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Excrept from filing document 2024-06-30

Aggregate market value of outstanding common stock no par value held by non affiliates of the Registrant at December 31 2023 was approximately 6 559 717 307 based on the closing sale price reported on the Nasdaq Global Select Market For purposes of this calculation only directors and executive officers of the Registrant and their spouses are deemed to be affiliates of the Registrant
Portions of the registrant s definitive proxy statement which will be issued in connection with the 2024 Annual Meeting of Shareholders of Coherent Corp are incorporated by reference into Part III of this Annual Report on Form 10 K
This Annual Report on Form 10 K including certain information incorporated herein by reference contains forward looking statements made pursuant to Section 21E of the Securities Exchange Act of 1934 as amended the Exchange Act and the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 the PSLRA The statements in this Annual Report on Form 10 K that are not purely historical are forward looking statements including without limitation statements regarding our expectations assumptions beliefs intentions or strategies regarding the future In some cases these forward looking statements can be identified by terminology such as may will should expects plans anticipates believes intends estimates predicts projects potential or continue or the negative of these terms or other comparable terminology Forward looking statements address among other things our assumptions our expectations our assessments of the size and growth rates of our markets our growth strategies our efforts to increase bookings sales and revenues projections of our future profitability cash generation success of our research development and engineering investments results of operations capital expenditures our financial condition our ability to integrate acquired businesses or other forward looking information and include statements about revenues costs investments earnings margins or our projections actions plans or strategies
The forward looking statements in this Annual Report on Form 10 K involve risks and uncertainties which could cause actual results performance or trends to differ materially from those expressed in the forward looking statements herein or in previous disclosures We believe that all forward looking statements made by us have a reasonable basis but there can be no assurance that these expectations beliefs or projections will actually occur or prove to be correct at least on the timetable of our expectations Actual results could differ materially We claim the protection of the safe harbor for forward looking statements contained in the PSLRA for our forward looking statements
The risk factors described in more detail herein under Item 1A Risk Factors and summarized below under Risk Factor Summary among others in some cases have affected and in the future could affect our financial performance and actual results and could cause actual results for fiscal 2025 and beyond to differ materially from those expressed or implied in any forward looking statements included in this Annual Report on Form 10 K or otherwise made by our management
All such factors as well as factors described or referred to in other filings we make with the Securities and Exchange Commission the SEC from time to time should be considered in evaluating our business and prospects Many of these factors are beyond our reasonable control In addition we operate in a highly competitive and rapidly changing environment and therefore new risk factors can arise and be present without market participants like us knowing until a substantial amount of time has passed It is not possible for management to predict all such risk factors assess the impact of all such risk factors on our business or estimate the extent to which any individual risk factor or combination of risk factors may impact our business It is also not possible for management to mitigate all such risks and therefore any such risk factor may cause results to differ materially from those contained in any forward looking statement The forward looking statements included in this Annual Report on Form 10 K speak only as of the date of this Annual Report on Form 10 K We do not assume any obligation to update or revise any forward looking statements whether as a result of new information future events or developments or otherwise except as may be required by the securities laws We caution you not to rely on them unduly
Coherent Corp does communicate with securities analysts from time to time and those communications are conducted in accordance with applicable securities laws Investors should not assume that Coherent Corp agrees with any statement or report issued by any analyst irrespective of the content of the statement or report
The following is a summary of the material risks and uncertainties that could cause our business financial condition or operating results to be adversely impacted We encourage you to carefully review the full risk factors contained in Item 1A Risk Factors herein in their entirety for additional information regarding these risks and uncertainties
Our products may contain defects that are not detected until deployed which could increase our costs reduce our revenues cause us to lose key customers or expose us to litigation related to our products
We are subject to complex and rapidly changing import and export regulations of the countries in which we operate and or sell which could limit our sales and decrease our profitability and we may be subject to legal and regulatory consequences if we do not comply with applicable export control laws and regulations
We may encounter increased competition and we may fail to accurately estimate our competitors or our customers willingness and capability to backward integrate into our competencies and thereby displace us
We participate in the semiconductor capital equipment market which requires significant research and development expenses to develop and maintain products and a failure to achieve market acceptance for our products could have a significant negative impact on our business and results of operations
Our current credit agreement and any other credit or similar agreements into which we may enter in the future may restrict our operations particularly our ability to respond to changes or to take certain actions regarding our business
Any inability to access financial markets from time to time to raise required capital finance our working capital requirements or our acquisition strategies or otherwise support our liquidity needs could negatively impact our ability to finance our operations meet certain obligations or implement our growth strategy
Cybersecurity attacks and incidents and other vulnerabilities could subject us to costly damages claims and expenses harm to our reputation or competitive position or disrupt our operations and business
Data breaches and other events and incidents that impact the confidentiality availability and integration of information and assets could disrupt our operations subject us to legal claims and impact our financial results
The agreements that govern our senior credit facilities and our 5 000 senior notes due 2029 contain various covenants that impose restrictions on our business which may affect our ability to operate our businesses
We contract with a number of large end user service providers and product companies that have considerable bargaining power which may require us to agree to terms and conditions that could have an adverse effect on our business or ability to recognize revenues
Some of our business units depend from time to time on large purchases from a few large customers and any loss cancellation reduction or delay in purchases by these large customers could harm the longevity of the business
We are subject to a number of risks associated with the equity investments contemplated by the respective investment agreements entered into with Denso Corporation and Mitsubishi Electric Corporation and certain related supply arrangements and these risks could adversely impact our operations financial condition and business
Our markets are unpredictable and characterized by rapid technological changes and evolving standards demanding a significant investment in research and development and if we fail to address changing market conditions our business and operating results will be harmed
If we fail to maintain an effective system of disclosure controls and internal control over financial reporting our ability to produce timely and accurate financial statements or comply with applicable regulations could be impaired
Provisions in our Amended and Restated Articles of Incorporation and Amended and Restated Bylaws and the Pennsylvania Associations Code the Code may delay or prevent our acquisition by a third party which could also reduce the market price of our capital stock
Our common stock is subordinate to our existing and future indebtedness the Series B Preferred Stock and any other preferred stock we may issue in the future Our Series B Preferred Stock ranks junior to all of our and our subsidiaries consolidated liabilities
Our Board of Directors can issue without approval of the holders of our common stock preferred stock with voting and conversion rights that could adversely affect the voting power of the holders of our common stock the rights of holders of shares of our capital stock or the market price of our capital stock
Holders of our Series B Preferred Stock can exercise significant control over us which could limit the ability of holders of our other capital stock to influence the outcome of key transactions including a change of control
Reports published by securities or industry analysts freelance bloggers and credit rating agencies including projections in those reports that exceed our actual results could adversely affect our share price and trading volume
Coherent Corp Coherent the Company we us or our a global leader in materials networking and lasers is a vertically integrated manufacturing company that develops manufactures and markets engineered materials optoelectronic components and devices and lasers for use in the industrial communications electronics and instrumentation markets Our headquarters are located at 375 Saxonburg Boulevard Saxonburg Pennsylvania 16056 USA Our telephone number is 1 724 352 4455 Reference to Coherent the Company we us or our in this Annual Report on Form 10 K unless the context requires otherwise refers to Coherent Corp and its wholly owned subsidiaries
chemical vapor deposition CVD of materials including diamond continuous wave CW datacenter interconnect DCI dense wavelength division multiplexing DWDM diversity equity and inclusion DEI edge emitting lasers EELs environmental social and governance ESG extreme ultraviolet EUV lithography fifth generation 5G wireless fourth generation 4G wireless gallium arsenide GaAs gallium antimonide GaSb gallium nitride GaN Geostationary Operational Environment Satellite Program GOES gigabit per second Gbps high definition multimedia interface HDMI high electron mobility transistor HEMT indium phosphide InP infrared IR integrated circuit IC intellectual property IP kilowatt kW light detection and ranging LiDAR liquid crystal LC liquid crystal on silicon LCoS machine learning ML metal oxide semiconductor field effect transistor MOSFET millimeters mm nanometers nm near infrared NIR optical channel monitor OCM optoelectronic chip hybrid integration platform OCHIP original equipment manufacturer OEM optical time domain reflectometer OTDR radio frequency RF reconfigurable optical add drop multiplexer ROADM research and development R D silicon carbide SiC terabit per second Tbps three dimensional 3D ultraviolet UV vertical cavity surface emitting laser VCSEL virtual reality VR wavelength selective switching WSS zinc selenide ZnSe and zinc sulfide ZnS
We develop manufacture and market engineered materials optoelectronic components and devices and optical and laser systems and subsystems for use in the industrial communications electronics and instrumentation markets We use advanced engineered materials growth technologies and proprietary high precision fabrication microassembly optical thin film coating and electronic integration to manufacture complex optoelectronic devices and modules Our products are deployed in a variety of market verticals including precision manufacturing aerospace defense semiconductor capital equipment display capital equipment telecommunication telecom networks data communication datacom networks consumer electronics automotive wireless life sciences and scientific research
We generate almost all of our revenues earnings and cash flows from developing manufacturing and marketing a broad portfolio of products and services for our end markets We also generate revenues earnings and cash flows from externally funded R D contracts relating to the development and manufacture of new technologies materials and products Our customer base includes original equipment manufacturers laser end users system integrators of high power lasers and manufacturers of equipment and devices for our end markets
Through R D investments and our strategic acquisitions we have expanded our portfolio of materials and product platforms We have a strong core competency in bulk and epitaxial crystal growth The materials we grow and fabricate are differentiated by one or a combination of unique optical electrical magnetic thermal and mechanical properties
Our optics are shaped by precision surfacing techniques and functionalized with smooth or structured surfaces or patterned metallization Proprietary processes developed at our global optical coating centers differentiate our products durability against high energy lasers and extreme operating environments Optical coatings also provide the desired spectral characteristics ranging from the ultraviolet to the far infrared We leverage these capabilities to deliver miniature to large scale precision optical assemblies including those in combination with thermal management components integrated electronics and software
We also offer a broad portfolio of compound semiconductor lasers that are used in a variety of applications in our end markets These lasers enable optical signal transmission reception and amplification in terrestrial and submarine communications networks high bit rate server connectivity between and within datacenters optical communications network monitoring materials processing fast and accurate measurements in biomedical instruments and precision sensing in consumer electronics We are a major supplier of silicon carbide substrates for the power electronics and the wireless mobile markets
We continue to improve our operational capabilities develop next generation products and invest in new technology platforms to drive growth in the short and the long term With our strategic focus on fast growing and sustainable markets we pursue our mission of enabling the world to be safer healthier closer and more efficient and strive to attain our vision of a world transformed through innovations vital to a better life today and the sustainability of future generations
The acquisition of Coherent Inc one of the world s leading providers of laser and optics based product solutions closed on July 1 2022 Coherent Inc as used in this Form 10 K generally means the subsidiaries and businesses of Coherent Inc as of the time of its acquisition by Coherent Corp formerly named II VI Incorporated For the full fiscal year 2023 Coherent Inc was included in the combined company and renamed as the Lasers segment The Lasers segment s lasers and optics products serve industrial customers in semiconductor and display capital equipment precision manufacturing and aerospace defense as well as instrumentation customers in life sciences and scientific devices
In connection with the acquisition of Coherent Inc effective July 1 2022 the Company realigned its organizational structure into three reporting segments for the purpose of making operational decisions and assessing financial performance i Networking previously referred to as our Photonic Solutions segment ii Materials previously referred to as our Compound Semiconductors segment and iii Lasers Effective July 1 2022 the Company reports financial information
Financial data regarding our revenues results of operations reporting segments and international sales for the three years ended June 30 2024 are set forth in the Consolidated Statements of Earnings Loss and in Note 14 Segment and Geographic Reporting to our Consolidated Financial Statements which are included in Item 8 of this Annual Report on Form 10 K and are incorporated herein by reference We also discuss certain Risk Factors set forth in Item 1A Risk Factors of this Annual Report on Form 10 K related to our foreign operations which are incorporated herein by reference
We define our backlog as bookings that have not been converted to revenues by the end of the reporting period As of June 30 2024 our backlog was approximately 2 6 billion compared with approximately 2 7 billion as of June 30 2023
Coherent is headquartered in Saxonburg Pennsylvania USA with R D manufacturing and sales facilities worldwide Our U S production and R D operations are located in California Colorado Connecticut Delaware Florida Illinois Massachusetts Michigan Mississippi New Jersey New York Ohio Oregon Pennsylvania and Texas and our non U S production and R D operations are based in Australia China Finland Germany India Malaysia the Philippines Singapore South Korea Spain Sweden Switzerland Thailand the United Kingdom and Vietnam We also utilize contract manufacturers and strategic suppliers In addition to sales offices co located at most of our manufacturing sites we have sales and marketing subsidiaries in Belgium Canada China France Germany Israel Italy Japan the Netherlands South Korea Spain Switzerland Taiwan and the United Kingdom
Our core values are Integrity Collaboration Accountability Respect and Enthusiasm which we refer to by the acronym I CARE These values define who we are and serve as a guide in how we engage with each other our customers our suppliers our investors and our environment They serve as a model for how we grow the Company in an ethical scalable and sustainable manner
Our workplace is defined by our people It enables everyone to come to work authentically as their best selves This includes supporting an inclusive environment in which every individual is considered a valuable member of the team We listen to the voice of the employee and foster open communication through focus groups personal interviews an open door policy and engagement surveys among other methods This rich feedback allows us to reflect and adjust our internal initiatives across the globe to create a culture that recognizes employees contributions and values their opinions As a result our human capital strategies are core to the long term sustainability and success of the Company
It is our highest priority to keep our employees customers and suppliers safe as the health and safety of our workforce is paramount to the success of our business We provide our employees upfront and ongoing training to ensure that safety policies and procedures are effectively communicated and implemented We have experienced employees on site at each of our manufacturing locations who are tasked with environmental health and safety education and compliance We customize our policies to the local requirements and circumstances of each plant
Hiring talented individuals and continuing to develop them are critical to our operations and we are focused on creating experiences and programs that foster growth and performance Our Talent Acquisition teams continue their outreach efforts to engage and attract diverse high quality talent to our organization We have a robust succession planning process that identifies internal candidates for development We provide all employees the chance to learn and develop critical skills and we strive to attract motivate and retain our talent Our Leadership Academy offers global development programs for our people leaders to enhance their capabilities Tuition reimbursement and funding for growth and development are also built into the annual budget to ensure that Coherent has the skilled workforce we need Our global internship programs also welcome a new talent pipeline
Eligible employees may participate in the Employee Stock Purchase Plan ESPP providing the opportunity to share in the potential growth of our company stock and allowing employees to purchase company shares at a discount Select employees are eligible to receive equity based awards to align employee and shareholder interests In addition to offering competitive and fair compensation we also offer a compelling suite of benefits including comprehensive health benefits competitive time off programs and employee assistance programs
Coherent respects and upholds the universal values of human rights which are fundamental to every individual We hold an expectation for all leaders and employees to engage with one another in a manner that is dignified fair and respectful As we continue on our diversity equity and inclusion journey the following initiatives took place in fiscal year 2024 in support of our global DEI strategy
Following the deployment of our global DEI program s strategy and objectives over 13 500 employees have completed our Foundations of DEI training globally This course was intended to set the foundation of awareness and understanding on the foundational concepts of DEI in our workplace Our plan is to continue to deploy additional learning opportunities on DEI topics that help us foster an inclusive environment bring awareness to unconscious bias and ensure we are employing inclusive hiring practices
Building on our success we offered our global Women in Leadership Program again this year with active participation from senior leadership to bolster female representation in leadership roles This program offers a comprehensive suite of development opportunities
including specialized skill enhancement coaching from senior leaders and networking opportunities across the organization all aimed at helping support and propel the careers of women within our organization
We continue to identify ways to highlight different perspectives through education In fiscal year 2024 we offered a culture awareness course to employees who work on global teams to learn more about the different ways cultures communicate collaborate negotiate and address disagreements We also continue to offer diversity awareness topics throughout the year to educate employees on different dimensions of diversity present in our workforce
Understanding the significant impact we can make Coherent continues to support initiatives targeted to increase diversity equity and inclusion as well as education in STEM entrepreneurship innovation and advanced technology through our partnerships Our organization also continues to actively partner with CEO Action for Diversity Inclusion to advance DEI in the workplace In fiscal year 2024 Chief Strategy Officer and President of our Materials Segment Giovanni Barbarossa and Chief Marketing Officer Sanjai Parthasarathi served as mentors in the CEO Action Mentoring Initiative This program pairs C suite leaders with mentees from underrepresented and diverse populations working at the director and vice president levels to take part in a range of professional development activities focused on accelerating the development of diverse senior leaders through mentoring circles
Globally approximately 45 of the workforce is female with 11 890 females 14 166 males and 101 undisclosed as of June 30 2024 In Coherent s Global Leadership Team GLT which consists of directors and above there are 65 females 487 males and 1 undisclosed The GLT meets quarterly to discuss strategy business trends company operations financials and people programs Our global footprint is diverse with approximately 18 078 employees in the Asia Pacific region 3 690 in Europe and 4 389 in the Americas
Our success in developing and manufacturing many of our products depends on our ability to tailor the optical and physical properties of technically challenging materials components and photonics based solutions across a broad array of industries The ability to produce process and refine these complex materials and to control their quality and in process yields is an expertise of the Company that is critical to our customers In the markets we serve there is a limited number of high quality suppliers of many of the components we manufacture Aside from datacenter transceivers there are very few industry standard products Our lasers are displacing conventional technologies because they can do the job faster yield higher quality provide overall economic benefits and enable next generation applications
Our network of worldwide manufacturing sites allows us to manufacture our products in regions that provide cost effective and risk management advantages We employ numerous advanced manufacturing technologies and systems at our manufacturing facilities These include metal organic chemical vapor deposition and molecular beam epitaxy reactors automated computer numeric control optical fabrication high throughput thin film coaters nanoprecision metrology and custom engineered automated furnace controls for crystal growth processes We provide lasers in the form of gas semiconductor solid state crystal or fiber which can also be classified by their output wavelength ultraviolet visible infrared or wavelength tunable There are also many options in terms of pulsed output versus continuous wave pulse duration output power beam dimensions etc that are application specific Developing products for use across the electromagnetic spectrum requires the ability to repeatedly manufacture components with high yields to atomic tolerances We continually update our comprehensive quality management systems that feature manufacturing best practices We are committed to delivering products within specification on time and with high quality with a goal of fully satisfying customers and continually improving
We continue to increase our use of renewable energy to power our operations and lower our greenhouse gas footprint As of April 2024 the Company is now obtaining approximately 70 of its global electricity needs from renewable energy sources In total this represents over 500 million kWh of renewable energy per year thereby avoiding more than 250 000 metric tons of CO
emissions annually We have on site solar systems at several facilities that further contribute to our renewable energy efforts We participate in Apple s Supplier Clean Energy Program and all of our Apple production is powered by 100 renewable electricity sources Our team also works to minimize energy usage water usage other raw materials usage and waste generation
Coherent has set as a top priority to reduce its carbon footprint across its global operations In December 2023 the Company announced a commitment to achieve net zero Scope 1 and Scope 2 emissions by fiscal year 2040 Continuing to increase the use of renewable electricity is an important lever to achieve that commitment Additional information on the Company s sustainability performance can be found on the ESG section of our website at www coherent com The website address is intended to be an inactive textual reference only None of the information on or accessible through Coherent s website is part of this Annual Report on Form 10 K nor is it incorporated herein by reference
In our production processes we use numerous optical electrical and mechanical parts that are sourced from third party suppliers These include integrated circuits digital signal processors mechanical housings and optical components and we commonly refer to them as raw materials Raw materials or subcomponents required in the manufacturing process are generally available from several sources However in the Lasers segment we currently purchase several key components and materials used in the manufacture of our products including exotic materials crystals and optics from sole source or limited source suppliers We also purchase assemblies and turnkey solutions from contract manufacturers based on our proprietary designs We rely on our own production and design capability to manufacture and specify certain strategic components crystals fibers semiconductor lasers and laser based systems
The continued high quality of and access to these raw materials are critical to the stability and predictability of our manufacturing yields We specify and test these raw materials at the onset of and throughout the production process Additional research and capital investment are sometimes needed to better define future raw materials specifications We continue to develop strategic second sources as part of our overall business continuity planning and occasionally experience problems associated with raw materials not meeting contract specifications for quality or purity Risks associated with reliance on third parties for the timely and reliable delivery of raw materials are discussed in greater detail in Item 1A Risk Factors of this Annual Report on Form 10 K
The Networking segment leverages Coherent s compound semiconductor technology platforms and deep knowledge of end user applications for its key end markets to deliver differentiated components and subsystems
The Lasers segment s lasers and optics products serve industrial customers in semiconductor and display capital equipment precision manufacturing and aerospace defense as well as instrumentation customers in life sciences and scientific instrumentation
Fiber optics and precision optics used in projection displays crystal materials and components for optical communications high power UV visible and NIR optics for industrial lasers filters and assemblies for life sciences as well as for sensors instrumentation and semiconductor equipment
With complete verticality from materials to turnkey laser solutions we intersect with any industrial laser process within the application areas of automotive manufacturing medical device manufacturing machine tools consumer goods and industrial electrical and electronics
Coherent laser optics and solutions for the industrial market remain well positioned our portfolio enables a wide variety of applications including EV battery welding fine processing of medical devices additive manufacturing high temperature superconducting wires and tapes and even bleaching of jeans Our vertically integrated and market leading ZnSe optics and components due to their inherent low loss at around the 10 micron wavelength have enabled high power CO
Fiber lasers that operate at about the 1 micron wavelength in pulsed or continuous mode have taken a central role in many industrial applications especially for cutting welding and marking of both metals and plastics We supply a broad range of materials and components that enable many functions within these fiber lasers from the laser chips that generate the input optical power to the beam delivery systems that direct the output optical power to the target The same set of Coherent products is at the core of existing and emerging direct diode laser systems Coherent s broad portfolio of coated optics and crystal materials serves all of the mentioned growing laser markets
Coherent s Aerospace Defense solutions enable mission critical capabilities for applications in high energy lasers contested space and intelligence surveillance and reconnaissance From uniquely grown single crystals and advanced ceramics to completely engineered gimbal subsystems Coherent solutions are embedded on nearly every platform in the field as well as on those under development Coherent laser beam combining and advanced lightweight gimbal technologies along with domestically produced high power fiber laser pumps and amplifiers are enabling next generation high energy laser systems and space based laser communications applications With the addition of nanomachined single crystal silicon and grating technologies together with Coherent s advanced coating capabilities we enable advanced spectral beam combining and novel microstructured surface capabilities which are highly valued within the Aerospace Defense industry
Our advanced missile warning electro optical targeting and imaging systems are deployed on virtually every U S fixed wing and rotary platform Our advanced sapphire germanium and multispectral domes provide unique protection to our advanced imaging seeker and laser solutions that are packaged behind them
Our solutions for the Lunar Reconnaissance Orbiter LRO provided the first images proving that the astronauts footprints on the moon are still there The LRO continues to orbit the moon and provide rich information for future lunar landing sites The LRO camera and its more advanced derivatives are the basis for many advanced space imaging applications being pursued by our customers Our advanced imaging lenses and windows ensure that our customers vehicles are able to safely and accurately dock with the Space Station Our advanced telescope solution for the Geostationary Lightning Mapper enables the GOES satellites to detect early lightning strikes and predict tornados a full 20 minutes before previous technology It forms the basis for many of our customers advanced multispectral imaging solutions
Coherent s Aerospace Defense division maintains separate business development IT infrastructure accounting finance engineering and manufacturing facilities in the United States with strictly controlled access they are dedicated to our U S government supported contracts
The Semiconductor Capital Equipment vertical breaks out into what is called front end of line FEOL and back end of line BEOL Coherent is well positioned to capitalize on the growth in both FEOL and BEOL products Semiconductor capital equipment requires advanced materials to meet the need for tighter tolerances enhanced thermal stability faster wafer transfer speeds and reduced stage settling times Our metal matrix composites and reaction bonded ceramics enable these applications thanks to their optimum combination of light weight strength hardness and coefficient of thermal expansion Our reaction bonded SiC materials are used to manufacture wafer chucks lightweight scanning stages and high temperature corrosion resistant wafer support systems Our cooled SiC mirrors and precision patterned reticles are used in the illumination systems of lithography tools Our large area polycrystalline diamond windows enable CO
laser optics CdTe modulators and high power damage resistant polycrystalline CVD diamond windows to route the powerful laser beam to a tin droplet from which EUV light will emanate Due to its very high mechanical and thermal performance characteristics our reaction bonded SiC is used in structural support systems that are integral to EUV lithography optics to meet critical requirements for optical system stability
Coherent lasers are widely used in both front end and back end applications Our front end laser products encompass solid state lasers and excimer lasers designed for semiconductor inspection tasks along with CO
lasers tailored for wafer annealing supporting the most advanced processing nodes We also offer a suite of lasers for a variety of advanced packaging back end applications ranging from cutting PCB and substrate drilling and optical debonding to numerous laser marking tasks Beyond lasers we have decades of experience and expertise in ceramics and metal matrix composites that semiconductor equipment manufacturers depend on to achieve state of the art semiconductor manufacturing throughput enabled by the exceptional mechanical and thermal properties of these materials
We have achieved breakthrough laser innovations essential to manufacture displays for phones tablets computers and televisions Our excimer laser solutions can improve precision combining high spatial precision and selectivity for advanced display production increase productivity offering fast large area processing for current and future generation modules and panels and maximize yield and maintain it along the process chain from backplane to individual display The majority of OLED phones have flexible OLED displays thus a laser lift off process is also required
and here again we offer an optimized portfolio of pico and femtosecond laser sources Beyond OLED we are offering UV and DUV laser solutions for a broad range of applications to manufacture next generation microLED displays For display manufacturing we offer a broad portfolio of laser sources and optical systems that will meet the requirements of display customers now next and beyond
Coherent s optical communications products and technologies enable next generation high speed optical transmission systems networks and datacenter solutions necessary to meet the accelerating global bandwidth demand
Demand for our products is largely driven by the continually growing need for additional network bandwidth created by the ongoing proliferation of data and video traffic from video conferencing for work school and leisure video downloads and streaming live TV social networking online gaming file sharing enterprise IP internet traffic cloud computing datacenter virtualization and the new optical connectivity needed to support AI ML
We are a global technology leader in optical communications providing materials subcomponents components modules and subsystems to optical component and module manufacturers networking equipment manufacturers datacenter operators enterprises and telecom service providers We design products that meet the increasing demands for network bandwidth and data storage
Our Telecom optical communications products can be divided into two main groups optical transmission and optical transport Our optical transmission products consist primarily of transmitters receivers as stand alone parts or combined in different integrated solutions transceivers transponders and active optical cables which provide the fundamental optoelectronic interface for interconnecting the electronic equipment used in networks This equipment includes switches routers and servers used in wireline networks These products rely on advanced components such as semiconductor lasers and photodetectors in conjunction with integrated circuits and novel optoelectronic packaging to provide a cost effective means for transmitting and receiving digital signals over fiber optic cable at speeds ranging from less than 1 Gbps to more than 800 Gbps and over distances of less than 10 meters to more than 5 000 kilometers using a wide range of network protocols and physical configurations
Our optical transport products are at the core of both terrestrial and undersea optical networks as well as emerging space optical communications connections Our market leading 980 nm pump lasers are the key enablers of our erbium doped fiber amplifiers which boost the power of optical signals in fiber optic cables to allow high speed signals to be transmitted over long distances Our 14xx nm pumps enable Raman amplification based on the stimulated Raman scattering SRS effect of the optical signal traveling over long and ultralong distances Our latest generation of components for coherent transceivers is critical to a new generation of small size long reach DWDM transmission modules operating from 100 Gbps to 1 Tbps and beyond
Customers continue to rely on us for our industry leading optical amplification and embedded monitoring solutions for their next generation ROADM systems to compensate for inherent signal loss and to monitor signal integrity Our proprietary OTDR modules allow systems to automatically detect and pinpoint issues along the transmission path in real time Together with our OCM solutions which monitor the optical power of the channels transmitted in a fiber optic link they enable real time intelligence to perform preventive maintenance so as to preserve data transmission In addition we offer a portfolio of WSS products which we also incorporate into ROADM line cards and subsystems
Our proven experience in both transmission and transport allows us to effectively address the emerging DCI market Our transceivers submodules pluggable amplifiers and configurable line cards are able to meet the requirements of low power consumption compactness ease of installation and operation and cost savings which are often mandatory features in the DCI market
