10-QPeriod: Q2 FY2009

COHERENT CORP. Quarterly Report for Q2 Ended Dec 31, 2008

Filed February 9, 2009For Securities:COHR

Summary

Coherent Corp. (COHR) reported its financial results for the second quarter ended December 31, 2008. The company experienced a significant year-over-year decline in net earnings, primarily driven by a substantial increase in "Other expense (income), net" due to unfavorable foreign currency movements and the absence of a significant gain on sale of an equity investment that occurred in the prior year's quarter. Revenue saw a modest increase driven by growth in the Compound Semiconductor Group and Military & Materials segments, partially offset by declines in Infrared Optics and Near-Infrared Optics due to the worsening global economic environment. The company's outlook indicates continued anticipation of challenging economic conditions, leading to expectations of lower bookings and revenues for the second half of fiscal year 2009. In response, Coherent Corp. is implementing cost-reduction measures, including layoffs, reduced spending, and decreased capital expenditures. Despite these headwinds, the company's cash position and borrowing capacity are deemed sufficient to meet its obligations.

Key Highlights

  • 1Net earnings decreased significantly to $8.4 million in Q2 FY2009 from $26.8 million in Q2 FY2008, largely due to foreign currency losses and the absence of a prior year gain on investment sale.
  • 2Total revenues increased by 3% year-over-year to $74.3 million, with growth in Compound Semiconductor Group and Military & Materials segments offsetting declines in Infrared Optics and Near-Infrared Optics.
  • 3Bookings decreased by 14% year-over-year to $67.3 million, reflecting a "sudden and significant order rate reduction from non-military customers" due to the deteriorating global economy.
  • 4The company is experiencing challenging macroeconomic conditions impacting demand for its non-military products and expects lower bookings and revenues for the remainder of fiscal year 2009.
  • 5Cost-reduction measures are underway, including layoffs, reduced discretionary spending, and lower capital expenditures.
  • 6Long-term debt increased from $3.8 million to $9.4 million, primarily due to new borrowings under a line of credit.
  • 7The company is actively working on divesting its eV PRODUCTS business, which is reported as a discontinued operation.

Frequently Asked Questions

The primary reasons for the sharp decline in net earnings are the absence of a significant gain on the sale of an equity investment that occurred in the prior year's quarter ($15.9 million after-tax gain in Q2 FY2008) and substantial foreign currency losses of approximately $2.9 million recognized in the current quarter due to unfavorable movements of the U.S. dollar against foreign currencies like the Japanese Yen, British Pound, and Euro.

The global macroeconomic factors are significantly impacting the company's non-military product offerings. This has led to a "significant and sudden reduction in customer orders" in November and December 2008, particularly in the Infrared Optics and Near-Infrared Optics segments. Consequently, the company anticipates lower bookings and revenues for the second half of fiscal year 2009 and is implementing cost-reduction measures in response.

The company's liquidity position appears adequate. As of December 31, 2008, Coherent Corp. had $68.4 million in cash and cash equivalents and $54.3 million in available borrowing capacity under its credit facility. Management believes these resources, along with cash flow from operations, will be sufficient to fund working capital needs, capital expenditures, debt payments, and internal growth for fiscal year 2009. They are also proactively reducing capital expenditures and discretionary spending due to economic uncertainty.

The company continues to pursue the divestiture of its eV PRODUCTS business, which is reported as a discontinued operation. Management and their advisors have identified potential acquirers and believe the divestiture efforts are progressing, despite the current worldwide economic environment.