10-QPeriod: Q1 FY2006

COHERENT CORP. Quarterly Report for Q1 Ended Sep 30, 2005

Filed November 9, 2005For Securities:COHR

Summary

COHERENT CORP. (COHR), now known as II-VI Incorporated, reported strong revenue growth in the first quarter of fiscal year 2006, driven by increased demand across its key segments, particularly Infrared Optics and Near-Infrared Optics. Net sales increased by 34% year-over-year, reaching $54.4 million, and net earnings saw a 20% rise to $6.7 million ($0.23 per diluted share). The acquisition of Marlow Industries in December 2004 contributed significantly to the overall revenue growth, though the company also highlighted solid organic growth of 15% when excluding Marlow's impact. The company experienced robust bookings growth of 58%, indicating a positive outlook for future revenue. Management attributes the revenue and earnings improvements to increased product demand, operational efficiencies within segments like Infrared Optics and Compound Semiconductor Group, and strategic market positioning. While the company faces some cost pressures, such as rising selenium raw material prices and integration costs from the Marlow acquisition, its liquidity and capital resources are deemed sufficient to meet operational needs and growth initiatives.

Key Highlights

  • 1Revenues increased by 34% to $54.4 million for the three months ended September 30, 2005, compared to $40.5 million in the prior year period.
  • 2Net earnings grew by 20% to $6.7 million ($0.23 per diluted share) for the quarter, compared to $5.6 million ($0.19 per diluted share) in the same period last year.
  • 3Bookings surged by 58% to $59.3 million, signaling strong future demand, with adjusted organic growth of 23% excluding the Marlow acquisition.
  • 4The acquisition of Marlow Industries in December 2004 is contributing to consolidated results, with its operations included for the full current quarter.
  • 5The Infrared Optics segment showed significant strength with a 25% increase in revenue and 23% growth in segment earnings.
  • 6The company adopted SFAS 123R, recognizing stock-based compensation costs, which impacted net earnings but was managed through a modified retrospective approach.
  • 7Despite some cost pressures like increased selenium pricing and integration costs from Marlow, the company maintained sufficient liquidity and capital resources.

Frequently Asked Questions

The primary driver of the 34% revenue increase was strong demand across multiple segments, particularly Infrared Optics and Near-Infrared Optics, coupled with the inclusion of Marlow Industries, Inc. (acquired in December 2004) for the full quarter. Excluding the Marlow acquisition, the company still achieved a solid 15% organic revenue growth.

The adoption of SFAS 123R (Share-Based Payment) effective July 1, 2005, required the company to recognize the fair value of stock compensation in net earnings. This resulted in $0.7 million of stock compensation expense for the three months ended September 30, 2005. The company used a modified retrospective approach to restate prior periods, and the impact on net earnings for the quarter was approximately $0.5 million after tax.

The company believes its cash flow from operations, existing cash reserves ($16.9 million as of September 30, 2005), and available borrowing capacity ($19.0 million under its credit facility) will be sufficient to fund its working capital needs, capital expenditures, debt payments, treasury stock repurchases, and internal growth for fiscal year 2006. The company also has a $60 million secured credit facility in place.

Yes, the report notes increases in selenium raw material pricing which negatively impacted gross margins, particularly in the Infrared Optics segment. Additionally, the Military Infrared Optics segment experienced challenges with low production yields and shipment delays on certain next-generation targeting systems, impacting its segment earnings. The integration of Marlow also contributed to a lower overall gross margin percentage due to its product mix.