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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
________________________________________________________________
FORM 10-Q
________________________________________________________________
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended September 30, 2023
Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
for the transition period from                      to                     .
Commission File Number: 001-39375
________________________________________________________________
COHERENT CORP.
(Exact name of registrant as specified in its charter)
________________________________________________________________
Pennsylvania25-1214948
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
375 Saxonburg Boulevard16056
Saxonburg,PA(Zip Code)
(Address of principal executive offices)
Registrant’s telephone number, including area code: 724-352-4455
N/A
(Former name, former address and former fiscal year, if changed since last report)
________________________________________________________________
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, no par valueCOHRNew York Stock Exchange
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Accelerated filer
Non-accelerated filerSmaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act       
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:
At November 3, 2023, 151,482,324 shares of Common Stock, no par value, of the registrant were outstanding.


COHERENT CORP.
INDEX
Page No.
Condensed Consolidated Balance Sheets – September 30, 2023 and June 30, 2023 (Unaudited)
Condensed Consolidated Statements of Earnings (Loss) – Three Months Ended September 30, 2023 and 2022 (Unaudited)
Condensed Consolidated Statements of Comprehensive Income (Loss) – Three Months Ended September 30, 2023 and 2022 (Unaudited)
Condensed Consolidated Statements of Cash Flows – Three Months Ended September 30, 2023 and 2022 (Unaudited)
Condensed Consolidated Statements of Shareholders’ Equity and Mezzanine Equity – Three Months Ended September 30, 2023 and 2022 (Unaudited)

2

PART I - FINANCIAL INFORMATION
Item 1.    FINANCIAL STATEMENTS
Coherent Corp. and Subsidiaries
Condensed Consolidated Balance Sheets (Unaudited)
($000)
September 30,
2023
June 30,
2023
Assets
Current Assets
Cash, cash equivalents, and restricted cash$941,081 $833,333 
Accounts receivable - less allowance for doubtful accounts of $7,598 at September 30, 2023 and $8,005 at June 30, 2023
795,730 901,531 
Inventories1,280,755 1,272,333 
Prepaid and refundable income taxes19,745 28,271 
Prepaid and other current assets206,420 216,530 
Total Current Assets3,243,731 3,251,998 
Property, plant & equipment, net1,775,384 1,782,035 
Goodwill4,460,144 4,512,700 
Other intangible assets, net3,695,578 3,814,684 
Deferred income taxes39,042 37,748 
Other assets307,419 311,968 
Total Assets$13,521,298 $13,711,133 
Liabilities, Mezzanine Equity and Shareholders' Equity
Current Liabilities
Current portion of long-term debt$74,730 $74,836 
Accounts payable449,134 405,308 
Accrued compensation and benefits183,046 175,564 
Operating lease current liabilities37,203 38,271 
Accrued income taxes payable58,233 74,488 
Other accrued liabilities280,790 310,281 
Total Current Liabilities1,083,136 1,078,748 
Long-term debt4,219,366 4,234,962 
Deferred income taxes742,514 780,307 
Operating lease liabilities136,558 140,748 
Other liabilities236,150 247,402 
Total Liabilities6,417,724 6,482,167 
Mezzanine Equity
Series B redeemable convertible preferred stock, no par value, 5% cumulative; issued - 215,000 shares at September 30, 2023 and June 30, 2023; redemption value - $2,338,840 and $2,309,966, respectively
2,271,588 2,241,415 
Shareholders' Equity
Series A preferred stock, no par value, 6% cumulative; issued - 0 and 2,300,000 shares at September 30, 2023 and June 30, 2023, respectively
 445,319 
Common stock, no par value; authorized - 300,000,000 shares; issued - 166,764,680 shares at September 30, 2023; 154,719,413 shares at June 30, 2023
4,287,278 3,781,211 
Accumulated other comprehensive income
5,052 109,726 
Retained earnings846,709 944,416 
5,139,039 5,280,672 
Treasury stock, at cost; 15,501,849 shares at September 30, 2023 and 15,135,711 shares at June 30, 2023
(307,053)(293,121)
Total Shareholders' Equity4,831,986 4,987,551 
Total Liabilities, Mezzanine Equity and Shareholders' Equity$13,521,298 $13,711,133 
See Notes to Condensed Consolidated Financial Statements.
3

Coherent Corp. and Subsidiaries
Condensed Consolidated Statements of Earnings (Loss) (Unaudited)
($000, except per share data)

Three Months Ended
September 30,
20232022
Revenues$1,053,083 $1,344,570 
Costs, Expenses, and Other Expense (Income)
Cost of goods sold746,188 900,996 
Internal research and development113,488 121,084 
Selling, general and administrative211,697 280,014 
Restructuring charges3,018  
Interest expense73,258 61,889 
Other expense (income), net
(6,269)31,605 
Total Costs, Expenses, & Other Expense
1,141,380 1,395,588 
Loss Before Income Taxes
(88,297)(51,018)
Income Tax Benefit
(20,763)(12,320)
Net Loss
$(67,534)$(38,698)
Less: Dividends on Preferred Stock$30,173 $35,577 
Net Loss available to the Common Shareholders
$(97,707)$(74,275)
Basic Loss Per Share
$(0.65)$(0.56)
Diluted Loss Per Share
$(0.65)$(0.56)
See Notes to Condensed Consolidated Financial Statements.










