| |||||
☒ | Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
| |||||
☐ | Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
II-VI INCORPORATED
|
| ||||||||||
PENNSYLVANIA | 25-1214948 | ||||||||||
(State or other jurisdiction of
| (I.R.S. Employer
| ||||||||||
375 Saxonburg Boulevard | 16056 | ||||||||||
Saxonburg, | PA |
| (Zip Code) | ||||||||
(Address of principal executive offices) |
|
Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||
Common Stock, no par value | COHR | New York Stock Exchange | ||||||
Series A Mandatory Convertible Preferred Stock, no par value | IIVI | New York Stock Exchange |
Large accelerated filer | ☒ | Accelerated filer | ☐ | ||||||||
Non-accelerated filer | ☐ | Smaller reporting company | ☐ | ||||||||
Emerging growth company | ☐ |
INDEX
| ||
Page No. | ||||||||||||
Condensed Consolidated Balance Sheets – | ||||||||||||
Condensed Consolidated Statements of Earnings (Loss) – Three and | ||||||||||||
Condensed Consolidated Statements of Comprehensive Income (Loss) – Three and | ||||||||||||
|
| |||||||||||
Condensed Consolidated | ||||||||||||
Condensed Consolidated Statements of Shareholders’ Equity and Mezzanine Equity – |
| |||||||||||
| ||||||||||||
| ||||||||||||
| ||||||||||||
| ||||||||||||
| ||||||||||||
| ||||||||||||
|
| |||||||||||
Item 6. |
|
| Item 1. FINANCIAL STATEMENTS |
II-VI Incorporated
March 31, 2023 | June 30, 2022 | ||||||||||
Assets | |||||||||||
Current Assets | |||||||||||
Cash, cash equivalents, and restricted cash | $ | 901,028 | $ | 2,582,371 | |||||||
Accounts receivable - less allowance for doubtful accounts of $8,344 at March 31, 2023 and $4,206 at June 30, 2022 | 924,369 | 700,331 | |||||||||
Inventories | 1,394,103 | 902,559 | |||||||||
Prepaid and refundable income taxes | 26,237 | 19,585 | |||||||||
Prepaid and other current assets | 160,907 | 100,346 | |||||||||
Total Current Assets | 3,406,644 | 4,305,192 | |||||||||
Property, plant & equipment, net | 1,910,561 | 1,363,195 | |||||||||
Goodwill | 4,505,137 | 1,285,759 | |||||||||
Other intangible assets, net | 3,954,198 | 635,404 | |||||||||
Deferred income taxes | 34,169 | 31,714 | |||||||||
Other assets | 306,923 | 223,582 | |||||||||
Total Assets | $ | 14,117,632 | $ | 7,844,846 | |||||||
Liabilities, Mezzanine Equity and Shareholders' Equity | |||||||||||
Current Liabilities | |||||||||||
Current portion of long-term debt | $ | 74,910 | $ | 403,212 | |||||||
Accounts payable | 428,860 | 434,917 | |||||||||
Accrued compensation and benefits | 177,811 | 172,109 | |||||||||
Operating lease current liabilities | 40,309 | 27,574 | |||||||||
Accrued income taxes payable | 74,156 | 29,317 | |||||||||
Other accrued liabilities | 311,410 | 199,830 | |||||||||
Total Current Liabilities | 1,107,456 | 1,266,959 | |||||||||
Long-term debt | 4,349,923 | 1,897,214 | |||||||||
Deferred income taxes | 847,212 | 77,259 | |||||||||
Operating lease liabilities | 148,010 | 110,214 | |||||||||
Other liabilities | 213,953 | 109,922 | |||||||||
Total Liabilities | 6,666,554 | 3,461,568 | |||||||||
Mezzanine Equity | |||||||||||
Series B redeemable convertible preferred stock, no par value, 5% cumulative; issued - 215,000 and 75,000 shares at March 31, 2023 and June 30, 2022, respectively; redemption value - $2,281,448 and $798,181, respectively | 2,211,642 | 766,803 | |||||||||
Shareholders' Equity | |||||||||||
Series A preferred stock, no par value, 6% cumulative; issued - 2,300,000 shares at March 31, 2023 and June 30, 2022 | 445,319 | 445,319 | |||||||||
Common stock, no par value; authorized - 300,000,000 shares; issued - 154,369,985 shares at March 31, 2023; 120,923,171 shares at June 30, 2022 | 3,755,410 | 2,064,552 | |||||||||
Accumulated other comprehensive income (loss) | 170,454 | (2,167) | |||||||||
Retained earnings | 1,159,322 | 1,348,125 | |||||||||
5,530,505 | 3,855,829 | ||||||||||
Treasury stock, at cost; 15,098,467 shares at March 31, 2023 and 13,972,758 shares at June 30, 2022 | (291,069) | (239,354) | |||||||||
Total Shareholders' Equity | 5,239,436 | 3,616,475 | |||||||||
Total Liabilities, Mezzanine Equity and Shareholders' Equity | $ | 14,117,632 | $ | 7,844,846 |
|
| December 31, |
|
| June 30, |
| ||
|
| 2017 |
|
| 2017 |
| ||
Assets |
|
|
|
|
|
|
|
|
Current Assets |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
| $ | 254,456 |
|
| $ | 271,888 |
|
Accounts receivable - less allowance for doubtful accounts of $1,231 at December 31, 2017 and $1,314 at June 30, 2017 |
|
| 196,045 |
|
|
| 193,379 |
|
Inventories |
|
| 235,468 |
|
|
| 203,695 |
|
Prepaid and refundable income taxes |
|
| 7,055 |
|
|
| 6,732 |
|
Prepaid and other current assets |
|
| 30,391 |
|
|
| 26,602 |
|
Total Current Assets |
|
| 723,415 |
|
|
| 702,296 |
|
Property, plant & equipment, net |
|
| 481,014 |
|
|
| 367,728 |
|
Goodwill |
|
| 272,209 |
|
|
| 250,342 |
|
Other intangible assets, net |
|
| 132,328 |
|
|
| 133,957 |
|
Investments |
|
| 67,068 |
|
|
| 11,727 |
|
Deferred income taxes |
|
| 3,427 |
|
|
| 3,023 |
|
Other assets |
|
| 8,413 |
|
|
| 8,224 |
|
Total Assets |
| $ | 1,687,874 |
|
| $ | 1,477,297 |
|
|
|
|
|
|
|
|
|
|
Liabilities and Shareholders' Equity |
|
|
|
|
|
|
|
|
Current Liabilities |
|
|
|
|
|
|
|
|
Current portion of long-term debt |
| $ | 20,000 |
|
| $ | 20,000 |
|
Accounts payable |
|
| 71,236 |
|
|
| 65,540 |
|
Accrued compensation and benefits |
|
| 49,776 |
|
|
| 58,178 |
|
Accrued income taxes payable |
|
| 7,278 |
|
|
| 12,178 |
|
Other accrued liabilities |
|
| 31,893 |
|
|
| 29,056 |
|
Total Current Liabilities |
|
| 180,183 |
|
|
| 184,952 |
|
Long-term debt |
|
| 442,768 |
|
|
| 322,022 |
|
Capital lease obligation |
|
| 22,861 |
|
|
| 23,415 |
|
Deferred income taxes |
|
| 37,158 |
|
|
| 15,345 |
|
Other liabilities |
|
| 41,003 |
|
|
| 31,000 |
|
Total Liabilities |
|
| 723,973 |
|
|
| 576,734 |
|
Shareholders' Equity |
|
|
|
|
|
|
|
|
Preferred stock, no par value; authorized - 5,000,000 shares; none issued |
|
| - |
|
|
| - |
|
Common stock, no par value; authorized - 300,000,000 shares; issued - 74,816,999 shares at December 31, 2017; 74,081,451 shares at June 30, 2017 |
|
| 340,548 |
|
|
| 269,638 |
|
Accumulated other comprehensive income (loss) |
|
| 1,522 |
|
|
| (13,778 | ) |
Retained earnings |
|
| 778,799 |
|
|
| 748,062 |
|
|
|
| 1,120,869 |
|
|
| 1,003,922 |
|
Treasury stock, at cost - 12,453,513 shares at December 31, 2017 and 10,940,062 shares at June 30, 2017 |
|
| (156,968 | ) |
|
| (103,359 | ) |
Total Shareholders' Equity |
|
| 963,901 |
|
|
| 900,563 |
|
Total Liabilities and Shareholders' Equity |
| $ | 1,687,874 |
|
| $ | 1,477,297 |
|
- See notesNotes to condensed consolidated financial statements.
