 30, 2017, other impairment charges (recoveries) was a recovery of $110 ($110 net of tax ($0.00 per diluted share)) and a charge of $265 ($265 net of tax ($0.01 per diluted share)), respectively. For the six months ended March 31, 2018, other impairment charges (recoveries) was a charge of $155 ($155 net of tax ($0.01 per diluted share)).

(J)

The six months ended March 31, 2018 and the quarter ended December 30, 2017 included $41,745 ($1.67 per diluted share) non-recurring tax expense due to the U.S. Tax Cuts and Jobs Act transition tax and deferred tax remeasurement. The quarter ended March 31, 2018 and December 30, 2017 included $299 ($0.01 per diluted share) and $12,451 ($0.50 per diluted share) tax benefit from the adoption of new rules for accounting for excess tax benefits and tax deficiencies for employee stock-based compensation. The six months ended March 31, 2018 included $12,750 ($0.51 per diluted share) tax benefit from the adoption of new rules for accounting for excess tax benefits and tax deficiencies for employee stock-based compensation.

March 31,

September 30,

2018

2017

ASSETS

Current assets:

Cash, cash equivalents, restricted cash and short-term investments

$

347,258

$

476,673

Accounts receivable, net

312,938

305,668

Inventories

492,686

414,807

Prepaid expenses and other assets

85,446

70,268

Assets held-for-sale

9,079

44,248

   Total current assets

1,247,407

1,311,664

Property and equipment, net

307,330

278,850

Other assets

781,848

747,286

   Total assets

$

2,336,585

$

2,337,800

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

Short-term borrowings

$

7,422

$

5,078

Accounts payable

93,309

75,860

Other current liabilities

301,237

338,207

   Total current liabilities

401,968

419,145

Other long-term liabilities

644,936

755,391

Total stockholders' equity

1,289,681

1,163,264

   Total liabilities and stockholders' equity

$

2,336,585

$

2,337,800

Three Months Ended

Six Months Ended

March 31,

December 30,

April 1,

March 31,

April 1,

2018

2017

2017

2018

2017

GAAP net income from continuing operations

$

65,302

$

41,903

$

42,188

$

107,205

$

72,886

Stock-based compensation expense

7,235

5,467

4,868

12,702

13,034

Amortization of intangible assets

10,931

10,773

12,573

21,704

20,299

Restructuring charges

555

850

378

1,405

4,978

Gain on business combination

—

—

—

—

(3,426)

Non-recurring tax expense (benefit)

—

41,745

—

41,745

—

Tax benefit from stock-based compensation expense

(299)

(12,451)

—

(12,750)

—

Interest expense on debt commitment

—

—

—

—

1,844

Gain on hedge of debt and debt commitment

—

—

—

—

(7,147)

Other impairment charges (recoveries)

(110)

265

—

155

—

Acquisition-related costs

400

—

2,664

400

17,156

Purchase accounting step-up

293

—

9,401

293

15,870

Non-GAAP net income

$

84,307

$

88,552

$

72,072

$

172,859

$

135,494

Non-GAAP net income per diluted share

$

3.37

$

3.54

$

2.91

$

6.91

$

5.49