4

Coherent Corp. and Subsidiaries
Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited)
($000)
Three Months Ended
September 30,
20232022
Net loss
$(67,534)$(38,698)
Other comprehensive income (loss):
Foreign currency translation adjustments(107,903)(132,371)
Change in fair value of interest rate swap, net of taxes of $(1,277) and $3,452 for the three months ended September 30, 2023 and September 30, 2022, respectively
(4,662)12,604 
Change in fair value of interest rate cap, net of taxes of $2,145 and $9,258 for
the three months ended September 30, 2023 and September 30, 2022, respectively
7,600 20,464 
Pension adjustment, net of taxes of $0 for the three months ended September 30, 2023 and September 30, 2022
291 39 
Comprehensive loss
$(172,208)$(137,962)
See Notes to Condensed Consolidated Financial Statements.
5

Coherent Corp. and Subsidiaries
Condensed Consolidated Statements of Cash Flows (Unaudited)
($000)
Three Months Ended September 30,
20232022
Cash Flows from Operating Activities
Net loss
$(67,534)$(38,698)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation65,698 64,669 
Amortization72,661 82,617 
Share-based compensation expense45,957 54,185 
Amortization of discount on convertible debt and debt issuance costs3,567 4,466 
Non-cash restructuring charges319  
Gains on disposal of property, plant and equipment(101) 
Unrealized gains on foreign currency remeasurements and transactions
(14,462)(22,273)
Loss (earnings) from equity investments243 (613)
Deferred income taxes(39,627)(14,479)
Loss on debt extinguishment 6,835 
Increase (decrease) in cash from changes in (net of effect of acquisitions):
Accounts receivable116,295 (1,326)
Inventories(16,709)7,514 
Accounts payable41,985 (42,865)
Contract liabilities(9,769)44,419 
Income taxes(2,806)(8,633)
Accrued compensation and benefits7,482 (44,910)
Other operating net liabilities
(4,396)(11,330)
Net cash provided by operating activities198,803 79,577 
Cash Flows from Investing Activities
Additions to property, plant & equipment(62,197)(138,990)
Purchases of businesses, net of cash acquired (5,488,556)
Other investing activities(1,978)(711)
Net cash used in investing activities(64,175)(5,628,257)
Cash Flows from Financing Activities
Proceeds from borrowings of Term A Facility 850,000 
Proceeds from borrowings of Term B Facility 2,800,000 
Proceeds from borrowings of Revolving Credit Facility 65,000 
Proceeds from issuance of Series B Preferred Shares 1,400,000 
Payments on existing debt(18,683)(996,429)
Payments on convertible notes (3,561)
Debt issuance costs (126,516)
Equity issuance costs (42,000)
Proceeds from exercises of stock options and purchases of stock under employee stock purchase plan14,947 7,425 
Payments in satisfaction of employees' minimum tax obligations(13,876)(40,885)
Other financing activities(268)(292)
Net cash provided by (used in) financing activities(17,880)3,912,742 
Effect of exchange rate changes on cash, cash equivalents, and restricted cash(9,458)(42,273)
Net increase (decrease) in cash, cash equivalents, and restricted cash
107,290 (1,678,211)
Cash, Cash Equivalents, and Restricted Cash at Beginning of Period837,566 2,582,371 
Cash, Cash Equivalents, and Restricted Cash at End of Period$944,856 $904,160 
6

Supplemental Information
Cash paid for interest$67,320 $45,963 
Cash paid for income taxes$14,810 $14,920 
Additions to property, plant & equipment included in accounts payable$39,264 $71,035 
Non-Cash Investing and Financing Activities
Conversion of Series A preferred stock to common stock$445,319 $ 
See Notes to Condensed Consolidated Financial Statements.

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the Condensed Consolidated Balance Sheets that sum to the total of the same amounts shown in the Condensed Consolidated Statements of Cash Flows. Restricted cash, non-current is included in the Condensed Consolidated Balance Sheets under 'Other Assets'. At September 30, 2023, we had $10 million of restricted cash.

Three Months Ended September 30,
20232022
Cash, cash equivalents, and restricted cash $941,081 $898,501 
Restricted cash, non-current3,775 5,659 
Total cash, cash equivalents, and restricted cash shown in the Condensed Consolidated Statements of Cash Flows$944,856 $904,160 

7

Coherent Corp and Subsidiaries
Condensed Consolidated Statements of Shareholders’ Equity and Mezzanine Equity (Unaudited)
($000, including share amounts)
Common StockPreferred StockAccumulated Other Comprehensive Income (Loss)Retained EarningsTreasury StockTotalMezzanine Equity
SharesAmountSharesAmountSharesAmountPreferred SharesAmount
Balance - June 30, 2023154,721 $3,781,211 2,300 $445,319 $109,726 $944,416 (15,137)$(293,121)$4,987,551 215 $2,241,415 
Share-based and deferred compensation activities1,804 60,748 — — — — (366)(13,932)46,816 — — 
Conversion of Series A preferred stock10,240 445,319 (2,300)(445,319)— — — —  — — 
Net Loss— — — — — (67,534)— — (67,534)— — 
Foreign currency translation adjustments— — — — (107,903)— — — (107,903)— — 
Change in fair value of interest rate swap, net of taxes of $(1,277)
— — — — (4,662)— — — (4,662)— — 
Change in fair value of interest rate cap, net of taxes of $2,145
— — — — 7,600 — — — 7,600 — — 
Pension adjustment, net of taxes of $0
— — — — 291 — — — 291 — — 
Dividends— — — — — (30,173)— — (30,173)— 30,173 
Balance - September 30, 2023166,765 $4,287,278  $ $5,052 $846,709 (15,503)$(307,053)$4,831,986 215 $2,271,588 


