Coherent, Inc. Reports Third Fiscal Quarter Results

Three Months Ended

Nine Months Ended

June 30,

March 31,

July 1,

June 30,

July 1,

2018

2018

2017

2018

2017

GAAP Results

(in millions except per share data)

Net sales

$

482.3

$

481.1

$

464.1

$

1,441.0

$

1,233.0

Net income

$

67.0

$

65.3

$

61.1

$

174.2

$

133.4

Diluted EPS

$

2.69

$

2.61

$

2.46

$

6.98

$

5.39

Non-GAAP Results

(in millions except per share data)

Net income

$

87.3

$

84.3

$

83.4

$

260.1

$

218.8

Diluted EPS

$

3.51

$

3.37

$

3.36

$

10.42

$

8.85

Three Months Ended

Nine Months Ended

June 30,

March 31,

July 1,

June 30,

July 1,

2018

2018

2017

2018

2017

Net sales

$

482,342

$

481,118

$

464,107

$

1,441,025

$

1,233,013

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

274,006

265,688

256,921

800,236

704,798

Gross profit

208,336

215,430

207,186

640,789

528,215

Operating expenses:

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

34,303

34,783

30,483

100,478

88,103

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

70,291

77,146

72,383

220,874

218,602

Gain from business combination^(C)

—

—

—

—

(5,416)

Other impairment charges(recoveries) ^(I)

611

—

766

—

  Amortization of intangible assets^(D)

2,607

2,950

3,743

8,163

13,060

     Total operating expenses

107,812

114,769

106,609

330,281

314,349

Income from operations

100,524

100,661

100,577

310,508

213,866

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

(7,625)

(9,510)

(7,942)

(25,635)

(13,025)

Income from continuing operations, before income taxes

92,899

91,151

92,635

284,873

200,841

Provision for income taxes ^(J)

25,929

25,849

29,764

110,698

65,084

Net income from continuing operations

66,970

65,302

62,871

174,175

135,757

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

—

—

(1,754)

(2)

(2,387)

Net income

$

66,970

$

65,302

$

61,117

$

174,173

$

133,370

Net income (loss) per share:

Basic from continuing operations

2.72

2.64

2.56

7.06

5.55

Basic from discontinued operations

—

—

(0.07)

—

(0.10)

Basic earnings per share

$

2.72

$

2.64

$

2.49

$

7.06

$

5.45

Diluted from continuing operations

2.69

2.61

2.53

6.98

5.49

Diluted from discontinued operations

—

—

(0.07)

—

(0.10)

Diluted earnings per share

$

2.69

$

2.61

$

2.46

$

6.98

$

5.39

Shares used in computations:

Basic

24,658

24,761

24,537

24,684

24,460

Diluted

24,877

25,010

24,823

24,971

24,741

(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

Nine Months Ended

June 30,

March 31,

July 1,

June 30,

July 1,

2018

2018

2017

2018

2017

Cost of sales

$

1,168

$

1,018

$

880

$

3,174

$

2,618

Research & development

838

872

639

2,378

2,289

Selling, general & administrative

6,577

6,520

5,373

18,517

18,323

Impact on income from operations

$

8,583

$

8,410

$

6,892

$

24,069

$

23,230

For the fiscal quarters ended June 30, 2018, March 31, 2018 and July 1, 2017, the impact on net income, net of tax was $7,549 ($0.30 per diluted share), $7,235 ($0.29 per diluted share) and $5,041 ($0.20 per diluted share), respectively. For the nine months ended June 30, 2018 and July 1, 2017, the impact on net income, net of tax was $20,251 ($0.81 per diluted share) and $18,075 ($0.73 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

Nine Months Ended

June 30,

March 31,

July 1,

June 30,

July 1,

2018

2018

2017

2018

2017

Cost of sales

$

11

$

28

$

53

$

117

$

123

Research & development

46

128

163

533

496

Selling, general & administrative

414

602

1,014

2,643

2,382

Impact on income from operations

$

471

$

758

$

1,230

$

3,293

$

3,001

For the fiscal quarters ended June 30, 2018, March 31, 2018 and July 1, 2017, the impact on other income (expense), net from gains or losses on deferred compensation plan assets was income of $416, $768 and $1,204, respectively. For the nine months ended June 30, 2018 and July 1, 2017, the impact on other income (expense) net from gains or losses on deferred compensation plan assets was income of $3,090 and $3,027, respectively.

(C)

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

(D)

For the fiscal quarters ended June 30, 2018, March 31, 2018 and July 1, 2017, the impact of amortization of intangibles expense was $15,209 ($10,859 net of tax ($0.44 per diluted share)), $15,329 ($10,931 net of tax ($0.44 per diluted share)) and $15,452 ($10,870 net of tax ($0.44 per diluted share)), respectively. For the nine months ended June 30, 2018 and July 1, 2017, the impact of amortization of intangible expense was $45,638 ($32,563 net of tax ($0.81 per diluted share)) and $44,303 ($31,169 net of tax ($1.26 per diluted share)), respectively.

