IIVI Inc. Reports Operating Results (10-Q)

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May 09, 2009
IIVI Inc. (IIVI, Financial) filed Quarterly Report for the period ended 2009-03-31.

II-VI Incorporated designs manufactures and markets optical and opto-electronic components devices and materials for infrared near-infrared visible light x-ray and gamma ray instrumentation. The Company's infrared optics business manufactures optical and opto-electronic components sold under the II-VI brand name and used primarily in CO2 lasers. The Company's near-infrared optics business manufactures near-infrared & visible light products for industrial scientific military & medical instruments and laser gain materials and products for solid-state YAG and YLF lasers at the Company's VLOC subsidiary. The Company's military infrared optics business manufactures infrared products for military applications under the Exotic Electro-Optics brand name. IIVI Inc. has a market cap of $706.8 million; its shares were traded at around $23.95 with a P/E ratio of 16.4 and P/S ratio of 2.3. IIVI Inc. had an annual average earning growth of 20.9% over the past 10 years.

Highlight of Business Operations:

Net earnings from continuing operations for the three months ended March 31, 2009 were $6,736,000 or $0.23 per share-diluted. This compares to net earnings from continuing operations of $13,353,000 or $0.44 per share-diluted for the three months ended March 31, 2008. The decrease in earnings from continuing operations for the three months ended March 31, 2009 compared to the same period last fiscal year was primarily the result of lower margins realized at the Companys Infrared Optics segment resulting from the reduction of shipments to the segments industrial customer base. The Infrared Optics segment revenues decreased $13.2 million or 32% as its industrial customer base retrenched its operations as a result of the current worldwide economic downturn. In addition, earnings from continuing operations were negatively impacted from the Near Infrared Optics segment due to lower shipments of its UV Filter product line as well as writing-off approximately $0.8 million pre-tax of certain equipment of its UV Filter product line due to continued reduction in product demand.

For the nine months ended March 31, 2009, net earnings from continuing operations were $32,593,000 or $1.08 per share-diluted. This compares to net earnings from continuing operations of $50,342,000 or $1.65 per share-diluted for the nine months ended March 31, 2008. During the nine months ended March 31, 2008, the Company sold its equity investment in a Canadian company for $30.2 million in cash on which it recorded an after-tax gain of $15.9 million or $0.52 per share diluted. In addition to the absence of a gain on sale of equity investment in the nine months ended March 31, 2009, other factors that contributed to lower earnings from continuing operations during the current nine months compared to the same period last year were an overall deterioration of global economies, particularly the worldwide industrial markets which impacted the Company via lower product shipments and lower margins, as well as the items noted above that impacted the current three months financial results. Net earnings from continuing operations for the nine months ended March 31, 2009 were favorably impacted by the recognition of a favorable income tax benefit in accordance with FASB Interpretation No. 48 Accounting for Uncertainty in Income Taxes relating to the reversal of unrecognized income tax benefits resulting from the completion of an Internal Revenue Services examination of certain of the Companys federal income tax returns. This benefit was partially offset by additional income tax exposure at certain foreign locations.

Bookings from continuing operations for the third quarter of fiscal 2009 decreased 34% to $62,252,000 compared to $93,735,000 for the same period last fiscal year. Bookings from continuing operations are defined as customer orders received that are expected to be converted to revenues over the next twelve months. For long-term customer orders, the Company does not include in bookings the portion of the customer order that is beyond twelve months due to the inherent uncertainty of an order that far out in the future. Bookings from continuing operations for the nine months ended March 31, 2009 decreased 19% to $203,884,000 compared to $253,156,000 for the same period last fiscal year. The decrease in bookings from continuing operations for the three and nine months ended March 31, 2009 compared to the same periods last fiscal year was primarily driven by the worldwide industrial slowdown that has occurred during the Companys fiscal year 2009 as a result of the worldwide recession. The Infrared Optics segment was significantly impacted by this economic downturn as its bookings for the current three and nine months decreased 48% and 19%, respectively, compared to the same periods last year as this segments industrial based customers have either slowed the utilization of their laser systems in their operations or have delayed manufacturing new laser systems. The Companys PRM bookings were negatively impacted during the three and nine months ended March 31, 2009 compared to the same periods last fiscal year due to a sharp decline in the market prices of selenium and tellurium, two significant products the Company refines and sells based on market-based pricing. In addition, the continued ramp down of the Near-Infrared Optics UV Filter product line also negatively contributed approximately $11.0 million in lower bookings during the current fiscal nine months compared to the same period last year.

Revenues for the third quarter of fiscal 2009 for Infrared Optics decreased 32% to $27,785,000 from $41,004,000 in the third quarter of last fiscal year. Revenues for the nine months ended March 31, 2009 decreased 3% to $105,069,000 from $108,539,000 for the same period last fiscal year. HIGHYAG contributed approximately $2.3 million and $7.5 million of revenues during the three and nine months ended March 31, 2009. The decrease in revenues for the three and nine months ended March 31, 2009 compared to the same periods last fiscal year was due to lower shipment volume to OEM and aftermarket customers worldwide. This lower shipment volume began to occur during the Companys current year second fiscal quarter and is the direct result of the general deterioration of the industrial markets brought on by the global macroeconomic environment.

Bookings for the third quarter of fiscal 2009 for the Compound Semiconductor Group decreased 38% to $16,042,000 from $25,973,000 in the third quarter of last fiscal year. Bookings for the nine months ended March 31, 2009 decreased 10% to $41,569,000 compared to $46,121,000 for the same period last year. The decrease in bookings for the three and nine months ended March 31, 2009 compared to the same periods last year was primarily due to a one-time large booking from an industrial customer of Marlow which was received during the third quarter in fiscal year 2008. The decrease in bookings for both the three and nine months ended March 31, 2009 was partially offset by a receipt of a Department of Defense research and development contract booking at WBG in the amount of $5.2 million focusing on silicon carbide material growth.

Manufacturing gross margin, which is defined as net sales less cost of goods sold, for the third quarter of fiscal 2009 was $21,779,000 or 35% of net sales compared to $32,654,000 or 42% of net sales for the same period last fiscal year. The decrease in manufacturing gross margin for the three months ended March 31, 2009 compared to the same period last fiscal year was due to several factors including lower margin on reduced revenues, primarily in the Infrared Optics and Near-Infrared Optics business segments which realized 32% and 35% less revenue, respectively, during the current quarter compared to the same period last fiscal year. PRM experienced lower manufacturing gross margin due to additional write-down of their selenium and tellurium raw material inventory to lower of cost or market based upon the general decline in the market price of these commodities. In addition, Near-Infrared Optics wrote off approximately $0.8 million to cost of goods sold of certain equipment of its UV Filter product line due to continued reduction in product demand. Manufacturing gross margins for the nine months ended March 31, 2009 was $89,569,000 or 41% of net sales compared to $90,096,000 or 42% of net sales for the same period last fiscal year. The decrease in manufacturing gross margin for the nine

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