|
| Three Months Ended |
| |||||
|
| December 31, |
| |||||
|
| 2017 |
|
| 2016 |
| ||
|
|
|
|
|
|
|
|
|
Revenues |
| $ | 281,470 |
|
| $ | 231,822 |
|
|
|
|
|
|
|
|
|
|
Costs, Expenses and Other Expense (Income) |
|
|
|
|
|
|
|
|
Cost of goods sold |
|
| 172,037 |
|
|
| 137,559 |
|
Internal research and development |
|
| 27,764 |
|
|
| 23,632 |
|
Selling, general and administrative |
|
| 49,122 |
|
|
| 43,495 |
|
Interest expense |
|
| 4,644 |
|
|
| 1,365 |
|
Other expense (income), net |
|
| (1,965 | ) |
|
| (6,045 | ) |
Total Costs, Expenses & Other Expense (Income) |
|
| 251,602 |
|
|
| 200,006 |
|
|
|
|
|
|
|
|
|
|
Earnings Before Income Taxes |
|
| 29,868 |
|
|
| 31,816 |
|
|
|
|
|
|
|
|
|
|
Income Taxes |
|
| 20,272 |
|
|
| 7,913 |
|
|
|
|
|
|
|
|
|
|
Net Earnings |
| $ | 9,596 |
|
| $ | 23,903 |
|
|
|
|
|
|
|
|
|
|
Basic Earnings Per Share |
| $ | 0.15 |
|
| $ | 0.38 |
|
|
|
|
|
|
|
|
|
|
Diluted Earnings Per Share |
| $ | 0.15 |
|
| $ | 0.37 |
|
-
Three Months Ended March 31, | |||||||||||
2023 | 2022 | ||||||||||
Revenues | $ | 1,240,194 | $ | 827,724 | |||||||
Costs, Expenses, and Other Expense (Income) | |||||||||||
Cost of goods sold | 820,038 | 506,051 | |||||||||
Internal research and development | 126,382 | 96,895 | |||||||||
Selling, general and administrative | 226,386 | 118,009 | |||||||||
Interest expense | 75,183 | 43,499 | |||||||||
Other expense (income), net | (3,048) | 241 | |||||||||
Total Costs, Expenses, & Other Expense | 1,244,941 | 764,695 | |||||||||
Earnings (Loss) Before Income Taxes | (4,747) | 63,029 | |||||||||
Income Tax Expense (Benefit) | (7,293) | 14,027 | |||||||||
Net Earnings | $ | 2,546 | $ | 49,002 | |||||||
Less: Dividends on Preferred Stock | $ | 36,071 | $ | 17,148 | |||||||
Net Earnings (Loss) available to the Common Shareholders | $ | (33,525) | $ | 31,854 | |||||||
Basic Earnings (Loss) Per Share | $ | (0.24) | $ | 0.30 | |||||||
Diluted Earnings (Loss) Per Share | $ | (0.24) | $ | 0.28 |
|
| Six Months Ended |
| |||||
|
| December 31, |
| |||||
|
| 2017 |
|
| 2016 |
| ||
Revenues |
| $ | 542,973 |
|
| $ | 453,342 |
|
|
|
|
|
|
|
|
|
|
Costs, Expenses and Other Expense (Income) |
|
|
|
|
|
|
|
|
Cost of goods sold |
|
| 327,565 |
|
|
| 271,477 |
|
Internal research and development |
|
| 53,338 |
|
|
| 45,464 |
|
Selling, general and administrative |
|
| 99,746 |
|
|
| 85,574 |
|
Interest expense |
|
| 8,289 |
|
|
| 2,611 |
|
Other expense (income), net |
|
| (2,732 | ) |
|
| (7,447 | ) |
Total Costs, Expenses & Other Expense (Income) |
|
| 486,206 |
|
|
| 397,679 |
|
|
|
|
|
|
|
|
|
|
Earnings Before Income Taxes |
|
| 56,767 |
|
|
| 55,663 |
|
|
|
|
|
|
|
|
|
|
Income Taxes |
|
| 26,030 |
|
|
| 15,466 |
|
|
|
|
|
|
|
|
|
|
Net Earnings |
| $ | 30,737 |
|
| $ | 40,197 |
|
|
|
|
|
|
|
|
|
|
Basic Earnings Per Share |
| $ | 0.49 |
|
| $ | 0.65 |
|
|
|
|
|
|
|
|
|
|
Diluted Earnings Per Share |
| $ | 0.47 |
|
| $ | 0.63 |
|
-
Nine Months Ended March 31, | |||||||||||
2023 | 2022 | ||||||||||
Revenues | $ | 3,955,049 | $ | 2,429,654 | |||||||
Costs, Expenses, and Other Expense (Income) | |||||||||||
Cost of goods sold | 2,680,131 | 1,490,190 | |||||||||
Internal research and development | 376,257 | 281,189 | |||||||||
Selling, general and administrative | 780,551 | 358,234 | |||||||||
Interest expense | 207,976 | 72,752 | |||||||||
Other expense (income), net | 32,253 | (5,535) | |||||||||
Total Costs, Expenses, & Other Expense | 4,077,168 | 2,196,830 | |||||||||
Earnings (Loss) Before Income Taxes | (122,119) | 232,824 | |||||||||
Income Tax Expense (Benefit) | (40,895) | 41,701 | |||||||||
Net Earnings (Loss) | $ | (81,224) | $ | 191,123 | |||||||
Less: Dividends on Preferred Stock | $ | 107,537 | $ | 50,933 | |||||||
Net Earnings (Loss) available to the Common Shareholders | $ | (188,761) | $ | 140,190 | |||||||
Basic Earnings (Loss) Per Share | $ | (1.38) | $ | 1.32 | |||||||
Diluted Earnings (Loss) Per Share | $ | (1.38) | $ | 1.22 |
Condensed Consolidated Financial Statements.
