10-QPeriod: Q3 FY2012

COHERENT CORP. Quarterly Report for Q3 Ended Mar 31, 2012

Filed May 9, 2012For Securities:COHR

Summary

COHERENT CORP. (COHR) reported a decrease in net earnings attributable to II-VI Incorporated for the three and nine months ended March 31, 2012, compared to the same periods in the prior year. This decline was significantly impacted by an after-tax write-down of tellurium inventory of $3.6 million ($0.06 per-share diluted) for the three-month period and $6.1 million ($0.10 per-share diluted) for the nine-month period, attributed to weakening demand in the photovoltaic market and subsequent price declines. These negative impacts were partially offset by gains from the sale of an equity investment and precious metals inventory. Despite the earnings decline, consolidated revenues showed modest growth, increasing by 2.0% for the three-month period and 7.2% for the nine-month period. The company is also investing in research and development for optical communication products and is working to restore manufacturing capacity at Aegis following flooding in Thailand. The effective income tax rate increased due to a shift in earnings to higher tax jurisdictions.

Financial Highlights

50 data points
Beta

Revenue

$132.59M

34.7% Gross Margin

Net Income

$13.99M

10.6% Net Margin

EPS (Diluted)

$0.22

Total Assets

$687.52M

Cash & Equivalents

$119.27M

Free Cash Flow

$5.09M

Financial Statements
Beta
Revenue$132.59M
Cost of Revenue$86.59M
Gross Profit$46.00M
R&D Expenses$5.70M
SG&A Expenses$23.33M
Operating Expenses$113.35M
Interest Expense$48K
Net Income$13.99M
EPS (Basic)$0.22
EPS (Diluted)$0.22
Shares Outstanding (Basic)62.85M
Shares Outstanding (Diluted)64.63M

Key Highlights

  • 1Net earnings attributable to II-VI Incorporated decreased to $13.99 million ($0.22/share diluted) for Q3 FY12 and $45.86 million ($0.71/share diluted) for the first nine months of FY12, down from $23.12 million ($0.36/share diluted) and $60.64 million ($0.95/share diluted) respectively in the prior year.
  • 2A significant factor impacting profitability was an after-tax inventory write-down of tellurium of $3.6 million for Q3 FY12 and $6.1 million for the nine-month period, due to declining global tellurium prices linked to the photovoltaic market.
  • 3Consolidated revenues saw modest growth, up 2.0% to $132.59 million for Q3 FY12 and up 7.2% to $397.72 million for the nine-month period, driven by performance in the Infrared Optics and Military & Materials segments.
  • 4Bookings increased by 2.0% to $145.78 million for Q3 FY12 and by 1.0% to $392.91 million for the nine-month period, indicating stable order intake.
  • 5The company acquired Aegis Lightwave, Inc. in July 2011 for approximately $46.1 million, adding goodwill and intangible assets, with ongoing efforts to restore its manufacturing capacity after flood damage.
  • 6The effective income tax rate increased to 21.9% for the nine-month period ended March 31, 2012, from 19.9% in the prior year, attributed to a shift in earnings towards higher tax jurisdictions.
  • 7Cash provided by operating activities slightly decreased to $57.70 million for the nine-month period, while investing activities used $76.99 million, largely due to the Aegis acquisition and increased capital expenditures.

Frequently Asked Questions

The primary driver for the decline in net earnings was an after-tax write-down of tellurium inventory totaling $3.6 million for the three months ended March 31, 2012, and $6.1 million for the nine months ended March 31, 2012. This was necessitated by a sharp decrease in global tellurium prices, largely due to weakening demand in the photovoltaic market.

The acquisition of Aegis, completed in July 2011 for $46.1 million, contributed to an increase in goodwill and intangible assets on the balance sheet. However, Aegis has been incurring operating losses, partly due to manufacturing capacity constraints following flooding in Thailand, which negatively impacted the Near-Infrared Optics segment's earnings. The company is actively working to restore Aegis's manufacturing capabilities.

While consolidated revenues showed a modest increase, driven by the Infrared Optics and Military & Materials segments, the Near-Infrared Optics segment experienced revenue declines due to issues at Aegis and VLOC. The Advanced Products Group also saw a revenue decrease. The company is investing in R&D for optical communications to capitalize on market opportunities, which may support future revenue growth, but near-term performance remains subject to segment-specific challenges and market conditions.

As of March 31, 2012, the company had total debt of $13.6 million and a significant cash balance of $119.3 million. It has access to borrowing capacity under its credit facilities. Cash from operations remains the primary source of cash, and the company believes its liquidity and borrowing capacity are sufficient to meet its working capital needs, capital expenditures, and debt obligations for the next twelve months.