Network changes to address AI and ML are driving the introduction of higher speed transceivers at a faster pace than ever before Only 20 years ago the highest data rate for optical transceivers was 10G Today more than 50 of Coherent s datacom revenue is generated by 200G and higher data rate transceivers Driven by the demands of growing AI ML adoption 800G transceivers are shipping in production and we expect the first 1 6T transceiver samples will be shipped later this calendar year In five years the market opportunity for 800G and 1 6T datacom transceivers is expected to be greater than all other types of datacom transceivers combined largely driven by AI and ML
At Coherent we already have a complete portfolio of transceivers matched to the requirements set by AI and ML These transceivers are protocol agnostic meaning the same transceiver hardware can support Ethernet and InfiniBand as well as proprietary protocols for AI and ML such as NVIDIA s NVLink
Over the years we have made strategic investments that give us a unique level of vertical integration We not only design and manufacture our transceivers internally but we also design and manufacture many of the components including lasers detectors ICs and passive optics When designing a new transceiver that requires a new component we either source that component from one of our valued development partners or we design and manufacture it internally We decide what to develop internally and what to develop with suppliers based on business case time to market and strategic considerations
800G and 1 6T transceivers require 100G lane and 200G lane lasers The type of laser used is determined by the data rate and the fiber link length Generally speaking interconnects in the AI ML fabric portion of the network Level 0 are less than 50 m interconnects connecting ToR switches to spine switches Level 1 are up to 500 m and interconnects connecting switches to routers or routers to routers telecom access are between 2 km and 10 km Each of these distances and applications are best served by different laser technologies
For link distances less than 100 m including Level 0 interconnects and a subset of Level 1 interconnects VCSELs are used These are based on our GaAs technology platform VCSELs are generally the lowest cost lowest power consumption solution and are the lasers of choice for connections of less than 100 m
Coherent has multiple 6 inch GaAs VCSEL fabs in the U S and Europe Our 100G lane VCSELs are in production to support 400G and 800G transceivers We are working on 200G lane VCSELs which will require significant changes in the VCSEL device design and fabrication
For Level 1 switching for distances greater than can be supported by VCSELs and for telecom access single mode devices are used These devices are made from InP materials Coherent has multiple InP fabs in the U S and Europe two of them are moving to 6 inch wafer capability
For Level 1 link distances greater than 100 m transceivers based on silicon photonics may be used All silicon photonics products including some of our own need an InP CW laser to generate the light For Level 1 links greater than 100 m and for telecom access 2 10 km electro absorption modulated lasers or EMLs may be used We manufacture 100G lane EMLs to support 400G and 800G transceivers such as our EML based 800G DR8 transceiver and we introduced our 200G lane EML in 2022
As we look forward to 200G lane transceivers achieving a 10 km reach is a significant challenge even with EMLs For that application we have been developing a laser technology called DFB MZ which stands for Distributed Feedback Laser with Mach Zehnder This is an InP CW laser monolithically integrated with an InP Mach Zehnder modulator This laser technology will enable 1 6T transceivers with up to 10 km reach
We manufacture GaAs VCSELs and VCSEL arrays InP edge emitting lasers and photo diodes as well as specialty glass wafers for the consumer electronics market Our VCSEL products leverage our world class 6 inch GaAs platform combining our epitaxial wafer growth and wafer fabrication capabilities Our VCSELs have been used in consumer products such as computer mice and mobile phones for many years Our VCSELs are also widely deployed in datacenters and HDMI optical cables as well as in vehicle steering wheels This expertise in VCSEL technology has been leveraged for the growing sensing market 3D sensing was the first application to drive the demand for relatively large two dimensional VCSEL arrays A typical design for 3D sensing requires tens or hundreds of VCSELs per chip in order to scale up the optical power required for applications such as face recognition Therefore 3D sensing applications created the need to scale up manufacturing to 6 inch wafer processing Today Coherent is one of the very few vertically integrated 6 inch VCSEL manufacturers with a proven track record in high volume manufacturing of high reliability large multi emitter VCSEL arrays designed for 3D sensing We are also one of the very few companies that have shipped InP diode lasers and photodiodes in high volume for consumer electronics applications these are also manufactured in house An increasing number of consumer devices are coming on the market with embedded VCSELs including multiple smartphones and tablets AR VR headsets smart watches and household robots
In addition to VCSELs our products for the consumer electronics market include wafer scale optics diffraction gratings thermoelectric coolers driver ICs and substrates for sensing and AR VR applications
We are a global leader in SiC substrates for power electronics that improve the energy efficiency of electric and hybrid electric vehicles Power electronics based on SiC enable systems to achieve significantly improved power utilization and conversion efficiencies lower operating temperatures and reduced thermal loads This in turn enables either increased driving range or reductions in required battery capacity for a given range which results in a significant cost reduction Our comprehensive understanding of crystal growth and materials processing was acquired over decades of sustained R D and manufacturing allowing us to continuously evolve our technology and IP portfolio We offer a full range of substrate diameters including the world s first 200 mm substrate
Our industry leading semiconductor lasers optics and materials can be leveraged for LiDAR systems embedded in advanced driver assistance systems ADAS for autonomous vehicles LiDAR sensors enable ADAS to perform functions such as emergency braking distance warning and adaptive cruise control Coherent s broad portfolio of components and modules for LiDAR include high power laser diodes fiber amplifiers frequency modulated continuous wave detection solutions optical filters for detection mirrors for scanning and thermoelectric coolers for temperature control Our product offerings include edge emitters and VCSELs that are capable of providing a wide range of wavelengths and peak powers for direct illumination and imaging in short and long range LiDAR solutions Emission and return windows on LiDAR systems are available in ultrahard bulk materials such as SiC and diamond and with optical coatings that are water shedding and oil resistant Our thermoelectric coolers are qualified to automotive standards and enable LiDAR systems to operate with optimal performance and efficiency
New generations of vehicles will be equipped with a greater number of sensors that can monitor a driver s alertness and let occupants interact with the console using touch sensing or gesture recognition In the event of a collision sensors can help provide critical information about the position and attention of occupants to activate restraints and deploy airbags in the best possible manner Coherent s products enable the most advanced in cabin control and monitoring systems for the latest applications in human vehicle interactions Our VCSELs are ideal for optical touch sensors integrated in dashboards or steering wheels Our VCSEL arrays can provide infrared cabin illumination and structured light projection to enable gesture recognition
Automotive manufacturers continue to differentiate their products with comfort features such as temperature controlled car seats and cup holders all of which require thermoelectric devices We offer thermal management solutions that are qualified to stringent automotive industry standards and tailored to various applications
Coherent is also a world leader in innovative engineered materials and subsystems for thermal management offering a broad portfolio that includes reaction bonded Si SiC materials Al SiC metal matrix composites CVD diamond single crystal SiC and thermoelectric coolers With such extensive and diverse capabilities we are uniquely positioned to deliver thermal management solutions that ideally match the performance and cost requirements of numerous applications including transportation semiconductor manufacturing information technology life sciences and consumer electronics
Mobile traffic is increasing as a result of the proliferation of smartphones tablet computers and other mobile devices In the mobile wireless market we are a global leader in the strategic supply chain for materials and devices used in the latest 4G 5G and 6G base station infrastructure The deployment of 5G wireless is accelerating globally driving the demand for RF power amplifiers that can operate efficiently in new high frequency bands and be manufactured on a technology platform that can scale to meet the growing demand GaN on SiC RF power amplifiers have superior performance compared with devices based on silicon over a wide spectrum of 5G operating frequencies in the gigahertz range including in the millimeter wave bands
We are a market leader in the technology development and large volume manufacturing of 100 mm 150 mm and the industry s first 200 mm semi insulating SiC substrates These substrates are utilized by customers worldwide to manufacture GaN on SiC HEMT RF power amplifier devices that are embedded in remote radio heads in 4G and 5G wireless base stations In areas of high bandwidth demand 5G antennas with beamforming technology using multiple devices per antenna are expected to be densely deployed increasing the demand for GaN on SiC power amplifiers by approximately an order of magnitude or more versus 4G antennas Looking forward we continue to advance the state of the art in SiC substrates with a strong technology portfolio of over 30 active patents using highly differentiated and proprietary manufacturing platforms and technologies including crystal growth substrate fabrication and polishing Our introduction of the world s first 200 mm semi insulating SiC substrates will enable the RF power amplifier market to continue to scale increasingly replacing functions performed by devices based on silicon and enabling new applications
The GaN and InP technological platform which are within the core competencies of Coherent are key materials also for future 6G high efficiency power amplifiers and low noise amplifiers enabling the best power performance in their respective frequency ranges
Within the life sciences end market we focus on instrumentation that integrates light and or thermal management solutions We segment this market into three application areas biotechnology analytical and medical and deliver targeted and unique product portfolios for each segment We vertically integrate from the material level with various crystals for medical laser applications or ZnS materials for NIR and IR spectroscopy to high precision components complex subassemblies and even full subsystems Applications within the biotechnology segment include research and diagnostic tools such as flow cytometry genome sequencing PCR and sequencing to name a few Our broad product portfolio delivers solutions covering illumination light management thermal management sample loading and detection Visible wavelength lasers and multicolored laser and LED engines provide low noise high performance reliable light sources
Optical components and subassemblies such as filters lenses flow cells gratings objective lenses and patterned reticles are embedded into these instruments to manage light delivery and detection Our state of the art thermal engines precisely control temperature and uniformity across large areas such as plate and block assemblies even extending to reagent or sample chilling Finally vertical integration into higher level optomechanical electrical subassemblies drives further value and decreased time to market for our customers
Analytical instrumentation includes spectroscopy based applications such as monitoring of air and water food and beverage products agriculture and pharmaceutical quality control as environmental and safety concerns become more prevalent These instrumentation platforms need to be rugged enough to be deployed in the field and often must be transportable as well Coherent s solutions are the building blocks lasers and LED solutions for illumination optics for light management sample loading thermal control and integrated detection solutions We continue to leverage our materials and components to offer subassembly level solutions at all wavelengths from UV to NIR and IR
Medical applications comprise instrumentation that is used in the direct treatment of patients and includes medical lasers imaging point of care wearables and thermal based treatment solutions Medical laser and clinical procedures are increasingly performed with systems that integrate our lasers optics and thermal solutions These applications are performed at or near the patient demanding extreme precision and often requiring complex designs that can reach into the NIR and IR wavelengths Applications are varied from laser based treatments ophthalmic dental aesthetic dermatological and surgical to medical imaging and even point of care diagnostics Coherent s semiconductor laser bars and stacks are used in applications such as hair and wrinkle removal and femtosecond lasers combined with excimer lasers are used for common procedures like LASIK Crystals and laser cavities along with custom designed lens assemblies are used for ophthalmic dental and dermatological surgeries CO
lasers are specifically used in hard and soft tissue dental procedures Thermal components and subassemblies deliver solutions for medical based applications such as providing heating and cooling to the human body and medical laser temperature control
Our products include CW lasers for microscopy advanced ultrafast pulsed laser sources and high energy pulsed excimer gas lasers These systems are sold to universities and research institutions across the globe fueling ideas for the next generation of materials processes medical diagnostics and treatments that address some of the greatest challenges for humanity today Our window to advanced research also ensures that we stay close to the latest emerging technologies and materials for example neuroscience advancements optogenetic studies and fusion research steering our product roadmaps for the next generation of advanced manufacturing and instrumentation tools
We market our products and service through a direct sales force and through representatives and distributors around the world Our market strategy is focused on understanding our customers requirements and building market awareness and acceptance of our products and service New products are continually being developed and introduced to our new and established customers in all markets
We have centralized our worldwide sales and strategic marketing functions Sales offices have been strategically aligned to best serve and distribute products to our worldwide customer base There are significant cooperation coordination and synergies among our business units which capitalize on the most efficient and appropriate marketing channels to address diverse applications within our markets
Our sales force develops effective communications with our OEM and end user customers worldwide Products are actively marketed through key account relationships personal selling select advertising attendance at trade shows digital marketing and customer partnerships Our sales force includes a highly trained technical sales support team to assist customers in designing testing and qualifying our products as key components of our customers systems As of June 30 2024 we employed approximately 624 individuals in sales marketing and support
Coherent is a global leader in many of its product families We compete in part on our core competencies from materials to systems our differentiated products and service and the sustainability of our competitive advantages We also compete by leveraging our intellectual property ability to scale product quality on time delivery and technical support We believe that our vertical integration manufacturing facilities and equipment experienced technical and manufacturing employees and worldwide marketing and distribution channels provide us with competitive advantages The following are among our top competitors in alphabetic order
Our strategy is to grow businesses with world class engineered materials and laser processing capabilities to advance our current customers strategies reach new markets through innovative technologies and platforms and enable new applications in large and growing markets A key strategy of ours is to develop and manufacture high performance materials and in certain cases components incorporating those materials that are differentiated from those produced by our competitors We focus on providing components that are critical to the heart of our customers products that serve the applications mentioned above
We continue to grow the number and size of our key accounts A significant portion of our business is based on sales orders with market leaders which enables our forward planning and production efficiencies We intend to continue capitalizing and executing on this proven model participating effectively in the growth of the markets discussed above and continuing our focus on operational excellence as we execute our primary business strategies
During the fiscal year ended June 30 2024 we continued to identify invest in and focus our R D on new products and platform technologies in an effort to accelerate our organic growth This approach is managed under a disciplined innovation program that we refer to as the Coherent Phase Gate Process
We devote significant resources to R D programs directed at the continuous improvement of our existing products and processes and to the timely development of new materials technologies platforms and products We believe that our R D activities are essential to establishing and maintaining a leadership position in each of the markets we serve In addition certain manufacturing personnel support or participate in our R D efforts on an ongoing basis We believe the close interaction between the development and manufacturing functions enhances the direction of our projects reducing costs and accelerating technology transfers It also offers development opportunities to our employees
Enhance high end 800G 1 6T product development including RF and packaging designs explore high density high bandwidth co packaged designs with VCSELs and through silicon photonics based designs continue to develop vertically integrated designs including with lasers and ICs continue cost reduction on 400G 200G and 10G 100G products by leveraging our engineering resources and manufacturing scale
Drive further integration to reduce size and power consumption increase bandwidth to enable 100G 200G 400G 800G coherent transceivers optimize product cost with new design architectures and more efficient manufacturing flow
Continue to develop solid state lasers for industrial applications for materials processing instrumentation and scientific applications including extension of wavelengths using nonlinear optics harmonic generation especially into the ultraviolet wavelength range
Continued development of industrial femtosecond fiber lasers with 50 200 μJ pulse energy including UV generation for semiconductor capital equipment and display manufacturing power scaling and wavelength range extension for low energy 1 μJ high repetition rate 80 MHz femtosecond fiber laser systems used in multi photon imaging
Continue to broaden the product portfolio of continuous wave visible and ultraviolet OPSLs by offering new wavelengths increasing the output power and further reducing the product footprint this includes the development of single frequency ultraviolet cw OPSL based systems
Increase output power and reliability of GaAs and InP based edge emitting semiconductor lasers single emitters bars stacks and fiber coupled modules for laser pumping industrial and defense applications
Continue to support existing excimer laser based applications in display manufacturing instrumentation and materials processing Increase output power and reliability of pulsed excimer lasers wavelength range of 193 nm to 308 nm and continue to develop new excimer laser based tools for display manufacturing
Support and optimize growth processes of laser crystals e g Nd YVO4 Nd YAG Yb YAG Yb KYW Yb CALGO and nonlinear crystals e g LBO BBO used in laser systems continued improvement in crystal quality absorption homogeneity scattering and in crystal lifetime during laser operation
Invest in fabrication technologies for large sized lenses and mirrors used in astronomy and aerospace defense applications support fabrication of large dimension cylinder lenses for excimer based laser tools used in display manufacturing
The International Traffic in Arms Regulations administered by the U S Department of State Directorate of Defense Trade Controls which among other things impose licensing requirements on the export from the United States of certain defense articles and defense services generally including items that are specially designed or adapted for a military application and or listed on the United States Munitions List
The Export Administration Regulations administered by the U S Department of Commerce Bureau of Industry and Security which among other things impose licensing requirements on certain dual use goods technology and software and
The regulations administered by the U S Department of the Treasury Office of Foreign Assets Control implementing economic sanctions against designated countries governments and persons based on U S foreign policy and national security considerations
Foreign governments also have similar import and export control and sanctions laws and regulations For additional discussion regarding our import export and sanctions compliance see the discussion in Item 1A Risk Factors of this Annual Report on Form 10 K
Our use of trade secrets proprietary know how trademarks copyrights patents contractual confidentiality and IP ownership provisions helps us develop and maintain our competitive position with respect to our products and manufacturing processes We aggressively pursue process and product patents in certain areas of our businesses and in certain jurisdictions across the globe We have entered into selective intellectual property licensing agreements We have confidentiality and noncompetition agreements with certain personnel We require our U S employees to sign a confidentiality and noncompetition agreement upon commencement of their employment with us As of June 30 2024 we had a total of approximately 3 100 patents globally
The executive officers of the Company and their respective ages and positions as of June 30 2024 are set forth below Each executive officer listed has been appointed by the Board of Directors to serve until removed or until a successor is appointed and qualified
was appointed Chief Executive Officer of Coherent Corp and a member of the Board of Directors on June 3 2024 He previously served as a director and as President and Chief Executive Officer of Lattice Semiconductor Corporation since September 2018
Prior to joining Lattice Mr Anderson served as the Senior Vice President and General Manager of the Computing and Graphics Business Group at Advanced Micro Devices Inc AMD Prior to AMD Mr Anderson held a broad range of leadership positions spanning general management engineering sales marketing and corporate strategy at companies including Intel Broadcom formerly Avago Technologies and LSI Corporation Mr Anderson served on the Board of Directors of Entegris Inc from March 2023 to July 2024 and on the Board of Directors of the Semiconductor Industry Association through June 2024 He previously served on the Board of Directors of Sierra Wireless from April 2020 to January 2023 Mr Anderson earned an MBA and Master of Science degree in electrical engineering and computer science from the Massachusetts Institute of Technology a Master of Science degree in electrical engineering from Purdue University and a bachelor s degree in electrical engineering from the University of Minnesota
joined the Company in 2012 and has been the Chief Strategy Officer of the Company and the President of the Materials Segment since July 2019 Previously he was the Chief Technology Officer of the Company and the President of the Laser Solutions Segment Dr Barbarossa was employed at Avanex Corporation from 2000 through 2009 serving in various executive positions in product development and general management ultimately serving as the President and Chief Executive Officer When Avanex merged with Bookham Technology forming Oclaro Inc Dr Barbarossa became a member of the Board of Directors of Oclaro and served as such from 2009 to 2012 Previously he had management responsibilities at British Telecom AT T Bell Labs Lucent Technologies and Hewlett Packard Dr Barbarossa graduated from the University of Bari Italy with a B S in Electrical Engineering and has a Ph D in Photonics from the University of Glasgow U K
joined the Company in 2018 and has been President of the Company since July 2019 Mr Bashaw previously served as Vice President of Strategy In this role he was primarily responsible for the Company s M A and integration work Prior to joining the Company Mr Bashaw was a senior partner at the law firm of Sherrard German Kelly P C in Pittsburgh Pennsylvania where his areas of expertise were corporate law mergers and acquisitions and technology planning Mr Bashaw holds a J D from the University of Pittsburgh School of Law from which he graduated cum laude and at which he was the editor in chief of the University of Pittsburgh Journal of Law and Commerce He holds a B S in Logistics from the Pennsylvania State University
has been the interim Chief Financial Officer and interim Treasurer for Coherent Corp since September 2023 He joined Coherent in 2015 as the Infrared Optics Division Controller and since then has served as the Lasers Solutions Segment Vice President of Finance the Materials Segment Vice President of Finance and most recently the Senior Vice President of Business Operations Prior to joining Coherent Mr Martucci served in various financial roles at Xylem Inc and Thermo Fisher Scientific Inc He has over 30 years experience in finance and manufacturing operations across several industries Mr Martucci holds a bachelor of science degree in Business Administration from Robert Morris University and a MBA from Gannon University He is a registered CPA in the state of Illinois
joined the Company in 2011 following the acquisition of Aegis Lightwave Inc where he served as General Manager Aegis NJ He was named General Manager of the Agile Network Products Division in 2012 and Director of Corporate Strategic Technology Planning in 2015 He then served as Vice President of the Industrial Laser Group and Corporate Strategic Technology Planning from 2017 until his appointment as Chief Technology Officer in 2019 In October 2022 Dr Koeppen was appointed Chief Innovation Officer of the Company Previously Dr Koeppen was co founder and CEO of CardinalPoint Optics prior to its acquisition by Aegis Lightwave He has more than two decades of progressively increasing general and technology management experience in high tech companies including at Meriton Networks Mahi Networks Photuris and Lucent Technologies Dr Koeppen holds a Ph D in Physics from the University of Pennsylvania where he was an AT T Bell Laboratories Scholar and B S degrees in Physics and Mathematics from the Pennsylvania State University
was appointed Chief Technology Officer of the Company in October 2022 Prior to becoming CTO Dr Eng served as Senior Vice President and General Manager of the Company s Optoelectronic Devices and Modules Business Unit Dr Eng joined the Company in 2019 with the acquisition of Finisar Corporation where she held various senior management positions including Executive Vice President and General Manager of 3D Sensing and Executive Vice President of Datacom Engineering Dr Eng spent over 20 years in the optoelectronics and optical communications industries including roles at AT T Lucent and Agere Dr Eng received her PhD and M S in electrical Engineering from Stanford and an M S and B A from Bryn Mawr College summa cum laude and a B S with honors from the California Institute of Technology Caltech In 2022 Dr Eng was elected a Fellow of Optica formerly the Optical Society of America for distinguished contributions to the advancement of optics and photonics
joined the Company in 2019 as Vice President Corporate Development and was named Chief Legal and Compliance Officer and Corporate Secretary in March 2022 Previously Mr Basso was the Executive Vice President of Business Development General Counsel Secretary for Black Box Corporation for six years Before that his 28 year career at Buchanan Ingersoll Rooney PC involved significant client engagements on corporate governance securities capital markets transactions M A and executive compensation matters He served on the Coherent IPO team in 1987 and as Coherent s SEC counsel for 25 years until he joined Black Box Mr Basso holds a bachelor s degree summa cum laude in Economics and a Juris Doctor degree Order of the Coif from the University of Pittsburgh
joined Coherent Corp in February 2023 as the Senior Vice President Chief Accounting Officer and Corporate Controller Ms Mocciaro joined Coherent from CDW where she was the Vice President Chief Accounting Officer and Controller from 2020 to 2022 From 2016 to 2020 she was the Senior Vice President Chief Accounting Officer and Global Controller at Anixter International Inc where she helped close the sale of Anixter to Wesco From 2011 to 2016 Ms Mocciaro was the Chief Accounting Officer of the agricultural and construction equipment segments at CNH Industrial N V after serving as Director of Accounting and Reporting She led Internal Audit at McMaster Carr Supply Company from 2010 to 2011 and previously held several management positions at Ernst Young LLP in Chicago and Milan Italy from 1997 to 2010 Ms Mocciaro holds a B A degree in Accounting and Business Administration from the Catholic University of the Sacred Heart Università Cattolica del Sacro Cuore in Milan
Our internet address is www coherent com Information contained on our website is not part of and should not be construed as being incorporated by reference into this Annual Report on Form 10 K We post the following reports on our website as soon as reasonably practical after they are electronically filed with or furnished to the SEC our Annual Reports on Form 10 K our Quarterly Reports on Form 10 Q our Current Reports on Form 8 K and any amendments to those reports or statements filed or furnished pursuant to Section 13 a or 15 d of the Exchange Act In addition we post our proxy statements on Schedule 14A related to our annual shareholders meetings as well as reports filed by our directors officers and 10 beneficial owners pursuant to Section 16 of the Exchange Act In addition all filings are available via the SEC s website www sec gov We also make our corporate governance documents available on our website including the Company s Code of Ethical Business Conduct Governance Guidelines and the charters for our board committees All such documents are located on the Investors page of our website and are available free of charge
The following are certain risk factors that could affect our business results of operations financial condition or cash flows These risk factors should be considered along with any forward looking statements contained in this Annual Report on Form 10 K because these factors could cause our actual results or financial condition to differ materially from those projected in forward looking statements The following discussion is not an all inclusive listing of risks although we believe these are the material risks that we face If any of the following occur our business results of operations financial position or cash flows could be adversely affected You should carefully consider these factors as well as the other information contained in this Annual Report on Form 10 K when evaluating an investment in our securities
We continue to make investments in programs with the goal of gaining a greater share of end markets using laser systems semiconductor lasers and components including the key components for fast growth markets We cannot guarantee that our investments in capital and capabilities will be sufficient The potential end markets as well as our ability to gain market share in such markets may not materialize on the timeline anticipated or at all We cannot be sure of the end market price specification or yield for products incorporating our technologies Our technologies could fail to fulfill partially or completely our target customers specifications We cannot guarantee the end market customers acceptance of our technologies Further we may be unable to fulfill the terms of our contracts with our target customers which could result in penalties of a material nature including damages loss of market share and loss of reputation
To meet our strategic objectives we must develop manufacture and market new products and continue to update our existing products and processes to keep pace with sudden increases in market demand and other market developments and to address increasingly sophisticated customer requirements Our success in developing and selling new and enhanced products and processes depends upon a variety of factors including strategic product selection efficient completion of product design and development timely implementation of manufacturing and assembly processes effective sales and marketing and high quality and successful product performance in the market
The introduction by our competitors of products or processes using new developments that are better or lower cost than ours could render our products or processes obsolete or unmarketable We intend to continue to make significant investments in research development and engineering to achieve our goals There can be no assurance that we will be able to develop and introduce new products or enhancements to our existing products and processes in a manner which satisfies customer needs or achieves market acceptance The failure to do so could have a material adverse effect on our ability to grow our business and maintain our competitive position and on our results of operations and or financial condition
Our products may contain defects that are not detected until deployed which could increase our costs reduce our revenues cause us to lose key customers or expose us to litigation related to our products
Some systems that use our products are inherently complex in design As a result of the technological complexity of our products in particular our excimer laser annealing tools used in the display capital equipment market changes in our or our suppliers manufacturing processes or the inadvertent use of defective materials by us or our suppliers could result in a material adverse effect on our ability to achieve acceptable manufacturing yields and product reliability Our customers may also discover defects in our products after the products have been fully deployed and operated under peak stress conditions In addition some of our products are combined with products from other vendors which may contain defects Should problems occur it may be difficult to identify the source of the problem If we are unable to correct defects or other problems we could experience among other things loss of customers increased costs of product returns and warranty expenses damage to our brand reputation failure to attract new customers or achieve market acceptance diversion of development and engineering resources or legal action by our customers The occurrence of any one or more of the foregoing factors could have a material adverse effect on our business results of operations or financial condition
We continuously monitor the marketplace for strategic opportunities and our business strategy includes expanding our product lines and markets through both internal product development and acquisitions Consequently we expect to continue to consider strategic acquisition of businesses products or technologies complementary to our business This may require significant investments of management time and financial resources If market demand is outside our organic capabilities if a strategic acquisition is required and we cannot identify one or execute on it and or if financial investments that we undertake distract management do not result in the expected return on investment expose us to unforeseen liabilities or jeopardize our ability to comply with our credit facility covenants due to any inability to integrate the business adjust to operating a larger and more complex organization adapt to additional political and other requirements associated with the acquired business retain staff or work with customers we could suffer a material adverse effect on our business results of operations or financial condition
We have acquired several relatively large companies including Finisar Corporation in September 2019 and Coherent Inc in July 2022 We expect to expand and diversify our operations with additional acquisitions but we may be unable to identify or complete prospective acquisitions for many reasons including increasing competition from other potential acquirers the effects of consolidation in our industries and potentially high valuations of acquisition candidates In addition applicable competition laws and other regulations may limit our ability to acquire targets integrate businesses or force us to divest an acquired business line If we are unable to identify suitable targets or complete acquisitions our growth prospects may suffer and we may not be able to realize sufficient scale and technological advantages to compete effectively in all markets To the extent that we complete acquisitions we may be unsuccessful in integrating acquired companies or product lines with existing operations or the integration may be more difficult or more costly than anticipated
We incurred substantial expenses related to the acquisition of Coherent Inc and we continue to incur substantial expenses related to the integration of Coherent Inc and its subsidiaries Some of the risks that may affect our ability to integrate or realize anticipated benefits from acquired companies businesses or assets include those associated with
In addition the market prices of our outstanding securities could be adversely affected if the effect of any acquisitions on our consolidated financial results is dilutive or is below the market s or financial analysts expectations or if there are unanticipated changes in the business or financial performance of the acquired or combined company Any failure to successfully integrate acquired businesses may disrupt our business and adversely impact our business results of operations or financial condition
The success of our acquisitions will depend in large part on our success in integrating the acquired operations strategies technologies and personnel We may fail to realize some or all of the anticipated benefits of an acquisition if the integration process takes longer than expected or is more costly than expected If we fail to meet the challenges involved in successfully integrating any acquired operations or to otherwise realize any of the anticipated benefits of an acquisition including any expected cost savings and synergies our operations could be impaired In addition the overall integration of an acquired business can be a time consuming and expensive process that without proper planning and effective and timely implementation could significantly disrupt our business