|
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||
|
| December 31, |
|
| December 31, |
| ||||||||||
|
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
| ||||
Net earnings |
| $ | 9,596 |
|
| $ | 23,903 |
|
| $ | 30,737 |
|
| $ | 40,197 |
|
Other comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments |
|
| 4,085 |
|
|
| (14,565 | ) |
|
| 15,182 |
|
|
| (15,147 | ) |
Amortization of net actuarial gains and losses, net of taxes of $9 and $32 for the three and six months ended December 31, 2017, respectively, and $137 and $85 for the three and six months ended December 31, 2016, respectively |
|
| 36 |
|
|
| 424 |
|
|
| 118 |
|
|
| 312 |
|
Comprehensive income |
| $ | 13,717 |
|
| $ | 9,762 |
|
| $ | 46,037 |
|
| $ | 25,362 |
|
-
See Three Months Ended
March 31,Nine Months Ended
March 31,2023 2022 2023 2022 Net earnings (loss) $ 2,546 $ 49,002 $ (81,224) $ 191,123 Other comprehensive income (loss): Foreign currency translation adjustments 58,141 327 157,805 (11,461) (6,251) 23,804 6,019 36,395 (8,275) 8,916 7,646 8,916 Pension adjustment, net of taxes of $0 for the three and nine months ended March 31, 2023, and $0 for the three and nine months ended March 31, 2022 709 — 1,151 — Comprehensive income $ 46,870 $ 82,049 $ 91,397 $ 224,973 notesNotes to condensed consolidated financial statements.
|
| Six Months Ended |
| |||||
|
| December 31, |
| |||||
|
| 2017 |
|
| 2016 |
| ||
Cash Flows from Operating Activities |
|
|
|
|
|
|
|
|
Net earnings |
| $ | 30,737 |
|
| $ | 40,197 |
|
Adjustments to reconcile net earnings to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
Depreciation |
|
| 30,811 |
|
|
| 23,440 |
|
Amortization |
|
| 7,414 |
|
|
| 6,358 |
|
Share-based compensation expense |
|
| 7,868 |
|
|
| 5,697 |
|
Losses (gains) on foreign currency remeasurements and transactions |
|
| 391 |
|
|
| (4,664 | ) |
Earnings from equity investments |
|
| (1,617 | ) |
|
| (490 | ) |
Deferred income taxes |
|
| 10,114 |
|
|
| 4,200 |
|
Increase (decrease) in cash from changes in (net of effect of acquisitions): |
|
|
|
|
|
|
|
|
Accounts receivable |
|
| (350 | ) |
|
| 11,889 |
|
Inventories |
|
| (23,414 | ) |
|
| (12,909 | ) |
Accounts payable |
|
| 4,831 |
|
|
| 1,399 |
|
Income taxes |
|
| 1,487 |
|
|
| 385 |
|
Accrued compensation and benefits |
|
| (9,684 | ) |
|
| (14,145 | ) |
Other operating net assets |
|
| 1,081 |
|
|
| (2,665 | ) |
Net cash provided by operating activities |
|
| 59,669 |
|
|
| 58,692 |
|
Cash Flows from Investing Activities |
|
|
|
|
|
|
|
|
Additions to property, plant & equipment |
|
| (77,623 | ) |
|
| (57,822 | ) |
Purchases of businesses |
|
| (80,965 | ) |
|
| (580 | ) |
Purchase of equity investment |
|
| (51,491 | ) |
|
| - |
|
Other investing activities |
|
| 145 |
|
|
| 186 |
|
Net cash used in investing activities |
|
| (209,934 | ) |
|
| (58,216 | ) |
Cash Flows from Financing Activities |
|
|
|
|
|
|
|
|
Proceeds from issuance of 0.25% convertible senior note due 2022 |
|
| 345,000 |
|
|
| - |
|
Proceeds from borrowings under Credit Facility |
|
| 100,000 |
|
|
| 44,000 |
|
Payments on borrowings under Credit Facility |
|
| (262,000 | ) |
|
| (15,000 | ) |
Proceeds from exercises of stock options |
|
| 6,784 |
|
|
| 7,740 |
|
Payments in satisfaction of employees' minimum tax obligations |
|
| (3,608 | ) |
|
| (2,271 | ) |
Debt issuance costs |
|
| (10,061 | ) |
|
| (1,384 | ) |
Purchases of treasury stock |
|
| (49,875 | ) |
|
| - |
|
Other financing activities |
|
| - |
|
|
| 503 |
|
Net cash provided by financing activities |
|
| 126,240 |
|
|
| 33,588 |
|
Effect of exchange rate changes on cash and cash equivalents |
|
| 6,593 |
|
|
| (6,314 | ) |
Net (decrease) increase in cash and cash equivalents |
|
| (17,432 | ) |
|
| 27,750 |
|
Cash and Cash Equivalents at Beginning of Period |
|
| 271,888 |
|
|
| 218,445 |
|
Cash and Cash Equivalents at End of Period |
| $ | 254,456 |
|
| $ | 246,195 |
|
Cash paid for interest |
| $ | 3,229 |
|
| $ | 2,413 |
|
Cash paid for income taxes |
| $ | 12,907 |
|
| $ | 10,390 |
|
Non-cash transactions: |
|
|
|
|
|
|
|
|
Capital lease obligation incurred on facility lease |
| $ | - |
|
| $ | 25,000 |
|
Additions to property, plant & equipment included in accounts payable |
| $ | 5,915 |
|
| $ | 6,715 |
|
-
Nine Months Ended March 31, | |||||||||||
2023 | 2022 | ||||||||||
Cash Flows from Operating Activities | |||||||||||
Net earnings (loss) | $ | (81,224) | $ | 191,123 | |||||||
Adjustments to reconcile net earnings to net cash provided by operating activities: | |||||||||||
Depreciation | 197,469 | 153,714 | |||||||||
Amortization | 280,667 | 59,820 | |||||||||
Share-based compensation expense | 123,674 | 57,424 | |||||||||
Amortization of discount on convertible debt and debt issuance costs | 13,690 | 12,159 | |||||||||
Unrealized losses (gains) on foreign currency remeasurements and transactions | (945) | (912) | |||||||||
Gain from equity investments | (435) | (1,641) | |||||||||
Deferred income taxes | (121,277) | (8,917) | |||||||||
Loss on debt extinguishment | 6,835 | — | |||||||||
Increase (decrease) in cash from changes in (net of effect of acquisitions): | |||||||||||
Accounts receivable | 50,887 | 3,764 | |||||||||
Inventories | 75,096 | (184,073) | |||||||||
Accounts payable | (78,985) | 27,056 | |||||||||
Contract liabilities | 13,177 | 24,473 | |||||||||
Income taxes | 18,478 | 19,957 | |||||||||
Accrued compensation and benefits | (54,893) | (40,030) | |||||||||
Other operating net assets (liabilities) | 10,279 | (37,910) | |||||||||
Net cash provided by operating activities | 452,493 | 276,007 | |||||||||
Cash Flows from Investing Activities | |||||||||||
Additions to property, plant & equipment | (342,999) | (195,991) | |||||||||
Purchases of businesses, net of cash acquired | (5,488,556) | — | |||||||||
Other investing activities | (2,261) | (5,750) | |||||||||
Net cash used in investing activities | (5,833,816) | (201,741) | |||||||||
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 | — | |||||||||
Proceeds from issuance of Senior Notes | — | 990,000 | |||||||||
Payments on Finisar Notes | — | (14,888) | |||||||||
Payments on existing debt | (1,144,025) | (46,538) | |||||||||
Payments on borrowings under Revolving Credit Facility | (65,000) | — | |||||||||
Payments on convertible notes | (3,561) | — | |||||||||
Debt issuance costs | (126,516) | (10,197) | |||||||||
Equity issuance costs | (42,000) | — | |||||||||
Proceeds from exercises of stock options and purchases of stock under employee stock purchase plan | 21,509 | 17,177 | |||||||||
Payments in satisfaction of employees' minimum tax obligations | (51,836) | (14,948) | |||||||||
Payment of dividends | (20,700) | (27,608) | |||||||||
Other financing activities | (866) | (1,715) | |||||||||
Net cash provided by financing activities | 3,682,005 | 891,283 | |||||||||
Effect of exchange rate changes on cash, cash equivalents, and restricted cash | 22,532 | 42,874 | |||||||||
Net increase (decrease) in cash, cash equivalents, and restricted cash | (1,676,786) | 1,008,423 | |||||||||
Cash, Cash Equivalents, and Restricted Cash at Beginning of Period | 2,582,371 | 1,591,892 | |||||||||
Cash, Cash Equivalents, and Restricted Cash at End of Period | $ | 905,585 | $ | 2,600,315 | |||||||
Cash paid for interest | $ | 190,672 | $ | 24,158 | |||||||
Cash paid for income taxes | $ | 63,485 | $ | 34,757 | |||||||
Additions to property, plant & equipment included in accounts payable | $ | 45,425 | $ | 71,477 |
Nine Months Ended March 31, | |||||||||||
2023 | 2022 | ||||||||||
Cash, cash equivalents, and restricted cash | $ | 901,028 | $ | 2,600,315 | |||||||
Restricted cash, non-current | 4,557 | — | |||||||||
