10-QPeriod: Q1 FY2002

COHERENT CORP. Quarterly Report for Q1 Ended Sep 30, 2001

Filed November 9, 2001For Securities:COHR

Summary

II-VI Incorporated (COHR) reported its first quarter fiscal year 2002 results, demonstrating year-over-year revenue growth of 7% to $28.7 million, primarily driven by a full quarter's inclusion of Laser Power Corporation. Net earnings increased to $2.3 million, or $0.16 per diluted share. This performance benefited from the adoption of SFAS 142, which eliminated goodwill amortization, leading to adjusted net earnings of $2.2 million for the prior year's comparable quarter. The company's operating segments showed mixed performance, with Optical Components remaining strong, while Radiation Detectors experienced a loss and Laser Power Corporation's revenue increased significantly but with lower historical gross margins. The company maintained a solid cash position and generated $2.9 million in operating cash flow. Despite a modest decrease in order bookings, management anticipates revenues for the full fiscal year to approximate the prior year and expects operating income in the latter half of the year to be comparable to the first quarter. II-VI Incorporated also recently acquired the Silicon Carbide (SiC) Group from Litton Systems, Inc. for approximately $2.2 million, enhancing its R&D capabilities in this area. Investors should note the increased interest expense due to higher borrowings and the company's ongoing management of market risks related to interest rates and foreign currency exchange.

Key Highlights

  • 1Revenue increased by 7% to $28.7 million for the first quarter of fiscal year 2002, compared to $26.7 million in the prior year's first quarter.
  • 2Net earnings rose to $2.3 million ($0.16 per diluted share) in Q1 FY2002, up from $2.0 million ($0.14 per diluted share) in Q1 FY2001.
  • 3Adoption of SFAS 142 eliminated goodwill amortization, positively impacting reported earnings and providing a comparable adjusted net earnings figure for the prior year.
  • 4Order bookings saw a 6% decrease to $27.8 million, though contract research and development bookings significantly increased.
  • 5Gross margin percentage decreased to 35% from 40% year-over-year, attributed to production issues at a subsidiary and lower margins from Laser Power Corporation.
  • 6The company generated $2.9 million in cash flow from operations and ended the quarter with $7.8 million in cash and cash equivalents.
  • 7A recent acquisition of Litton Systems' Silicon Carbide (SiC) Group for $2.2 million is expected to bolster R&D capabilities.

Frequently Asked Questions

The adoption of SFAS 142 eliminated the amortization of goodwill starting July 1, 2001. This means that goodwill is no longer expensed on the income statement but will be tested for impairment annually. For the first quarter of fiscal year 2002, this change resulted in higher reported net earnings. Pro forma information shows that excluding goodwill amortization, adjusted net earnings for the first quarter of fiscal year 2001 would have been $2.2 million, leading to an adjusted EPS of $0.17.

Performance varied across segments. Optical Components generated significant operating income ($2.9 million). Radiation Detectors (eV PRODUCTS) reported an operating loss of $108,000. Laser Power Corporation, a subsidiary, contributed significantly to revenue growth with $8.2 million in the current quarter compared to $5.5 million in the prior year's comparable two months, but its operating income was lower at $699,000, and it has historically lower gross margins than the company overall.

Management forecasts revenues for the second fiscal quarter ending December 31, 2001, to be approximately $28 million with earnings per share ranging from $0.12 to $0.16. For the full fiscal year 2002, revenues are expected to approximate the prior year's level, and income from operations for the third and fourth quarters is anticipated to be comparable to the first quarter.

II-VI Incorporated is exposed to market risks from adverse changes in interest rates and foreign currency exchange rates. The company uses various techniques and instruments for risk management. For instance, to mitigate interest rate risk on a portion of its term loan, it entered into an interest rate collar. A 1% change in interest rates could have impacted interest expense by approximately $88,000 during the quarter. The company also uses foreign currency forward exchange contracts to limit transactional exposure.