Common StockPreferred StockAccumulated Other Comprehensive Income (Loss)Retained EarningsTreasury StockTotalMezzanine Equity
SharesAmountSharesAmountSharesAmountPreferred SharesAmount
Balance - June 30, 2022120,923 $2,064,552 2,300 $445,319 $(2,167)$1,348,125 (13,973)$(239,354)$3,616,475 75 $766,803 
Share-based and deferred compensation activities2,398 61,431 — — — — (830)(40,860)20,571 — — 
Coherent Acquisition22,588 1,207,591 — — — — — — 1,207,591 — — 
Convertible debt conversions7,181 337,940 — — — — — — 337,940 — — 
Net Loss— — — — — (38,698)— — (38,698)— — 
Foreign currency translation adjustments— — — — (132,371)— — — (132,371)— — 
Change in fair value of interest rate swap, net of taxes of $3,452
— — — — 12,604 — — — 12,604 — — 
Change in fair value of interest rate cap, net of taxes of $9,258
— — — — 20,464 — — — 20,464 — — 
Pension adjustment, net of taxes $0
— — — — 39 — — — 39 — — 
Issuance of Series B shares— — — — — — — — — 140 1,358,000 
Dividends— — — — — (35,577)— — (35,577)— 28,677 
Balance - September 30, 2022153,090 $3,671,514 2,300 $445,319 $(101,431)$1,273,850 (14,803)$(280,214)$5,009,038 215 $2,153,480 
See Notes to Condensed Consolidated Financial Statements.
8

Coherent Corp. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
Note 1.    Basis of Presentation
The condensed consolidated financial statements of Coherent Corp. (“Coherent”, the “Company”, “we”, “us” or “our”) for the three months ended September 30, 2023 and 2022 are unaudited. In the opinion of management, all adjustments considered necessary for a fair presentation for the periods presented have been included. All adjustments are of a normal recurring nature unless disclosed otherwise. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) have been condensed or omitted. These condensed consolidated financial statements should be read in conjunction with the audited financial statements and notes thereto included in the Company’s Annual Report on Form 10-K dated August 18, 2023. The condensed consolidated results of operations for the three months ended September 30, 2023 are not necessarily indicative of the results to be expected for the full fiscal year. The Condensed Consolidated Balance Sheet information as of June 30, 2023 was derived from the Company’s audited consolidated financial statements.
Note 2.    Recently Issued Financial Accounting Standards
The Company reviewed all recently issued accounting pronouncements and concluded that they were either not applicable or not expected to have a significant impact on its unaudited condensed consolidated financial statements.
Note 3.    Revenue from Contracts with Customers
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.
The following tables summarize disaggregated revenue by market ($000):
Three Months Ended September 30, 2023
NetworkingMaterialsLasersTotal
Industrial$15,965 $133,203 $255,166 $404,334 
Communications446,274 13,252  459,526 
Electronics1,724 88,065  89,789 
Instrumentation8,886 10,120 80,428 99,434 
Total Revenues$472,849 $244,640 $335,594 $1,053,083 
Three Months Ended September 30, 2022
NetworkingMaterialsLasersTotal
Industrial$18,693 $144,083 $298,241 $461,017 
Communications563,521 21,877  585,398 
Electronics3,822 176,622  180,444 
Instrumentation10,512 13,062 94,137 117,711 
Total Revenues$596,548 $355,644 $392,378 $1,344,570 
Contract Liabilities
Payments received from customers are based on invoices or billing schedules as established in contracts with customers. Contract liabilities relate to billings in advance of performance under the contract. Contract liabilities are recognized as revenue when the performance obligations have been satisfied. During the three months ended September 30, 2023, we recognized revenue of $35 million related to customer payments that were included as contract liabilities in the Condensed Consolidated Balance Sheet as of June 30, 2023. We had $137 million of contract liabilities recorded in the Condensed Consolidated Balance Sheet as of September 30, 2023. As of September 30, 2023, $94 million of deferred revenue is included within other accrued liabilities, and $43 million is included within other liabilities on the Condensed Consolidated Balance Sheet.
9


Note 4.    Inventories
The components of inventories were as follows ($000):
September 30,
2023
June 30,
2023
Raw materials$447,512 $462,436 
Work in progress576,202 549,992 
Finished goods257,041 259,905 
Total inventories$1,280,755 $1,272,333 
Note 5.    Property, Plant and Equipment
Property, plant and equipment consists of the following ($000):
September 30,
2023
June 30,
2023
Land and improvements$68,957 $69,639 
Buildings and improvements777,613 780,204 
Machinery and equipment1,895,208 1,879,136 
Construction in progress322,783 287,990 
Finance lease right-of-use asset25,000 25,000 
3,089,561 3,041,969 
Less accumulated depreciation(1,314,177)(1,259,934)
Property, plant, and equipment, net$1,775,384 $1,782,035 
Note 6.    Goodwill and Other Intangible Assets
Changes in the carrying amount of goodwill were as follows ($000):
Three Months Ended September 30, 2023
NetworkingMaterials LasersTotal
Balance-beginning of period$1,036,204 $247,695 $3,228,801 $4,512,700 
Foreign currency translation(553)(646)(51,357)(52,556)
Balance-end of period$1,035,651 $247,049 $3,177,444 $4,460,144 