Total cash, cash equivalents, and restricted cash shown in the Condensed Consolidated Statements of Cash Flows | $ | 905,585 | $ | 2,600,315 |
(000)
|
|
|
|
|
|
|
|
|
| Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
| Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
| Common Stock |
|
| Comprehensive |
|
| Retained |
|
| Treasury Stock |
|
|
|
|
| ||||||||||||
|
| Shares |
|
| Amount |
|
| Income (Loss) |
|
| Earnings |
|
| Shares |
|
| Amount |
|
| Total |
| |||||||
Balance - June 30, 2017 |
|
| 74,081 |
|
| $ | 269,638 |
|
| $ | (13,778 | ) |
| $ | 748,062 |
|
|
| (10,940 | ) |
| $ | (103,359 | ) |
| $ | 900,563 |
|
Shares issued under share-based compensation plans |
|
| 736 |
|
|
| 6,784 |
|
|
| - |
|
|
| - |
|
|
| (99 | ) |
|
| (3,608 | ) |
|
| 3,176 |
|
Shares acquired in satisfaction of minimum tax withholding obligations |
|
| - |
|
|
| (274 | ) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (274 | ) |
Net earnings |
|
| - |
|
|
| - |
|
|
| - |
|
|
| 30,737 |
|
|
| - |
|
|
| - |
|
|
| 30,737 |
|
Purchases of treasury stock |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (1,415 | ) |
|
| (49,875 | ) |
|
| (49,875 | ) |
Treasury stock under deferred compensation arrangements |
|
| - |
|
|
| 126 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (126 | ) |
|
| - |
|
Foreign currency translation adjustments |
|
| - |
|
|
| - |
|
|
| 15,182 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 15,182 |
|
Equity portion of convertible debt, net of issuance costs of $1,694 |
|
| - |
|
|
| 56,406 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 56,406 |
|
Share-based compensation expense |
|
| - |
|
|
| 7,868 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 7,868 |
|
Amortization of net actuarial gains and losses, net of taxes of $32 |
|
| - |
|
|
| - |
|
|
| 118 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 118 |
|
Balance - December 31, 2017 |
|
| 74,817 |
|
| $ | 340,548 |
|
| $ | 1,522 |
|
| $ | 778,799 |
|
|
| (12,454 | ) |
| $ | (156,968 | ) |
| $ | 963,901 |
|
- See notes to condensed consolidated financial statements.
Common Stock | Preferred Stock | Accumulated Other Comprehensive Income (Loss) | Retained Earnings | Treasury Stock | Total | Mezzanine Equity | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Shares | Amount | Preferred Shares | Amount | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance - June 30, 2022 | 120,923 | $ | 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 activities | 2,398 | 61,431 | — | — | — | — | (830) | (40,860) | 20,571 | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Coherent Acquisition | 22,588 | 1,207,591 | — | — | — | — | — | — | 1,207,591 | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Convertible debt conversions | 7,181 | 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 $5,440 | — | — | — | — | 20,464 | — | — | — | 20,464 | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Issuance of Series B shares | — | — | — | — | — | — | — | — | — | 140 | 1,358,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Pension adjustment, net of taxes of $0 | — | — | — | — | 39 | — | — | — | 39 | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Dividends | — | — | — | — | — | (35,577) | — | — | (35,577) | — | 28,677 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance - September 30, 2022 | 153,090 | $ | 3,671,514 | 2,300 | $ | 445,319 | $ | (101,431) | $ | 1,273,850 | (14,803) | $ | (280,214) | $ | 5,009,038 | 215 | $ | 2,153,480 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Share-based and deferred compensation activities | 779 | 32,745 | — | — | — | — | (266) | (9,551) | 23,194 | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net Loss | — | — | — | — | — | (45,072) | — | — | (45,072) | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Foreign currency translation adjustments | — | — | — | — | 232,035 | — | — | — | 232,035 | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Change in fair value of interest rate swap, net of taxes of $(92) | — | — | — | — | (334) | — | — | — | (334) | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Change in fair value of interest rate cap, net of taxes of $(1,208) | — | — | — | — | (4,543) | — | — | — | (4,543) | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Pension adjustment, net of taxes of $0 | — | — | — | — | 403 | — | — | — | 403 | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Dividends | — | — | — | — | — | (35,931) | — | — | (35,931) | — | 28,992 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance - December 31, 2022 | 153,869 | $ | 3,704,259 | 2,300 | $ | 445,319 | $ | 126,130 | $ | 1,192,847 | (15,069) | $ | (289,765) | $ | 5,178,790 | 215 | $ | 2,182,471 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Share-based and deferred compensation activities | 501 | 51,151 | — | — | — | — | (29) | (1,304) | 49,847 | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net Earnings | — | — | — | — | — | 2,546 | — | — | 2,546 | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Foreign currency translation adjustments | — | — | — | — | 58,141 | — | — | — | 58,141 | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Change in fair value of interest rate swap, net of taxes of $(1,712) | — | — | — | — | (6,251) | — | — | — | (6,251) | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Change in fair value of interest rate cap, net of taxes of $(2,200) | — | — | — | — | (8,275) | — | — | — | (8,275) | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Pension adjustment, net of taxes of $0 | — | — | — | — | 709 | — | — | — | 709 | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Dividends | — | — | — | — | — | (36,071) | — | — | (36,071) | — | 29,171 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance - March 31, 2023 | 154,370 | $ | 3,755,410 | 2,300 | $ | 445,319 | $ | 170,454 | $ | 1,159,322 | (15,098) | $ | (291,069) | $ | 5,239,436 | 215 | $ | 2,211,642 |
Common Stock | Preferred Stock | Accumulated Other Comprehensive Income (Loss) | Retained Earnings | Treasury Stock | Total | Mezzanine Equity | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Shares | Amount | Preferred Shares | Amount | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance - June 30, 2021 | 119,127 | $ | 2,028,273 | 2,300 | $ | 445,319 | $ | 14,267 | $ | 1,136,777 | (13,640) | $ | (218,466) | $ | 3,406,170 | 75 | $ | 726,178 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Share-based and deferred compensation activities | 844 | 30,567 | — | — | — | — | (200) | (12,935) | 17,632 | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net Earnings | — | — | — | — | — | 74,464 | — | — | 74,464 | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Foreign currency translation adjustments | — | — | — | — | (14,381) | — | — | — | (14,381) | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Change in fair value of interest rate swap, net of taxes of $734 | — | — | — | — | 2,681 | — | — | — | 2,681 | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Dividends | — | — | — | — | — | (17,082) | — | — | (17,082) | — | 10,182 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Adjustment for ASU 2020-06 | — | (56,388) | — | — | — | 44,916 | — | — | (11,472) | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance - September 30, 2021 | 119,971 | $ | 2,002,452 | 2,300 | $ | 445,319 | $ | 2,567 | $ | 1,239,075 | (13,840) | $ | (231,401) | $ | 3,458,012 | 75 | $ | 736,360 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Share-based and deferred compensation activities | 82 | 16,854 | — | — | — | — | (13) | (806) | 16,048 | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net Earnings | — | — | — | — | — | 67,657 | — | — | 67,657 | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Foreign currency translation adjustments | — | — | — | — | 2,593 | — | — | — | 2,593 | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Change in fair value of interest rate swap, net of taxes of $2,714 | — | — | — | — | 9,910 | — | — | — | 9,910 | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Dividends | — | — | — | — | — | (16,807) | — | — | (16,807) | — | 9,803 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance - December 31, 2021 | 120,053 | $ | 2,019,306 | 2,300 | $ | 445,319 | $ | 15,070 | $ | 1,289,925 | $ | (13,853) | $ | (232,207) | $ | 3,537,413 | 75 | $ | 746,163 | |||||||||||||||||||||||||||||||||||||||||||||||||