The anticipated cost savings synergies and other benefits of any acquisition typically assume a successful integration of the acquired business and are based on projections and other assumptions which are inherently uncertain Even if integration is successful anticipated cost savings synergies and other benefits may not be achieved
We anticipate that international sales will continue to account for a significant portion of our revenues for the foreseeable future The failure to maintain our current volume of international sales could materially affect our business results of operations financial condition and or cash flows
We manufacture products in numerous countries worldwide Our operations vary by location and are influenced on a location by location basis by local customs languages and work practices as well as different local weather conditions management styles and education systems In addition multiple complex issues may arise concurrently in different countries potentially hampering our ability to respond in an effective and timely manner Any inability to respond in an effective and timely manner to issues in our global operations could have a material adverse effect on our business results of operations or financial condition
We are subject to complex and rapidly changing import and export regulations of the countries in which we operate and or sell which could limit our sales and decrease our profitability and we may be subject to legal and regulatory consequences if we do not comply with applicable export control laws and regulations
We are subject to the passage of and changes in the interpretation of regulation by U S government entities at the federal state and local levels and by non U S agencies including but not limited to the following
We are required to comply with import laws and export control and economic sanctions laws which may affect our ability to enter into or complete transactions with certain customers business partners and other persons In certain circumstances export control and economic sanctions regulations may prohibit the export of certain products services and technologies We may be required to obtain an export license before exporting a controlled item and granting of a required license cannot be assured Compliance with the import laws that apply to our businesses may restrict our access to and may increase the cost of obtaining certain products and could interrupt our supply of imported inventory
Exported technologies including but not limited to equipment necessary to develop and manufacture certain products are subject to U S export control laws and similar laws of other jurisdictions We may be subject to adverse regulatory consequences including government oversight of facilities and export transactions monetary penalties and other sanctions for violations of these laws In certain instances these regulations may prohibit us from developing or manufacturing certain of our products for specific applications outside the United States Failure to comply with any of these laws and regulations could result in civil and criminal monetary and nonmonetary penalties disruptions to our business limitations on our ability to import and export products and services and damage to our reputation
Obtaining export licenses can be difficult time consuming and require interpretation of complex regulations Failure to obtain and or retain export licenses for these shipments could significantly reduce our revenue and materially adversely affect our business financial condition results of operations and relationships with our customers Additionally failure to comply with the various regulatory requirements could subject us to significant fines suspension of export privileges or disbarment
We make significant decisions based on our estimates of customer requirements We use our estimates to determine the levels of business we seek and accept production schedules personnel needs and other resource requirements
Customers may require rapid increases in production on short notice We may not be able to purchase sufficient supplies or allocate sufficient manufacturing capacity to meet such increases in demand Rapid customer ramp up and significant increases in demand may strain our resources or negatively affect our margins Inability to satisfy customer demand in a timely manner may harm our reputation reduce our other opportunities damage our relationships with customers reduce revenue growth and or cause us to incur contractual penalties
Alternatively downturns in the industries in which we compete or changes in technology may cause our customers to significantly and abruptly reduce their demand or even cancel orders With respect to orders we initiate with our suppliers to address anticipated demand from our customers certain suppliers may have required noncancellable purchase commitments or advance payments from us and those obligations and commitments could reduce our ability to adjust our inventory or expense levels to reflect declining market demands Unexpected declines in customer demands can result in excess or obsolete inventory and additional charges Because certain of our sales research and development and internal manufacturing overhead expenses are relatively fixed a reduction in customer demand likely would decrease our gross margins and operating income
We may encounter increased competition and we may fail to accurately estimate our competitors or our customers willingness and capability to backward integrate into our competencies and thereby displace us
We may encounter substantial competition from other companies in the same market including established companies with significant resources Some of our competitors may have financial technical marketing or other capabilities that are more extensive than ours They may be able to respond more quickly than we can to new or emerging technologies and other competitive pressures We may not be able to compete successfully against our present or future competitors Our failure to compete effectively could have a material adverse effect on our business results of operations or financial condition
Our business is dependent on the demand for products produced by end users of industrial communications electronics and instrumentation markets Many of these end users are in industries that have historically experienced a highly cyclical demand for their products As a result demand for our products is subject to these cyclical fluctuations Fluctuations in demand could have a material adverse effect on our business results of operations or financial condition
Customers often view the purchase of our products as a significant and strategic decision As a result customers typically expend significant effort in evaluating testing and qualifying our products before making a decision to purchase them resulting in a lengthy design in sales cycle While our customers are evaluating our products and before they place an order with us we may incur substantial sales and marketing and research and development expenses to customize our products to the customers needs We may also expend significant management efforts increase manufacturing capacity and increase inventory of long lead time components or materials prior to receiving an order Even after this evaluation process a potential customer may not purchase our products As a result these long sales cycles may cause us to incur significant expenses without ever receiving revenues to offset such expenses
We have supply agreements with some customers that require us to supply products and allocate sufficient capacity to make these products We have also agreed to pricing schedules and methodologies that could result in penalties if we fail to meet development supply capacity and quality commitments Failure to do so may cause us to be unable to generate the amount of revenue or the level of profitability we expect from these arrangements Our ability to realize a profit under some of these agreements will be subject to the level of customer demand the cost of maintaining facilities and manufacturing capacity and supply chain capability If we fail to fulfill our commitments under these supply agreements our business after using all remedies available financial condition and results of operations may suffer a material adverse effect
Our operations are dependent upon a supply chain of difficult to make or difficult to refine products and materials including integrated circuits mechanical housings and optical components and some of our product inflow is subject to yield reductions from growth or fabrication losses and thus the quantities we may receive are not consistently predictable Customers may also change a specification for a product that our suppliers cannot meet which may limit and or otherwise impact our ability to supply such customers
Some of our products for example in the OLED display industry require designs and specifications that are at the cutting edge of available technologies and change frequently to meet rapidly evolving market demands By their very nature the types of components used in such products can be difficult and unpredictable to manufacture and may only be available from a single supplier which increases the risk that we may not obtain such components in a timely manner Identifying alternative sources of supply for certain components could be difficult and costly result in management distraction in assisting our current and future suppliers to meet our and our customers technical requirements and cause delays in shipments of our products while we identify evaluate and test the products of alternative suppliers Any such delay in shipment would result in a delay or cancellation of our ability to convert such orders into revenues Furthermore financial or other difficulties faced by these suppliers or significant changes in demand for these components or materials could limit their availability We continue to consolidate our supply base and move supplier locations When we transition locations we may increase our inventory of such products as a safety stock during the transition which may cause the amount of inventory reflected on our balance sheet to increase Additionally many of our customers rely on sole source suppliers In the event of a disruption of our customers supply chain orders from our customers could decrease or be delayed
We also make products of which we are one of the world s largest suppliers We use high quality optical grade ZnSe in the production of many of our IR optical products We are a leading producer of ZnSe for our internal use and for external sale The production of ZnSe is a complex process requiring a highly controlled environment A number of factors including defective or contaminated materials could adversely affect our ability to achieve acceptable manufacturing yields of high quality ZnSe Lack of adequate availability of high quality ZnSe could have a material adverse effect upon our business There can be no assurance that we will not experience manufacturing yield inefficiencies that could have a material adverse effect on our business results of operations or financial condition
We produce hydrogen selenide gas which is used in our production of ZnSe There are risks inherent in the production and handling of such material Our lack of proper handling of hydrogen selenide could require us to curtail our production of the gas Our potential inability to internally produce hydrogen selenide could have a material adverse effect on our business results of operations or financial condition
In addition we use rare earth minerals and produce and use high purity and relatively uncommon materials and compounds to manufacture our products including but not limited to ZnS GaAs yttrium aluminum garnet yttrium lithium fluoride calcium fluoride germanium selenium telluride Bi
and SiC A significant failure of our internal production processes or our suppliers to deliver sufficient quantities of these necessary materials including in the case of rare earth minerals as a consequence of their limited diminished availability on a timely basis could have a material adverse effect on our business results of operations or financial condition
Furthermore we have historically relied exclusively on our own production capability to manufacture certain strategic components crystals semiconductor lasers fiber lasers and laser based systems We also manufacture certain large format optics Because we manufacture package and test these components products and systems at our own facilities and such components products and systems are not readily available from other sources any interruption in manufacturing would adversely affect our business
We participate in the semiconductor capital equipment market which requires significant research and development expenses to develop and maintain products and a failure to achieve market acceptance for our products could have a significant negative impact on our business and results of operations
The semiconductor capital equipment market is characterized by rapid technological change frequent product introductions the volatility of product supply and demand changing customer requirements and evolving industry standards The nature of this market requires significant research and development expenses to participate with substantial resources invested in advance of material sales of our products to our customers in this market Additionally our product offerings may become obsolete given the frequent introduction of alternative technologies Situations where either our customers or our products fail to gain market acceptance or the semiconductor capital equipment market fails to grow it would likely have a significant negative effect on our business and results of operations
In the display capital equipment market it is unclear when the timing will be or whether it will occur at all for any further build out of fabs for the manufacture of OLED screens and there are a relatively limited number of manufacturers who are the end customers for our annealing products Given macroeconomic conditions varying consumer demand and technical process limitations at manufacturers we may see fluctuations in orders including periods with no or few orders and our customers may seek to reschedule or cancel orders
Additionally challenges in meeting evolving technological requirements for these complex products by us and our suppliers could result in delays in shipments and rescheduled or cancelled orders by our customers This could negatively impact our backlog timing of revenues and results of operations
The Laser segment service revenue can experience fluctuations driven by market demand as well as customer factors such as inventory management and the ability to run some systems at lower power levels during times of lower demand from their external customers This can impact short term service demand and cause some fluctuations in the Laser segment service revenues
We are exposed to a variety of market risks including the effects of increases in commodity prices and diminished availability of rare earth minerals and noble gases Our businesses purchase produce and sell raw materials based upon quoted market prices from minor metal exchanges The negative impact from increases in commodity prices and diminished availability of rare earth minerals and noble gases might not be recovered through our product sales which could have a material adverse effect on our results of operations and financial condition
In March 2018 the United States announced new steel and aluminum tariffs Then in July 2018 the United States imposed increased tariffs on products of Chinese origin and China responded by increasing tariffs on U S origin goods On the export side denial orders and placing companies on the U S Entity List could decrease our access to customers suppliers and markets and materially impact our revenues in the aggregate In April 2018 for example the U S Department of Commerce issued a denial order against two companies in the telecommunications market In 2019 and 2020 the U S Department of Commerce placed a number of entities on the U S Entity List If we cannot obtain relief from or take other action to mitigate the impact of these additional duties and restrictions and duties our business and profits may be materially and adversely affected Further changes in the trade policy of the United States or of other countries in which we do cross border business or additional sanctions could result in retaliatory actions by other countries that could materially and negatively impact the volume of economic activity in the United States or globally which in turn may decrease our access to customers and markets reduce our revenues and increase our operating costs
Our association with customers that are or become subject to U S regulatory scrutiny or export restrictions could negatively impact our business and create instability in our operations Governmental actions such as these could subject us to actual or perceived reputational harm among current or prospective investors suppliers or customers customers of our customers other parties doing business with us or the general public Any such reputational harm could result in the loss of investors suppliers or customers which could harm our business financial condition operating results or prospects
Exports of certain of our products are subject to export controls imposed by the U S government and administered by the U S Departments of State and Commerce In certain instances these regulations may require pre shipment authorization from the administering department For products subject to the Export Administration Regulations EAR administered by the Department of Commerce s Bureau of Industry and Security the requirement for a license is dependent on the type and end use of the product the final destination the identity of the end user and whether a license exception might apply Virtually all exports of products subject to the International Traffic in Arms Regulations ITAR administered by the Department of State s Directorate of Defense Trade Controls require a license Certain of our products are subject to EAR controls
Additionally certain other products that we sell including certain products developed with government funding are subject to ITAR Products developed and manufactured in our foreign locations are subject to export controls of the applicable foreign nation Given the current global political climate obtaining export licenses can be difficult and time consuming Failure to obtain export licenses for these shipments or having one or more of our customers be restricted from receiving exports from us could significantly reduce our revenue and materially adversely affect our business financial condition and results of operations Compliance with regulations of the United States and other governments also subjects us to additional fees and costs The absence of comparable restrictions on competitors in other countries may adversely affect our competitive position
The outbreak of a widespread health crisis whether global in scope or localized in an area in which we our customers or our suppliers do business could have a material adverse effect on our operations and the operations of our suppliers and customers Potential impacts on our operations include
significant reductions in demand for one or more of our products or a curtailment to one or more of our product lines caused by among other things any temporary inability of our customers to purchase and utilize our products in next stage manufacturing due to shutdown orders or financial hardship
requirements to comply with governmental and regulatory responses such as quarantines import export restrictions price controls or other governmental or regulatory actions including closures or other restrictions that limit or close our operating and manufacturing facilities restrict our workforce s ability to travel or perform necessary business functions or otherwise impact our suppliers or customers which could adversely impact our operating results and
The implementation of health and safety practices by us or our suppliers distributors or customers could impact customer demand supplier deliveries our productivity and costs which could have a material adverse impact on our business financial condition and results of operations
Current and future conditions in the global economy have an inherent degree of uncertainty As a result it is difficult to estimate the level of growth or contraction of the global economy as a whole It is even more difficult to estimate growth or contraction in various parts sectors and regions of the economy including the industrial communications electronics and instrumentation markets in which we participate All aspects of our forecasts depend on estimates of growth or contraction in the markets we serve Thus prevailing global economic uncertainties render estimates of future income and expenditures very difficult to make
Global economic downturns may affect industries in which our customers operate These changes could include decreases in the rate of consumption or use of our customers products Such conditions could have a material adverse effect on demand for our customers products and in turn on demand for our products
Adverse changes may occur in the future as a result of declining or flat global or regional economic conditions fluctuations in currency and commodity prices wavering confidence capital expenditure reductions unemployment decline in stock markets contraction of credit availability or other factors affecting economic conditions For example factors that may affect our operating results include disruption in the credit and financial markets in the United States Europe and elsewhere adverse effects of slowdowns in the U S European Chinese or other Asian economies reductions or limited growth in consumer spending or consumer credit global trade tariffs and other adverse economic conditions that may be specific to the Internet e commerce and payments industries
These changes may negatively affect sales of products and increase exposure to losses from bad debt and commodity prices the cost and availability of financing and costs associated with manufacturing and distributing products Any economic downturn could have a material adverse effect on our business results of operations or financial condition
We conduct our business and incur costs in the local currency of most countries in which we operate We incur currency transaction risk whenever one of our operating subsidiaries enters into either a purchase or a sales transaction using a different currency from the currency in which it operates or holds assets or liabilities in a currency different from its functional currency Changes in exchange rates can also affect our results of operations when the value of sales and expenses of foreign subsidiaries are translated to U S dollars We cannot accurately predict the impact of future exchange rate fluctuations on our results of operations Further given the volatility of exchange rates we may not be able to effectively manage our currency risks and any volatility in currency exchange rates may increase the price of our products in local currency to our foreign customers or increase the manufacturing cost of our products either of which may have an adverse effect on our financial condition cash flows and profitability We may incur losses related to foreign currency fluctuations and foreign exchange controls may prevent us from repatriating cash in countries outside the United States
Prolonged periods of inflation have the potential to adversely affect our business results of operations financial condition and liquidity by increasing our overall cost structure particularly if we are unable to achieve commensurate increases in the prices we charge our customers The existence of inflation in the economy has and may continue to result in higher interest rates and capital costs supply shortages increased costs of labor and other similar effects Further world events such as the conflict between Russia and Ukraine could affect inflationary trends As a result of inflation we have experienced and may continue to experience increases in our costs associated with operating our business including labor equipment and other inputs Additionally our borrowing costs including those under our current credit agreement dated as of July 1 2022 by and among us the lenders and other parties thereto and JP Morgan Chase Bank NA as administrative agent and collateral agent as amended restated supplemented and or otherwise modified from time to time the Credit Agreement increase or decrease
float based on interest rate benchmarks As governments increase interest rate benchmarks to combat inflation our borrowing costs increase Although we may take measures to mitigate the impact of this inflation through pricing actions efficiency gains and interest rate hedging if these measures are not effective to our business results of operations financial position and liquidity could be materially adversely affected Even if such measures are effective there could be a difference between the timing of when these beneficial actions impact our results of operations and when the cost of inflation is incurred
Our current credit agreement and any other credit or similar agreements into which we may enter in the future may restrict our operations particularly our ability to respond to changes or to take certain actions regarding our business
Our Credit Agreement contains a number of restrictive covenants that may impose operating and financial restrictions on us and limit our ability to engage in acts that may be in our long term best interest including restrictions on our ability to incur indebtedness grant liens undergo certain fundamental changes fund non US operations dispose of assets make certain investments enter into certain transactions with affiliates and make certain restricted payments in each case subject to limitations and exceptions set forth in the Credit Agreement
The Credit Agreement also contains customary events of default that include among other things certain payment defaults covenant defaults cross defaults to other indebtedness change of control defaults judgment defaults and bankruptcy and insolvency defaults Such events of default may allow the creditors to accelerate the related debt and may result in the acceleration of any other debt to which a cross acceleration or cross default provision applies which could have a material adverse effect on our business operations and financial results Furthermore if we are unable to repay the amounts due and payable under the Credit Agreement those lenders could proceed against the collateral granted to them to secure that indebtedness which could force us into bankruptcy or liquidation In the event that our lenders accelerate the repayment of the borrowings we may not have sufficient assets to repay that indebtedness Any acceleration of amounts due under the Credit Agreement would likely have a material adverse effect on us As a result of these restrictions we may be limited in how we conduct business unable to raise additional debt or equity financing to operate during general economic or business downturns or unable to compete effectively or to take advantage of new business opportunities
In addition we may enter into other credit agreements or other debt arrangements from time to time which contain similar or more extensive restrictive covenants and events of default in which case we may face similar or additional limitations as a result of the terms of those credit agreements or other debt arrangements
Any inability to access financial markets from time to time to raise required capital finance our working capital requirements or our acquisition strategies or otherwise support our liquidity needs could negatively impact our ability to finance our operations meet certain obligations or implement our growth strategy
We from time to time borrow under our existing credit facility or use proceeds from sales of our securities to fund portions of our operations including working capital investments and financing of our acquisition strategies In the past market disruptions experienced in the United States and abroad have materially impacted liquidity in the credit and debt markets making financing terms for borrowers less attractive and in certain cases have resulted in the unavailability of certain types of financing Uncertainty in the financial markets may negatively impact our ability to access additional financing or to refinance our existing debt arrangements on favorable terms or at all which could negatively affect our ability to fund current and future expansion as well as future acquisitions and development These disruptions may include turmoil in the financial services industry volatility in the markets where our outstanding securities trade and changes in general economic conditions in the areas where we do business If we are unable to access funds at competitive rates or if our short term or long term borrowing costs increase our ability to finance our operations meet our short term obligations and implement our operating strategies could be adversely affected
In the future we may be required to raise additional capital through public or private financing or other arrangements Such financing may not be available on acceptable terms or at all and our failure to raise capital when needed could harm our business and prospects Additional equity financing may be dilutive to the holders of our outstanding capital stock and debt financing if available may involve restrictive covenants that may limit our ability to undertake certain activities that we otherwise would find to be desirable Further debt service obligations associated with any debt financing could reduce our profitability If we cannot raise funds on acceptable terms we may not be able to grow our business or respond to competitive pressures
We rely on a combination of trade secret patent copyright and trademark laws combined with employee confidentiality noncompetition and nondisclosure agreements to protect our intellectual property rights We cannot ensure that our employees with key knowledge will not be employed by our competitors
There can be no assurance that the steps we take will be adequate to prevent misappropriation of our technology or intellectual property Furthermore there can be no assurance that third parties will not assert infringement claims against us in the future
Asserting our intellectual property rights or defending against third party claims could involve substantial expense In the event that a third party were successful in a claim that one of our products or processes infringed its proprietary rights we could be required to pay substantial damages or royalties or spend substantial amounts in order to obtain a license or modify our products or processes so that they no longer infringe such proprietary rights Any such event could have a material adverse effect on our business results of operations or financial condition
The design processes and specialized equipment utilized in our engineered materials advanced components and subsystems are innovative complex and difficult to duplicate However there can be no assurance that others will not develop or patent similar technology or that all aspects of our proprietary technology will be protected Others have obtained patents covering a variety of materials devices equipment configurations products and processes and others could obtain patents covering technology similar to ours We may be required to obtain licenses under such patents and there can be no assurance that we would be able to obtain such licenses if required on commercially reasonable terms or that claims regarding rights to technology will not be asserted that may adversely affect our results of operations In addition our research and development contracts with agencies of the U S government present a risk that project specific technology could be disclosed to competitors as contract reporting requirements are fulfilled We also enter development projects from time to time that might result in intellectual property developed during a project that is assigned to the other party without us retaining rights to that intellectual property or is jointly owned with the other party
Operations inside and outside of the United States are subject to many legal and regulatory requirements some of which are not aligned with others These include tariffs quotas taxes and other market barriers restrictions on the export or import of technology potentially limited intellectual property protection import and export requirements and restrictions anti corruption and anti bribery laws foreign exchange controls and cash repatriation restrictions foreign investment rules and regulations financial accounting and reporting rules and regulations competition laws employment and labor laws pensions and social insurance and environmental health and safety laws and regulations We are also subject to a number of laws rules regulations and reporting requirements regarding cybersecurity data privacy data residency data localization and artificial intelligence and other data processing activities which are rapidly evolving in the United States and in many other jurisdictions in which we operate
Compliance with the myriad of global laws and regulations to which we are subject can be onerous and expensive and requirements differ among jurisdictions New laws changes in existing laws and abrogation of local regulations by national laws also result in significant uncertainties in how they will be interpreted and enforced Failure to comply with any of these United States and or foreign laws and regulations could have a material adverse effect on our business results of operations or financial condition
Given the size nature and complexity of our business and the extensive and varying nature of the global legal and regulatory requirements to which we are subject we are particularly susceptible to investigations claims disputes enforcement actions prosecutions litigation and other legal proceedings that could ultimately be resolved against us We are and may become subject to legal proceedings globally including criminal civil and administrative across a broad range of matters including but not limited to intellectual property claims employment matters contractual disputes etc These matters can result in settlements administrative civil or criminal fines penalties or other sanctions monetary damages awards non monetary relief and other liabilities and they could also damage our reputation and make it significantly more difficult for use to compete and generate new business and sales contracts
We may face particular privacy security and data protection risks due to laws and regulations regulating the protection or security of personal and other sensitive data in the jurisdictions in which we operate or do business including for example the European Union s EU General Data Protection Regulation GDPR the California Consumer Privacy Act as amended by the California Privacy Rights Act of 2020 the CCPA China s Personal Information Protection Law Data Security Law and Cybersecurity Law together China DP Law as well as newly enacted or amended privacy and data protection laws such as the India Digital Personal Data Protection Act 2023 the DPDP Act Vietnam s Decree No 13 2023 ND CP on the Protection of Personal Data the PDPD South Korea s Personal Information Protection Act as amended in 2023 the PDPL Privacy cybersecurity and data protection laws are rapidly developing and evolving and associated regulatory enforcement and litigation trends and risks continue to evolve as well Compliance with global privacy and security laws and regulations as well as any associated inquiries or investigations or any other government actions may be costly to comply with result in negative publicity increase our operating costs require significant management time and attention and subject us to remedies that may harm our business
Further the obligations and requirements we are subject to vary and in some cases may conflict under global privacy cybersecurity and data protection laws While we have taken significant measures to minimize the risks of enforcement and privacy related claims comply with data protection laws and implement safeguards and compliance measures for cross border data transfers given the shifting compliance and enforcement landscape the geographic scope of our business and the varying laws and legal obligations to which we are subject we may face threatened or actual enforcement actions and other claims related to our compliance with applicable privacy cybersecurity and data protection laws
Violations of these privacy cybersecurity and data protection laws may be subject to significant penalties and damages For example failure to comply with GDPR requirements is subject to fines of up to 20 million Euro or 4 of global annual revenues whichever is higher In addition we could be subject to actual or threatened class actions under certain laws such as the which provides a private right of action to individuals for certain data breaches and the California Information Privacy Act
The costs of compliance with privacy cybersecurity and data protection laws continue to increase as do the risks of enforcement and cumulatively the impact of these could have a material effect on our business results of operations or financial condition
Cybersecurity attacks and incidents and other vulnerabilities could subject us to costly damages claims and expenses harm to our reputation or competitive position or disrupt our operations and business
We depend on secure information technology for our business and are exposed to risks related to cybersecurity threats and other cyber incidents affecting our operations facilities systems and networks and those of our customers suppliers and service providers and other third parties
We have experienced cybersecurity incidents and some of these have resulted in data breaches Thus far none of these incidents or breaches have materially affected our ability to conduct our business our results of operations or our financial condition However we continue to face cyber and other security threats Particularly in light of the nature of our industry size of our company and workforce reliance on third party suppliers and information technology and the global scope of our operations we expect we will be subject to additional cyber attacks and other security incidents in the future including from nation states and non state actors While we continue to invest in the cybersecurity and resiliency of our networks and to enhance our
internal controls and processes designed to help protect our systems and infrastructure and the information they contain given the complex ongoing and evolving nature of cyber and other security threats these efforts may not be fully effective particularly against previously unknown vulnerabilities and third party risks that go undetected for an extended period of time
Our information technology and cybersecurity program also incorporate and rely on technology products and services that are provided by service providers and other third parties third parties which means that Company is susceptible to certain vulnerabilities outages and other incidents impacting these third parties and the technology products and services they provide third party technology Further our customers vendors and other service providers also rely on third party technology which means that we may also be impacted by incidents affecting the third party technology that our customers vendors and service providers use and rely on In some cases our customers vendors and other service providers may rely on the same third party technology as we do which means that outages errors and other incidents impacting third parties and third party technology can impact both us as well as our customers vendors and service providers which can have a compounding effect
Cyber events including cybersecurity incidents breaches outages and other incidents if not prevented or effectively mitigated have caused and could cause harm and require remedial actions They could also damage our reputation disrupt performance impact our ability to obtain future insurance coverage and lead to loss of business regulatory actions liabilities or other financial losses for which we do not have adequate sources of recovery The occurrence and impact of these various risks are difficult to predict but one or more of them could have a material adverse effect on our business results of operations or financial condition