We test goodwill for impairment annually during the fourth quarter, or more frequently when events or changes in circumstances indicate that fair value is below carrying value.
As part of our annual assessment in the fourth quarter of fiscal 2023, we determined that the estimated fair value of our Lasers reporting unit exceeded its carrying value by approximately 10%. As of September 30, 2023, the carrying amount of goodwill within this reporting unit was $3.2 billion. The reporting unit’s estimated fair value is sensitive to changes in the significant assumptions used in the analysis including forecasted revenues and related gross margins. If the reporting unit does not perform to expected levels and realize the expected benefit from the multi-year synergy and site consolidation plans, or there are adverse changes in certain macroeconomic factors, the related goodwill may be at risk for impairment in the future.
The gross carrying amount and accumulated amortization of our intangible assets other than goodwill were as follows ($000):
September 30, 2023June 30, 2023
Gross
Carrying
Amount
Accumulated
Amortization
Net
Book
Value
Gross
Carrying
Amount
Accumulated
Amortization
Net Book Value
Technology$1,644,917 $(300,638)$1,344,279 $1,661,263 $(270,786)$1,390,477 
Trade Names438,471 (8,471)430,000 438,470 (8,279)430,191 
Customer Lists2,298,091 (376,792)1,921,299 2,333,360 (339,344)1,994,016 
Total$4,381,479 $(685,901)$3,695,578 $4,433,093 $(618,409)$3,814,684 
10

Note 7.    Debt
The components of debt as of the dates indicated were as follows ($000):
September 30,
2023
June 30,
2023
Term A Facility, interest at adjusted SOFR, as defined, plus 1.750%
$807,500 $818,125 
Debt issuance costs, Term A Facility and Revolving Credit Facility(17,008)(18,149)
Term B Facility, interest at adjusted SOFR, as defined, plus 2.750%
2,559,626 2,566,625 
Debt issuance costs, Term B Facility(61,779)(63,977)
1.30% Term loan
1,324 1,697 
Facility construction loan in Germany21,069 22,340 
5.000% Senior Notes
990,000 990,000 
Debt issuance costs and discount, Senior Notes(6,636)(6,863)
Total debt4,294,096 4,309,798 
Current portion of long-term debt(74,730)(74,836)
Long-term debt, less current portion$4,219,366 $4,234,962 
Senior Credit Facilities
On July 1, 2022 (the “Closing Date”), 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 Term A Facility and the Revolving Credit Facility borrowings bear interest at adjusted SOFR plus 1.75% as of September 30, 2023. As amended, the Term B Facility bears interest at an adjusted SOFR rate (subject to a 0.50% floor) plus 2.75%. 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 $60 million and $48 million in the three months ended September 30, 2023 and September 30, 2022, respectively, which is included in interest expense in the Condensed 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 $11 million and $2 million during the three months ended September 30, 2023 and September 30, 2022, respectively. The amortization of debt issuance costs included in interest expense was $3 million and $4 million in the three months ended September 30, 2023 and September 30, 2022, respectively. Debt issuance costs are presented as contra-debt within the long-term debt caption in the Condensed 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 all 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.
As of September 30, 2023, the Company was in compliance with all covenants under the Senior Credit Facilities.
11

Prior Senior Credit Facilities
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 Condensed Consolidated Statement of Earnings (Loss) during the three months ended September 30, 2022.
Bridge Loan Commitment
Subject to the terms of an amended and restated commitment letter entered into in connection with Coherent entering into the Merger Agreement to complete its acquisition of Coherent, Inc. (the “Merger”), 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 three months ended September 30, 2022, the Company incurred expenses of $18 million, related to the termination of the Bridge Loan Commitment, which is included in other expense (income) in the Condensed Consolidated Statement of Earnings (Loss).
Debt Assumed through Acquisition
We assumed the remaining balances of three term loans with the closing of the Merger. The aggregate principal amount outstanding is $22 million as of September 30, 2023. The term 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.
5.000% Senior Notes due 2029
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, the Company incurred interest expense of $13 million and $13 million in the three months ended September 30, 2023 and September 30, 2022, respectively, which is included in interest expense in the Condensed 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 September 30, 2023, the Company was in compliance with all covenants under the Indenture.
Aggregate Availability
The Company had aggregate availability of $346 million under its Revolving Credit Facility as of September 30, 2023.
Note 8.    Income Taxes
The Company’s year-to-date effective income tax rate was 24% at both September 30, 2023 and September 30, 2022. The variations between the Company’s effective tax rate and the U.S. statutory rate of 21% were due to tax rate differentials between U.S. and foreign jurisdictions.
12