Share-based and deferred compensation activities | 266 | 26,544 | — | — | — | — | (16) | (1,093) | 25,451 | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net Earnings | — | — | — | — | — | 49,002 | — | — | 49,002 | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Foreign currency translation adjustments | — | — | — | — | 327 | — | — | — | 327 | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Change in fair value of interest rate swap, net of taxes of $6,519 | — | — | — | — | 23,804 | — | — | — | 23,804 | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Change in fair value of interest rate cap, net of taxes $2,370 | — | — | — | — | 8,916 | — | — | — | 8,916 | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Dividends | — | — | — | — | — | (17,148) | — | — | (17,148) | — | 10,248 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance - March 31, 2022 | 120,319 | $ | 2,045,850 | 2,300 | $ | 445,319 | $ | 48,117 | $ | 1,321,779 | $ | (13,869) | $ | (233,300) | $ | 3,627,765 | 75 | $ | 756,411 |
| Note 1. Basis of Presentation |
| Note 2. Recently Issued Financial Accounting Standards |
Adopted Pronouncements
Company's consolidated financial statements.
In March 2016, the FASB issued ASU 2016-09, Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. This update simplifies several aspects of the accounting for employee share-based payment transactions, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, and classificationbusiness combination in the statement of cash flows. Under this ASU, excess tax benefits or deficiencies are recognized in income tax expense in the Condensed Consolidated Statement of Earnings. Upon adoption of this ASU, the Company had a valuation allowance for its U.S. deferred tax assets and did not recognize any tax benefit. Had the Company not had a valuation allowance, the Company would have recognized a tax benefit of $2.4 million. The impact to the Company’s dilutive shares under this new standard was immaterial.
In January 2016, the FASB issued ASU 2016-01, Financial Instruments – Recognition and Measurement of Financial Assets and Financial Liabilities (Topic 825). This update requires that public entities measure equity investmentsaccordance with readily determinable fair values, at fair value, with changes in their fair value recorded through net income. This ASU also clarifies that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available for sale securities in combination with the entity’s other deferred tax assets. The adoption of this standard did not have a material effect on the Company’s Consolidated Financial Statements.
In July 2015, the FASB issued ASU 2015-11, Inventory (Topic 330): Simplifying the Measurement of Inventory. This update simplifies the measurement of inventory valuation at the lower of cost or net realizable value. Net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. The adoption of this standard did not have a material effect on the Company’s Consolidated Financial Statements.
In March 2016, the FASB issued ASU 2016-07, Investments – Equity Method and Joint Ventures (Topic 323): Simplifying the Transition to the Equity Method of Accounting. This update eliminates the requirement to retrospectively apply the equity method in previous periods when an investor obtains significant influence over an investee. The adoption of this standard did not have a material effect on the Company’s Consolidated Financial Statements.
Revenue Recognition Pronouncement Currently Under Evaluation
In May 2014, the FASB issued ASU 2014-09:Accounting Standards Codification ASC 606: Revenue from Contracts with Customers, (Topic 606) which supersedes virtually all existing revenue recognition guidance under U.S. GAAP.rather than adjust them to fair value at the acquisition date. We have adopted this accounting standard as of July 1, 2022. The update's core principle is that an entity should recognize revenueacquisition of Coherent, Inc. has been accounted for in accordance with ASU 2021-08, as will any future acquisitions. Results of operations for quarterly periods prior to depictadoption remain unchanged as a result of the transferadoption of promised goods or servicesASU No. 2021-08. Refer to Note 3. Coherent Acquisition for further information.
We continue our evaluationterms of the impactMerger Agreement, and subject to the conditions set forth therein, each share of common stock of legacy Coherent, Inc. (“Legacy Coherent”), par value $0.01 per share (the “Legacy Coherent 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 Common Stock.
Other Pronouncements Currently Under Evaluation
In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities. The guidance eliminates the requirement to separately measure and report hedge ineffectiveness and generally requires the entire change in thepreliminary total fair value of a hedging instrument to be presentedconsideration paid in connection with the same income statement line asacquisition of Coherent, Inc. consisted of the hedged item. The standard will be effective for the Company’s 2019 fiscal year. The adoption of this ASU is not expected to have a material effect on the Company’s Consolidated Financial Statements.
In March 2017, the FASB issued ASU 2017-07, Compensation (Topic 715)following (in $000): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. This update affects employers’ presentation of defined benefit retirement plan costs. Early adoption is permitted. The standard will be effective for the Company’s 2019 fiscal year. The adoption of this ASU is not expected to have a material effect on the Company’s Consolidated Financial Statements.
In January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business. This update changes the definition of a business to assist entities with evaluating when a set of transferred assets and activities is a business. Early adoption is permitted. The standard will be effective for the Company’s 2019 fiscal year. The adoption of this ASU is not expected to have a material effect on the Company’s Consolidated Financial Statements.
In October 2016, the FASB issued ASU 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory. This update requires that when intra-entity asset transfers occur, the entity must recognize tax effects in the period in which the transfer occurs. The standard will be effective for the Company’s 2019 fiscal year. Early adoption is permitted. The adoption of this ASU is not expected to have a material effect on the Company’s Consolidated Financial Statements.
In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. The guidance clarifies how entities should classify certain cash receipts and cash payments on the statement of cash flows. The guidance also clarifies how the predominance principle should be applied when cash receipts and cash payments have aspects of more than one class of cash flow. The update will be effective for the Company’s 2019 fiscal year. Early adoption is permitted.