Data breaches and other events and incidents that impact the confidentiality availability and integration of information and assets could disrupt our operations subject us to legal claims and impact our financial results
In the course of our business we collect and store sensitive data including intellectual property both our own and that of our customers and other proprietary business information as well as personal and confidential data regarding our employees vendors partners customers and other business contacts and other regulated or protected data Security breaches and other incidents impacting our network systems or data including physical or electronic break ins vendor service outages computer viruses attacks by hackers or similar breaches can create system disruptions shutdowns and unauthorized disclosure of confidential information We could be subject to service outages or breaches of security that result in unauthorized access to use disclosure acquisition or processing of sensitive data or other assets and other incidents that lead to the corruption misappropriation or loss or otherwise impact the availability of sensitive data or assets If we are unable to prevent or fully mitigate the risks or potential harm from such incidents or breaches our operations could be disrupted or we could suffer legal claims loss of reputation financial loss loss of contracts or business opportunities property damage or regulatory penalties
In addition some of the privacy cybersecurity and data protection laws that we are subject to require that we report data breaches and other cybersecurity incidents to regulators and impacted individuals including incidents occurring or impacting our vendors and service providers For example in the EU the GDPR and in the United States all fifty states and certain federal regulations require notice or reporting of certain breaches of personal data In addition some laws including certain U S federal laws and regulations require reporting of certain cybersecurity incidents regardless of whether a data breach has occurred In some cases breaches and incidents may be reported to multiple regulators and public bodies which can lead to increased risks of regulatory scrutiny enforcement actions reputational harm and other adverse impacts to our business
Hazardous substances used or generated in some of our research and manufacturing facilities are subject to stringent environmental and safety regulations We believe that our handling of such substances is in material compliance with applicable environmental safety and health regulations at each operating location We invest substantially in facility and infrastructure design proper personal protective equipment and process controls including specialized monitoring equipment and training to minimize risks to our facilities employees surrounding communities and the environment that could result from the presence and handling of such hazardous substances When exposure problems or potential exposure problems have been uncovered corrective actions have been implemented and re occurrence has been minimal or nonexistent
We have in place emergency response plans with respect to our generation and use of the hazardous gases which include hydrogen selenide hydrogen sulfide arsine phosphine and silane Special attention has been given to all procedures pertaining to these gaseous materials to minimize the chance of accidental release into the atmosphere and to provide for an integrated system for monitoring and mitigating risk
With respect to the manufacturing use storage and disposal of the low level radioactive material thorium fluoride our United States facilities and procedures have been inspected and licensed by the Nuclear Regulatory Commission Thorium bearing by products are collected and shipped as solid waste to a government approved low level radioactive waste disposal site in Clive Utah
The generation use collection storage and disposal of all other hazardous by products such as suspended solids containing heavy metals or airborne particulates are believed by us to be in material compliance with regulations We believe that we have obtained all of the permits and licenses required for operation of our business
From time to time new regulations are enacted and it is difficult to anticipate how such regulations will be implemented and enforced We continue to evaluate the necessary steps for compliance with regulations as they are enacted The implementation of such regulations may require us to incur additional costs and expend internal resources
Although we do not know of any material environmental safety or health problems in our properties processes or products there can be no assurance that problems will not develop in the future that could have a material adverse effect on our business results of operations or financial condition
As of June 30 2024 we had approximately 4 1 billion of outstanding indebtedness on a consolidated basis including under i our 850 million senior secured term loan A facility the Term A Facility ii our 2 8 billion senior secured term loan B facility the Term Loan B Facility and together with the Term A Facility the Senior Credit Facilities and iii our 990 million 5 000 senior notes due 2029 the 2029 Notes Additionally we have 346 million of undrawn capacity under our senior secured revolving credit facility the Revolving Credit Facility We may also incur additional indebtedness in the future by entering into new financing arrangements Our indebtedness could have important consequences for us including
requiring a substantial portion of our cash flows from operations and the proceeds of any capital markets offerings or loan borrowings for the payment of interest on our debt and reducing our ability to use our cash flows to fund working capital capital expenditures acquisitions and general corporate requirements
We may not generate sufficient cash flow from operations together with any future borrowings to enable us to pay our indebtedness or to fund our other liquidity needs We may need to refinance all or a portion of our indebtedness on or before its maturity We may not be able to refinance any of our indebtedness on commercially reasonable terms or at all In addition we may incur additional indebtedness in order to finance our operations fund acquisitions or repay existing indebtedness If we cannot service our indebtedness we may have to take actions such as selling assets pursuing sales of additional debt or equity securities or reducing or delaying capital expenditures strategic acquisitions investments or alliances Any such actions if necessary may not be able to be effected on commercially reasonable terms or at all or on terms that would be advantageous to our stockholders or on terms that would not require us to breach the terms and conditions of our existing or future debt agreements
The agreements that govern our senior credit facilities and our 5 000 senior notes due 2029 contain various covenants that impose restrictions on our business which may affect our ability to operate our businesses
The Credit Agreement and the Indenture dated as of December 10 2021 as amended restated supplemented and or otherwise modified from time to time the Indenture which provides for the 2029 Notes contain various affirmative and negative covenants that will subject to certain significant exceptions restrict our ability to among other things have liens on our property incur additional indebtedness enter into sale and lease back transactions make loans advances or other investments make non ordinary course asset sales declare or pay dividends or make other distributions with respect to equity interests and or merge or consolidate with any other person or sell or convey certain of our assets to any one person among other things
In addition the Term Loan A Facility and Revolving Credit Facility require that the Company maintain i a maximum total net leverage ratio as defined in the New Credit Agreement of 4 00 to 1 00 from December 31 2023 through maturity and ii an interest coverage ratio as defined in the Credit Agreement of at least 2 50 to 1 00
Our ability to comply with these provisions may be affected by events beyond our control Failure to comply with these covenants could result in an event of default which if not cured or waived could accelerate our repayment obligations under the Credit Agreement or the Indenture as applicable If such indebtedness is accelerated there can be no assurance that we will have sufficient financial resources or that we will be able to arrange financing to repay our borrowings at such time
As a global company we are subject to taxation in the United States and various other countries and jurisdictions As such we must exercise a level of judgment in determining our worldwide tax liabilities Our future tax rates could be affected by changes in the composition of earnings in countries with differing tax rates or changes in tax laws as well as changes in our current or future global corporate structure including our integration of existing and acquired legal entities Changes in tax laws or tax rulings may have a significantly adverse impact on our effective tax rate including the Inflation Reduction Act of 2022 and the two pillar solution for a global minimum level of taxation by the Organization for Economic Co operation and Development OECD
We are also impacted by the establishment or release of valuation allowances against deferred tax assets changes in generally accepted accounting principles and continued eligibility for tax holiday benefits
The enactment of the Tax Cuts and Jobs Act the Tax Act in December 2017 significantly affected U S tax law by changing how the United States imposes tax on multinational corporations The U S Department of Treasury has broad authority under the Tax Act to issue regulations and interpretive guidance We have applied available guidance to estimate our tax obligations but new guidance issued by the U S Treasury Department may cause us to make adjustments to our tax estimates in future periods
In addition we are subject to regular examination of our income tax returns by the U S Internal Revenue Service and other tax authorities This includes challenges to our intercompany transfer pricing arrangements and charges and the appropriate level of profitability for our entities The various tax authorities may also challenge recent legal entity restructuring and integration undertaken to facilitate cost reductions and the increased efficiency of our business and finance activities
We regularly assess the likelihood of favorable or unfavorable outcomes resulting from these examinations and Competent Authority processes to determine the adequacy of our provision for income taxes Although we believe our tax estimates are reasonable there can be no assurance that any final determination will not be materially different from the treatment reflected in our historical income tax provision and accruals which could materially and adversely affect our business results of operations or financial condition
We may be exposed to business interruptions due to extreme weather caused by climate change and deforestation force majeure catastrophes natural disasters including but not limited to droughts earthquakes flooding heavy rains landslides rotating storms like cyclones hurricanes tornados and typhoons tsunamis and other giant waves wildfires and volcanic eruptions pandemic terrorism or acts of war that are beyond our control Disruptions to our facilities or systems or to those of our key suppliers could also interrupt operational processes and adversely impact our ability to manufacture our products and provide services and support to our customers As a result our business results of operations or financial condition could be materially adversely affected
A portion of our research and development activities manufacturing and other critical business operations are located near major earthquake faults for example in Santa Clara California an area with a history of seismic events Other business operations are located in regions which could be effected by any future increases in sea levels or in the frequency or severity of heavy rains rotating and other storms tsunamis and other giant waves landslides and flooding including but not limited to China Korea Vietnam and the coastal regions of the United States including but not limited to California and Florida Any such loss or detrimental impact to any of our operations logistics or facilities could disrupt our operations delay production shipments and revenues and result in large expenses to repair or replace the facility While we have obtained insurance to cover most potential losses after reviewing the costs and limitations associated with earthquake insurance we have decided not to procure such insurance We believe that this decision is consistent with decisions reached by numerous other companies located nearby We cannot ensure you that our existing insurance coverage will be adequate against all other possible losses
Current challenges in global shipping and other aspects of commercial transportation such as congestion in ports a shortage in containers and a general lack of space on ships and trucks have adversely impacted our operations Because of this ongoing situation we face a risk of continued supply chain disruptions Additionally our revenues and collections also may be adversely affected by transportation delays that could have a negative impact on the timing of payments that we receive under our sales arrangements If these issues continue beyond the short term our overall supply chain and our revenues derived from our sales flow could be adversely impacted
We are highly dependent upon the experience and continuing services of certain scientists engineers production sales and management personnel Competition for the services of these personnel is intense There can be no assurance that we will be able to retain or attract the personnel necessary for our success The loss of the services of our key personnel could have a material adverse effect on our business results of operations or financial condition Our failure to execute on our succession planning may affect our ability to maintain our differentiated knowledge base
We contract with a number of large end user service providers and product companies that have considerable bargaining power which may require us to agree to terms and conditions that could have an adverse effect on our business or ability to recognize revenues
Large end user service providers and product companies comprise a significant portion of our customer base These large customers generally have greater purchasing power than smaller customers and accordingly often negotiate more favorable terms from suppliers including us As we seek to expand our sales to existing and new large customers we may be required to agree to terms and conditions that are more favorable to these customers and that may affect the timing of our ability to recognize revenue increase our costs and have an adverse effect on our business results of operations and financial condition Furthermore large customers have increased buying power and ability to negotiate onerous terms into our contracts with them including pricing warranties indemnification and production capability terms If we are unable to satisfy the terms of these contracts it could result in liabilities of a material nature including litigation damages additional costs loss of market share and loss of reputation Additionally the terms these large customers require such as most favored customer or exclusivity provisions may impact our ability to do business with other customers and generate revenues from such customers
In many of the countries in which we operate government bodies are increasingly enacting legislation and regulations in response to potential impacts of climate change These laws and regulations have the potential to impact our operations directly or indirectly as a result of required compliance by our customers and or suppliers Inconsistency of regulations may also affect the costs of compliance with such laws and regulations Assessments of the potential impact of future climate change legislation regulation and international treaties and accords are uncertain given the wide scope of potential regulatory change in countries in which we operate
We may incur increased capital expenditures resulting from required compliance with revised or new legislation or regulations added costs to purchase raw materials lower profits from sales of our products allowances or credits under a cap and trade system increased insurance premiums and deductibles as new actuarial tables are developed to reshape coverage changes in competitive position relative to industry peers changes to profit or loss arising from increased or decreased demand for goods produced by us or changes in costs of goods sold
Some of our business units depend from time to time on large purchases from a few large customers and any loss cancellation reduction or delay in purchases by these large customers could harm the longevity of the business
A small number of customers have consistently accounted for a significant portion of our revenues with one customer contributing more than 10 of total revenues in fiscal 2024 Our success will depend on our continued ability to develop and manage relationships with our large customers and their continued need for our products Although we are attempting to expand our customer base we expect that significant customer concentration will continue for the foreseeable future We may not be able to offset any decline in revenues from our existing large customers with revenues from new customers and our quarterly results may be volatile because we are dependent on large orders from these customers that may be reduced delayed or cancelled The markets in which we have historically sold our optical subsystems and components products are dominated by a relatively small number of systems manufacturers thereby limiting the number of our potential customers
Our dependence on large orders from a relatively small number of large customers makes our relationship with each large customer critically important to our business We cannot ensure that we will be able to retain our large customers attract additional large customers or that our large customers will be successful in selling their products that incorporate our products In addition governmental trade action or economic sanctions may limit or preclude our ability to do business with certain large customers We have in the past experienced delays and reductions in orders from some of our large customers In addition our large customers have in the past sought price concessions from us and we expect that they will continue to do so in the future Cost and expense reduction measures that we have implemented over the past several years and additional action we are taking to reduce costs may adversely affect our ability to introduce new and improved products which may in turn adversely affect our relationships with some of our large customers Further some of our large customers may in the future shift their purchases of products from us to our competitors or to joint ventures between these customers and our competitors or may in certain circumstances produce competitive products themselves The loss of one or more of our large customers any reduction or delay in sales to these customers our inability to successfully develop relationships with additional customers or future price concessions that we may make could significantly harm our business
In May 2023 we announced that our Board of Directors approved a restructuring plan the Restructuring Plan which includes site consolidations facilities movements and closures and the relocation and requalification of certain manufacturing facilities While the Restructuring Plan and other proactive cost reduction measures that we plan to take are intended to realign our cost structure as part of a transformation to a simpler more streamlined resilient and sustainable business model we may encounter challenges in the execution of these efforts that could prevent us from recognizing the intended benefits of such efforts
expect to incur approximately 175 million to 200 million of pre tax charges in the fiscal years 2023 to 2025 primarily as a result of the reduction in force and facility consolidations related to the closure and relocation of sites
may continue to incur additional costs in the near term including cash payments related to severance employee benefits and employee transition costs as well as non cash charges for share based compensation expense
The Restructuring Plan may result in other unintended consequences including higher than anticipated costs in implementing planned workforce reductions particularly in highly regulated locations outside the United States higher than anticipated lease termination and facility closure costs employee attrition beyond our intended reduction in force and decreased employee morale among our remaining employees diversion of management attention adverse effects to our reputation as an employer which could make it more difficult for us to hire new employees in the future loss of the institutional knowledge and expertise of departing employees failure to maintain adequate controls and procedures while executing and subsequent to completing the Restructuring Plan and potential failure or delays to meet operational and growth targets due to the loss of qualified employees
If we experience any of these adverse consequences the Restructuring Plan and other cost reduction initiatives that we may undertake may not achieve or sustain the intended benefits Our failure to achieve the expected results from the Restructuring Plan and other cost reduction initiatives for any reason also could lead to the implementation of additional restructuring related activities in the future which may exacerbate these risks or introduce new risks which could adversely affect our business results of operations and financial condition
We are subject to a number of risks associated with the equity investments contemplated by the respective investment agreements entered into with Denso Corporation and Mitsubishi Electric Corporation and certain related supply arrangements and these risks could adversely impact our operations financial condition and business
On October 10 2023 Silicon Carbide LLC Silicon Carbide a wholly owned subsidiary of the Company entered into i an investment agreement the Denso Investment Agreement with Denso Corporation Denso pursuant to which Silicon Carbide issued and sold to Denso 16 666 667 Class A Common Units of Silicon Carbide Common Units for an aggregate purchase price of 500 000 000 and ii an investment agreement together with the Denso Investment Agreement the Investment Agreements with Mitsubishi Electric Corporation MELCO pursuant to which Silicon Carbide issued and sold to MELCO 16 666 667 Common Units for an aggregate purchase price of 500 000 000 the issuance and sale of the Common Units to Denso and MELCO collectively the Equity Investments Following the Equity Investments and as of June 30 2024 the Company owns approximately 75 of Silicon Carbide s outstanding Common Units Denso owns approximately 12 5 of the outstanding Common Units and MELCO owns approximately 12 5 of the outstanding Common Units In connection with the entrance into the Investment Agreements Silicon Carbide also entered into certain supply arrangements with each of MELCO and Denso pursuant to which Silicon Carbide will supply 150 mm and 200 mm silicon carbide substrates and epitaxial wafers
the disruption to and uncertainty in our silicon carbide business and our relationships with our customers including attempts by our customers to terminate or renegotiate their relationships with us or decisions by our customers to defer or delay purchases from us and
As a result of these risks we may be unable to realize the anticipated benefits of the Equity Investments and related supply arrangements Our failure to realize the anticipated benefits of the Equity Investments and related supply arrangements would adversely impact our operations financial condition and business and could limit our ability to pursue additional strategic transactions
We manufacture some of the components that we incorporate into our subsystem products in other cases we provide components to contract manufacturers to produce finished or intermediary goods For some of the components and finished or intermediary goods we are the sole qualified manufacturer Our manufacturing processes are highly complex and quality issues are often difficult to forecast detect and correct From time to time we have experienced problems achieving acceptable yields in our manufacturing facilities resulting in delays in the availability of our products In addition if we experience problems with our manufacturing facilities it would be costly and require a long period of time to move the manufacture of these components and finished good products to a different facility or contract manufacturer which could result in interruptions in supply and would likely materially impact our results of operations and financial condition In addition for a variety of reasons including changes in circumstances at our contract manufacturers or our own business strategies we may voluntarily or be required to transfer the manufacturing of certain products to other manufacturing sites
Changes in manufacturing processes are often required due to changes in product specifications yield improvements changing customer needs and the introduction of new products These changes may reduce manufacturing yields at our contract manufacturers and at our own manufacturing facilities resulting in reduced margins on and or reduced availability of those products Also our ability to control the quality of products produced by contract manufacturers may be limited and quality issues may not be resolved in a timely manner which could adversely impact our financial condition or results of operations In addition many of our products are sourced from suppliers based outside of the United States primarily in Asia Uncertainty with respect to tax and trade policies tariffs and government regulations affecting trade between the United States and other countries has recently increased Major developments in tax policy or trade relations such as the imposition of tariffs on imported products could increase our product and product related costs or require us to seek alternative suppliers either of which could result in decreased sales or increased product and product related costs
We base many of our operating decisions including but not limited to those regarding manufacturing capacity and staffing and enter into purchase commitments on the basis of anticipated revenue trends that are highly unpredictable Some of our purchase commitments are not cancellable and in some cases we are required to recognize a charge representing an amount of material or capital equipment purchased or ordered that exceeds our actual requirements Should revenues in future periods fall substantially below our expectations or should we fail to accurately forecast changes in demand mix we could be required to record substantial charges for obsolete or excess inventories or noncancellable purchase commitments
Our markets are unpredictable and characterized by rapid technological changes and evolving standards demanding a significant investment in research and development and if we fail to address changing market conditions our business and operating results will be harmed
Our markets are characterized by extensive research and development rapid technological change frequent new product introductions changes in customer requirements and evolving industry standards Because this industry is subject to rapid change it is difficult to predict its potential size or future growth rate Our success in generating sales in this industry will depend on among other things
We cannot ensure you that our expenditures for research and development will result in the launch of new products or if such products are introduced that those products will achieve sufficient market acceptance or to generate sales to offset the costs of development Our failure to address rapid technological changes in our markets could adversely affect our business and results of operations
Under accounting principles generally accepted in the United States we review our intangible assets for impairment when events or changes in circumstances indicate the carrying value may not be recoverable Goodwill and indefinite life intangible assets are required to be tested for impairment at least annually Factors that may be considered in determining whether a change in circumstances indicating that the carrying value of our goodwill or other intangible assets may not be recoverable include declines in our stock price and market capitalization or future cash flows projections A decline in our stock price or any other adverse change in market conditions particularly if such change has the effect of changing one of the critical assumptions or estimates we used to calculate the estimated fair value of our reporting units could result in a change to the estimation of fair value that could result in an impairment charge Any such material charges whether related to goodwill or purchased intangible assets may have a material negative impact on our financial and operating results
If we fail to maintain an effective system of disclosure controls and internal control over financial reporting our ability to produce timely and accurate financial statements or comply with applicable regulations could be impaired
As a public company we are subject to the reporting requirements of the Securities Exchange Act of 1934 as amended the Sarbanes Oxley Act of 2002 as amended the Sarbanes Oxley Act and New York Stock Exchange NYSE listing requirements The Sarbanes Oxley Act requires among other things that we maintain effective disclosure controls and procedures and internal control over financial reporting In order to maintain and improve the effectiveness of our disclosure controls and procedures and internal control over financial reporting we have expended and anticipate that we will continue to expend significant resources including accounting related costs and significant management oversight
Any failure to develop or maintain effective controls or any difficulties encountered in their implementation or improvement could delay the reporting of our financial results or cause us to be subject to investigations enforcement actions by regulatory agencies stockholder lawsuits or other adverse actions requiring us to incur defense costs or pay fines settlements or judgments Any such failures or difficulties could also cause investors to lose confidence in our reported financial and other information which would likely have a negative effect on the trading price of our common stock We may also then become the target of activist investors In addition if we are unable to continue to meet these requirements we may not be able to remain listed on the NYSE
The trading prices for our common stock varied between a high of 73 98 per share and a low of 28 92 per share in the fiscal year ended June 30 2024 The market prices of our securities could fluctuate significantly for many reasons including the following
fluctuations in demand for our products or downturns in the industries that we serve particularly the continued build out of the capacity for the manufacture of OLED and the increased use of the installed base of our products in such manufacturing
In addition stock markets have experienced extreme price and volume fluctuations in recent years Moreover these fluctuations frequently have been unrelated to the operating performance or underlying fundamentals of the affected companies These broad market fluctuations including fluctuations within our industry peer group may adversely affect the market price of our common stock These fluctuations may be unrelated to our performance or out of our control and could lead to securities class action litigations that could result in substantial expenses and diversion of management s attention and corporate resources any or all of which could adversely affect our business financial condition and results of operations
Provisions in our Amended and Restated Articles of Incorporation and Amended and Restated Bylaws and the Pennsylvania Associations Code the Code may delay or prevent our acquisition by a third party which could also reduce the market price of our capital stock
Our Articles of Incorporation and Bylaws contain provisions that could make us a less attractive target for a hostile takeover and could make more difficult or discourage a merger proposal a tender offer or a proxy contest Such provisions include
a requirement that shareholder nominated director nominees be nominated in advance of the meeting at which directors are elected and that specific information be provided in connection with such nomination
In addition the Code contains provisions that may have the effect of delaying or preventing a change in our control or changes in our management Many of these provisions are triggered if any person or group acquires or discloses the intent to acquire 20 or more of a corporation s voting power subject to certain exceptions These provisions
Regardless of the amount of a person s holdings if a shareholder or shareholder group including affiliated persons would be a party to certain proposed transactions with us or would be treated differently from other shareholders of ours in certain proposed transactions the Code requires approval by a majority of votes entitled to be cast by all shareholders other than the interested shareholder or affiliate group unless the transaction is approved by independent directors or other criteria are satisfied Furthermore under the Code a short form merger of Coherent Corp cannot be implemented without the consent of our Board of Directors
In addition as permitted by Pennsylvania law an amendment to our Articles of Incorporation or other corporate action that is approved by shareholders may provide mandatory special treatment for specified groups of nonconsenting shareholders of the same class For example an amendment to our Articles of Incorporation or other corporate action may provide that shares of common stock held by designated shareholders of record must be cashed out at a price determined by the Company subject to applicable dissenters rights
Furthermore the Code provides that directors in discharging their duties may consider to the extent they deem appropriate the effects of any action upon shareholders employees suppliers customers and the communities in which the corporation s offices are located Directors are not required to consider the interests of shareholders to a greater degree than other constituencies interests The Code expressly provides that directors do not violate their fiduciary duties solely by relying on poison pills or the anti takeover provisions of the Code We do not currently have a poison pill
In addition if any of certain fundamental changes were to occur we or the surviving entity would be required to make an offer to repurchase at the option and election of the holders thereof for cash each share of Series B Preferred Stock then outstanding These features of the Series B Preferred Stock could increase the cost of acquiring us or otherwise discourage a third party from acquiring us or removing incumbent management
We have never declared nor paid dividends on our common stock and do not expect to pay cash dividends on our common stock in the foreseeable future We currently anticipate that we will retain future earnings to support operations and to finance the development of our business As a result the success of an investment in our common stock will depend entirely upon future appreciation in its value There is no guarantee that our common stock will maintain its value or appreciate in value
Our declaration and payment of dividends on our capital stock in the future will be determined by our Board of Directors or an authorized committee thereof in its sole discretion and will depend on our financial condition earnings growth prospects other uses of cash funding requirements applicable Pennsylvania law and other factors our Board of Directors deems relevant
The terms of the Credit Agreement contain a restriction on our ability to pay cash dividends on our capital stock Credit facilities indentures or other financing agreements that we enter into in the future also may contain provisions that restrict or prohibit our ability to pay cash dividends on our capital stock
In addition under Pennsylvania law our Board of Directors may not pay dividends if after giving effect to the relevant dividend payment we i would not be able to pay our debts as they become due in the usual course of our business or ii our total assets would not be greater than or equal to the sum of our total liabilities plus the amount that would be needed if we were to be dissolved at the time as of which the dividend is measured in order to satisfy the preferential rights upon dissolution of shareholders whose preferential rights are superior to those receiving the dividend
Our common stock is subordinate to our existing and future indebtedness the Series B Preferred Stock and any other preferred stock we may issue in the future Our Series B Preferred Stock ranks junior to all of our and our subsidiaries consolidated liabilities
Shares of our common stock are equity interests that rank junior to all indebtedness and other non equity claims on us with respect to assets available to satisfy our claims including in a liquidation of the Company Additionally holders of our common stock may be subject to prior dividend and liquidation rights of any holders of our preferred stock or depositary shares representing such preferred stock then outstanding
Our common stock ranks junior to our Series B Preferred Stock with respect to the payment of dividends and amounts payable in the event of our liquidation dissolution or winding up of our affairs This means that unless accumulated dividends have been paid on all the Series B Preferred Stock then outstanding through the most recently completed dividend period no dividends may be declared or paid on our common stock and we will not be permitted to repurchase any of our common stock subject to limited exceptions Likewise in the event of our voluntary or involuntary liquidation dissolution or winding up of our affairs no distribution of our assets may be made to holders of our common stock until we have paid to holders of the Series B Preferred Stock then outstanding the applicable liquidation preferences
In the event of a bankruptcy liquidation dissolution or winding up of our affairs our assets will be available to pay obligations on the Series B Preferred Stock only after all of our consolidated liabilities have been paid In addition the Series B Preferred Stock ranks structurally junior to all existing and future liabilities of our subsidiaries In the event of a bankruptcy liquidation dissolution or winding up of our affairs there may not be sufficient assets remaining after paying our and our subsidiaries liabilities to pay amounts due on any or all of the Series B Preferred Stock then outstanding
Our Board of Directors can issue without approval of the holders of our common stock preferred stock with voting and conversion rights that could adversely affect the voting power of the holders of our common stock the rights of holders of shares of our capital stock or the market price of our capital stock
Our Articles of Incorporation authorize our Board of Directors to issue one or more additional series of preferred stock and set the terms of the preferred stock without seeking any further approval from our shareholders Any preferred stock that is issued will rank ahead of our common stock in terms of dividends and liquidation rights If we issue additional preferred stock it may adversely affect the market price of our common stock Our Board of Directors also has the authority without shareholder approval subject to applicable law to set the terms of any such series of preferred stock that may be issued including voting rights dividend rights preferences over our common stock with respect to dividends and other terms or upon our liquidation dissolution or winding up of our affairs If we issue additional preferred stock in the future that has a preference over our common stock with respect to the payment of dividends or upon our liquidation dissolution or winding up of our affairs or if we issue additional preferred stock with voting rights that dilute the voting power of our common stock the rights of holders of our capital stock or the market price of our capital stock could be adversely affected The issuance of preferred stock or even the ability to issue preferred stock could also have the effect of delaying deterring or preventing a change of control or other corporate action
