10-QPeriod: Q1 FY2009

COHERENT CORP. Quarterly Report for Q1 Ended Sep 30, 2008

Filed November 6, 2008For Securities:COHR

Summary

II-VI Incorporated (now Coherent Corp.) reported strong year-over-year revenue growth of 23% for the three months ended September 30, 2008, reaching $87.8 million, driven primarily by performance in its Infrared Optics, Military & Materials, and Compound Semiconductor Group segments. Net earnings from continuing operations saw a significant increase of 75%, reaching $17.5 million ($0.57 per diluted share), compared to $10.0 million ($0.33 per diluted share) in the prior year period. This growth was bolstered by a favorable $3.6 million income tax benefit related to the reversal of unrecognized tax benefits following an IRS examination. The company also reported increased internal research and development spending, indicating continued investment in innovation. Despite a general economic downturn, II-VI Incorporated's diversified segment performance, particularly in Infrared Optics and Compound Semiconductor Group, contributed to a robust quarter. However, bookings saw a slight overall decline of 8%, primarily due to a significant drop in the Near-Infrared Optics segment, largely attributable to the absence of a large prior-year order. Financially, the company maintained a healthy liquidity position with $66.4 million in cash and cash equivalents and significant available borrowing capacity under its credit facility. The company also announced a new stock repurchase program, signaling confidence in its financial health and future prospects.

Key Highlights

  • 1Revenue increased by 23% year-over-year to $87.8 million for the three months ended September 30, 2008.
  • 2Net earnings from continuing operations rose 75% to $17.5 million ($0.57 per diluted share) from $10.0 million ($0.33 per diluted share) in the prior year.
  • 3A significant $3.6 million income tax benefit was recognized due to the reversal of unrecognized tax benefits following an IRS examination.
  • 4Bookings decreased by 8% year-over-year, largely influenced by a 60% decline in the Near-Infrared Optics segment due to a large order in the prior year.
  • 5The Infrared Optics segment showed strong growth with a 29% revenue increase, driven by OEM demand and contributions from the HIGHYAG acquisition.
  • 6Internal R&D expenses increased to $3.19 million (4% of revenue) from $1.72 million (2% of revenue) in the prior year, signaling increased investment in innovation.
  • 7The company ended the quarter with $66.4 million in cash and cash equivalents and had $59.3 million available under its credit facility, indicating a strong liquidity position.

Frequently Asked Questions

The primary driver for the significant increase in net earnings was a combination of strong revenue growth across multiple segments, improved operational performance leading to higher margins, and a substantial $3.6 million income tax benefit recognized during the quarter. This benefit arose from the reversal of previously unrecognized tax benefits following the completion of an IRS examination of the company's federal income tax returns.

The acquisition of HIGHYAG Lasertechnologie GmbH, completed in January 2008, contributed to the Infrared Optics segment's performance. For the quarter ended September 30, 2008, HIGHYAG contributed approximately $2.7 million in revenues and $2.8 million in bookings, and it also added approximately $650,000 to selling, general and administrative expenses.

The Near-Infrared Optics segment experienced a significant 60% decrease in bookings, primarily due to the absence of a large UV Filter product line order that was received in the prior year's quarter. While revenues also saw a slight decline of 4%, the company is adjusting production capacity and implementing cost-cutting measures, anticipating continued decreases in UV Filter revenues for the remainder of fiscal year 2009.

The company maintained a healthy liquidity position with $66.4 million in cash and cash equivalents as of September 30, 2008, and had $59.3 million in available borrowing capacity under its $60 million credit facility. Total debt remains low at $3.8 million, primarily a Yen-denominated term note. The company believes its cash flow from operations, cash reserves, and borrowing capacity are sufficient to meet its working capital needs, capital expenditures, debt payments, and growth initiatives for fiscal year 2009.