Shares | Per Share | Total Consideration | |||||||||||||||
Cash paid for merger consideration | — | — | $ | 5,460,808 | |||||||||||||
Shares of COHR common stock issued to Legacy Coherent stockholders | 22,587,885 | $49.83 | 1,125,554 | ||||||||||||||
Converted Legacy Coherent RSUs attributable to pre-combination service | — | — | 82,037 | ||||||||||||||
Payment of Legacy Coherent debt | — | — | 364,544 | ||||||||||||||
Payment of Legacy Coherent transaction expenses | — | — | 62,840 | ||||||||||||||
$ | 7,095,783 |
In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. This update is intended to provide financial statement users with more decision-useful information about expected credit losses and other commitments to extend credit held by the reporting entity. The standard replaces the incurred loss impairment methodology in current GAAP with one that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The update will be effective for the Company’s 2021 fiscal year. Early adoption is permitted. The Company is evaluating the impact of this guidance on the Company’s Consolidated Financial Statements.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). This update requires that a lessee recognize leased assets with terms greater than 12 months on the balance sheet for the rights and obligations created by those leases. The standard will be effective for the Company’s 2020 fiscal year. Early adoption is permitted. The Company is evaluating the impact of this guidance on the Company’s Consolidated Financial Statements.
|
|
Purchase of Equity Investment
In November 2017, the Company acquired a 93.8% equity investment in a privately-held company for $51.5 million. The Company’s pro-rata share of earnings from this investment since the acquisition date was $1.1 million, and was recorded in other expense (income), net for the three and six months ended December 31, 2017, in the Consolidated Statements of Earnings.
The Company has a nonconsolidated investment that is accounted for under the equity method of accounting (“Equity Investment”). The following table summarizes the Company's equity in the nonconsolidated investment:
|
| Interest |
| Ownership % as of |
|
| Equity as of | |||||
Location |
| Type |
| December 31, 2017 |
|
| December 31, 2017 ($000) | |||||
|
|
|
|
|
|
|
|
| ||||
USA |
| Equity Investment |
| 93.80% |
|
| $ |
| 54,835 |
|
|
The Equity Investment has been determined to be a variable interest entity because the Company has an overall 93.8% economic position in the investee comprising a significant portion of its capitalization, but has only a 25% voting interest. The Company’s obligation to receive rewards and absorb expected losses is disproportionate to its voting interest. The Company is not the primary beneficiary because it does not have the power to direct the activities of the equity investment that most significantly impact its economic performance. Certain business decisions, including, but not limited to, decisions with respect to operating budgets, material capital expenditures, indebtedness, significant acquisitions or dispositions, and strategic decisions, require the approval of owners holding a majority percentage in the Equity Investment. Beginning on the date it was acquired, the Company accounted for its interest as an equity method investment as the Company has the ability to exercise significant influence over operating and financial policies of the Equity Investment.
As of December 31, 2017, the Company’s maximum financial statement exposure related to the Equity Investment was approximately $54.8 million, which is the investment balance on the Consolidated Balance Sheet as of December 31, 2017.
The Company has the right to purchase all of the outstanding interest of each of the minority equity holders and the minority equity holders have the right to cause the Company to purchase all of outstanding interest at any time on or after the third anniversary of the investment or earlier upon certain events. The purchase price is equal to the greater of: (a) (i) the product of the aggregate trailing 12-month revenues of the investment preceding the date of purchase, multiplied by (ii) a factor of 2.9 multiplied by (iii) a factor of 0.723, multiplied by (iv) the percentage interest owned by each minority equity holder and (b) $966,666. The Company performed a Monte Carlo simulation to estimateallocated the fair value of the net put optionpreliminary purchase price consideration to the tangible assets, liabilities, and intangible assets acquired, generally based on estimated fair values. The excess preliminary purchase price over those fair values is recorded as goodwill. Our valuation assumptions of acquired assets and assumed liabilities require significant estimates, especially with respect to intangible assets, inventories, property, plant & equipment and deferred income taxes. In determining the fair value of intangible assets acquired, the Company 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 Legacy Coherent. The Company’s intangible assets are comprised of trade names and trademarks, customer relationships, developed technology and backlog. The Company utilized widely accepted income-based, market-based, and cost-based valuation approaches to perform the preliminary 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.
Preliminary Allocation as of 7/1/2022 as adjusted through 3/31/23 | ||||||||||||||||||||||||||
Previously Reported September 30, 2022 | Measurement Period Adjustments (i) | As Adjusted (preliminary) | ||||||||||||||||||||||||
Assets | ||||||||||||||||||||||||||
Current Assets | ||||||||||||||||||||||||||
Cash, cash equivalents, and restricted cash | $ | 393,324 | $ | — | $ | 393,324 | ||||||||||||||||||||
Accounts receivable | 270,928 | — | 270,928 | |||||||||||||||||||||||
Inventories (ii) | 497,345 | 66,540 | 563,885 | |||||||||||||||||||||||
Prepaid and refundable income taxes (iii) | 8,869 | (1,592) | 7,277 | |||||||||||||||||||||||
Prepaid and other current assets | 41,467 | — | 41,467 | |||||||||||||||||||||||
Total Current Assets | 1,211,933 | 64,948 | 1,276,881 | |||||||||||||||||||||||
Property, plant & equipment, net (iv) | 424,228 | 16,704 | 440,932 | |||||||||||||||||||||||
Deferred income taxes (iii) | 1,115 | (793) | 322 | |||||||||||||||||||||||
Other assets | 102,726 | — | 102,726 | |||||||||||||||||||||||
Other intangible assets, net (v) | 2,425,454 | 1,079,546 | 3,505,000 | |||||||||||||||||||||||
Goodwill | 4,005,727 | (862,497) | 3,143,230 | |||||||||||||||||||||||
Total Assets | $ | 8,171,183 | $ | 297,908 | $ | 8,469,091 | ||||||||||||||||||||
Liabilities | ||||||||||||||||||||||||||
Current Liabilities | ||||||||||||||||||||||||||
Current portion of long-term debt | $ | 4,504 | $ | — | $ | 4,504 | ||||||||||||||||||||
Accounts payable | 116,754 | — | 116,754 | |||||||||||||||||||||||
Accrued compensation and benefits | 60,596 | — | 60,596 | |||||||||||||||||||||||
Operating lease current liabilities | 13,002 | — | 13,002 | |||||||||||||||||||||||
Accrued income taxes payable | 16,936 | — | 16,936 | |||||||||||||||||||||||
Other accrued liabilities (vi) | 136,042 | 702 | 136,744 | |||||||||||||||||||||||
Total Current Liabilities | 347,834 | 702 | 348,536 | |||||||||||||||||||||||
Long-term debt | 22,991 | — | 22,991 | |||||||||||||||||||||||
Deferred income taxes (iii) | 563,824 | 292,168 | 855,992 | |||||||||||||||||||||||
Operating lease liabilities | 43,313 | — | 43,313 | |||||||||||||||||||||||
Other liabilities (vi) | 97,438 | 5,038 | 102,476 | |||||||||||||||||||||||
Total Liabilities | $ | 1,075,400 | $ | 297,908 | $ | 1,373,308 | ||||||||||||||||||||