At any time on or after the ten year anniversary of the applicable issuance date of the shares of our Series B Preferred Stock and subject to the procedures set forth in the terms of the Series B Preferred Stock each holder of such shares will have the right to require us to redeem all of such holder s shares for cash at a price per share equal to the sum of the applicable stated value for such shares plus accrued or declared and unpaid dividends on such shares that had not previously been added to such stated value
This may have the effect of reducing funds available for working capital capital expenditures acquisitions and other general corporate purposes thereby negatively affecting the interests of holders of our other capital stock including our common stock
Holders of our Series B Preferred Stock can exercise significant control over us which could limit the ability of holders of our other capital stock to influence the outcome of key transactions including a change of control
Our Series B Preferred Stock has voting rights allowing holders to vote as one class with our common stock on an as converted basis subject to limited exceptions As a result the holders of Series B Preferred Stock have the ability to significantly influence the outcome of any matter submitted for the vote of the holders of our common stock Holders of Series B Preferred Stock are entitled to act separately in their own respective interests with respect to their ownership interests in us and have the ability to substantially influence all matters that require approval by our shareholders including the approval of significant corporate transactions Additionally we may not undertake certain actions without the prior written approval of the holders of a majority of the issued and outstanding shares of Series B Preferred Stock voting separately from our common stock Subject to certain exceptions we must not 1 alter or change the rights preferences or privileges of our Series B Preferred Stock or amend modify or supplement any provision of our organizational documents in a manner that adversely affects the rights powers preferences or privileges of our Series B Preferred Stock 2 authorize or issue any senior stock or securities convertible into senior stock or amend or alter our articles of incorporation to increase the number of authorized or issued shares of our Series B Preferred Stock 3 decrease the number of authorized shares of our Series B Preferred Stock other than as permitted pursuant to a conversion redemption or repurchase by us thereof 4 issue any shares of our Series B Preferred Stock other than pursuant to the amended and restated invested agreement entered into on March 30 2021 by and between Bain Capital Private Equity LP BCPE and us the Investment Agreement and 5 effect any voluntary deregistration or delisting with the NYSE of our common stock
Furthermore we may not unless holders of Series B Preferred Stock otherwise consent in writing or if such action is taken with respect to a Permitted Issuance as defined in the Investment Agreement so long as BCPE owns at least 5 of the number of shares of Series B Preferred Stock that it held immediately following the issuance and sale of the Series B 2 Preferred Stock upon completion of our acquisition of Coherent Inc i authorize or issue any parity stock and ii pay any cash dividend on our common stock other than ordinary dividends We also may not unless BCPE otherwise consents in writing or if such action is taken with respect to a Permitted Issuance as defined in the Investment Agreement so long as it owns at least 25 of the number of shares of Series B Preferred Stock that it held immediately following the issuance and sale of the Series B 2 Preferred Stock upon completion of our acquisition of Coherent Inc redeem repurchase or otherwise acquire or make or declare any dividend or distribution in respect of any junior stock subject to certain exceptions including among other things ordinary dividends non cash dividends or other distributions paid pro rata to all holders of our common stock and if applicable holders of Series B Preferred Stock repurchases of junior stock of up to 100 million on an aggregate annual basis and dividends on junior stock in kind or in the form of other junior securities or securities convertible into or exchange for such junior securities Moreover under the terms of the Investment Agreement following the closing of the initial investment and for so long as BCPE beneficially owns shares of Series B Preferred Stock or shares of our common stock issued upon the conversion thereof that represent in the aggregate and on an as converted basis at least 25 of the number of shares of Series B Preferred Stock that it held immediately following the completion of the issuance and sale of the Series B 2 Preferred Stock upon completion of our acquisition of Coherent BCPE will have the right to nominate one designee and to designate one observer to the our Board of Directors Circumstances may occur in which the interests of BCPE could conflict with the interests of holders of other outstanding capital stock including our common stock
Reports published by securities or industry analysts freelance bloggers and credit rating agencies including projections in those reports that exceed our actual results could adversely affect our share price and trading volume
Research analysts and freelance bloggers publish their own quarterly projections regarding our operating results These projections may vary widely from one another and may not accurately predict the results we actually achieve Our share price may decline if we fail to meet securities research analysts projections Similarly if one or more of the analysts who cover us change their recommendations regarding our common stock or publish inaccurate or unfavorable research about our business our share price could decline If one or more of these analysts cease coverage of us or fail to publish reports on us regularly our share price or trading volume could decline
A significant portion of our operations is conducted through our subsidiaries and our ability to generate cash to meet our debt service obligations or to make future dividend payments to the extent we elect to make such payments in cash with respect to our Series B Preferred Stock is highly dependent on the earnings and the receipt of funds from our subsidiaries Our subsidiaries are separate legal entities that have no obligation to make any funds available to us whether by dividends loans or other payments
Coherent s Board of Directors the Board recognizes the critical importance of maintaining the trust and confidence of our customers suppliers business partners employees shareholders and other stakeholders One of the critical factors in maintaining this trust is by the Board being involved in oversight of the Company s enterprise risk management ERM program of which cybersecurity represents a critical component Coherent s cybersecurity policies standards processes and practices are fully integrated into the Company s ERM program and are based on recognized frameworks established by the National Institute of Standards and Technology and the International Standards Organization Risk Management Guidelines ISO 31000 as well as other applicable industry standards
Coherent s cybersecurity program is overseen by the Board s Environment Sustainability and Governance ESG committee The ESG Committee is briefed quarterly by management on among other things updates to cybersecurity and related programs and notable cyber incidents threats and vulnerabilities and provides direction on cybersecurity risk management In addition Coherent has established a Crisis Management Team CMT with responsibility for among other things oversight and management of cybersecurity events including significant and material cybersecurity events The CMT reports as appropriate to the ESG Committee The CMT is headed by Coherent s Chief Risk Officer CRO Additionally Coherent has a dedicated internal cybersecurity team Cybersecurity Team managed by the Global Head of Cybersecurity
The Company has implemented a comprehensive cross functional approach to identifying preventing and mitigating cybersecurity threats and incidents while also implementing controls and procedures that provide for the prompt escalation of certain cybersecurity incidents so that decisions regarding the public disclosure and reporting of such incidents can be made by management in a timely manner On a regular meeting cadence Coherent s President convenes a senior cybersecurity committee for reporting and planning The committee consists of the Chief Information Officer CIO the Global Head of Cybersecurity the Vice President of IT Operations the Senior Director of IT Security the General Counsel for Technology and Risk Management and the CRO Members of partner technology risk advisory firms and Coherent internal experts from other disciplines participate in committee activities as needed from time to time
As to experience of the various members of Coherent s cybersecurity functional team the CIO is a technology executive with over 25 years of experience at public companies specializing in IT leadership cybersecurity and strategic technology initiatives including leading risk management data governance compliance and SOX audits aligning technology with business goals and robust data protection He holds a B S in Electrical Engineering and ITIL certification The Coherent Global Privacy Officer earned a B A and a Juris Doctor degree and has over 20 years of experience in legal practice focusing specifically on privacy law for the past eight years Additionally the Coherent Global Privacy Officer is an active member of the International Association of Privacy Professionals IAPP and holds both the Certified Information Privacy Professional Europe CIPP E and Certified Information Privacy Manager CIPM certifications from the IAPP The General Counsel for Technology and Risk Management holds a B S in Industrial Engineering and a Juris Doctor degree and has over 38 years of experience in legal practice 25 years of which specifically representing businesses and financial institutions in data security and privacy in both private practice and as at in house attorney at various private and public companies The Senior Manager Security Risk Compliance has been in Information Technology for 25 years and in IT security for 16 years and holds a B S in Computer Science with a minor in Mathematics and an ISC2 CISSP Certification He is a member of the ACM and a Senior Member of the IEEE The Senior Director of Information Security is a CISSP and member of ISSA practicing security for over 30 years with a B S degree He also has served as a consultant and has managed international cybersecurity teams with Fortune 100 companies in finance banking technology biotech security consulting and large manufacturing in broad areas of cybersecurity The VP of IT Infrastructure Operations and Interim Head of Information Security and Compliance has 25 years of experience at public companies specializing in IT leadership cybersecurity and strategic technology initiatives and holds a M S in Electrical Engineering
Coherent has instituted a robust Cybersecurity Incident Response Plan the CIRP which provides a framework for responding to cybersecurity incidents at escalating severity levels The CIRP sets out a coordinated approach to discovering investigating containing tracking mitigating and remediating cybersecurity incidents including a framework for elevating and reporting findings and keeping senior management and other key stakeholders informed and involved based on assessments regarding the scope or significance of incidents The CIRP is implemented by the Coherent Cyber Incident Response Team CIRT which is headed by the Global Head of Cybersecurity and includes as members the head of the CMT the Chief Legal Officer the Cybersecurity Team and select members of the ERM team
The Company deploys technical safeguards that are designed to protect the Company s information systems from cybersecurity threats including firewalls intrusion prevention and detection systems anti malware functionality and access controls which are evaluated and improved through vulnerability assessments and cybersecurity threat intelligence
The Coherent Cybersecurity Team has robust processes and redundancies in place designed with the objective of deterring detecting mitigating and responding to potential cybersecurity threats which includes a vulnerability assessment and prioritization and as necessary remediation plans The Cybersecurity Team also performs periodic system penetration testing to validate the Company s security controls and assess Coherent s infrastructure and applications All employees take mandatory periodic security awareness training on the Company s data security policies and procedures which is supplemented by Company wide testing initiatives including periodic phishing tests Additionally the IT group and the Cybersecurity Team participate in annual tabletop exercises designed to simulate a response to a cybersecurity incident The Cybersecurity Team incorporates the findings from these exercises into the Coherent processes Further in 2023 select members of the senior management team and the Cybersecurity Team participated in a tabletop exercise
The Company maintains a risk based approach to identifying and overseeing cybersecurity risks presented by third parties This includes external third parties that may have permission to access Coherent IT systems and assets such as consultants and review of the systems of third parties that could adversely impact Coherent s infrastructure in the event of a cybersecurity incident affecting those third party systems such as through vendors and other service providers
The Company also regularly engages third parties to perform assessments on our cybersecurity measures including information security maturity assessments audits and independent reviews of our information security control environment and operating effectiveness The results of such assessments audits and reviews are reported to the Risk Management Committee and the Board and the Company adjusts its cybersecurity policies standards processes and practices as necessary based on the information provided by these assessments audits and reviews
The Company provides regular mandatory training for personnel regarding cybersecurity threats as a means to equip the Company s personnel with effective tools to address cybersecurity threats and to communicate the Company s evolving information security policies standards processes and practices
Cybersecurity risks and threats including as a result of any previous cybersecurity incidents have not materially impacted and are not reasonably expected to materially impact Coherent or Coherent s operations to date However the Company recognizes the ever evolving cyber risk landscape and cannot provide any assurances that it will not be subject to a material cybersecurity incident in the future
The Company and its subsidiaries are involved in various claims and lawsuits incidental to its business The resolution of each of these matters is subject to various uncertainties and it is possible that these matters may be resolved unfavorably to the Company Management believes after consulting with legal counsel that the ultimate liabilities if any resulting from such legal proceedings will not materially affect the Company s financial condition liquidity or results of operations
The Company s common stock is traded on the New York Stock Exchange the NYSE under the symbol COHR beginning February 23 2023 when the Company voluntarily transferred the listing of its common stock from the NASDAQ Global Select Market to the NYSE As of August 13 2024 there were approximately 906 holders of record of our common stock The Company historically has not paid cash dividends on its common stock and does not presently anticipate paying cash dividends on its common stock in the future
Dividends on the Company s Series A Mandatory Convertible Preferred Stock were payable on a cumulative basis when as and if declared by our Board of Directors or an authorized committee of our Board of Directors at an annual rate of 6 of the liquidation preference of 200 00 per share All outstanding shares of Series A Mandatory Convertible Preferred Stock were converted to Company Common Stock on July 3 2023 and no shares of Series A Mandatory Convertible Preferred Stock are currently issued and outstanding
Dividends on the Company s Series B Convertible Preferred Stock will be payable on a cumulative basis when as and if declared by our Board of Directors or an authorized committee of our Board of Directors at an annual rate of 5 subject to increase if Coherent defaults on payment obligation with respect to these shares not to exceed 14 per annum Until the fourth anniversary of the issuance of the Series B Convertible Preferred Stock dividends are payable solely in kind After the fourth anniversary dividends are payable at the Company s option in cash in kind or as a combination of both
In August 2014 the Company s Board of Directors authorized the Company to purchase up to 50 million of its common stock through a share repurchase program the Program that calls for shares to be purchased in the open market or in private transactions from time to time The Program had no expiration and could be suspended or discontinued at any time Shares purchased by the Company
The Company did not repurchase shares pursuant to this Program during the fiscal years ended June 30 2024 or June 30 2023 As of June 30 2024 the Company has cumulatively purchased 1 416 587 shares of its common stock pursuant to the Program for approximately 22 million On February 21 2024 the Company s Board of Directors terminated the Program and any remaining amount authorized for the repurchase of shares
The following graph compares cumulative total shareholder return on the Company s common stock with the cumulative total shareholder return of the Russell 1000 Index and with a peer group of companies constructed by the Company for the period from June 30 2019 through June 30 2024 The Company s current fiscal year peer group includes IPG Photonics Corp Wolfspeed Inc Lumentum Holdings Inc Corning Inc MKS Instruments Inc and Honeywell International Inc
Management s Discussion and Analysis of Financial Condition and Results of Operations MD A is designed to provide a reader of Coherent s financial statements with a narrative from the perspective of management The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our Consolidated Financial Statements and related notes included under Item 8 of this annual report Coherent s MD A is presented in the following sections
Forward looking statements in Item 7 may involve risks and uncertainties that could cause results to differ materially from those projected refer to Item 1A for discussion of these risks and uncertainties
Certain statements contained in this MD A are forward looking statements as defined by Section 21E of the Securities Exchange Act of 1934 as amended including statements regarding projected growth rates markets product development financial position capital expenditures and foreign currency exposure Forward looking statements are also identified by words such as expects anticipates believes intends plans projects or similar expressions
Although our management considers these expectations and assumptions to have a reasonable basis there can be no assurance that management s expectations beliefs or projections as expressed in the forward looking statements will actually occur or prove to be correct In addition to general industry and global economic conditions factors that could cause actual results to differ materially from those discussed in the forward looking statements in this Annual Report on Form 10 K include but are not limited to i the failure of any one or more of the assumptions stated above to prove to be correct and ii the risks relating to forward looking statements and other Risk Factors discussed herein at Item 1A The Company disclaims any obligation to update information contained in these forward looking statements whether as a result of new information future events or developments or otherwise
In addition we operate in a highly competitive and rapidly changing environment new risk factors can arise and it is not possible for management to anticipate all such risk factors or to assess the impact of all such risk factors on our business or the extent to which any individual risk factor or combination of risk factors may cause results to differ materially from those contained in any forward looking statement The forward looking statements included in this Annual Report on Form 10 K are based only on information currently available to us and speak only as of the date of this Report We do not assume any obligation and do not intend to update any forward looking statements whether as a result of new information future developments or otherwise except as may be required by the securities laws Investors should however consult any further disclosures of a forward looking nature that the Company may make in its subsequent Annual Reports on Form 10 K Quarterly Reports on Form 10 Q Current Reports on Form 8 K or other disclosures filed with or furnished to the SEC
Investors should also be aware that while the Company does communicate with securities analysts from time to time such communications are conducted in accordance with applicable securities laws Investors should not assume that the Company agrees with any statement conclusion of any analysis or report issued by any analyst irrespective of the content of the statement or report
Coherent Corp Coherent the Company we us or our a global leader in materials networking and lasers is a vertically integrated manufacturing company that develops manufactures and markets engineered materials optoelectronic components and devices and lasers for use in the industrial communications electronics and instrumentation markets Headquartered in Saxonburg Pennsylvania Coherent has research and development manufacturing sales service and distribution facilities worldwide Coherent produces a wide variety of lasers along with application specific photonic and electronic materials and components and deploys them in various forms including integrated with advanced software to enable its customers
We generate almost all of our revenues earnings and cash flows from developing manufacturing and marketing a broad portfolio of products and services for our end markets We also generate revenue earnings and cash flows from externally funded research and development contracts relating to the development and manufacture of new technologies materials and products
As we grow we are focused on scaling our Company and deriving the continued benefits of vertical integration as we strive to be a best in class player in all of our highly competitive markets We may elect to change the way in which we operate or are organized in the future to enable the most efficient implementation of our strategy
On May 23 2023 the Board of Directors approved the Company s May 2023 Restructuring Plan which includes site consolidations facilities moves and closures as well as the relocation and requalification of certain manufacturing facilities These restructuring actions are expected to be accompanied by other cost reductions and are intended to realign our cost structure as part of a transformation to a simpler more streamlined resilient and sustainable business model
In fiscal 2024 these activities resulted in charges of 27 million primarily for accelerated depreciation the write off of property and equipment and site move costs In fiscal 2023 these activities resulted in 119 million of charges primarily for employee termination costs and the write off of property and equipment net of 65 million from reimbursement arrangements We expect the restructuring actions to be substantially completed by the end of fiscal 2025 However the actual timing and costs associated with these restructuring actions may differ from our current expectations and estimates and such differences may be material See Note 22 Restructuring Plan to the Company s Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10 K for further information
On May 20 2023 the Company announced that it had accelerated some of the actions planned as part of its multi year synergy and site consolidation efforts following the acquisition of Coherent Inc including site consolidations and relocations to lower cost sites These relocations and other actions are expected to result in the Company achieving its previously announced 250 million synergy plan which includes savings from supply chain management internal supply of enabling materials and components operational efficiencies in all functions due to scale global functional model efficiencies and consolidation of corporate costs In fiscal 2024 the acceleration of these activities resulted in 40 million of charges primarily for overlapping labor related to transition of manufacturing operations to other sites shut down costs for sites being exited accelerated depreciation and employee termination costs In fiscal 2023 the acceleration of these activities resulted in 20 million in charges primarily for employee termination costs the write off of inventory for products that have been exited and shut down costs
On May 10 2023 the Company announced that it had commenced a review of strategic alternatives for its Silicon Carbide business On December 4 2023 Silicon Carbide LLC Silicon Carbide one of the Company s subsidiaries completed the sale of Class A Common Units to Denso Corporation Denso and Mitsubishi Electric Corporation MELCO under which they collectively invested an aggregate of 1 billion in Silicon Carbide LLC collectively the Equity Investments As a consequence of the Equity Investments the Company s ownership interest in the Class A Common Units of Silicon Carbide LLC was reduced to approximately 75 Denso and MELCO each individually own approximately 12 5 of the Class A Common Units of Silicon Carbide LLC The Equity Investments in Silicon Carbide enables Coherent to increase its available free cash flow to provide greater financial and operational flexibility to execute its capital allocation priorities as the aggregate 1 billion investment will be used to fund future capital expansion of Silicon Carbide See Note 12 Noncontrolling Interests
The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States requires the Company s management to make judgments assumptions and estimates that affect the amounts reported in its Consolidated Financial Statements and accompanying notes Note 1 Nature of Business and Summary of Significant Accounting Policies of the Notes to our Consolidated Financial Statements contained in Item 8 of this Annual Report on Form 10 K describes the significant accounting policies and accounting methods used in the preparation of the Company s Consolidated Financial Statements Management bases its estimates on historical experience and on various other assumptions that it believes to be reasonable under the circumstances the results of which form the basis for making judgments about the carrying values of assets and liabilities Actual results may differ from these estimates
Management has discussed the development and selection of the critical accounting policies and estimates described below with the Audit Committee of the Board of Directors and the Audit Committee has reviewed the related disclosure In addition there are other items within our Consolidated Financial Statements that require estimation but are not deemed critical Changes in estimates used in these and other items could impact the Consolidated Financial Statements
We test goodwill for impairment annually and when events or changes in circumstances indicate that goodwill might be impaired The determination of whether goodwill is impaired requires us to make judgments based on long term projections of future performance Estimates of fair value are based on our projection of revenues operating costs and cash flows of each reporting unit considering historical and anticipated results and general economic and market conditions and their projections For fiscal year 2024 we performed a quantitative assessment The fair values of the reporting units were determined using a discounted cash flow analysis with projected financial information based on our most recently completed long term strategic planning processes and also considers the current financial performance compared to our prior projections of the reporting units as well as a market analysis Determination of the fair value requires discretion and the use of estimates by management If actual results are not consistent with management s estimates and assumptions a material goodwill impairment charge could occur which could have a material adverse effect on our consolidated financial statements
Due to the cyclical nature of our business and the other factors described in the section on Risk Factors set forth in Item 1A of this Annual Report on Form 10 K the profitability of our individual reporting units may periodically be affected by downturns in customer demand operational challenges and other factors If material adverse conditions occur that impact one or more of our reporting units our determination of future fair value might not support the carrying amount of one or more of our reporting units and the related goodwill would need to be impaired We will continue to monitor any changes to our assumptions and will evaluate goodwill as deemed warranted during future periods
The Company prepares and files tax returns based on its interpretation of tax laws and regulations and records estimates based on these judgments and interpretations In the normal course of business the Company s tax returns are subject to examination by various taxing authorities which may result in future tax interest and penalty assessments by these authorities The Company recognizes the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities based on the technical merits of the position The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than 50 likelihood of being realized upon ultimate resolution The amount of unrecognized tax benefits is adjusted for changes in facts and circumstances For example adjustments could result from significant amendments to existing tax law and the issuance of regulations or interpretations by the taxing authorities new information obtained during a tax examination or resolution of an examination The Company believes that its estimates for uncertain tax positions are appropriate and sufficient to pay assessments that may result from examinations of its tax returns The Company recognizes both accrued interest and penalties related to unrecognized tax benefits in income tax expense
Management evaluates the realizability of deferred tax assets for each jurisdiction in which it operates If the Company experiences cumulative pretax income in a particular jurisdiction in a three year period including the current and prior two years management normally concludes that the income tax assets will more likely than not be realizable and no valuation allowance is recognized unless known or planned operating developments or changes in tax laws would lead management to conclude otherwise However if the Company experiences cumulative pretax losses in a particular jurisdiction in a three year period management then considers a series of factors in the determination of whether the deferred tax assets can be realized The Company has recorded valuation allowances against certain of its deferred tax assets primarily those that have been generated from net operating losses in certain foreign taxing jurisdictions and acquired U S carryforwards In evaluating whether the Company would more likely than not recover these deferred tax assets it has not assumed any future taxable income or tax planning strategies in the jurisdictions associated with these carryforwards where history does not support such an assumption Implementation of tax planning strategies to recover these deferred tax assets or future income generation in these jurisdictions could lead to the reversal of these valuation allowances and a reduction of income tax expense
The Organization for Economic Co operation and Development OECD a global policy forum introduced a framework to implement a global minimum tax of 15 which would apply to multinational corporations referred to as Pillar Two Nearly all OECD member jurisdictions have agreed in principle to adopt these provisions and numerous jurisdictions have enacted legislation including jurisdictions where the Company operates with a subset of the rules becoming effective for our fiscal year beginning on July 1 2024 and the remaining rules becoming effective for our fiscal year beginning on July 1 2025 or in later periods The Company is continuing to analyze the Pillar Two rules as countries implement additional legislation Implementation of the OECD proposal may have a material Impact on the Company s Consolidated Financial Statements in the future
All outstanding shares of Mandatory Convertible Preferred Stock were converted to Company Common Stock on July 3 2023 and no shares of Mandatory Convertible Preferred Stock are currently issued and outstanding
Revenues decreased in all four markets with the largest decline 270 million or 43 in the electronics market primarily from lower volumes in the consumer electronics vertical largely due to a design change implemented by a significant electronics customer Revenues decreased by 82 million or 17 in the instrumentation market due to decreased volumes in the life sciences vertical from continued inventory digestion by our customers and in the industrial market by 81 million or 5 as a result of decreased shipments in the precision manufacturing vertical primarily due to macroeconomic conditions In addition revenues decreased 20 million or 1 in the communications market primarily due to decreased volumes in the telecom vertical as our communications service provider customers continued to work down their inventory levels with reduced capital spending partially offset by increased shipments in the datacom vertical driven by increased AI related datacom shipments
From a segment perspective Materials decreased 333 million year over year primarily due to lower demand for sensing products and other consumer applications in the consumer electronics vertical within the electronics market for the reasons discussed above Networking revenues decreased 45 million year over year with decreases from the telecom vertical partially offset by increases in the datacom vertical both in our communications market for the reasons discussed above Lasers revenue decreased 74 million year over year due to lower demand in the life sciences vertical in the instrumentation market and to lower demand in the precision manufacturing and semiconductor and display capital equipment verticals in the industrial end market
for fiscal 2023 a slight decrease of 43 basis points During fiscal 2023 the Company recorded 158 million in Cost of goods sold related to the fair value adjustment on acquired inventory from the acquisition of Coherent Inc Merger Gross margin excluding the fair value adjustment on acquired inventory decreased 349 basis points for fiscal 2024 compared to fiscal 2023 primarily due to lower revenues less favorable sales mix especially in the datacom vertical in the communications market underutilized operating capacity in several plants shut down costs related to site consolidations lower yields in the datacom vertical higher costs related to product lines that are being exited higher inventory provisions and the unfavorable foreign exchange rates
Internal research and development IR D expenses for the fiscal year ended June 30 2024 were 479 million or 10 of revenues compared to 500 million or 10 of revenues last fiscal year The decrease of 21 million for fiscal 2024 is due to all three segments and was driven by lower costs due to the consolidation of sites and our efforts to control costs The IR D expenses are primarily related to our continued investment in new products and platform technologies in an effort to accelerate our organic growth across all of our businesses including significant investments in datacom transceivers for AI indium phosphide and gallium arsenide semiconductor lasers silicon carbide materials and lasers for display processing semiconductor capital equipment and instrumentation
Selling general and administrative SG A expenses for the year ended June 30 2024 were 854 million or 18 of revenues compared to 1 037 million or 20 of revenues last fiscal year The decrease in SG A as a percentage of revenue for fiscal 2024 compared to fiscal 2023 was primarily the result of lower amortization expense of 117 million resulting from 1 the Merger as backlog intangibles were fully amortized in fiscal 2023 2 lower amortization for tradenames impaired in the fourth quarter of fiscal 2023 and 3 31 million charges for impairment of certain tradename and customer list intangibles assets in fiscal 2023 In addition SG A decreased due to lower charges related to the Merger including 39 million lower transaction fees and financing and lower one time expense of 18 million related to share based compensation resulting from the Merger as well as lower costs due to the consolidation of sites and our efforts to control costs partially offset by the impact of lower revenues
Restructuring charges related to our Restructuring Plan for the year ended June 30 2024 were 27 million or 1 of revenues and consist primarily of accelerated depreciation equipment write offs and move costs due to the consolidation of certain manufacturing sites Restructuring charges related to our Restructuring Plan for the year ended June 30 2023 were 119 million or 2 of revenues and consisted of severance and equipment write offs net of reimbursements due to the consolidation of certain manufacturing sites See Note 22 Restructuring Plan to the Company s Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10 K for further information
Interest and other net for the year ended June 30 2024 was expense of 244 million compared to expense of 318 million last fiscal year a decrease of 75 million Included in Interest and other net were interest expense on borrowings Merger financing fees fiscal 2023 foreign currency gains and losses amortization of debt issuance costs equity gains and losses from unconsolidated investments and interest income on excess cash balances The decrease of 75 million in comparison to fiscal 2023 was driven by driven by 39 million incremental interest and dividend income due to increases in interest and dividend rates earned on investments as well as the increase in restricted cash balances and 35 million incurred in the prior year related to financing of the Merger In addition interest expense increased 2 million due to higher interest rates on our Term facilities net of higher benefit from our interest rate cap and swap
Our effective income tax rate for fiscal 2024 was 8 compared to an effective tax rate of 27 last fiscal year The difference between our effective tax rate and the U S statutory rate of 21 was due to the establishment of a valuation allowance related to certain US deferred tax assets
Net loss attributable to noncontrolling interests for the year ended June 30 2024 was 3 million and represents the noncontrolling interest holders shares of losses of Silicon Carbide LLC after the close of the transaction on December 4 2023 See Note 12 Noncontrolling Interests to the Company s Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10 K for further information
