Coherent, Inc. engages in the design, manufacture, and service of lasers and related accessories. It operates through the OEM Laser Sources (OLS), and Industrial Lasers and Systems (ILS) business segments. The OLS segment focuses on laser sources and complex optical sub-systems, typically used in microelectronics manufacturing, medical diagnostics, and therapeutic medical applications. The ILS segment covers laser sources, sub-systems, and tools primarily used for industrial laser materials processing. The company was founded by Eugene Watson on May 26, 1966 and is headquartered in Santa Clara, CA.
We participate in the microelectronics market, which requires significant research and development expenses to develop and maintain products and a failure to achieve market acceptance for our products could have a significant negative impact on our business and results of operations.
We participate in the flat panel display market, which has a relatively limited number of end customer manufacturers. Our backlog, timing of net sales and results of operations could be negatively impacted in the event we face any significant periods with few or no orders or our customers reschedule or cancel orders.
We may not be able to integrate the business of Rofin successfully with our own, realize the anticipated benefits of the merger or manage our expanded operations, any of which would adversely affect our results of operations.
Charges to earnings resulting from the application of the purchase method of accounting to the Rofin acquisition may adversely affect our results of operations.
Our indebtedness following the Rofin merger is substantially greater than our indebtedness prior to the merger. This increased level of indebtedness could adversely affect us, including by decreasing our business flexibility, and will increase our borrowing costs.
Some of our laser systems are complex in design and may contain defects that are not detected until deployed by our customers, which could increase our costs and reduce our net sales.
Continued volatility in the advanced packaging and semiconductor manufacturing markets could adversely affect our business, financial condition and results of operations.
Worldwide economic conditions and related uncertainties could negatively impact demand for our products and results of operations.
Our cash and cash equivalents and short-term investments are managed through various banks around the world and volatility in the capital and credit market conditions could cause financial institutions to fail or materially harm service levels provided by such banks, both of which could have an adverse impact on our ability to timely access funds.
We are exposed to credit risk and fluctuations in the market values of our investment portfolio.
Our future success depends on our ability to increase our sales volumes and decrease our costs to offset potential declines in the average selling prices ("ASPs") of our products and, if we are unable to realize greater sales volumes and lower costs, our operating results may suffer.
Our future success depends on our ability to develop and successfully introduce new and enhanced products that meet the needs of our customers.
We face risks associated with our foreign operations and sales that could harm our financial condition and results of operations.
If we are unable to protect our proprietary technology, our competitive advantage could be harmed.
We may, in the future, be subject to claims or litigation from third parties, for claims of infringement of their proprietary rights or to determine the scope and validity of our proprietary rights or the proprietary rights of competitors or other rights holders. These claims could result in costly litigation and the diversion of our technical and management personnel. Adverse resolution of litigation may harm our operating results or financial condition.
If our goodwill or intangible assets become impaired, we may be required to record a significant charge to earnings.
We depend on skilled personnel to operate our business effectively in a rapidly changing market, and if we are unable to retain existing or hire additional personnel when needed, or manage transitions among members of our leadership team, in particular the recently announced upcoming transition of our President and Chief Executive Officer, our ability to develop and sell our products could be harmed.
The long sales cycles for our products may cause us to incur significant expenses without offsetting net sales.
The markets in which we sell our products are intensely competitive and increased competition could cause reduced sales levels, reduced gross margins or the loss of market share.
If we fail to accurately forecast component and material requirements for our products, we could incur additional costs and incur significant delays in shipments, which could result in a loss of customers.
Our reliance on contract manufacturing and outsourcing may adversely impact our financial results and operations due to our decreased control over the performance and timing of certain aspects of our manufacturing.
If we fail to effectively manage our growth or, alternatively, our spending during downturns, our business could be disrupted, which could harm our operating results.
Historically, acquisitions have been an important element of our strategy. However, we may not find suitable acquisition candidates in the future and we may not be able to successfully integrate and manage acquired businesses. Any acquisitions we make could disrupt our business and harm our financial condition.
Our market is unpredictable and characterized by rapid technological changes and evolving standards demanding a significant investment in research and development, and, if we fail to address changing market conditions, our business and operating results will be harmed.
We are exposed to lawsuits in the normal course of business which could have a material adverse effect on our business, operating results, or financial condition.
We use standard laboratory and manufacturing materials that could be considered hazardous and we could be liable for any damage or liability resulting from accidental environmental contamination or injury.
Compliance or the failure to comply with current and future environmental regulations could cause us significant expense.
Our and our customers' operations would be seriously harmed if our logistics or facilities or those of our suppliers, our customers' suppliers or our contract manufacturers were to experience catastrophic loss.
Difficulties with our enterprise resource planning ("ERP") system and other parts of our global information technology system could harm our business and results of operation. If our network security measures are breached and unauthorized access is obtained to a customer's data or our data or our information technology systems, we may incur significant legal and financial exposure and liabilities.
Our information systems are subject to attacks, interruptions and failures.
Changes in tax rates, tax liabilities or tax accounting rules could affect future results.
Changing laws, regulations and standards relating to corporate governance and public disclosure may create uncertainty regarding compliance matters.
Governmental regulations, including tariffs and duties, affecting the import or export of products could negatively affect our business, financial condition and results of operations.
Failure to maintain effective internal controls may cause a loss of investor confidence in the reliability of our financial statements or cause us to delay filing our periodic reports with the SEC and adversely affect our stock price.
Provisions of our charter documents and Delaware law, and our Change of Control and Leadership Change Severance Plan, may have anti-takeover effects that could prevent or delay a change in control.
Net income from continuing operations for fiscal 2019 was $53.8 million ($2.22 per diluted share). This included $44.0 million of after-tax amortization of intangible assets, $31.5 million of after-tax stock-based compensation expense, $16.0 million of after-tax restructuring costs, $0.4 million of after-tax amortization of purchase accounting step up, $1.7 million non-recurring income tax net expense, $2.5 million of excess tax benefits for employee stock-based compensation and $1.1 million of benefit from amounts received on a resolved asset recovery matter.
Net income from continuing operations for fiscal 2018 was $247.4 million ($9.95 per diluted share). This included $42.8 million of after-tax amortization of intangible assets, $27.7 million of after-tax stock-based compensation expense, $2.9 million of after-tax restructuring costs, $0.7 million of after-tax acquisition costs, $0.6 million of after-tax amortization of purchase accounting step up, $0.8 million of impairment and other charges, $25.5 million of a largely one time additional income tax expense due to the provisions of the U.S. Tax Cuts and Jobs Act, $3.4 million of tax charges for valuation allowances and $12.8 million of excess tax benefits for employee stock-based compensation.
Backlog represents orders which we expect to be shipped within 12 months and the current portion of service contracts. Orders used to compute backlog are generally cancellable and, depending on the notice period, are subject to rescheduling by our customers without substantial penalties. We have not historically experienced a significant rate of cancellation or rescheduling, however the rate of cancellations or rescheduling may increase in the future. In the first quarter of fiscal 2019, one customer cancelled three purchase orders which included $38.2 million of orders shippable within 12 months of fiscal 2018 year-end and which was included in backlog as of fiscal 2018 year-end. We reached agreement with this customer for a cancellation fee of $7.0 million in the first quarter of fiscal 2019.