U.S. GAAP prescribes the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements which includes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. As of September 30, 2023 and June 30, 2023, the Company’s gross unrecognized income tax benefit, excluding interest and penalties, was $115 million. 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. If recognized, $91 million of the gross unrecognized tax benefits at September 30, 2023 would impact the effective tax rate. The Company recognizes interest and penalties related to uncertain tax positions in the income tax provision in the Condensed Consolidated Statements of Earnings (Loss). The amount of accrued interest and penalties included in the gross unrecognized income tax benefit was $6 million at September 30, 2023 and June 30, 2023.
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 2011 to 2023 remain open to examination by certain foreign taxing jurisdictions. The Company is currently under examination for certain subsidiary companies in Pennsylvania for the year ended June 30, 2020; 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; Italy for the year ended September 30, 2019; Spain for the years ended September 30, 2020 through September 30, 2022; and Germany for the years ended September 30, 2011 through June 30, 2022. The Company believes its income tax reserves for these tax matters are adequate.
Note 9.    Leases
We determine if an arrangement is a lease at inception for arrangements with an initial term of more than 12 months, and classify it as either finance or operating.
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 Condensed 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 Condensed 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 includes it in the initial measurement of our leased 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.
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The following table presents lease costs, which include leases for arrangements with an initial term of more than 12 months, lease term, and discount rates ($000):
Three Months Ended September 30, 2023Three Months Ended
September 30, 2022
Finance lease cost
Amortization of right-of-use assets$417 $417 
Interest on lease liabilities268 288 
Total finance lease cost685 705 
Operating lease cost12,937 12,848 
Total lease cost$13,622 $13,553 
Cash Paid for Amounts Included in the Measurement of Lease Liabilities
Operating cash flows from finance leases$268 $288 
Operating cash flows from operating leases12,268 12,679 
Financing cash flows from finance leases379 341 
Weighted-Average Remaining Lease Term (in Years)
Finance leases8.39.3
Operating leases7.26.2
Weighted-Average Discount Rate
Finance leases5.6 %5.6 %
Operating leases5.8 %5.3 %
Note 10.    Equity and Redeemable Preferred Stock
As of September 30, 2023, the Company’s amended and restated articles of incorporation authorize our board of directors, without the approval of our shareholders, to issue 5 million shares of our preferred stock. As of September 30, 2023, 2.3 million shares of mandatory preferred convertible shares have been authorized, none are outstanding; 75,000 shares of Series B-1 convertible preferred stock, no par value, have been issued and are outstanding; and 140,000 shares of Series B-2 convertible preferred stock, no par value, have been issued and are outstanding.
Mandatory Convertible Preferred Stock
In July 2020, the Company issued 2.3 million shares of Mandatory Convertible Preferred Stock.
All outstanding shares of Mandatory Convertible Preferred Stock were converted to 10,240,290 shares of Company Common Stock on July 3, 2023, at a conversion ratio of 4.4523, and no shares of Mandatory Convertible Preferred Stock are currently issued and outstanding.
Preferred dividends are presented as a reduction to retained earnings on the Condensed Consolidated Balance Sheets.
The following table presents dividends per share and dividends recognized:
Three Months Ended
September 30,
20232022
Dividends per share$ $3.00 
Mandatory Convertible Preferred Stock dividends ($000) 6,900 
Series B-1 Convertible Preferred Stock
In March 2021, the Company issued 75,000 shares of Series B-1 Convertible Preferred Stock, no par value per share (“Series B-1 Preferred Stock”), for $10,000 per share, resulting in an aggregate purchase price of $750 million.
The shares of Series B-1 Preferred Stock are convertible into shares of Coherent Common Stock as follows:
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at the election of the holder, at an initial 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.
On or at any time after March 31, 2031:
each holder has the right to require the Company to redeem all of their Coherent 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.
Series B-2 Convertible Preferred Stock
On July 1, 2022, the Company issued 140,000 shares of Series B-2 Convertible Preferred Stock, no par value per share (“Series B-2 Preferred Stock” and, together with the Series B-1 Preferred Stock, the “Series B Preferred Stock”), for $10,000 per share and an aggregate purchase price of $1.4 billion.
The shares of Series B-2 Preferred Stock are convertible into shares of Coherent Common Stock as follows:
at the election of the holder the Conversion Price upon the delivery by Coherent to the holders of the Series B-2 Preferred Stock of an offer to repurchase the Coherent Series B-2 Convertible Preferred Stock upon the occurrence of a Fundamental Change (as defined in the Statement with Respect to Shares establishing the Series B Preferred Stock); and
at the election of the Company, any time following July 1, 2025 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-2 Convertible Preferred Stock currently have voting rights, voting as one class with the Coherent Common Stock and the Series B-1 Preferred Stock, on an as-converted basis, subject to limited exceptions.
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On or at any time after July 1, 2032:
each holder has the right to require the Company to redeem all of their Series B-2 Preferred Stock, for cash, at a redemption price per share equal to the sum of the Stated Value for such shares (as defined in the Statement with Respect to Shares establishing the Series B Preferred Stock) 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-2 Preferred Stock outstanding, for cash, at the Redemption Price.
In connection with any Fundamental Change, 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-2 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 July 1, 2027, the aggregate amount of all dividends that would have been paid (subject to certain exceptions), from the date of repurchase through July 1, 2027.
If the Company defaults on a payment obligation with respect to the Series B-2 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-2 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-2 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.
Preferred stock dividends are presented as a reduction to retained earnings on the Condensed Consolidated Balance Sheets.
The following table presents dividends per share and dividends recognized:
Three Months Ended
September 30,
20232022
Dividends per share$140 $133 
Dividends ($000)28,874 27,477 
Deemed dividends ($000)1,299 1,200 
Note 11.    Earnings (Loss) Per Share
Basic earnings (loss) per common share is computed by dividing net earnings (loss) available to common shareholders by the weighted-average number of shares of common stock outstanding during the period.
Diluted earnings (loss) per common share is computed by dividing the diluted earnings (loss) available to common shareholders by the weighted-average number of shares of common stock and potentially dilutive shares of common stock outstanding during the period. For the three months ended September 30, 2023 and September 30, 2022, as the Company was in a net loss position, there were no dilutive shares.
Potentially dilutive shares whose effect would have been anti-dilutive are excluded from the computation of diluted earnings (loss) per common share. For the three months ended September 30, 2023, diluted earnings (loss) per share excluded the potentially dilutive effect of the performance and restricted shares, calculated based on the average stock price for each fiscal period, using the treasury stock method, as well as the shares of Coherent Common Stock issuable upon conversion of the Series B Convertible Preferred Stock (under the If-Converted method), as their effects were anti-dilutive.
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The following is a reconciliation of the numerators and denominators of the basic and diluted earnings (loss) per share computations (000, except per share data):
Three Months Ended
September 30,
20232022
Numerator
Net loss$(67,534)$(38,698)
Deduct Series A preferred stock dividends (6,900)
Deduct Series B dividends and deemed dividends(30,173)(28,677)
Basic loss available to common shareholders$(97,707)$(74,275)
Diluted loss available to common shareholders$(97,707)$(74,275)
Denominator
Diluted weighted average common shares150,328 133,280 
Basic loss per common share$(0.65)$(0.56)
Diluted loss per common share$(0.65)$(0.56)
The following table presents potential shares of common stock excluded from the calculation of diluted net earnings (loss) per share, as their effect would have been anti-dilutive (000):
Three Months Ended
September 30,
20232022
Common stock equivalents2,337 1,762 
Convertible Notes 4,474 
Series A Mandatory Convertible Preferred Stock 9,604 
Series B Convertible Preferred Stock27,176 25,861 
Total anti-dilutive shares29,513 41,701 
Note 12.    Segment Reporting
The Company reports its business segments using the “management approach” model for segment reporting. This means that we determine our reportable business segments based on the way the chief operating decision-maker organizes business segments within the Company for making operating decisions and assessing financial performance.
We report our financial results in the following three segments: (i) Networking, (ii) Materials, and (iii) Lasers. Our chief operating decision maker receives and reviews financial information based on these three segments. We evaluate business segment performance based upon segment operating income, which is defined as earnings before income taxes, interest and other income or expense. The segments are managed separately due to the market, production requirements and facilities unique to each segment.
The accounting policies are consistent across each segment. To the extent possible, our corporate expenses and assets are allocated to the segments.
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The following tables summarize selected financial information of our operations by segment ($000):
Three Months Ended September 30, 2023
NetworkingMaterialsLasersUnallocated
& Other
Total
Revenues$472,849 $244,640 $335,594 $ $1,053,083 
Inter-segment revenues12,887 87,742 639 (101,268) 
Operating income (loss)16,317 7,182 (44,807) (21,308)
Interest expense    (73,258)
Other income (expense), net    6,269 
Income tax benefit    20,763 
Net loss    (67,534)
Depreciation and amortization40,436 25,287 72,636  138,359 
Expenditures for property, plant & equipment17,493 40,512 4,192  62,197 
Segment assets3,329,101 2,100,915 8,091,282  13,521,298 
Goodwill1,035,651 247,049 3,177,444  4,460,144 
Three Months Ended September 30, 2022
NetworkingMaterialsLasersUnallocated
& Other
Total
Revenues$596,548 $355,644 $392,378 $ $1,344,570 
Inter-segment revenues18,740 95,054 166 (113,960) 
Operating income (loss)90,982 75,335 (123,841) 42,476 
Interest expense    (61,889)
Other income (expense), net    (31,605)
Income tax benefit    12,320 
Net loss    (38,698)
Depreciation and amortization42,774 26,527 77,985  147,286 
Expenditures for property, plant & equipment43,830 74,898 20,262  138,990 

