10-QPeriod: Q2 FY2006

COHERENT CORP. Quarterly Report for Q2 Ended Dec 31, 2005

Filed February 8, 2006For Securities:COHR

Summary

II-VI Incorporated (now Coherent Corp.) reported solid revenue growth for the second quarter and first half of fiscal year 2006, driven by increased demand across most of its business segments. Net earnings saw a slight decrease year-over-year for the quarter, impacted by operational challenges in the Infrared Optics and Military Infrared Optics segments, as well as rising raw material and energy costs. However, a lower effective income tax rate provided some offset. The acquisition of Marlow Industries in late 2004 continues to significantly contribute to revenue growth, especially within the Compound Semiconductor Group. The company is actively managing its debt and remains optimistic about its liquidity position, expecting cash flow from operations and available borrowing capacity to be sufficient for its needs.

Key Highlights

  • 1Total revenues increased by 25% for the three months ended December 31, 2005, and by 29% for the six months ended December 31, 2005, compared to the prior year periods.
  • 2The acquisition of Marlow Industries, Inc. in December 2004 significantly contributed to the revenue growth in the Compound Semiconductor Group.
  • 3Net earnings for the quarter decreased slightly by 4% to $5.18 million, impacted by operational issues, increased costs, and a shift in product mix towards lower-margin items.
  • 4Bookings showed strong growth, increasing by 27% for the quarter and 40% for the six-month period, indicating robust future demand across segments.
  • 5The company adopted SFAS 123R (Share-Based Payment) effective July 1, 2005, requiring the recognition of fair value of stock compensation in net earnings, with prior periods restated.
  • 6The company has $22.4 million in available borrowing capacity under its credit facility as of December 31, 2005, and believes its liquidity is sufficient to meet its obligations.
  • 7Segment earnings for the Military Infrared Optics segment showed a loss in the current periods, primarily due to lower production yields and increased scrap costs on key programs.

Frequently Asked Questions

Revenue growth was primarily driven by increased demand across most of the company's business segments, particularly the Infrared Optics and Compound Semiconductor Group. The acquisition of Marlow Industries, Inc. in December 2004 also significantly contributed to the revenue growth, especially within the Compound Semiconductor Group.

The decrease in net earnings for the three months ended December 31, 2005, compared to the prior year, was attributed to several factors. These include throughput delays in the Infrared Optics segment, higher scrap and rework costs in the Military Infrared Optics segment, reduced revenues from the Near-Infrared Optics segment, and increasing costs for energy and critical raw materials. A shift in product mix towards lower-margin optics also impacted profitability.

The adoption of SFAS 123R, effective July 1, 2005, requires the recognition of the fair value of stock compensation in net earnings. The company adopted this using a modified retrospective approach, restating prior period financial statements. This resulted in the recognition of stock compensation expense in net earnings for all periods presented and adjustments to equity accounts as of June 30, 2005.

The company believes its cash position, including cash generated from operations, existing cash reserves, and available borrowing capacity of $22.4 million, will be sufficient to fund its working capital needs, capital expenditures, debt payments, and share repurchases for fiscal year 2006. The company's contractual obligations are manageable within its projected cash flows.