Preliminary aggregate acquisition consideration | $ | 7,095,783 | $ | — | $ | 7,095,783 |
Preliminary Fair Value | Estimated Useful Life | ||||||||||
Trade names and trademarks | $ | 430,000 | N/A | ||||||||
Customer relationships | 1,830,000 | 15 years | |||||||||
Developed technology | 1,157,500 | 13.5 years | |||||||||
Backlog | 87,500 | 1.0 year | |||||||||
Intangible assets acquired | $ | 3,505,000 |
Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | ||||||||||
Revenue | $ | 1,240,194 | $ | 1,197,928 | |||||||
Net Earnings | 36,294 | 6,482 |
Nine Months Ended March 31, 2023 | Nine Months Ended March 31, 2022 | ||||||||||
Revenue | $ | 3,955,049 | $ | 3,576,039 | |||||||
Net Earnings (Loss) | 247,715 | (234,815) |
Three Months Ended March 31, 2023 | Nine Months Ended March 31, 2023 | ||||||||||||||||||||||||||||||||||||||||||||||
Networking | Materials | Lasers | Total | Networking | Materials | Lasers | Total | ||||||||||||||||||||||||||||||||||||||||
Industrial | $ | 17,570 | $ | 156,846 | $ | 263,789 | $ | 438,205 | $ | 52,189 | $ | 450,383 | $ | 846,881 | $ | 1,349,453 | |||||||||||||||||||||||||||||||
Communications | 521,291 | 17,014 | — | 538,305 | 1,664,205 | 59,553 | — | 1,723,758 | |||||||||||||||||||||||||||||||||||||||
Electronics | 2,849 | 136,229 | — | 139,078 | 9,674 | 509,803 | — | 519,477 | |||||||||||||||||||||||||||||||||||||||
Instrumentation | 9,389 | 13,680 | 101,537 | 124,606 | 30,259 | 42,070 | 290,032 | 362,361 | |||||||||||||||||||||||||||||||||||||||
Total Revenues | $ | 551,099 | $ | 323,769 | $ | 365,326 | $ | 1,240,194 | $ | 1,756,327 | $ | 1,061,809 | $ | 1,136,913 | $ | 3,955,049 |
Three Months Ended March 31, 2022 | Nine Months Ended March 31, 2022 | ||||||||||||||||||||||||||||||||||
Networking | Materials | Total | Networking | Materials | Total | ||||||||||||||||||||||||||||||
Industrial | $ | 21,325 | $ | 164,346 | $ | 185,671 | $ | 63,050 | $ | 486,094 | $ | 549,144 | |||||||||||||||||||||||
Communications | 527,821 | 25,999 | 553,820 | 1,510,092 | 69,436 | 1,579,528 | |||||||||||||||||||||||||||||
Electronics | 2,752 | 60,240 | 62,992 | 9,080 | 220,683 | 229,763 | |||||||||||||||||||||||||||||
Instrumentation | 7,662 | 17,579 | 25,241 | 24,892 | 46,327 | 71,219 | |||||||||||||||||||||||||||||
Total Revenues | $ | 559,560 | $ | 268,164 | $ | 827,724 | $ | 1,607,114 | $ | 822,540 | $ | 2,429,654 |
Kaiam Laser Limited, Inc.
In August 2017, the CompanyCondensed Consolidated Balance Sheet as of March 31, 2023. Contract liabilities acquired Kaiam Laser Limited, Inc. (“Kaiam”) a privately held company based in Newton Aycliffe, United Kingdom. Under the terms of the merger agreement, the consideration consisted of cash paid at the acquisition date of $79.5 million, net of cash acquired. The acquisition of Kaiam provides the Company with a 150mm wafer fabrication platform to significantly expand the Company’s capacity for the production of vertical cavity surface emitting lasers (“VCSELs”) for the 3D sensing market and broadens the capability to address new market opportunities in other compound semiconductor materials. Kaiam now operates under the name II-VI Compound Semiconductor Ltd. within the Company’s II-VI Laser Solutions operating segment. Due to the timing of the acquisition, the Company is still in the process of measuring the fair value of assets acquired, including tangible, intangible assets and related deferred income taxes.
The following table presents the preliminary allocation of the purchase price of the assets acquired and liabilities assumed at the date of acquisition, as the Company intends to finalize its accounting for the acquisition of II-VI Compound Semiconductor Ltd. within one year from the dateMerger totaled $77 million. As of acquisition ($000):
Assets |
|
|
|
|
|
Accounts receivable |
|
| $ | 79 |
|
Inventories |
|
|
| 4,559 |
|
Prepaid and other assets |
|
|
| 1,246 |
|
Property, plant & equipment |
|
|
| 63,899 |
|
Intangible assets |
|
|
| 4,046 |
|
Goodwill |
|
|
| 19,670 |
|
Total assets acquired |
|
| $ | 93,499 |
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
Accounts payable |
|
| $ | 751 |
|
Other accrued liabilities |
|
|
| 2,486 |
|
Deferred tax liabilities |
|
|
| 10,797 |
|
Total liabilities assumed |
|
|
| 14,034 |
|
Net assets acquired |
|
| $ | 79,465 |
|
The goodwillMarch 31, 2023, $116 million of $19.7deferred revenue is included other accrued liabilities and $65 million is included inwithin other liabilities on the II-VI Laser Solutions segment and is attributed to the expected synergies and the assembled workforce of II-VI Compound Semiconductor Ltd. None of the goodwill is deductible for income tax purposes. The Company expensed transaction costs of $0.6 million for the six months ended December 31, 2017.
The amount of revenues of II-VI Compound Semiconductor Ltd. included in the Company’sCondensed Consolidated Statement of Earnings for the three and six months ended December 31, 2017 was $1.0 million and $1.6 million, respectively. The amount of net loss of II-VI Compound Semiconductor Ltd. included in the Company’s Consolidated Statement of Earnings for the three and six months ended December 31, 2017 was $2.5 million and $6.2 million, respectively.
Integrated Photonics, Inc.
In June 2017, the Company acquired Integrated Photonics, Inc. (“IPI”), a privately held company based in New Jersey. IPI is a leader in engineered magneto-optic materials that enable high-performance directional components such as optical isolators for the optical communications market. Under the terms of the merger agreement, the consideration consisted of initial cash paid at the acquisition date of $40.1 million, net of cash acquired and a working capital adjustment of $0.8 million. In addition, the agreement provides up to a maximum of $2.5 million of additional cash earnout opportunities based upon IPI achieving certain agreed upon financial and transitional objectives, which if earned would be payable in the amount of $2.5 million for the achievement of the annual target.
The following table presents the preliminary purchase price at the date of acquisition ($000):
|
|
| |||
|
| ||||
|
| ||||
|
|
|
The following table presents the preliminary allocation of the purchase price of the assets acquired and liabilities assumed at the date of acquisition, as the Company intends to finalize its accounting for the valuation of property, plant and equipment, identifiable intangibles and deferred income tax liabilities and anticipates completion of the valuation within one year from the date of the acquisition ($000):
Assets |
|
|
|
|
|
Accounts receivable |
|
| $ | 2,083 |
|
Inventories |
|
|
| 3,968 |
|
Prepaid and other assets |
|
| 322 |
| |
Property, plant & equipment |
|
|
| 11,235 |
|
Intangible assets |
|
|
| 23,554 |
|
Goodwill |
|
|
| 17,503 |
|
Total assets acquired |
|
| $ | 58,665 |
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
Accounts payable |
|
| $ | 847 |
|
Other accrued liabilities |
|
|
| 1,032 |
|
Long-term debt assumed |
|
|
| 3,834 |
|
Deferred tax liabilities |
|
|
| 9,802 |
|
Total liabilities assumed |
|
|
| 15,515 |
|
Net assets acquired |
|
| $ | 43,150 |
|
The goodwill of $17.5 million is included in the II-VI Photonics segment and is attributed to the expected synergies and the assembled workforce of IPI. None of the goodwill is deductible for income tax purposes. The fair value of accounts receivable acquired was $2.1 million with the gross contractual amount being $2.1 million. At the time of acquisition, the Company expected to collect all of the accounts receivable. The Company expensed transaction costs of $0.3 million all within the year ended June 30, 2017.