Note 13.    Share-Based Compensation
Stock Award Plans
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 amended and restated, the “Plan”). The Plan was approved at the Annual Meeting in November 2020. The Plan provides for the grant of non-qualified 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 9,550,000 shares of Coherent Common Stock, not including any remaining shares forfeited under the predecessor plans that may be rolled into the Plan. The Plan has vesting provisions predicated upon the death, retirement or disability of the grantee.
Share-based compensation expense for the periods indicated was as follows ($000):
Three Months Ended
September 30,
20232022
Stock Options and Cash-Based Stock Appreciation Rights$(1,057)$(441)
Restricted Share Awards and Cash-Based Restricted Share Unit Awards31,065 44,652 
Performance Share Awards and Cash-Based Performance Share Unit Awards10,845 7,089 
Employee Stock Purchase Plan3,671 1,903 
$44,524 $53,203 

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Note 14.    Fair Value of Financial Instruments
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 1 – Valuation is based upon unadjusted quoted prices for identical assets or liabilities in active markets.
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.
Level 3 – Valuation is based upon other unobservable inputs that are significant to the fair value measurements.
The classification of fair value measurements within the hierarchy is based upon the lowest level of input that is significant to the measurement.
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. Through February 28, 2023, we received payments based on the one-month LIBOR and made payments based on a fixed rate of 1.52%. We received 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 7. 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 $31 million and $37 million is recognized in the Condensed Consolidated Balance Sheet within prepaid and other current assets as of September 30, 2023 and June 30, 2023, respectively. Changes in fair value are recorded within accumulated other comprehensive income (loss) on the Condensed Consolidated Balance Sheets and reclassified into the Condensed Consolidated Statement 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 Condensed 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 7. 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 began 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 $57 million and $46 million is recognized in the Condensed Consolidated Balance Sheet within prepaid and other current assets and other assets as of September 30, 2023 and June 30, 2023, respectively.
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The Cap, as amended, is designed to mirror the terms of the 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) are 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 based on quoted market prices as of the last trading day prior to September 30, 2023; however, the Senior Notes have only a limited trading volume and as such this fair value estimate is not necessarily the value at which the Senior Notes could be retired or transferred. We concluded that this fair value measurement should be categorized within Level 2. The carrying value of the Senior Notes is net of unamortized discount and issuance costs. See Note 7. Debt for details on our debt facilities.
The fair value and carrying value of the Senior Notes were as follows ($000):
September 30, 2023June 30, 2023
Fair ValueCarrying ValueFair ValueCarrying Value
Senior Notes$859,726 $983,364 $895,950 $983,137 
Cash and cash equivalents are considered Level 1 among the fair value hierarchy and approximate fair value. Our borrowings, including our lease obligations and the Senior Notes, are considered Level 2 among the fair value hierarchy and their principal amounts approximate fair value.
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 purpose 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 September 30, 2023, 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 three months ended September 30, 2023 and September 30, 2022 were $11 million and $23 million, respectively, and were included in other expense (income), net in the Condensed Consolidated Statements of Earnings (Loss).
Note 15.    Share Repurchase Programs
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 quarter ended September 30, 2023. As of September 30, 2023, we have cumulatively purchased 1,416,587 shares of Coherent common stock pursuant to the Program for approximately $22 million.
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Note 16.    Accumulated Other Comprehensive Income
The changes in accumulated other comprehensive income (loss) (“AOCI”) by component, net of tax, for the three months ended September 30, 2023 were as follows ($000):
Foreign
Currency
Translation
Adjustment
Interest
Rate
Swap
Interest
Rate
Cap
Defined
Benefit
Pension Plan
Total
Accumulated Other
Comprehensive
Income (Loss)
AOCI - June 30, 2023
$53,355 $19,484 $36,628 $259 $109,726 
Other comprehensive income (loss) before reclassifications(107,903)3,314 10,636 291 (93,663)
Amounts reclassified from AOCI (7,976)(3,036) (11,011)
Net current-period other comprehensive income (loss)(107,903)(4,662)7,600 291 (104,674)
AOCI - September 30, 2023$(54,548)$14,822 $44,228 $550 $5,052 
Note 17.    Restructuring and Synergy and Site Consolidation Plans
Restructuring Plan
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 (ASC 420), and ASC 712, Compensation-Nonretirement Post-Employment Benefits (ASC 712).
In the first quarter of fiscal 2024, these activities resulted in $3 million of charges primarily for employee termination costs as well as site move costs, write-off of property and equipment and acceleration of depreciation. 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.
The following table presents our current and non-current liability as accrued for restructuring charges on our Condensed Consolidated Balance Sheets. The table sets forth an analysis of the components of the restructuring charges and payments and other deductions made against the accrual for the three months ended September 30, 2023 ($000):
Severance
Asset Write-Offs
Other
Total Accrual
Balance - June 30, 2023$64,379 $ $ $64,379 
Restructuring accruals2,050 269 699 3,018 
Payments(7,930)  (7,930)
Asset write-offs and other (269)$(699)(968)
Balance - September 30, 2023$58,499 $ $ $58,499 
At September 30, 2023, $21 million and $37 million of accrued severance related costs were included in other accrued liabilities and other liabilities, respectively, and are expected to result in cash expenditures through fiscal 2028. The current year 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. At September 30, 2023, a $20 million receivable under a reimbursement arrangement is recorded in prepaid and other current assets.
By segment, for the three months ended September 30, 2023, $5 million of restructuring costs were incurred in the Materials segment, partially offset by $2 million of restructuring recoveries in the Networking segment. Restructuring charges and recoveries are recorded in Restructuring Charges in our Condensed Consolidated Statements of Earnings (Loss).
Synergy and Site Consolidation Plan
On May 20, 2023, the Company announced that it has 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
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$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. We evaluate severance and other site consolidation costs in accordance with ASC 420 and ASC 712. In the first quarter of fiscal 2024, the acceleration of these activities resulted in $8 million of charges primarily for employee termination costs, overlapping labor related to transition of manufacturing operations to other sites, shut down costs and accelerated depreciation. In fiscal 2023, the acceleration of these activities resulted in $20 million of charges primarily for employee termination costs, the write-off of inventory for products that are being exited and shut down costs.