Revenues and operating income for our reportable segments are discussed below Operating income differs from net earnings in that operating income excludes certain operational expenses including interest the impact of foreign exchange and other miscellaneous expenses as reported in Other expense income net Management believes operating income to be a useful measure for investors as it reflects the results of segment performance over which management has direct control and is used by management in its evaluation of segment performance See Note 15 Segment and Geographic Reporting to the Company s Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10 K for further information on the Company s reportable segments and for the reconciliation of operating income to net earnings which is incorporated herein by reference
Revenues for the year ended June 30 2024 for Networking decreased 2 to 2 296 million compared to 2 341 million for last fiscal year The decrease in revenues of 45 million during fiscal 2024 was primarily due to decreased volumes year over year in the telecom vertical as our communications service provider customers continue to work down their inventory levels with reduced capital spending partially offset by increases in the datacom vertical driven by increased AI related datacom transceivers shipments both within the communications market
Operating income for the year ended June 30 2024 for Networking decreased 20 to 179 million compared to operating income of 222 million last fiscal year The decrease in operating income for fiscal 2024 was driven by 45 million lower revenues and lower margin percentage partially offset by lower restructuring charges The margin percentage was lower than fiscal 2023 due to less favorable sales mix in the datacom vertical the impact of fixed manufacturing costs as a percentage of revenues on lower revenues in the telecom vertical lower yields in the datacom vertical and higher inventory provisions related to products that are being exited The restructuring charges decreased 60 million due to lower charges for employee terminations related to our Restructuring Plan
Revenues for the fiscal year ended June 30 2024 for Materials decreased 25 to 1 017 million compared to revenues of 1 350 million last fiscal year The decrease in revenues during the current fiscal year was primarily related to a decrease of 265 million in the electronics market mostly due to lower volumes in our consumer electronics vertical largely due to a design change implemented by a significant electronics customer partially offset by higher shipments in our automotive vertical driven by electric vehicles as well as decreases in shipments to a lesser extent derived from macroeconomic conditions in our precision manufacturing and semiconductor capital equipment verticals in the industrial market
Operating income for the fiscal year ended June 30 2024 for Materials decreased 61 with operating income of 63 million in the current year compared to operating income of 160 million last fiscal year The decrease in operating income during the current fiscal year was driven by 333 million lower revenues and higher costs for sites being shutdown partially offset by 33 million lower restructuring charges primarily severance related to our Restructuring Plan and 33 million charges in fiscal 2023 for impairment of certain tradename customer list and technology intangibles
Revenues for the fiscal year ended June 30 2024 for Lasers decreased 5 to 1 395 million compared to revenues of 1 469 million last fiscal year The decrease was primarily due to 56 million lower shipments to the instrumentation market primarily in the life sciences vertical where we see continued inventory digestion by our customers and an 18 million drop in the industrial market as a result of lower volumes in our precision manufacturing and display capital equipment verticals due to macroeconomic conditions partially offset by higher volumes in our semiconductor capital equipment display vertical
Operating loss for the fiscal year ended June 30 2024 for Lasers decreased 65 with operating loss of 146 million in the current year compared to operating loss of 419 million last fiscal year The lower operating loss was driven by 312 million lower costs in the current year compared to the prior year related to the Merger including 158 million lower amortization of the fair value step up on acquired inventory 83 million lower amortization expense related to the fair value of intangible assets acquired 39 million lower transaction fees and financing 18 million lower nonrecurring share based compensation and 14 million lower integration costs Excluding the lower Merger related costs operating income for fiscal 2024 decreased 39 million primarily due to lower revenues and lower gross margin percentage due to less favorable mix within the industrial and instrumentation markets the unfavorable impact of fixed manufacturing costs with lower revenues and higher inventory provisions
Revenues for the year ended June 30 2023 increased 56 to 5 160 million compared to 3 317 million for fiscal 2022 The biggest driver of increased revenue relates to the Lasers segment which was acquired as part of the Merger The largest growth was in the industrial market with increased sales of 1 015 million or 136 year over year primarily due to the Lasers segment The remaining contributions to the increased revenues were from volume growth in the electronics market which grew 102 year over year contributing an incremental 315 million in sales and strength in the communications market which grew by 6 year over year contributing an incremental 139 million in sales The growth in the industrial end market was primarily due to incremental sales of 1 088 million in the Lasers segment partially offset by 73 million of softer sales in the Materials and Networking segments The growth in the electronics market was primarily in the Materials segment due to innovations in sensing products The strength in the communications market primarily in the Networking segment was due to stronger demand volumes in telecom and datacom Lasers revenue for fiscal 2023 was 1 469 million of which 74 was in the industrial end market and 26 in the instrumentation end market
Organic revenue growth was 374 million or 11 year over year Materials contributed 230 million of this organic growth year over year with 316 million growth in the electronics end market from innovations in sensing products partially offset by softer sales from the industrial end market Networking increased 144 million year over year with volume growth in both telecom and datacom
for fiscal 2022 Gross margin as a percentage of revenues decreased 680 basis points compared to fiscal 2022 The decrease as a percent of revenue for fiscal 2023 was driven by 158 million of additional expense related to the preliminary fair value adjustment on acquired inventory from the Merger and 87 million of incremental amortization expense related to technology acquired as a result of the Merger Gross margins excluding the fair value adjustment on acquired inventory and incremental amortization decreased 206 basis points for fiscal 2023 compared to the
fiscal 2022 which included a less favorable mix of revenues higher costs related to the write off of inventory for product lines that are being exited underutilized operating capacity in several plants shut down costs related to site consolidations and the unfavorable impact of foreign exchange rates
IR D expenses for the fiscal year ended June 30 2023 were 500 million or 10 of revenues compared to 377 million or 11 of revenues in fiscal 2022 The increase of 122 million for fiscal 2023 was driven by an additional 132 million of IR D expenses from the Lasers segment As a percentage of revenues IR D spend in the Materials segment decreased 4 year over year due to higher costs in fiscal 2022 related to the launch of new products The IR D expenses are primarily related to our continued investment in new products and manufacturing processes across all of our businesses including significant investments in indium phosphide semiconductor lasers silicon carbide materials devices for both power electronics and wireless devices and lasers for display processing and semiconductor capital equipment
Selling general and administrative SG A expenses for the year ended June 30 2023 were 1 037 million or 20 of revenues compared to 474 million or 14 of revenues in fiscal year 2022 The increase in SG A as a percentage of revenue for fiscal 2023 compared to fiscal 2022 was primarily the result of incremental amortization expense of 240 million including 209 million related to the Merger and 31 million charges for impairment of certain tradename and customer list intangibles assets see Note 7 Goodwill and Other Intangible Assets to the Company s Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10 K for further information In addition the increase in SG A as a percentage of revenue was due to higher one time charges related to the Merger of 125 million for integration share based compensation and transaction fees as well as the comparatively larger sales and administrative efforts required to sell an entire laser system versus components and subsystems
Restructuring charges related to our Restructuring Plan for the year ended June 30 2023 were 119 million or 2 of revenues and consist of severance and equipment write offs net of reimbursements due to the consolidation of certain manufacturing sites See Note 22 Restructuring Plan to the Company s Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10 K for further information
Interest and other net for the year ended June 30 2023 was expense of 318 million compared to expense of 132 million in fiscal 2022 an increase of 186 million Included in Interest and other net were interest expense on borrowings Merger financing fees foreign currency gains and losses amortization of debt issuance costs equity gains and losses from unconsolidated investments and interest income on excess cash balances The increase of 186 million in comparison to fiscal 2022 was driven by 166 million incremental interest expense due to the new debt assumed in the financing of the Merger with 79 million of the fiscal 2022 interest expense related to funding both raised in advance of the closing of the Merger and fees for financing to be funded contingent upon the close of the Merger as well as 35 million incurred in the current year related to financing of the Merger The increases were partially offset by 6 million lower net foreign currency losses and 5 million of incremental interest income
Foreign currency losses were 11 million for the year ended June 30 2023 primarily the result of volatility in the foreign exchange market compared to 16 million of losses for the year ended June 30 2022 The fiscal 2022 losses include a 24 million realized loss related the purchase of 345 million Euros to pay off the Euro based debt of Coherent Inc at transaction closing
Our effective income tax rate for fiscal 2023 was 27 compared to an effective tax rate of 17 last fiscal year The difference between our effective tax rate and the U S statutory rate of 21 was due to research and development incentives in certain jurisdictions
Revenues and operating income for our reportable segments are discussed below Operating income differs from net earnings in that operating income excludes certain expenses including interest the impact of foreign exchange and other miscellaneous expenses as reported Management believes operating income to be a useful measure for investors as it reflects the results of segment performance over which management has direct control and is used by management in its evaluation of segment performance See Note 15 Segment and Geographic Reporting to the Company s Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10 K for further information on the Company s reportable segments and for the reconciliation of operating income to net earnings which is incorporated herein by reference
Revenues for the year ended June 30 2023 for Networking increased 7 to 2 341 million compared to 2 197 million for fiscal year 2022 The increase in revenues of 144 million during fiscal 2023 was primarily due to increased revenue in the communications market due to stronger demand in telecom and datacom
Operating income for the year ended June 30 2023 for Networking decreased 4 to 222 million compared to operating income of 232 million for fiscal year 2022 The driver of the decreased operating income was the 56 million in restructuring charges primarily severance related to our Restructuring Plan partially offset by strong sales lower variable compensation costs and the leveraging of corporate resources across each of our three segments
Revenues for the fiscal year ended June 30 2023 for Materials increased 21 to 1 350 million compared to revenues of 1 119 million for fiscal year 2022 The increase in revenues during fiscal 2023 was primarily driven by an increase in demand in the electronics end market from innovations in sensing products partially offset by softer demand in the industrial end market
Operating income for the fiscal year ended June 30 2023 for Materials decreased 27 with operating income of 160 million in fiscal 2023 compared to operating income of 219 million for fiscal year 2022 The decrease in operating income during fiscal 2023 was driven by 60 million in restructuring charges primarily severance related to our Restructuring Plan and 33 million for charges for impairment of certain tradename customer list and technology intangibles The increases were partially offset by lower variable compensation costs and lower IR D spending As a percentage of revenue operating income decreased from 20 to 12 primarily due to lower gross margins and the fiscal 2023 restructuring charges partially offset by lower IR D spending and lower variable compensation The lower gross margins as a percentage of revenue were driven by less favorable mix of revenues higher costs related to the write off of inventory for products that are being exited underutilized operating capacity in several plants and shut down costs related to site consolidations
of amortization expense related to the preliminary fair value of intangible assets acquired 158 million of amortization of the preliminary fair value step up on acquired inventory 79 million of integration and site consolidation and shut down costs one time charges of 39 million for transaction fees and financing and 18 million of nonrecurring share based compensation
Historically our primary sources of cash have been provided from operations long term borrowings and advance funding from customers Other sources of cash include proceeds from the issuance of equity proceeds received from the exercises of stock options and sale of equity investments and businesses Our historic uses of cash have been for business acquisitions capital expenditures investments in research and development payments of principal and interest on outstanding debt obligations payments of debt and equity issuance costs to obtain financing and payments in satisfaction of employees minimum tax obligations Supplemental information pertaining to our sources and uses of cash for the periods indicated is presented as follows
Net cash provided by operating activities was 546 million during the current fiscal year ended June 30 2024 compared to 634 million of cash provided by operating activities during the same period last fiscal year The decrease in cash flows provided by operating activities during the year ended June 30 2024 compared to the same period last fiscal year was primarily due to lower non cash adjustments partially offset by lower losses
Net cash provided by operating activities was 634 million and 413 million for the fiscal years ended June 30 2023 and 2022 respectively The increase in cash flows provided by operating activities during the fiscal year ended June 30 2023 compared to the fiscal year ended June 30 2022 was driven by improved management of working capital accounts
Net cash used in investing activities was 0 4 billion for the fiscal year ended June 30 2024 compared to net cash used of 5 9 billion for the same period last fiscal year In fiscal 2023 5 5 billion was used to fund the Merger Cash used to fund capital expenditures decreased by 89 million year over year
Net cash used in investing activities was 5 9 billion and 320 million for the fiscal years ended June 30 2023 and 2022 respectively In fiscal 2023 5 5 billion was used to fund the Merger Cash used to fund capital expenditures increased by 122 million during the fiscal year ended June 30 2023 compared to the fiscal year ended June 30 2022 to continue to increase capacity to meet the growing demand for our product portfolio
Net cash provided by financing activities was 0 8 billion for the fiscal year ended June 30 2024 compared to net cash provided by financing activities of 3 6 billion for the same period last fiscal year Financing inflows in the current year included the 1 0 billion contribution from noncontrolling interests and proceeds from employee stock purchases partially offset by payments on existing debt and equity issuance costs related to the contribution from noncontrolling interests
Net cash provided by financing activities was 3 6 billion for the year ended June 30 2023 compared to net cash provided by financing activities of 863 million for the year ended June 30 2022 Cash inflow for fiscal 2023 was from borrowings under the New Term Facilities defined below as well the net proceeds from the issuance of Coherent s Series B 2 Convertible Preferred Stock Financing outflows included payments to settle the Company s existing senior credit facilities
On July 1 2022 Coherent entered into a Credit Agreement by and among the Company the lenders and other parties thereto and JP Morgan Chase Bank N A as administrative agent and collateral agent which provides for senior secured financing of 4 0 billion consisting of a term loan A credit facility the Term A Facility with an aggregate principal amount of 850 million a term loan B credit facility the Term B Facility and together with the Term A Facility the Term Facilities with an aggregate principal amount of 2 800 million and a revolving credit facility the Revolving Credit Facility and together with the Term Facilities the Senior Credit Facilities in an aggregate available amount of 350 million including a letter of credit sub facility of up to 50 million On March 31 2023 Coherent entered into Amendment No 1 to the Credit Agreement which replaced the adjusted LIBOR based rate of interest therein with an adjusted Secured Overnight Financing Rate SOFR based rate of interest As amended the Term A Facility and the Revolving Credit Facility each bear interest at an adjusted SOFR rate subject to a 0 10 floor plus a range of 1 75 to 2 50 based on the Company s total net leverage ratio The Term A Facility and the Revolving Credit Facility borrowings bear interest at adjusted SOFR plus 2 00 as of June 30 2024 On April 2 2024 Coherent entered into Amendment No 2 to the Credit Agreement under which the principal amount of term B loans outstanding under the Credit Agreement the Existing Term B Loans were replaced with an equal amount of new term loans the New Term B Loans having substantially similar terms as the Existing Term B Loans except with respect to the interest rate applicable to the New Term B Loans and certain other provisions As further amended the New Term B Loans bear interest at a SOFR rate subject to a 0 50 floor plus 2 50 as of June 30 2024 The maturity of the New Term Loans and revolving credit facility remains unchanged In relation to the Term Facilities the Company incurred expense of 237 million for the fiscal year ended June 30 2024 which is included in Interest expense in the Consolidated Statements of Earnings Loss On July 1 2023 our interest rate cap became effective which together with our interest rate swap reduced interest expense by 45 million
1 0 billion cash in exchange for 25 of the equity of that entity Such funds will be used primarily to fund future capital expansion including the previously announced capital that Coherent intended to invest in its silicon carbide business As a result the transaction is enabling Coherent to allocate the capital it had intended to invest in this business unit to other corporate purposes thus increasing its available free cash flow which will provide greater financial and operational flexibility See Note 12 Noncontrolling Interests
The Company believes existing cash cash flow from operations and available borrowing capacity from its Senior Credit Facilities will be sufficient to fund its needs for working capital capital expenditures repayment of scheduled long term borrowings and lease obligations investments in IR D and internal and external growth objectives at least through fiscal year 2025
As of June 30 2024 in the ordinary course of business we had total estimated purchase commitments from vendors of approximately 751 million In addition as of June 30 2024 we had obligations under our operating leases of approximately 258 million 52 million of which will be paid in the fiscal year 2025
We are exposed to market risks arising from adverse changes in foreign currency exchange rates and interest rates In the normal course of business we use a variety of techniques and derivative financial instruments as part of our overall risk management strategy which is primarily focused on our exposure in relation to the Chinese Renminbi Euro Swiss Franc Japanese Yen Singapore Dollar and Korean Won No significant changes have occurred in the techniques and instruments used
As of June 30 2024 our total borrowings include variable rate borrowings which expose us to changes in interest rates In November 2019 we entered into an interest rate swap contract amended on March 20 2023 to limit the exposure of our variable interest rate debt by effectively converting a portion of interest payments to fixed interest rate debt On February 23 2022 we entered into an interest rate cap the Cap amended on March 20 2023 with an effective date of July 1 2023 If we had not effectively hedged our variable rate debt a change in the interest rate of 100 basis points on these variable rate borrowings would have resulted in additional interest expense of 33 million for the year ended June 30 2024
The information required by this item is set forth in our Consolidated Financial Statements contained in this Annual Report on Form 10 K Specific financial statements can be found at the pages listed below
Management is responsible for the preparation of the Consolidated Financial Statements included in this Annual Report on Form 10 K The Consolidated Financial Statements were prepared in accordance with the accounting principles generally accepted in the United States of America and include amounts that are based on the best estimates and judgments of management The other financial information contained in this Annual Report on Form 10 K is consistent with the Consolidated Financial Statements
Management is responsible for establishing and maintaining adequate internal control over financial reporting as such term is defined in Exchange Act Rules 13a 159f and 15 d 15 f The Company s internal control system is designed to provide reasonable assurance concerning the reliability of the financial data used in the preparation of the Company s Consolidated Financial Statements as well as reasonable assurance with respect to safeguarding the Company s assets from unauthorized use or disposition
All internal control systems no matter how well designed have inherent limitations Therefore even those systems determined to be effective can provide only reasonable assurance with respect to financial statement presentation and other results of such systems
Management conducted an evaluation of the effectiveness of the Company s internal control over financial reporting as of June 30 2024 In making this evaluation management used the criteria set forth by the
Management s evaluation included reviewing the documentation of its controls evaluating the design effectiveness of controls and testing their operating effectiveness Based on the evaluation management concluded that as of June 30 2024 the Company s internal controls over financial reporting were effective
Ernst Young LLP an independent registered public accounting firm has issued its report on the effectiveness of our internal control over financial reporting as of June 30 2024 which report is included herein
We have audited the accompanying consolidated balance sheets of Coherent Corp and subsidiaries the Company as of June 30 2024 and 2023 the related consolidated statements of earnings loss comprehensive income loss shareholders equity and mezzanine equity and cash flows for each of the three years in the period ended June 30 2024 and the related notes and financial statement schedule listed in the Index at Item 15 a 2 collectively referred to as the consolidated financial statements In our opinion the consolidated financial statements present fairly in all material respects the financial position of the Company at June 30 2024 and 2023 and the results of its operations and its cash flows for each of the three years in the period ended June 30 2024 in conformity with U S generally accepted accounting principles
We also have audited in accordance with the standards of the Public Company Accounting Oversight Board United States PCAOB the Company s internal control over financial reporting as of June 30 2024 based on criteria established in Internal Control Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission 2013 framework and our report dated August 16 2024 expressed an unqualified opinion thereon
These financial statements are the responsibility of the Company s management Our responsibility is to express an opinion on the Company s financial statements based on our audits We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U S federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB
We conducted our audits in accordance with the standards of the PCAOB Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement whether due to error or fraud Our audits included performing procedures to assess the risks of material misstatement of the financial statements whether due to error or fraud and performing procedures that respond to those risks Such procedures included examining on a test basis evidence regarding the amounts and disclosures in the financial statements Our audits also included evaluating the accounting principles used and significant estimates made by management as well as evaluating the overall presentation of the financial statements We believe that our audits provide a reasonable basis for our opinion
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that 1 relates to accounts or disclosures that are material to the financial statements and 2 involved our especially challenging subjective or complex judgments The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements taken as a whole and we are not by communicating the critical audit matter below providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates
At June 30 2024 the balance of the Company s goodwill related to the Lasers reporting unit was 3 2 billion As discussed in Note 1 to the consolidated financial statements goodwill is reviewed annually for impairment or more frequently if impairment indicators arise The assessment of goodwill for impairment requires a comparison of the fair value of each reporting unit that has goodwill associated with its operations to its carrying amount including goodwill If the Company s carrying amount of a reporting unit exceeds its fair value an impairment loss would be measured as the excess of the carrying value over the calculated fair value
Auditing the Company s annual goodwill impairment test for the Lasers reporting unit is complex because it involves making assumptions about the timing and amount of the forecasted future net cash flows of the reporting unit The fair value estimate can be sensitive to significant assumptions such as revenue and the selected discount rate which is based on a risk adjusted weighted average cost of capital These significant assumptions are forward looking and could be impacted by future economic conditions
We obtained an understanding evaluated the design and tested the operating effectiveness of controls over the Company s goodwill impairment evaluation process including controls over management s review of the assumptions described above
Our audit procedures to test management s impairment evaluation of the Lasers reporting unit included among others assessing the valuation methodology and assumptions discussed above and the underlying data used to develop such assumptions For example we compared certain assumptions to current industry market and economic trends Where appropriate we evaluated whether changes to the Company s business and other factors would affect the assumptions We also assessed the historical accuracy of management s estimates and performed independent sensitivity analyses We involved our valuation specialists to assist us in evaluating the methodologies and auditing the assumptions used to calculate the estimated fair value of the Lasers reporting unit
We have audited Coherent Corp and subsidiaries internal control over financial reporting as of June 30 2024 based on criteria established in Internal Control Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission 2013 framework the COSO criteria In our opinion Coherent Corp and subsidiaries the Company maintained in all material respects effective internal control over financial reporting as of June 30 2024 based on the COSO criteria
We also have audited in accordance with the standards of the Public Company Accounting Oversight Board United States PCAOB the consolidated balance sheets of the Company as of June 30 2024 and 2023 the related consolidated statements of earnings loss comprehensive income loss shareholders equity and mezzanine equity and cash flows for each of the three years in the period ended June 30 2024 and the related notes and schedule listed in the Index at Item 15 a 2 and our report dated August 16 2024 expressed an unqualified opinion thereon
The Company s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management s Report on Internal Control Over Financial Reporting Our responsibility is to express an opinion on the Company s internal control over financial reporting based on our audit We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U S federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB
We conducted our audit in accordance with the standards of the PCAOB Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects
Our audit included obtaining an understanding of internal control over financial reporting assessing the risk that a material weakness exists testing and evaluating the design and operating effectiveness of internal control based on the assessed risk and performing such other procedures as we considered necessary in the circumstances We believe that our audit provides a reasonable basis for our opinion
A company s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles A company s internal control over financial reporting includes those policies and procedures that 1 pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the company 2 provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company and 3 provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition use or disposition of the company s assets that could have a material effect on the financial statements
Because of its inherent limitations internal control over financial reporting may not prevent or detect misstatements Also projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate
Series B redeemable convertible preferred stock no par value 5 cumulative issued 215 000 shares at June 30 2024 and June 30 2023 redemption value 2 427 860 and 2 309 966 as of June 30 2024 and June 30 2023 respectively
The following table provides a reconciliation of cash cash equivalents and restricted cash reported within the Consolidated Balance Sheets that sum to the total of the same amounts shown in the Consolidated Statements of Cash Flows At June 30 2024 we had 864 million of restricted cash
Coherent Corp Coherent the Company we us or our a global leader in materials networking and lasers is a vertically integrated manufacturing company that develops manufactures and markets engineered materials optoelectronic components and devices and lasers for use in the industrial communications electronics and instrumentation markets The Company markets its products through its direct sales force and through distributors and agents
The Company uses certain uncommon materials and compounds to manufacture its products Some of these materials are available from only one proven outside source The continued high quality of these materials is critical to the stability of our manufacturing yields We have not experienced material production delays due to a shortage of materials However we do occasionally experience problems associated with vendor supplied materials not meeting specifications for quality or purity A significant failure of our suppliers to deliver sufficient quantities of necessary high quality materials on a timely basis could have a material adverse effect on our results of operations
The Consolidated Financial Statements include the accounts of the Company and all of its subsidiaries All significant intercompany accounts and transactions have been eliminated in consolidation Certain prior year amounts have been reclassified for consistency with the current year presentation
The preparation of financial statements in conformity with generally accepted accounting principles in the United States U S GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes Although these estimates are based on management s best knowledge of current events and actions Coherent may undertake in the future actual results may ultimately differ from the estimates
For all foreign subsidiaries whose functional currency is not the U S dollar the functional currency is the local currency Assets and liabilities of those operations are translated into U S dollars using period end exchange rates while income and expenses are translated using the average exchange rates for the reporting period Translation adjustments are recorded as Accumulated other comprehensive income loss within Shareholders equity in the accompanying Consolidated Balance Sheets
We consider highly liquid investment instruments with an original maturity of three months or less to be cash equivalents As of June 30 2024 we had restricted cash of 864 million that is restricted for a specific purpose with 174 million and 690 million recorded in Restricted cash current and Restricted cash non current respectively on our Consolidated Balance Sheet
We recognize expected credit losses resulting from the inability of our customers to make required payments through an allowance account that is measured each reporting date We estimate credit losses over the life of our trade accounts receivable using a combination of historical loss data current credit conditions specific customer circumstances and reasonable and supportable forecasts of future economic conditions
Inventories are valued at the lower of cost or net realizable value with cost determined on the first in first out basis Inventory costs include material labor and manufacturing overhead In evaluating the net realizable value of inventory management also considers other factors including known trends and market conditions We generally record a reduction to the carrying value of inventory as a charge against earnings for all products on hand more than 12 to 24 months depending on the nature of the products that have not been sold to customers or cannot be further manufactured for sale to alternative customers An additional charge may be recorded for product on hand that is in excess of product sold to customers over the same periods noted above
Property plant and equipment are carried at cost or fair value upon acquisition Major improvements are capitalized while maintenance and repairs are generally expensed as incurred We review our property plant and equipment and other long lived assets for impairment whenever events or circumstances indicate that the carrying amounts may not be recoverable Depreciation on property plant and equipment and amortization on finance lease right of use assets for financial reporting purposes is computed primarily by the straight line method over the estimated useful lives for building building improvements and land improvements of 10 to 40 years and 3 to 20 years for machinery and equipment
Leases are recognized under Accounting Standards Codification 842 Leases The Company determines whether a contract contains a lease at contract inception A contract contains a lease if there is an identified asset and the Company has the right to control the asset Operating lease right of use ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease Operating lease ROU assets and lease liabilities are recognized at commencement date based on the present value of lease payments over the lease term We use the incremental borrowing rate in determining the present value of lease payments unless the implicit rate is readily determinable If lease terms include options to extend or terminate the lease the ROU asset and lease liability are measured based on the reasonably certain decision We have lease agreements with lease and non lease components which are accounted for as a single lease component for all classes of leased assets for which the Company is the lessee Additionally for certain equipment leases the portfolio approach is applied to account for the operating lease ROU assets and lease liabilities In the Consolidated Statements of Earnings Loss lease expense for operating lease payments is recognized on a straight line basis over the lease term For finance leases interest expense is recognized on the lease liability and the ROU asset is amortized over the lease term Some leasing arrangements require variable payments that are dependent upon usage or output or may vary for other reasons such as insurance or tax payments Variable lease payments are recognized as incurred and are not presented as part of the ROU asset or lease liability See Note 13 Leases for further information
The Company accounts for business combinations by establishing the acquisition date fair value as the measurement for all assets acquired and liabilities assumed Certain provisions of U S GAAP prescribe among other things the determination of acquisition date fair value of consideration paid in a business combination including contingent consideration and the exclusion of transaction and acquisition related restructuring costs from acquisition accounting
On July 1 2022 we acquired Coherent Inc The significant accounting policies of Coherent Inc have been aligned to conform to those of the Company and the consolidated financial statements include the results of Coherent Inc as of its acquisition date See Note 3 Coherent Acquisition for further information
The excess purchase price over the fair value allocated to identifiable tangible and intangible net assets of businesses acquired is reported as goodwill in the accompanying Consolidated Balance Sheets We test goodwill for impairment at least annually as of April 1 or when events or changes in circumstances indicate that goodwill might be impaired The evaluation of impairment involves comparing the current fair value of our reporting units to the recorded value including goodwill We use a discounted cash flow DCF model and or a market analysis to determine the fair value of our reporting units A number of assumptions and estimates are involved in estimating the forecasted cash flows used in the DCF model including markets and market shares sales volume and pricing costs to produce working capital changes and income tax rates Management considers historical experience and all available information at the time the fair values of the reporting units are estimated Goodwill impairment is measured as the amount by which a reporting unit s carrying value exceeds its fair value not to exceed the carrying amount of goodwill
We have the option to perform a qualitative assessment of goodwill prior to completing the quantitative assessment described above to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount including goodwill and other intangible assets If we conclude that this is the case we must perform the quantitative assessment Otherwise we will forego the quantitative assessment and do not need to perform any further testing As of April 1 of fiscal years 2024 and 2023 we completed our annual impairment tests of our reporting units using the quantitative assessment For fiscal year 2024 the fair values of the reporting units were determined using a discounted cash flow analysis with projected financial information based on our most recently completed long term strategic planning processes and also considered the current financial performance compared to our prior projections of the reporting units as well as a market analysis As of April 1 2024 the fair value of each of our reporting units exceeded their carrying values