(E)

For the fiscal quarter ended June 30, 2018, March 31, 2018 and July 1, 2017, the impact of inventory and favorable lease step-up costs related to acquisitions was $392 ($281 net of tax ($0.01 per diluted share)), $411 ($293 net of tax ($0.01 per diluted share)) and $4,445 ($3,172 net of tax ($0.13 per diluted share)), respectively. For the nine months ended June 30, 2018 and July 1, 2017, the impact of inventory and favorable lease step-up costs related to acquisitions was $803 ($574 net of tax ($0.02 per diluted share)) and $26,768 ($19,042 net of tax ($0.77 per diluted share)), respectively.

(F)

For the fiscal quarters ended June 30, 2018, March 31, 2018 and July 1, 2017, the impact of restructuring charges was $1,192 ($870 net of tax ($0.04 per diluted share)), $726 ($555 net of tax ($0.02 per diluted share)) and $1,500 ($1,131 net of tax ($0.05 per diluted share)), respectively. For the nine months ended June 30, 2018 and July 1, 2017, the impact of restructuring charges was $3,078 ($2,275 net of tax ($0.09 per diluted share)) and $9,119 ($6,109 net of tax ($0.25 per diluted share)), respectively.

(G)

For the fiscal quarters ended June 30, 2018, March 31, 2018 and July 1, 2017, the impact of costs related to acquisitions included $129 ($129 net of tax ($0.01 per diluted share), $400 ($400 net of tax ($0.01 per diluted share)) and $426 ($269 net of tax ($0.01 per diluted share)), respectively.  The nine months ended June 30, 2018 and July 1, 2017 included $529 ($529 net of tax ($0.02 per diluted share)) and $17,587 ($17,425 net of tax ($0.70 per diluted share)) of costs related to acquisitions, respectively.

(H)

For the nine months ended July 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 fiscal quarters ended June 30, 2018 and March 31, 2018, other impairment charges (recoveries) was an impairment charge of $611 ($611 net of tax ($0.02 per diluted share)) and a recovery of $110 ($110 net of tax ($0.00 per diluted share)), respectively. For the nine months ended June 30, 2018, other impairment charges (recoveries) was an impairment charge of $766 ($766 net of tax ($0.03 per diluted share)).

(J)

The nine months ended June 30, 2018 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 and $12,754 ($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. The quarters ended June 30, 2018 and March 31, 2018 included a tax benefit of $4 ($0.00 per diluted share) and $299 ($0.01 per diluted share), respectively, from the adoption of new rules for accounting for excess tax benefits and tax deficiencies for employee stock-based compensation.

June 30,

September 30,

2018

2017

ASSETS

Current assets:

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

$

233,540

$

476,673

Accounts receivable, net

337,560

305,668

Inventories

494,967

414,807

Prepaid expenses and other assets

88,490

70,268

Assets held-for-sale

—

44,248

     Total current assets

1,154,557

1,311,664

Property and equipment, net

303,214

278,850

Other assets

729,797

747,286

     Total assets

$

2,187,568

$

2,337,800

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

Short-term borrowings

$

7,076

$

5,078

Accounts payable

82,602

75,860

Other current liabilities

262,478

338,207

     Total current liabilities

352,156

419,145

Other long-term liabilities

604,261

755,391

Total stockholders' equity

1,231,151

1,163,264

     Total liabilities and stockholders' equity

$

2,187,568

$

2,337,800

Three Months Ended

Nine Months Ended

June 30,

March 31,

July 1,

June 30,

July 1,

2018

2018

2017

2018

2017

GAAP net income from continuing operations

$

66,970

$

65,302

$

62,871

$

174,175

$

135,757

Stock-based compensation expense

7,549

7,235

5,041

20,251

18,075

Amortization of intangible assets

10,859

10,931

10,870

32,563

31,169

Restructuring charges

870

555

1,131

2,275

6,109

Gain on business combination

—

—

—

—

(3,426)

Non-recurring tax expense (benefit)

—

—

—

41,745

—

Tax benefit from stock-based compensation expense

(4)

(299)

—

(12,754)

—

Interest expense on debt commitment

—

—

—

—

1,844

Gain on hedge of debt and debt commitment

—

—

—

—

(7,147)

Other impairment charges (recoveries)

611

(110)

—

766

—

Acquisition-related costs

129

400

269

529

17,425

Purchase accounting step-up

281

293

3,172

574

19,042

Non-GAAP net income

$

87,265

$

84,307

$

83,354

$

260,124

$

218,848

Non-GAAP net income per diluted share

$

3.51

$

3.37

$

3.36

$

10.42

$

8.85