At September 30, 2023, $5 million of accrued severance related costs were included in both other accrued liabilities and other liabilities, and are expected to result in cash expenditures through fiscal 2025. The current year severance related costs are primarily comprised of severance pay for employees being terminated due to the exit or consolidation of certain manufacturing sites.
For the three months ended September 30, 2023, the $8 million of synergy and site consolidation costs were incurred in the Lasers segment. Costs related to the synergy and site consolidation efforts are recorded in cost of goods sold ($6 million) and IR&D ($2 million) in our Condensed Consolidated Statements of Earnings (Loss).
Note 18.    Subsequent Events
On October 10, 2023, the Company entered into investment agreements with Denso Corporation (“DENSO”) and Mitsubishi Electric Corporation (“Mitsubishi Electric”), under which they will collectively invest an aggregate of $1 billion in Silicon Carbide LLC, a newly formed wholly owned subsidiary (“Silicon Carbide”). Under the terms of the Investment Agreements. DENSO and Mitsubishi Electric will each invest $500 million in exchange for a 12.5% non-controlling ownership interest in Silicon Carbide, with Coherent owning the remaining 75%. In connection with the transaction, Silicon Carbide will supply DENSO and Mitsubishi Electric 150 mm and 200 mm silicon carbide (“SiC”) substrates and epitaxial wafers pursuant to long term agreements. The transaction is expected to allow Coherent to increase its available free cash flow to provide greater financial and operational flexibility to execute its capital allocation priorities. The $1 billion investment will be used to fund future capital expenditure requirements of Silicon Carbide. The transaction is expected to close by or during the first quarter of calendar 2024.
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Item 2.    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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 Condensed Consolidated Financial Statements and related notes included under Item 1 of this quarterly report. Coherent’s MD&A is presented in seven sections:
Forward-Looking Statements
Overview
Restructuring and Site Consolidation
SiC Strategy
Critical Accounting Estimates
Results of Operations
Liquidity and Capital Resources
Forward-looking statements in Item 2 may involve risks and uncertainties that could cause results to differ materially from those projected (refer to Part II Item 1A for discussion of these risks and uncertainties).
Forward-Looking Statements
Certain statements contained in the 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,” “intends,” “believes,” “plans,” “projects” or similar expressions.
Although our management considers the expectations and assumptions on which the forward-looking statements in this Quarterly Report on Form 10-Q are based 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 Quarterly Report on Form 10-Q include, but are not limited to: (i) the failure of any one or more of the expectations or assumptions on which such forward-looking statements are based to prove to be correct; and (ii) the risks relating to forward-looking statements and other “Risk Factors” discussed in Item 1A in this Quarterly Report on Form 10-Q, the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2023 and in the Company's other reports filed with the Securities and Exchange Commission. 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 Quarterly Report on Form 10-Q 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.
Overview
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.
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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 government-funded research and development 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; manufacturers of equipment and devices for industrial, optical communications, electronics, and instrumentation markets; communication end-users including communication service providers, hyperscale and other cloud internet content providers; U.S. government prime contractors; and various U.S. government agencies.
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.
Restructuring and Site Consolidation
Restructuring Plan
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 the first quarter of fiscal 2024, these activities resulted in $3 million of charges primarily for employee termination 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 17. Restructuring and Synergy and Site Consolidation Plan to the Company’s Condensed Consolidated Financial Statements included in Item 1 of this Quarterly Report on Form 10-Q for further information.
Synergy and Site Consolidation Plan
On May 20, 2023, the Company announced that it has 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 the first quarter of fiscal 2024, the acceleration of these activities resulted in $8 million of charges primarily for employee termination, overlapping labor related to transition of manufacturing operations to other sites, shut down costs and accelerated depreciation. In fiscal 2023, the acceleration of these activities resulted in $8 million of charges primarily for employee termination costs, the write-off of inventory for products that are being exited and shut down costs. See Note 17. Restructuring and Synergy and Site Consolidation Plan to the Company’s Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for further information.
SiC Strategy
On May 10, 2023, the Company announced that it has commenced a review of strategic alternatives for its Silicon Carbide business. On October 10, 2023, the Company entered into investment agreements with Denso Corporation (“DENSO”) and Mitsubishi Electric Corporation (“Mitsubishi Electric”), under which they will collectively invest an aggregate of $1 billion in Silicon Carbide LLC, a newly formed wholly owned subsidiary (“Silicon Carbide”). Under the terms of the Investment Agreements, DENSO and Mitsubishi Electric will each invest $500 million in exchange for a 12.5% non-controlling ownership interest in Silicon Carbide, with Coherent owning the remaining 75%. In connection with the transaction, Silicon Carbide will supply DENSO and Mitsubishi Electric 150 mm and 200 mm silicon carbide (“SiC”) substrates and epitaxial wafers pursuant to long term agreements. The transaction is expected to allow Coherent to increase its available free cash flow to provide greater financial and operational flexibility to execute its capital allocation priorities. The $1 billion investment will be used to fund future capital expenditure requirements of Silicon Carbide. The transaction is expected to close by or during the first quarter of calendar 2024.
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Critical Accounting Estimates
The preparation of financial statements and related disclosures are in conformity with accounting principles generally accepted in the United States of America and the Company’s discussion and analysis of its financial condition and results of operations require the Company’s management to make judgments, assumptions and estimates that affect the amounts reported in its condensed consolidated financial statements and accompanying notes.
Note 1 of the Notes to Consolidated Financial Statements in the Company’s Annual Report on Form 10-K dated August 18, 2023 describes the significant accounting policies and methods used in the preparation of the Company’s consolidated financial statements.

New Accounting Standards
See Note 2. Recently Issued Financial Accounting Standards to our unaudited condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for a description of recent accounting pronouncements, including the expected dates of adoption and estimated effects, if any, on our consolidated financial statements.

Results of Operations ($ in millions, except per share data)
The following tables set forth select items from our Condensed Consolidated Statements of Earnings (Loss) for the three months ended September 30, 2023 and 2022 ($ in millions):
Three Months Ended
September 30, 2023
Three Months Ended
September 30, 2022
% of
Revenues
% of
Revenues
Total revenues$1,053 100 %$1,345 100 %
Cost of goods sold746 71 901 67 
Gross margin307 29 444 33 
Operating expenses:
Internal research and development113 11 121 
Selling, general and administrative212