Due to the cyclical nature of our business and the other factors described in the section on Risk Factors set forth in Item 1A of this Annual Report on Form 10 K the profitability of our individual reporting units may periodically be affected by downturns in customer demand operational challenges and other factors If material adverse conditions occur that impact one or more of our reporting units our determination of future fair value might not support the carrying amount of one or more of our reporting units and the related goodwill would need to be impaired
Intangible assets are initially recorded at their cost or fair value upon acquisition Finite lived intangible assets are amortized using the straight line method over the estimated useful lives of the assets ranging from 1 to 20 years Indefinite lived intangible assets are not amortized but tested annually for impairment at April 1 or when events or changes in circumstances indicate that indefinite lived intangible assets might be impaired As of April 1 of fiscal 2024 the Company completed a quantitative impairment test of the Coherent trade name acquired in the Merger using the relief from royalty method and determined that its fair value is well in excess of its carrying value
The Mandatory Convertible Preferred Stock was initially measured at fair value less underwriting discounts and commissions and offering expenses paid by the Company The Preferred Stock s dividends were cumulative at 6 per annum All outstanding shares of Mandatory Convertible Preferred Stock were converted to 10 240 290 shares of Company Common Stock on July 3 2023 at a conversion ratio of 4 4523 and no shares of Mandatory Convertible Preferred Stock are currently issued and outstanding See Note 10 Equity and Redeemable Preferred Stock for further information
The Series B 1 Convertible Preferred Stock is initially measured at fair value less issuance costs accreted to its redemption value over a ten year period using the effective interest method with such accretion accounted for as deemed dividends and reductions to Net Earnings Loss Available to the Common Shareholders The Series B 2 Convertible Preferred Stock is initially measured at fair value less issuance costs accreted to its redemption value over a ten year period using the effective interest method with such accretion accounted for as deemed dividends and reductions to Net Earnings Loss Available to the Common Shareholders See Note 10 Equity and Redeemable Preferred Stock for further information
The Company accounts for noncontrolling interests in accordance with ASC Topic 810 10 45 which requires the Company to present noncontrolling interests as a separate component of total shareholders equity on the Consolidated Balance Sheets and the consolidated net earnings loss attributable to its noncontrolling interests be clearly identified and presented on the face of the Consolidated Statements of Earnings Loss and Consolidated Statements of Comprehensive Income Loss See Note 12 Noncontrolling Interests for further information on the noncontrolling interests in our Silicon Carbide LLC subsidiary
Liabilities for loss contingencies arising from claims assessments litigation fines and penalties and other sources are recorded when it is probable that a liability has been incurred and the amount of the assessment and or remediation can be reasonably estimated Legal costs incurred in connection with loss contingencies are expensed as incurred Such liabilities are adjusted as further information develops or circumstances change Our customers may discover defects in our products after the products have been fully deployed and operated under peak stress conditions If we are unable to correct defects or other problems we could experience among other things loss of customers increased costs of product returns and warranty expenses damage to our brand reputation failure to attract new customers or achieve market acceptance diversion of development and engineering resources or legal action by our customers We had no material loss contingency liabilities at June 30 2024 or 2023 related to commitments and contingencies
Deferred income tax assets and liabilities are determined based on the differences between the Consolidated Financial Statements and tax basis of assets and liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse Valuation allowances are established when necessary to reduce deferred income tax assets to the amount more likely than not to be realized The Company s accounting policy is to apply acquired deferred tax liabilities to pre existing deferred tax assets before evaluating the need for a valuation allowance for acquired deferred tax assets
The Company recognizes the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities based on the technical merits of the position The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than 50 likelihood of being realized upon ultimate resolution The amount of unrecognized tax benefits is adjusted for changes in facts and circumstances For example adjustments could result from significant amendments to existing tax law and the issuance of regulations or interpretations by the taxing authorities new information obtained during a tax examination or resolution of an examination The Company believes that its estimates for uncertain tax positions are appropriate and sufficient to pay assessments that may result from examinations of its tax returns The Company recognizes both accrued interest and penalties related to unrecognized tax benefits in income tax expense
Revenue is recognized under Accounting Standards Codification 606 Revenue from Contracts with Customers ASC 606 when or as obligations under the terms of a contract with our customer have been satisfied and control has transferred to the customer We have elected the practical expedient to exclude all taxes from the measurement of the transaction price
For contracts with commercial customers which comprise the majority of our performance obligations ownership of the goods and associated revenue are generally transferred to customers at a point in time generally upon shipment of a product to the customer or delivery of the product to the customer and without significant judgments The majority of contracts typically require payment within 30 to 90 days after transfer of ownership to the customer
We periodically enter into contracts in which a customer may purchase a combination of goods and or services such as products with maintenance contracts or extended warranty Maintenance contracts and extended warranties are sold separately from products and represent a distinct performance obligation Revenue related to the performance obligation for maintenance contracts and extended warranties is recognized over time as the customer simultaneously receives and consumes the benefits provided by us
Service revenue includes repairs tolling arrangements and installation Repairs tolling and installation activities are usually completed in a short period of time normally less than one month and therefore recorded at a point in time when the services are completed The majority of contracts typically require payment within 30 to 90 days after performance of the service
Non recurring engineering arrangements are typically recognized as product revenue over time under either the time and material practical expedient as the entity has a right to consideration from a customer in an amount that corresponds directly with the value to the customer of the entity s performance completed to date or under the output and input method The majority of contracts typically require payment within 30 to 90 days
Our revenue recognition policy is consistently applied across our segments product lines services and geographical locations For the periods covered herein we measure revenue based on the amount of consideration it expects to be entitled to in exchange for products or services reduced by the amount of variable consideration related to products expected to be returned We determine variable consideration which primarily consists of product returns and distributor sales price reductions resulting from price protection agreements by estimating the impact of such reductions based on historical analysis of such activity
Under ASC 606 we expense sales commissions when incurred because the amortization period would have been one year or less These costs are recorded within selling general and administrative expenses SG A Costs for freight and shipping are generally recorded in cost of goods sold when control over products has transferred to the customer
We offer an assurance type limited warranty that products will be free from defects in materials and workmanship We establish an accrual for estimated warranty expenses at the time revenue is recognized The warranty is typically one year although can be longer periods for certain products and is typically limited to either 1 the replacement or repair of the product or 2 a credit against future purchases
We believe that disaggregating revenue by end market provides the most relevant information regarding the nature amount timing and uncertainty of revenues and cash flows See Note 4 Revenue from Contracts with Customers for further information
Internal research and development IR D expenses include salaries contractor and consultant fees supplies and materials as well as costs related to other overhead such as depreciation facilities utilities and other departmental expenses The costs we incur with respect to internally developed technology including allocations of our wafer fabrication and other manufacturing facilities and resources utilized to support R D programs are included in IR D expenses as incurred
Share based compensation arrangements require the recognition in net earnings loss of the grant date fair value of share based compensation for equity classified awards We recognize the share based compensation expense over the requisite service period of the individual grantees which generally equals the vesting period net of forfeitures The estimated annualized forfeitures are based on our historical experience of pre vesting cancellations We will record additional expense in future periods if the actual forfeiture rate is lower than estimated and will adjust expense in future periods if the actual forfeitures are higher than estimated See Note 14 Share Based Compensation for a description of our share based compensation plans and the assumptions we use to calculate the fair value of share based compensation
Basic earnings loss per share is computed by dividing net earnings loss available to the common shareholders by the weighted average number of shares of common stock outstanding during the period Diluted earnings loss per share is computed by dividing the diluted earnings loss available to the common shareholders by the weighted average number of shares of common stock and potentially dilutive shares of common stock outstanding during the period If there is a net loss for the period diluted earnings per share is the same as basic earnings per share See Note 11 Earnings Per Share for further information
Accumulated other comprehensive income loss is a measure of all changes in shareholders equity that result from transactions and other economic events in the period other than transactions with owners Accumulated other comprehensive income loss is a component of shareholders equity and consists of accumulated foreign currency translation adjustments changes in the fair value of interest rate swap and cap derivative instruments and pension adjustments
We apply fair value accounting for all financial assets and liabilities that are required to be recognized or disclosed at fair value in the Consolidated Financial Statements Fair value is defined as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date When determining the fair value measurements for assets and liabilities we consider the principal or most advantageous market in which we would transact and the market based risk measurements or assumptions that market participants would use in pricing the asset or liability such as inherent risk transfer restrictions and credit risk
In July 2023 the U S Securities and Exchange Commission the SEC adopted the final rule under SEC Release No 33 11216 Cybersecurity Risk Management Strategy Governance and Incident Disclosure requiring current reporting about material cybersecurity incidents and annual disclosures on management s processes for assessing identifying and managing material cybersecurity risks the material impacts of cybersecurity threats and previous cybersecurity incidents the Board of Directors the Board oversight of cybersecurity risks and management s role and expertise in assessing and managing material cybersecurity risks SEC Release No 33 11216 did not have a material impact on the Company s consolidated financial statements and disclosures
In November 2023 the Financial Accounting Standards Board FASB issued Accounting Standards Update ASU 2023 07 Segment Reporting Topic 280 Improvements to Reportable Segment Disclosures This ASU improves reportable segment disclosure requirements primarily through enhanced disclosures about significant segment expenses This ASU is effective for fiscal years beginning after December 15 2023 and interim periods within fiscal years beginning after December 15 2024 Early adoption is permitted The Company is evaluating the impact this will have on the Company s consolidated financial statements and disclosures
In December 2023 the FASB issued ASU 2023 09 Income Taxes Topic 740 Improvements to Income Tax Disclosures ASU 2023 09 ASU 2023 09 includes amendments that further enhance income tax disclosures primarily through standardization and disaggregation of rate reconciliation categories and income taxes paid by jurisdiction ASU 2023 09 is effective for annual periods beginning after December 15 2024 on either a prospective or retrospective basis Early adoption is permitted The Company is currently evaluating the impact of ASU 2023 09 on its consolidated financial statements and related disclosures
In March 2024 the SEC issued the final rule under SEC Release No 33 11275 and 34 99678 The Enhancement and Standardization of Climate Related Disclosures for Investors requiring public companies to provide certain climate related information in their registration statements and annual reports The final rules will require information about a company s climate related risks that have materially impacted or are reasonably likely to have a material impact on its business strategy results of operations or financial condition and the actual and potential material impacts of any identified climate related risks on the company s strategy business model and outlook as well as relating to assessment management oversight and mitigation of such material risks material climate related targets and goals and material greenhouse gas emissions Additionally certain disclosures related to severe weather events and other natural conditions will be required in the audited financial statements The first phase of the final rule is effective for fiscal years beginning in 2025 Disclosure for prior periods is only required if it was previously disclosed in an SEC filing On April 4 2024 the SEC voluntarily stayed implementation of the final rule to facilitate the orderly judicial resolution of pending legal challenges to the rule We are currently evaluating the impact on our disclosures of adopting this new pronouncement
In September 2022 the FASB issued ASU No 2022 04 requiring enhanced disclosures related to supplier financing programs The ASU requires disclosure of the key terms of the program and a rollforward of the related obligation during the annual period including the amount of obligations confirmed and obligations subsequently paid The Company adopted this ASU as of July 1 2023 other than the roll forward disclosure requirement which the Company will adopt in fiscal 2025 The adoption did not have a material impact on the Company s financial statements and related disclosures
On July 1 2022 the Closing Date the Company completed its acquisition of Coherent Inc the Merger a global provider of lasers and laser based technology for scientific commercial and industrial customers in a combined cash and stock transaction in accordance with the Agreement and Plan of Merger dated March 25 2021 the Merger Agreement Pursuant to the terms of the Merger Agreement and subject to the conditions set forth therein each share of common stock of Coherent Inc par value 0 01 per share the Coherent Inc Common Stock issued and outstanding immediately prior to July 1 2022 was canceled and extinguished and automatically converted into the right to receive 220 00 in cash and 0 91 of a share of Coherent s common stock no par value Coherent Common Stock
On the Closing Date the Company entered into a Credit Agreement the Credit Agreement by and among the Company the lenders and other parties thereto and JP Morgan Chase Bank N A as administrative agent and collateral agent which provides for senior secured financing of 4 billion consisting of a new term loan A credit facility the Term A Facility in an aggregate principal amount of 850 million a new term loan B credit facility the Term B Facility and together with the Term A Facility the Term Facilities in an aggregate principal amount of 3 billion and a new revolving credit facility the Revolving Credit Facility in an aggregate available amount of 350 million including a letter of credit sub facility of up to 50 million For further information on the credit facility refer to Note 8 Debt
In order to complete the funding of the Merger we had a net cash outflow of 2 1 billion on July 1 2022 We recorded 94 million of acquisition related costs in the year ended June 30 2023 representing professional and other direct acquisition costs These costs are recorded within SG A expense in our Consolidated Statement of Earnings Loss Approximately 23 million shares of Coherent Common Stock in the aggregate were issued in conjunction with the closing of the Merger Total Merger consideration was 7 1 billion including replacement equity awards attributable to pre combination service for certain Coherent Inc restricted stock units
The purchase price allocation set forth herein is final We allocated the fair value of the purchase price consideration to the tangible assets liabilities and intangible assets acquired generally based on estimated fair values The excess purchase price over those fair values is recorded as goodwill Our valuation assumptions of acquired assets and assumed liabilities require estimates especially with respect to intangible assets inventories property plant equipment and deferred income taxes In determining the fair value of intangible assets acquired we must make assumptions about the future performance of the acquired business including among other things the forecasted revenue growth attributable to the asset group and projected operating expenses inclusive of expected synergies future cost savings and other benefits expected to be achieved by combining the Company and Coherent Inc Our intangible assets are comprised of trade names and trademarks customer relationships developed technology and backlog We utilized widely accepted income based market based and cost based valuation approaches to perform the purchase price allocation The estimated fair value of the customer relationships and backlog are determined using the multi period excess earnings method and the estimated fair value of the trade names and trademarks and developed technology are determined using the relief from royalty method Both methods require forward looking estimates that are discounted to determine the fair value of the intangible asset using a risk adjusted discount rate that is reflective of the level of risk associated with future estimates associated with the asset group that could be affected by future economic and market conditions
i The Consolidated Balance Sheet has been adjusted to record Coherent Inc s inventories at a fair value of approximately 563 million The Consolidated Statement of Earnings Loss for the year ended June 30 2023 includes cost of goods sold of approximately 158 million related to the increased basis in the fair value compared to the carrying value The costs were amortized over the expected period during which the acquired inventory was sold and thus did not affect the Consolidated Statements of Earnings Loss beyond twelve months after the Closing Date
ii The Consolidated Balance Sheet has been adjusted to record Coherent Inc s property plant and equipment consisting of land buildings and improvements equipment furniture and fixtures and leasehold improvements at a fair value of approximately 441 million The Consolidated Statements of Earnings Loss have been adjusted to recognize additional depreciation expense related to the increased basis The additional depreciation expense is computed with the assumption that the various categories of assets will be depreciated over their remaining useful lives on a straight line basis
Operating results including goodwill and intangibles of Coherent Inc are reflected in the Company s consolidated financial statements from the Closing Date within the Lasers segment Revenues and net loss for the Lasers segment for the year ended June 30 2023 were 1 469 million and 412 million respectively Goodwill in the amount of 3 2 billion arising from the acquisition is attributed to the expected synergies including future cost savings and other benefits expected to be generated by combining Coherent and Coherent Inc Substantially all of the goodwill recognized is not expected to be deductible for tax purposes
The supplemental pro forma financial information presented below is for illustrative purposes only and is not necessarily indicative of the financial position or results of operations that would have been realized if the acquisition had been completed on the date indicated does not reflect synergies that might have been achieved nor is it indicative of future operating results or financial position The pro forma adjustments are based upon currently available information and certain assumptions that we believe are reasonable under the circumstances
The following supplemental pro forma information presents the combined results of operations for the years ended June 30 2023 and June 30 2022 as if Coherent Inc had been acquired as of July 1 2021 The supplemental pro forma information includes adjustments to amortization and depreciation for acquired intangible assets property plant and equipment adjustments to share based compensation expense fair value adjustments on the inventories acquired transaction costs interest expense and amortization of debt issuance costs related to the Senior Credit Facilities as defined in Note 8 Debt
Contract liabilities generally relate to payments received in advance of performance under customer contracts Payments received from customers are based on invoices or billing schedules as established in contracts with customers Contract liabilities are recognized as revenue when performance obligations have been satisfied During the year ended June 30 2024 we recognized revenue of 100 million related to customer payments that were included in the Consolidated Balance Sheet as of June 30 2023 As of June 30 2024 and June 30 2023 we had 76 million and 148 million respectively of contract liabilities recorded in the Consolidated Balance Sheets As of June 30 2024 62 million of deferred revenue is included in other accrued liabilities and 13 million is included within other liabilities on the Consolidated Balance Sheet As of June 30 2023 104 million of deferred revenue is included other accrued liabilities and 43 million is included within other liabilities on the Consolidated Balance Sheet
Included in the table above is a building acquired under a finance lease As of June 30 2024 and June 30 2023 the accumulated depreciation of the finance lease ROU asset was 12 million and 11 million respectively
Amortization expense recorded on the intangible assets for the fiscal years ended June 30 2024 2023 and 2022 was 288 million 414 million and 80 million respectively The technology intangible assets are being amortized over a range of 60 to 240 months with a weighted average remaining life of approximately 155 months and the amortization is recorded in Cost of goods sold in our Consolidated Statements of Earnings Loss The customer lists are being amortized over 72 to 192 months with a weighted average remaining life of approximately 148 months and the amortization is recorded in SG A in our Consolidated Statements of Earnings Loss
Amortization expense in the fiscal year ended June 30 2023 includes a total of 39 million of impairment charges with 33 million in the Materials segment and 7 million in the Networking segment 25 million of the impairment charges related to the abandonment of certain purchased technology and customer lists with 8 million recorded in Cost of goods sold and 18 million recorded in SG A in our Consolidated Statement of Earnings Loss 14 million of impairment charges recorded in SG A related to the abandonment of indefinite lived trade names primarily due to the fiscal 2023 rebranding of the Company as Coherent Corp There were no impairment charges included in amortization expense in the fiscal years ended June 30 2024 and 2022
On July 1 2022 Coherent entered into a Credit Agreement by and among the Company as borrower in such capacity the Borrower the lenders and other parties thereto and JP Morgan Chase Bank N A as administrative agent and collateral agent which provides for senior secured financing of 4 0 billion consisting of a term loan A credit facility the Term A Facility with an aggregate principal amount of 850 million a term loan B credit facility the Term B Facility and together with the Term A Facility the Term Facilities with an aggregate principal amount of 2 800 million and a revolving credit facility the Revolving Credit Facility in an aggregate available amount of 350 million including a letter of credit sub facility of up to 50 million On March 31 2023 Coherent entered into Amendment No 1 to the Credit Agreement which replaced the adjusted LIBOR based rate of interest therein with an adjusted SOFR based rate of interest As amended the Term A Facility and the Revolving Credit Facility each bear interest at an adjusted SOFR rate subject to a 0 10 floor plus a range of 1 75 to 2 50 based on the Company s total net leverage ratio The New Term A Facility and the New Revolving Credit Facility bear interest at adjusted SOFR plus 2 00 as of June 30 2024 On April 2 2024 Coherent entered into Amendment No 2 to the Credit Agreement under which the principal amount of term B loans outstanding under the Credit Agreement the Existing Term B Loans were replaced with an equal amount of new term loans the New Term B Loans having substantially similar terms as the Existing Term B Loans except with respect to the interest rate applicable to the New Term B Loans and certain other provisions As further amended the New Term B Loans bear interest at a SOFR rate subject to a 0 50 floor plus 2 50 as of June 30 2024 The maturity of the New Term Loans and revolving credit facility remains unchanged Debt extinguishment costs related to the replacement of the Existing Term B Loans of 2 million were expensed in Other expense income net in the Consolidated Statement of Earnings Loss during the year ended June 30 2024
In relation to the Term Facilities the Company incurred interest expense including amortization of debt issuance costs and the benefit of the interest rate cap and swap of 237 million and 239 million in the years ended June 30 2024 and June 30 2023 respectively which is included in Interest expense in the Consolidated Statements of Earnings Loss On July 1 2023 our interest rate cap became effective which together with our interest rate swap reduced interest expense by 45 million and 20 million in the years ended June 30 2024 and June 30 2023 respectively Amortization of debt issuance costs related to the Term Facilities for the year ended June 30 2024 and June 30 2023 totaled 15 million and 18 million respectively and are included in Interest expense in the Consolidated Statements of Earnings Loss Debt issuance costs are presented as a reduction to debt within the Long term debt caption in the Consolidated Balance Sheets
On the Closing Date the Borrower and certain of its direct and indirect subsidiaries provided a guaranty of all obligations of the Borrower and the other loan parties under the Credit Agreement and the other loan documents secured cash management agreements and secured hedge agreements with the lenders and or their affiliates subject to certain exceptions The Borrower and the other guarantors have also granted a security interest in substantially of their assets to secure such obligations
Proceeds of the loans borrowed under the Term Facilities on July 1 2022 together with other financing sources including the net proceeds from Coherent s offer and sale of its 5 000 Senior Notes due 2029 the Senior Notes and cash on hand were used to fund the cash portion of the Merger consideration the repayment of certain indebtedness including the repayment in full of all amounts outstanding under the Prior Credit Agreement as defined below and certain fees and expenses in connection with the Merger and otherwise for general corporate purposes
Through June 30 2022 the Company had senior credit facilities the Prior Credit Agreement with Bank of America N A as Administrative Agent Swing Line Lender and an L C Issuer and the other lenders party thereto On July 1 2022 the Company terminated the Prior Credit Agreement and repaid all amounts outstanding thereunder Debt extinguishment costs related to the termination of the Prior Credit Agreement of 17 million were expensed in Other expense income net in the Consolidated Statement of Earnings Loss during the year ended June 30 2023
Subject to the terms of an amended and restated commitment letter entered into in connection with Coherent entering into the Merger Agreement the commitment parties thereto committed to provide in addition to the Term Facilities and the Revolving Credit Facility a senior unsecured bridge loan facility in an aggregate principal amount of 990 million the Bridge Loan Commitment As a result of the issuance of the Senior Notes the Bridge Loan Commitment was terminated During the year ended June 30 2023 we incurred expenses of 18 million related to the Bridge Loan Commitment which is included in Other expense income in the Consolidated Statements of Earnings Loss During the year ended June 30 2022 we incurred expenses of 3 million related to the Bridge Loan Commitment which is included in Interest expense in the Consolidated Statements of Earnings Loss
We assumed the remaining balances of three term loans with the closing of the Merger The aggregate principal amount outstanding is 19 million as of June 30 2024 The terms loans assumed consisted of the following i 1 3 Term Loan due 2024 ii 1 0 State of Connecticut Term Loan due 2023 and repaid prior to June 30 2023 and iii Facility construction loan in Germany due 2030 For the Facility construction loan on December 21 2020 Coherent LaserSystems GmbH Co KG entered into a loan agreement with Commerzbank for borrowings of up to 24 million Euros which were drawn down by October 29 2021 to finance a portion of the construction of a new facility in Germany The term of the loan is 10 years and borrowings bear interest at 1 55 per annum Payments are made quarterly
On December 10 2021 the Company issued 990 million aggregate principal amount of Senior Notes pursuant to the indenture dated as of December 10 2021 the Indenture between the Company and U S Bank National Association as trustee The Senior Notes are guaranteed by each of the Company s domestic subsidiaries that guarantee its obligations under the Senior Credit Facilities Interest on the Senior Notes is payable on December 15 and June 15 of each year commencing on June 15 2022 at a rate of 5 000 per annum The Senior Notes will mature on December 15 2029
On or after December 15 2024 the Company may redeem the Senior Notes in whole at any time or in part from time to time at the redemption prices set forth in the Indenture plus accrued and unpaid interest if any to but excluding the applicable redemption date In addition at any time prior to December 15 2024 the Company may redeem the Senior Notes at its option in whole at any time or in part from time to time at a redemption price equal to 100 of the principal amount of the Senior Notes redeemed plus a make whole premium set forth in the Indenture plus accrued and unpaid interest if any to but excluding the applicable redemption date Notwithstanding the foregoing at any time and from time to time prior to December 15 2024 the Company may redeem up to 40 of the aggregate principal amount of the Senior Notes using the proceeds of certain equity offerings as set forth in the Indenture at a redemption price equal to 105 000 of the principal amount thereof plus accrued and unpaid interest if any to but excluding the applicable redemption date
In relation to the Senior Notes we incurred interest expense of 50 million for both the years ended June 30 2024 and June 30 2023 which is included in Interest expense in the Consolidated Statements of Earnings Loss
The Indenture contains customary covenants and events of default including default relating to among other things payment default failure to comply with covenants or agreements contained in the Indenture or the Senior Notes and certain provisions related to bankruptcy events As of June 30 2024 the Company was in compliance with all covenants under the Indenture
The Company is partially permanently reinvested and will repatriate earnings for all non U S subsidiaries with cash in excess of working capital needs Such distributions could potentially be subject to U S state tax in certain states and foreign withholding taxes Foreign currency gains losses related to the translation of previously taxed earnings from functional currency to U S dollars could also be subject to U S tax when distributed The Company has estimated the associated withholding tax to be 62 million
Additionally the Company made a final accounting policy election to treat taxes due from future inclusions in U S taxable income related to global intangible low tax income GILTI as a current period expense when incurred
Our foreign subsidiaries in various tax jurisdictions operate under tax holiday arrangements The impact of the tax holidays on our effective rate is a reduction in the rate of 5 6 2 3 and 1 6 for the fiscal years ended June 30 2024 2023 and 2022 respectively and the impact of the tax holidays on diluted earnings per share is 0 05 0 05 and 0 04 for the fiscal years ended June 30 2024 2023 and 2022 respectively The tax holiday related to Coherent Malaysia Sdn Bhd will end during the fiscal year ended June 30 2026 for certain business lines the tax holiday related to certain II VI Laser Enterprise Philippines Inc s business lines will end during the fiscal year ended June 30 2026 the tax holiday related to certain II VI Vietnam Co Ltd business lines will end during the fiscal year ended June 30 2024 and the tax holiday related to certain Coherent Singapore PTE Ltd business lines will end during the fiscal year ended June 30 2027
The Company has recorded a valuation allowance against the majority of the foreign and state loss and credit carryforwards certain U S credit carryforwards and the majority of state credit carryfowards The Company s U S federal loss carryforwards federal research and development credit carryforwards foreign tax credits and certain state tax credits resulting from the Company s acquisitions are subject to various annual limitations under Section 382 of the U S Internal Revenue Code
The Company classifies all estimated and actual interest and penalties as income tax expense During fiscal years 2024 2023 and 2022 there was 2 3 million 0 3 million and 0 4 million of interest and penalties within income tax expense respectively The Company had 7 million 6 million and 3 million of interest and penalties accrued at June 30 2024 2023 and 2022 respectively The Company has classified the uncertain tax positions as non current income tax liabilities as the amounts are not expected to be paid within one year The majority of the liability can be offset by credit carryforwards and would not impact cash taxes Including tax positions for which the Company determined that the tax position would not meet the more likely than not recognition threshold upon examination by the tax authorities based upon the technical merits of the position the total estimated unrecognized tax benefit that if recognized would affect our effective tax rate was approximately 19 million 92 million and 25 million at June 30 2024 2023 and 2022 respectively For the year ended June 30 2024 due to the U S valuation allowance a large portion of our unrecognized tax benefit will no longer impact the tax rate if recognized The Company expects a decrease of 2 million of unrecognized tax benefits during the next 12 months due to the expiration of statutes of limitation
Fiscal years 2018 and 2020 to 2023 remain open to examination by the Internal Revenue Service fiscal years 2019 to 2023 remain open to examination by certain state jurisdictions and fiscal years 2012 to 2023 remain open to examination by certain foreign taxing jurisdictions The Company is currently under examination for certain subsidiary companies in Vietnam for the years ended June 30 2017 through September 30 2021 Singapore for the year ended September 30 2020 Korea for the year ended September 30 2021 Spain for the years ended September 30 2020 through September 30 2022 and Germany for the years ended June 30 2012 through September 30 2020 The Company believes its income tax reserves for these tax matters are adequate
As of June 30 2024 the Company s amended and restated articles of incorporation authorize our board of directors without the approval of our shareholders to issue 5 million shares of our preferred stock As of June 30 2024
shares of mandatory preferred convertible shares have been authorized none are outstanding 75 000 shares of Series B 1 convertible preferred stock no par value have been issued and are outstanding and 140 000 shares of Series B 2 convertible preferred stock no par value have been issued and are outstanding
All outstanding shares of Mandatory Convertible Preferred Stock were converted to 10 240 290 shares of Company Common Stock on July 3 2023 at a conversion ratio of 4 4523 and no shares of Mandatory Convertible Preferred Stock are currently issued and outstanding
In connection with entering into the Merger Agreement Coherent entered into an Amended and Restated Investment Agreement dated as of March 30 2021 the Investment Agreement with BCPE Watson DE SPV LP an affiliate of Bain Capital Private Equity LP the Investor Pursuant to the terms of the Investment Agreement on March 31 2021 Coherent issued sold and delivered to the Investor 75 000 shares of a new Series B 1 Convertible Preferred Stock of the Company no par value per share Series B 1 Preferred Stock for 10 000 per share the Equity Per Share Price resulting in an aggregate purchase price of 750 million
Following our provision of notice to the Investor of its election to offer the Upsize Shares the Investor informed the Company on June 8 2021 of its agreement to purchase the Upsize Shares from the Company immediately prior to the closing of the Coherent acquisition increasing the Investor s total equity commitment to Coherent pursuant to the Investment Agreement to 2 15 billion
The shares of Series B 1 Preferred Stock accrue dividends at 5 00 per annum subject to increase if Coherent defaults on payment obligations with respect to the Series B 1 Preferred Stock not to exceed 14 per annum Until the fourth anniversary of March 31 2021 the Initial Issue Date dividends are payable solely in kind After the fourth anniversary of the Initial Issue Date dividends are payable on the applicable series at the Company s option in cash in kind or as a combination of both
at the election of the holder at a conversion price of 85 per share as it may be adjusted from time to time the Conversion Price upon the delivery by Coherent to the holders of the Series B 1 Preferred Stock of an offer to repurchase the Series B 1 Preferred Stock upon the occurrence of a Fundamental Change as defined in the Statement with Respect to Shares establishing the Series B Preferred Stock as defined below and
at the election of the Company any time following March 31 2024 at the then applicable Conversion Price if the volume weighted average price of Coherent Common Stock exceeds 150 of the then applicable Conversion Price for 20 trading days out of any 30 consecutive trading days
The issued shares of Series B 1 Preferred Stock currently have voting rights voting as one class with the Coherent Common Stock and the Series B 2 Preferred Stock as defined below on an as converted basis subject to limited exceptions
each holder has the right to require the Company to redeem all of their Series B 1 Preferred Stock for cash at a redemption price per share equal to the sum of the Stated Value as defined in the Statement with Respect to Shares establishing the Series B Preferred Stock for such shares plus an amount equal to all accrued or declared and unpaid dividends on such shares that had not previously been added to the Stated Value such price the Redemption Price and such right the Put Right and
the Company has the right to redeem in whole or in part on a pro rata basis from all holders based on the aggregate number of shares of Series B 1 Preferred Stock outstanding for cash at the Redemption Price
In connection with any Fundamental Change as defined in the Statement with Respect to Shares establishing the Series B Preferred Stock and subject to the procedures set forth in the Statement with Respect to Shares establishing the Series B Preferred Stock the Company must or will cause the survivor of a Fundamental Change to make an offer to repurchase at the option and election of the holder thereof each share of Series B 1 Preferred Stock then outstanding at a purchase price per share in cash equal to i the Stated Value for such shares plus an amount equal to all accrued or declared and unpaid dividends on such shares that had not previously been added to the Stated Value as of the date of repurchase plus ii if prior to March 31 2026 the aggregate amount of all dividends that would have been paid subject to certain exceptions from the date of repurchase through March 31 2026
If the Company defaults on a payment obligation with respect to the Series B 1 Preferred Stock and such default is not cured within 30 days the dividend rate will increase to 8 per annum and will be increased by an additional 2 per annum each quarter the Company remains in default not to exceed 14 per annum
The Series B 1 Preferred Stock is redeemable for cash outside of the control of the Company upon the exercise of the Put Right and upon a Fundamental Change and is therefore classified as mezzanine equity
The Series B 1 Preferred Stock is initially measured at fair value less issuance costs accreted to its redemption value over a 10 year period using the effective interest method with such accretion accounted for as deemed dividends and reductions to Net Earnings Loss available to Common Shareholders
We recognized 123 million and 117 million of preferred stock dividends during the fiscal years ended June 30 2024 and June 30 2023 respectively which were presented as a reduction to retained earnings on the Consolidated Balance Sheet as of June 30 2024
Basic earnings loss per common share is computed by dividing net earnings loss available to the common shareholders by the weighted average number of shares of common stock outstanding during the period
Diluted earnings loss per common share is computed by dividing the diluted earnings loss available to the common shareholders by the weighted average number of shares of common stock and potentially dilutive shares of common stock outstanding during the period The dilutive effect of equity awards is calculated based on the average stock price for each fiscal period using the treasury stock method The shares of Coherent Common Stock issuable upon conversion of the Series B Convertible Preferred Stock are calculated under the If Converted method For the years ended June 30 2024 and June 30 2023 diluted earnings loss per share excluded the potentially dilutive effect of the performance and restricted shares as well as the shares of Coherent Common Stock issuable upon conversion of the Series B Convertible Preferred Stock as their effects were anti dilutive For the fiscal year ended June 30 2022 diluted shares outstanding include the dilutive effect of the potential
shares of our common stock issuable from stock options performance and restricted shares and the dilutive effect of the potential shares of our common stock issuable upon conversion of outstanding convertible debt
On December 4 2023 Silicon Carbide LLC Silicon Carbide one of the Company s subsidiaries completed i the sale of 16 666 667 Class A Common Units to Denso Corporation Denso for 500 000 000 pursuant to an Investment Agreement dated as of October 10 2023 by and between Silicon Carbide and Denso and ii the sale of 16 666 667 Class A Common Units to Mitsubishi Electric Corporation MELCO for 500 000 000 pursuant to an Investment Agreement dated as of October 10 2023 by and between Silicon Carbide and MELCO collectively the Equity Investments
As a consequence of the Equity Investments the Company s ownership interest in the Class A Common Units of Silicon Carbide LLC was reduced to approximately 75 Denso and MELCO each individually own approximately 12 5 of the Class A Common Units of Silicon Carbide LLC
The Equity Investments in Silicon Carbide will enable Coherent to increase its available free cash flow to provide greater financial and operational flexibility to execute its capital allocation priorities as the aggregate 1 billion investment net of transaction costs will be used to fund future capital expansion of Silicon Carbide
The determination of whether an arrangement is or contains a lease is performed at the inception of the arrangement Classification and initial measurement of the right of use asset and lease liability are determined at the lease commencement date The Company elected the short term lease measurement and recognition exemption therefore leases with an initial term of 12 months or less are not recorded on the balance sheet
Finance leases are generally those that allow us to substantially utilize or pay for the entire asset over its estimated useful life Finance lease assets are recorded in Property plant and equipment net and finance lease liabilities within Other accrued liabilities and Other liabilities on our Consolidated Balance Sheets Finance lease assets are amortized in operating expenses on a straight line basis over the shorter of the estimated useful lives of the assets or the lease term with the interest component for lease liabilities included in interest expense and recognized using the effective interest method over the lease term
Operating leases are recorded in Other assets and Operating lease liabilities current and non current on our Consolidated Balance Sheets Operating lease assets are amortized on a straight line basis in operating expenses over the lease term
Our lease liabilities are recognized based on the present value of the remaining fixed lease payments over the lease term using a discount rate of similarly secured borrowings available to the Company For the purpose of lease liability measurement we consider only payments that are fixed and determinable at the time of commencement Any variable payments that depend on an index or rate are expensed as incurred We account for non lease components such as common area maintenance as a component of the lease and include it in the initial measurement of our lease assets and corresponding liabilities Our lease terms and conditions may include options to extend or terminate An option is recognized when it is reasonably certain that we will exercise that option
Our lease assets also include any lease payments made and exclude any lease incentives received prior to commencement Our lease assets are tested for impairment in the same manner as long lived assets used in operations
The Company s Board of Directors amended the Coherent Corp 2018 Omnibus Incentive Plan which originally was approved by the Company s shareholders at the Annual Meeting in November 2018 as the Coherent Corp Omnibus Incentive Plan as amended and restated the Plan The Plan was approved at the Annual Meeting in November 2023 The Plan provides for the grant of stock options stock appreciation rights restricted shares restricted share units deferred shares performance shares and performance share units to employees officers and directors of the Company The maximum number of shares of Coherent Common Stock authorized for issuance under the Plan is limited to 13 450 000 shares of Coherent Common Stock not including any remaining shares forfeited under the predecessor plans that may be rolled into the Plan Certain awards under the Plan have certain vesting provisions predicated upon the death retirement or disability of the grantee
On the Closing Date the Company assumed the Coherent Inc Equity Incentive Plan Coherent Inc Plan and the Coherent Inc unvested restricted stock units Converted RSUs that are generally subject to the same terms and conditions that applied to the Converted RSUs immediately prior to the Closing Date After the Closing Date the Company granted restricted stock units under the Coherent Inc Plan through August 28 2023 The Coherent Inc Plan was terminated upon adoption of the Plan in November 2023 No additional awards will be granted under the Coherent Inc Plan
On June 3 2024 the Board of Directors granted 147 214 restricted stock units vesting over three years from date of grant and 694 007 performance stock units vesting over the approximate three year period ending June 30 2027 to the new CEO The grants were non Plan employment inducement awards as contemplated by the New York Stock Exchange Listing Rule 303A 08 and therefore were not made pursuant to the Plan
The Company has an Employee Stock Purchase Plan whereby eligible employees may authorize payroll deductions of up to 10 or such other percentage up to 15 that the Company determines of their regular base salary to purchase shares at the lower of 85 of the fair market value of the common stock on the date of commencement of the offering or on the last day of the six month offering period
We record share based compensation expense for these awards which requires the recognition of the grant date fair value of share based compensation in net earnings We recognize the share based compensation expense over the requisite service period of the individual grantees which generally equals the vesting period We account for cash based stock appreciation rights cash based restricted share units and cash based performance share units as liability awards
We utilize the Black Scholes valuation model for estimating the fair value of stock options and cash based stock appreciation rights During the fiscal years ended June 30 2024 June 30 2023 and June 30 2022 no stock options were issued
As of June 30 2024 2023 and 2022 the aggregate intrinsic value of stock options and cash based stock appreciation rights outstanding and exercisable was 61 million 44 million and 48 million respectively Aggregate intrinsic value represents the total pretax intrinsic value the difference between our closing stock price on the last trading day of the year ended June 30 and the option s exercise price multiplied by the number of in the money options that would have been received by the option holders had all option holders exercised their options on June 30 2024 This amount varies based on the fair market value of the Company s stock The total intrinsic value of stock options and cash based stock appreciation rights exercised during the fiscal years ended June 30 2024 2023 and 2022 was 25 million 5 million and 8 million respectively As of June 30 2024 there was no unrecognized compensation cost related to non vested stock options and cash based stock appreciation rights
Restricted share awards restricted share units and cash based restricted share units compensation expense was calculated based on the number of shares or units expected to be earned by the grantee multiplied by the stock price at the date of grant for restricted share awards and restricted share units or the stock price at the period end date for cash based restricted share units and is being recognized over the vesting period Generally the restricted share awards restricted share units and cash based restricted share units have a three year tranche vesting provision There were no restricted share awards issued in the fiscal years ending June 30 2024 and June 30 2023 and all previous restricted share awards have been amortized in full
As of June 30 2024 total unrecognized compensation cost related to non vested restricted share units and cash based restricted share units was 96 million This cost is expected to be recognized over a weighted average period of approximately two years The restricted share unit compensation expense was calculated based on the number of shares expected to be earned multiplied by the stock price at the date of grant and is being recognized over the vesting period The cash based restricted share unit compensation expense was calculated based on the number of units expected to be earned multiplied by the stock price at the period end date and is being recognized over the vesting period The total fair value of the restricted share awards restricted share units and cash based restricted share units granted during the years ended June 30 2024 2023 and 2022 was 110 million 102 million and 54 million respectively The total fair value of restricted share awards restricted share units and cash based restricted share units vested was 74 million 131 million and 67 million during fiscal years 2024 2023 and 2022 respectively
The Compensation Committee of the Board of Directors of the Company has granted certain executive officers and employees performance share units under the Plan As of June 30 2024 we had outstanding grants covering performance periods ranging from 12 to 36 months These grants are intended to provide continuing emphasis on specified financial performance goals that the Company considers important contributors to the creation of long term shareholder value These grants are payable only if the Company achieves specified levels of financial performance during the performance periods
For our relative Total Shareholder Return TSR performance based units which are based on market performance of our stock as compared to the S P Composite 1500 Electronic Equipment Instruments Components Index the compensation cost is recognized over the performance period on a straight line basis because the grants vest only at the end of the measurement period and the probability of actual shares expected to be earned is considered in the grant date valuation As a result the expense is not adjusted to reflect the actual shares earned We estimate the fair value of the TSR performance based units using the Monte Carlo simulation model
The performance share unit compensation expense was calculated based on the number of shares expected to be earned multiplied by the stock price at the date of grant and is being recognized over the vesting period
As of June 30 2024 total unrecognized compensation cost related to non vested performance share units was 102 million This cost is expected to be recognized over a weighted average period of approximately 2 24 years The total fair value of the performance share units granted during the fiscal years ended June 30 2024 2023 and 2022 was 113 million 27 million and 14 million respectively The total fair value of performance share units and cash based performance share units vested during the fiscal years ended June 30 2024 2023 and 2022 was 14 million 24 million and 11 million respectively
Our Chief Executive Officer has been identified as the chief operating decision maker CODM as he utilizes financial information to make decisions about allocating resources and assessing performance for the entire Company which is used in the decision making process to assess performance We determine our reportable business segments based on the way the CODM organizes business segments within the Company for making operating decisions and assessing performance Effective July 1 2022 we report our financial results in the following three segments i Networking ii Materials and iii Lasers
This segment address all of Coherent s four end markets namely communications industrial electronics and instrumentation with a concentration in the communications market This segment leverages Coherent s compound semiconductor technology platforms and deep knowledge of end user applications for our key end markets to deliver differentiated components and subsystems
Switzerland Taiwan the Philippines the United Kingdom and Vietnam This segment address all of Coherent s four end markets namely communications industrial electronics and instrumentation with concentrations in the industrial and electronics markets The Materials segment is a market leader in engineered materials and optoelectronic devices such as those based on ZnSe ZnS GaAs InP GaSb and SiC
The Lasers segment has locations in the United States Finland Germany Malaysia Singapore South Korea Spain Sweden Switzerland and the United Kingdom The Lasers segment s lasers and optics products serve industrial customers in semiconductor capital equipment display capital equipment precision manufacturing and aerospace defense as well as instrumentation customers in life sciences and scientific research
To the extent possible our corporate expenses are allocated to the segments The Company s CODM evaluates the performance of its segments based upon reported segment operating income loss which is defined as earnings loss from operations before income taxes interest and other income or expense Unallocated and Other include eliminating inter segment sales and transfers as well as transaction costs related to the Coherent acquisition before its close in the fiscal year ended June 30 2022
We had one major customer who accounted for 10 of consolidated revenue during fiscal 2024 The customer purchased primarily from our Networking segment We had another major customer who accounted for 10 of consolidated revenue during fiscal 2023 The customer purchased primarily from our Networking segment
The FASB defines fair value as the exchange price that would be received for an asset or paid to transfer a liability an exit price in the principal or most advantageous markets for the asset and liability in an orderly transaction between market participants at the measurement date We estimate fair value of our financial instruments utilizing an established three level hierarchy in accordance with U S GAAP The hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date as follows
Level 2 Valuation is based upon quoted prices for similar assets and liabilities in active markets or other inputs that are observable for the asset or liability either directly or indirectly for substantially the full term of the financial instruments
We entered into an interest rate swap with a notional amount of 1 075 million to limit the exposure to our variable interest rate debt by effectively converting it to a fixed interest rate We receive payments based on the one month LIBOR and make payments based on a fixed rate of 1 52 We receive payments with a floor of 0 00 The interest rate swap agreement had an effective date of November 24 2019 with an expiration date of September 24 2024 The initial notional amount of the interest rate swap decreased to 825 million in June 2022 and will remain at that amount through the expiration date On March 20 2023 we amended our 825 million interest rate swap Amended Swap effective as of February 28 2023 to replace the current reference rate LIBOR with SOFR to be consistent with Amendment no 1 to the Credit Agreement See Note 8 Debt for further information Under the Amended Swap we receive payments based on the one month SOFR and make payments based on a fixed rate of 1 42 We receive payments with a floor of 0 10 We designated this instrument as a cash flow hedge and deemed the hedge relationship effective at inception of the contract and the amended contract
The fair value of the interest rate swap of 8 million and 37 million is recognized in the Consolidated Balance Sheets within Prepaid and other current assets and Other assets as of June 30 2024 and June 30 2023 respectively Changes in fair value are recorded within Accumulated other comprehensive income loss on the Consolidated Balance Sheets and reclassified into the Consolidated Statements of Earnings Loss as interest expense in the period in which the underlying transaction affects earnings Cash flows from hedging activities are reported in the Consolidated Statements of Cash Flows in the same classification as the hedged item generally as a component of cash flows from operations The fair value of the interest rate swap is determined using widely accepted valuation techniques and reflects the contractual terms of the interest rate swap including the period to maturity and while there are no quoted prices in active markets it uses observable market based inputs including interest rate curves The fair value analysis also considers a credit valuation adjustment to reflect nonperformance risk of both the Company and the single counterparty The interest rate swap is classified as a Level 2 item within the fair value hierarchy
On February 23 2022 we entered into an interest rate cap the Cap with an effective date of July 1 2023 On March 20 2023 we amended the Cap to replace the current reference rate LIBOR with SOFR to be consistent with Amendment No 1 to the Credit Agreement See Note 8 Debt for further information The Cap manages our exposure to interest rate movements on a portion of our floating rate debt The Cap provides us with the right to receive payment if one month SOFR exceeds 1 92 Beginning in July 2023 we will begin to pay a fixed monthly premium based on an annual rate of 0 853 for the Cap The Cap will carry a notional amount ranging from 500 million to 1 500 million The fair value of the interest rate cap of 50 million and 46 million is recognized in the Consolidated Balance Sheets within prepaid and other current and other assets as of June 30 2024 and June 30 2023 respectively
The Cap as amended is designed to mirror the terms of the Company s Credit Agreement as amended on March 31 2023 We designated the Cap as a cash flow hedge of the variability of the SOFR based interest payments on the Term Facilities Every period over the life of the hedging relationship the entire change in fair value related to the hedging instrument will first be recorded within Accumulated other comprehensive income loss Amounts accumulated in accumulated other comprehensive income loss will be reclassified into interest expense in the same period or periods in which interest expense is recognized on the Credit Agreement or its direct replacement The fair value of the Cap is determined using widely accepted valuation techniques and reflects the contractual terms of the Cap including the period to maturity and while there are no quoted prices in active markets it uses observable market based inputs including interest rate curves The fair value analysis also considers a credit valuation adjustment to reflect nonperformance risk of both the Company and the single counterparty The Cap is classified as a Level 2 item within the fair value hierarchy
We estimated the fair value of the Senior Notes Term A Facility and Term B Facility Debt Facilities based on quoted market prices as of the last trading day prior to June 30 2024 however the Debt Facilities have only a limited trading volume and as such this fair value estimate is not necessarily the value at which the Debt Facilities could be retired or transferred We concluded that this fair value measurement should be categorized within Level 2 The carrying values of the Debt Facilities are net of unamortized discount and issuance costs See Note 8 Debt for further information on the Company s debt facilities
At June 30 2024 total restricted cash of 864 million includes 858 million of cash in Silicon Carbide LLC that is restricted for use only by that subsidiary and 5 million of cash restricted for other purposes in other entities At June 30 2023 total restricted cash of 16 million consisted of cash restricted for other purposes in other entities The restricted cash is invested in money market accounts and time deposits with maturities of one year or less that are held to maturity are considered Level 1 among the fair value hierarchy and approximate fair value Restricted cash that is expected to be spent and released from restriction after 12 months is classified as non current on the Consolidated Balance Sheets
We from time to time purchase foreign currency forward exchange contracts that permit us to sell specified amounts of these foreign currencies for pre established U S dollar amounts at specified dates that represent assets or liabilities on the balance sheets of certain subsidiaries These contracts are entered into for the purposes of limiting translational exposure to changes in currency exchange rates and which otherwise would expose our earnings on the revaluation of our aggregate net assets or liabilities in respective currencies to foreign currency risk At June 30 2024 we had foreign currency forward contracts recorded at fair value The fair values of these instruments were measured using valuations based upon quoted prices for similar assets and liabilities in active markets Level 2 and are valued by reference to similar financial instruments adjusted for credit risk and restrictions and other terms specific to the contracts Realized losses related to these contracts for the year ended June 30 2024 were 15 million and for
Our non financial assets such as goodwill intangible assets and property plant and equipment are assessed for impairment when an event or circumstance indicates that a decline in value may have occurred See Note 1 Nature of Business and Summary of Significant Accounting Policies for further information
Eligible employees of the Company participate in an employee retirement plan Under the Coherent Corp 401 k Profit Sharing Plan Plan we match employee contributions to the plan equal to an amount of 50 of employee contributions up to a maximum of 8 of the employee s individual earnings subject to IRS limitations Employees become eligible for participation and Company matching contributions on their first day of employment The Company s matching contributions net of forfeitures during fiscal 2024 2023 and 2022 were 18 million 11 million and 10 million respectively In addition the Plan has a profit sharing retirement plan contribution for eligible U S employees of the Company These contributions are made at the discretion of the Company s Board of Directors and were 2 million for each of the years ended June 30 2024 2023 and 2022
Under the Coherent Inc Employee Retirement and Investment Plan we matched employee contributions through December 31 2023 to the plan up to a maximum of 4 of the employee s individual earnings subject to IRS limitations Employees become eligible for participation and Company matching contributions on their first day of employment The Company s matching contributions net of forfeitures during fiscal 2024 and 2023 were 3 million and 7 million respectively Effective January 1 2024 we merged the Coherent Inc Employee Retirement and Investment Plan into the Plan
The Company maintains a pension plan covering employees of our Swiss subsidiary the Swiss Plan Employer and employee contributions are made to the Swiss Plan based on various percentages of salary and wages that vary according to employee age and other factors Employer contributions to the Swiss Plan were 4 million for both years ended June 30 2024 and 2023 Net periodic pension cost is not material for any year presented
The underfunded pension liability was 17 million and 11 million as of June 30 2024 and 2023 respectively The pension adjustment amount recognized in accumulated other comprehensive income loss was a 7 million decrease for both fiscal years ended June 30 2024 and 2023 The accumulated benefit obligation was 106 million as of June 30 2024 compared to 97 million as of June 30 2023
As a result of the Coherent Inc acquisition on July 1 2022 we assumed all assets and liabilities of defined benefit plans in the U S Germany South Korea Japan Spain and Italy acquired plans As is the customary practice with European and Asian companies the plans are unfunded with the exception of the Spanish plan which is partially funded The U S qualified plan is also partially funded Any new employees hired after January 1 2007 are not eligible for the U S qualified and nonqualified plans Effective August 31 2018 both of the U S plans were amended to freeze all future compensation benefit accruals Any new employees hired after 2000 are not eligible for the primary German pension plans For two of the German plans and the U S qualified plan unrealized gains and losses are recognized as a component of other comprehensive income loss within shareholders equity For the other plans we have elected to recognize all actuarial gains and losses on these plans immediately as incurred
Liabilities and expense for pension benefits are determined using actuarial methodologies and incorporate significant assumptions including the interest rate used to discount the future estimated cash flows the expected long term rate of return on plan assets and several assumptions relating to the employee workforce salary increases retirement age and mortality All of these assumptions were based upon management s judgment considering all known trends and uncertainties Actual results that differ from these assumptions would impact future expense recognition and the cash funding requirements of our defined benefit plans
For the acquired plans employer contributions in the years ended June 30 2024 and June 30 2023 were 2 million and 1 million respectively and net periodic pension cost was not material in either year The underfunded pension liability was 34 million and 32 million as of June 30 2024 and June 30 2023 respectively The pension adjustment amount recognized in accumulated other comprehensive income loss was a 1 million decrease and a 1 million increase for the fiscal years ended June 30 2024 and June 30 2023 respectively The accumulated benefit obligation was 44 million and 42 million as of June 30 2024 and June 30 2023 respectively
We have purchase commitments for materials and supplies as part of the ordinary conduct of business A portion of the commitments are long term and are based on minimum purchase requirements Certain short term raw material purchase commitments have a variable price component which is based on market pricing at the time of purchase Due to the proprietary nature of some of our materials and processes certain contracts may contain liquidated damage provisions for early termination We do not believe that a significant amount of liquidated damages are reasonably likely to be incurred under these commitments based upon historical experience and current expectations Total future purchase commitments held by Coherent as of June 30 2024 were 697 million in fiscal 2025 and 54 million thereafter
In August 2014 the Company s Board of Directors authorized the Company to purchase up to 50 million of its common stock through a share repurchase program the Program that calls for shares to be purchased in the open market or in private transactions from time to time The Program has no expiration and may be suspended or discontinued at any time Shares purchased by the Company are retained as treasury stock and available for general corporate purposes We did not repurchase any shares pursuant to this Program during the fiscal years ended June 30 2024 or
As of June 30 2024 we have cumulatively purchased 1 416 587 shares of Coherent common stock pursuant to the Program for approximately 22 million On February 21 2024 the Company s Board of Directors terminated the Program and any remaining amount authorized for the repurchase of shares
On May 23 2023 the Board of Directors approved the Company s May 2023 Restructuring Plan which includes site consolidations facilities moves and closures as well as the relocation and requalification of certain manufacturing facilities These restructuring actions are expected to be accompanied by other cost reductions and are intended to realign our cost structure as part of a transformation to a simpler more streamlined resilient and sustainable business model We evaluate restructuring charges in accordance with ASC 420 Exit or Disposal Cost Obligations and ASC 712 Compensation Nonretirement Post Employment Benefits
In fiscal 2024 these activities resulted in 27 million of charges primarily for acceleration of depreciation write off of property and equipment and site move costs In fiscal 2023 these activities resulted in 119 million of charges primarily for employee termination and the write off of property and equipment net of 65 million from reimbursement arrangements We expect the restructuring actions to be substantially completed by the end of fiscal 2025 however the actual timing and costs associated with these restructuring actions may differ from our current expectations and estimates and such differences may be material
At June 30 2024 15 million and 37 million of accrued severance related costs were included in other accrued liabilities and other liabilities on our Consolidated Balance Sheet respectively and are expected to result in cash expenditures through fiscal 2028 The current year severance related recoveries are primarily comprised of adjustments to accruals for severance pay for employees being terminated due to the consolidation of certain manufacturing sites with severance recorded in accordance with ASC 712 The current year asset write offs are primarily comprised of specifically identified equipment write offs due to the consolidation of certain manufacturing sites The fiscal 2023 severance related costs are primarily comprised of severance pay for employees being terminated due to the consolidation of certain manufacturing sites with severance recorded in accordance with ASC 712 The fiscal 2023 asset write offs are primarily comprised of specifically identified equipment write offs due to the consolidation of certain manufacturing sites At June 30 2023 a 50 million
By segment in fiscal 2024 4 million 28 million and 4 million of restructuring costs recoveries were incurred in the Networking Materials and Lasers segments respectively By segment in fiscal 2023 56 million 60 million and 3 million of restructuring costs were incurred in the Networking Materials and Lasers segments respectively Restructuring charges are recorded in Restructuring charges in our Consolidated Statements of Earnings Loss
The Company s management evaluated with the participation of the Company s Chief Executive Officer and the Company s Chief Financial Officer and Treasurer the effectiveness of the Company s disclosure controls and procedures as defined in Rules 13a 15 e and 15d 15 e of the Exchange Act and internal control over financial reporting as defined in Exchange Act Rules 13a 15 f and 15d 15 f as of the end of the period covered by this Annual Report on Form 10 K The Company s disclosure controls were designed to provide reasonable assurance that information required to be disclosed in reports that we file or submit under the Exchange Act is recorded processed summarized and reported within the time periods specified in the rules and forms of the SEC It should be noted that the design of any system of controls is based in part upon certain assumptions about the likelihood of future events and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions regardless of how remote However the controls have been designed to provide reasonable assurance of achieving the controls stated goals Based on that evaluation the Chief Executive Officer and Chief Financial Officer concluded that as of June 30 2024 the Company s disclosure controls and procedures were effective
During our most recent quarter there have been no changes in the Company s internal controls over financial reporting identified in connection with management s evaluation of the effectiveness of the Company s internal control over financial reporting that have materially affected or are reasonably likely to materially affect our internal control over financial reporting
During the three months ended June 30 2024 no director or officer as defined in Rule 16a 1 f of the Exchange Act of the Company adopted modified or terminated a Rule 10b5 1 trading agreement or non Rule 10b5 1 trading agreement as each term is defined in Item 408 of Regulation S K
The information set forth above in Part I of this Annual Report on Form 10 K under the caption Executive Officers of the Registrant is incorporated herein by reference The other information required by this item to the extent applicable is incorporated herein by reference to the information set forth under the captions Election of Directors and if applicable Delinquent Section 16 a Reports in the Company s definitive proxy statement for the 2024 Annual Meeting of Shareholders to be filed pursuant to Regulation 14A of the Exchange Act the Proxy Statement
under Company About Us Governance The Company will promptly disclose on its web site i any amendments or waivers with respect to a director s or executive officer s compliance with the Code of Business Conducts and Ethics and ii any amendments or waivers with respect to any provision of the Code of Ethics Any person may also obtain a copy of the Code of Business Conduct and Ethics without charge by submitting their request to the Chief Financial Officer and Treasurer of Coherent Corp 375 Saxonburg Boulevard Saxonburg Pennsylvania 16056 or by calling 724 352 4455
We intend to satisfy any disclosure requirements under Item 5 05 of Form 8 K regarding an amendment to or waiver from a provision of the Code of Business Conduct and Ethics by posting such information on our web site
The information required by this item is incorporated herein by reference to the information set forth under the caption Director Compensation For Fiscal Year 2024 Executive Compensation Compensation Committee Report and Compensation and Risk in the Company s Proxy Statement
The information required by this item is incorporated herein by reference to the information set forth under the captions Equity Compensation Plan Information and Security Ownership of Certain Beneficial Owners and Management in the Company s Proxy Statement
The information required by this item is incorporated herein by reference to the information set forth under the caption Director Independence and Corporate Governance Policies in the Company s Proxy Statement
The information required by this item is incorporated herein by reference to the information set forth under the caption Ratification of the Audit Committee s Selection of Independent Registered Public Accounting Firm in the Company s Proxy Statement
Financial statements financial statement schedules and exhibits not listed have been omitted where the required information is included in the Consolidated Financial Statements or notes thereto or is not applicable or required
Certification of the Chief Executive Officer pursuant to Rule 13a 14 b of the Securities Exchange Act of 1934 as amended and 18 U S C 1350 as adopted pursuant to Section 906 of the Sarbanes Oxley Act of 2002
Certification of the Chief Financial Officer pursuant to Rule 13a 14 b of the Securities Exchange Act of 1934 as amended and 18 U S C 1350 as adopted pursuant to Section 906 of the Sarbanes Oxley Act of 2002
Pursuant to the requirements of Section 13 or 15 d of the Securities Exchange Act of 1934 the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized
Pursuant to the requirements of the Securities Exchange Act of 1934 this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated

Company Name	COHERENT CORP. Vist SEC web-site
Category	OPTICAL INSTRUMENTS & LENSES
Trading Symbol	COHR