The amount of revenues of IPI included in the Company’s Consolidated Statement of Earnings for the three and six months ended December 31, 2017 was $4.9 million and $10.3 million, respectively. The amount of net earnings of IPI included in the Company’s Consolidated Statement of Earnings for the three and six months ended December 31, 2017 was $1.0 million and $1.4 million, respectively.
|
|
The components of inventories were as follows ($000):
|
| December 31, |
|
| June 30, |
| ||
|
| 2017 |
|
| 2017 |
| ||
Raw materials |
| $ | 86,974 |
|
| $ | 78,979 |
|
Work in progress |
|
| 81,094 |
|
|
| 61,679 |
|
Finished goods |
|
| 67,400 |
|
|
| 63,037 |
|
|
| $ | 235,468 |
|
| $ | 203,695 |
|
March 31, 2023 | June 30, 2022 | ||||||||||
Raw materials | $ | 490,479 | $ | 318,758 | |||||||
Work in progress | 621,295 | 408,405 | |||||||||
Finished goods | 282,329 | 175,396 | |||||||||
$ | 1,394,103 | $ | 902,559 |
|
March 31, 2023 | June 30, 2022 | ||||||||||
Land and improvements | $ | 74,908 | $ | 19,368 | |||||||
Buildings and improvements | 686,293 | 415,530 | |||||||||
Machinery and equipment | 2,030,892 | 1,651,762 | |||||||||
Construction in progress | 311,051 | 271,605 | |||||||||
Finance lease right-of-use asset | 24,999 | 25,000 | |||||||||
3,128,143 | 2,383,265 | ||||||||||
Less accumulated depreciation | (1,217,582) | (1,020,070) | |||||||||
$ | 1,910,561 | $ | 1,363,195 |
|
| December 31, |
|
| June 30, |
| ||
|
| 2017 |
|
| 2017 |
| ||
Land and improvements |
| $ | 9,210 |
|
| $ | 5,667 |
|
Buildings and improvements |
|
| 200,886 |
|
|
| 144,293 |
|
Machinery and equipment |
|
| 567,724 |
|
|
| 492,042 |
|
Construction in progress |
|
| 93,288 |
|
|
| 88,458 |
|
|
|
| 871,108 |
|
|
| 730,460 |
|
Less accumulated depreciation |
|
| (390,094 | ) |
|
| (362,732 | ) |
|
| $ | 481,014 |
|
| $ | 367,728 |
|
| Note 7. Goodwill and Other Intangible Assets |
|
| Six Months Ended December 31, 2017 |
| ||||||||||||||||||||||||||||||||||||
|
| II-VI Laser |
|
| II-VI |
|
| II-VI Performance |
|
|
|
|
| Nine Months Ended March 31, 2023 | |||||||||||||||||||||||||
|
| Solutions |
|
| Photonics |
|
| Products |
|
| Total |
| Networking | Materials | Lasers | Total | |||||||||||||||||||||||
Balance-beginning of period |
| $ | 84,180 |
|
| $ | 113,272 |
|
| $ | 52,890 |
|
| $ | 250,342 |
| Balance-beginning of period | $ | 1,048,743 | $ | 237,016 | $ | — | $ | 1,285,759 | ||||||||||||||
Transfer between segments(1) | Transfer between segments(1) | (35,466) | 35,466 | — | — | ||||||||||||||||||||||||||||||||||
Goodwill acquired |
|
| 19,670 |
|
|
| - |
|
|
| - |
|
|
| 19,670 |
| Goodwill acquired | — | — | 3,143,230 | 3,143,230 | ||||||||||||||||||
Goodwill adjustment for prior year acquisition - IPI |
|
| - |
|
|
| 396 |
|
|
| - |
|
|
| 396 |
| |||||||||||||||||||||||
Foreign currency translation |
|
| 691 |
|
|
| 1,110 |
|
|
| - |
|
|
| 1,801 |
| Foreign currency translation | (1,271) | 859 | 76,560 | 76,148 | ||||||||||||||||||
Balance-end of period |
| $ | 104,541 |
|
| $ | 114,778 |
|
| $ | 52,890 |
|
| $ | 272,209 |
| Balance-end of period | $ | 1,012,006 | $ | 273,341 | $ | 3,219,790 | $ | 4,505,137 |
|
| December 31, 2017 |
|
| June 30, 2017 |
| ||||||||||||||||||
|
| Gross |
|
|
|
|
|
| Net |
|
| Gross |
|
|
|
|
|
| Net |
| ||||
|
| Carrying |
|
| Accumulated |
|
| Book |
|
| Carrying |
|
| Accumulated |
|
| Book |
| ||||||
|
| Amount |
|
| Amortization |
|
| Value |
|
| Amount |
|
| Amortization |
|
| Value |
| ||||||
Technology and Patents |
| $ | 66,947 |
|
| $ | (30,490 | ) |
| $ | 36,457 |
|
| $ | 65,438 |
|
| $ | (27,313 | ) |
| $ | 38,125 |
|
Trademarks |
|
| 15,923 |
|
|
| (1,406 | ) |
|
| 14,517 |
|
|
| 15,806 |
|
|
| (1,340 | ) |
|
| 14,466 |
|
Customer Lists |
|
| 127,844 |
|
|
| (46,521 | ) |
|
| 81,323 |
|
|
| 123,058 |
|
|
| (41,740 | ) |
|
| 81,318 |
|
Other |
|
| 1,577 |
|
|
| (1,546 | ) |
|
| 31 |
|
|
| 1,571 |
|
|
| (1,523 | ) |
|
| 48 |
|
Total |
| $ | 212,291 |
|
| $ | (79,963 | ) |
| $ | 132,328 |
|
| $ | 205,873 |
|
| $ | (71,916 | ) |
| $ | 133,957 |
|
March 31, 2023 | June 30, 2022 | ||||||||||||||||||||||||||||||||||
Gross Carrying Amount | Accumulated Amortization | Net Book Value | Gross Carrying Amount | Accumulated Amortization | Net Book Value | ||||||||||||||||||||||||||||||
Technology | $ | 1,669,863 | $ | (238,908) | $ | 1,430,955 | $ | 473,845 | $ | (144,409) | $ | 329,436 | |||||||||||||||||||||||
Trade Names | 452,461 | (8,073) | 444,388 | 22,536 | (7,454) | 15,082 | |||||||||||||||||||||||||||||
Customer Lists | 2,352,969 | (296,873) | 2,056,096 | 464,880 | (173,994) | 290,886 | |||||||||||||||||||||||||||||
Backlog and Other | 90,072 | (67,313) | 22,759 | 1,563 | (1,563) | — | |||||||||||||||||||||||||||||
Total | $ | 4,565,365 | $ | (611,167) | $ | 3,954,198 | $ | 962,824 | $ | (327,420) | $ | 635,404 |
Amortization expense recorded
In conjunction with the acquisition2023.
Technology and patents are being amortized over a range of 60 to 240 months, with a weighted average remaining life of approximately 95 months. Customer lists are being amortized over a range of approximately 120 to 240 months with a weighted average remaining life of approximately 144 months. The gross carrying amount of trademarks includes $14.1 million of acquired trade names with indefinite lives that are not amortized but tested annually for impairment or more frequently if a triggering event occurs. Included in the gross carrying amount and accumulated amortization of the Company’s intangible assets is the effect of foreign currency translation on that portion of the intangible assets relating to the Company’s German, U.K. and Chinese subsidiaries.
At December 31, 2017, the estimated amortization expense for the existing intangible assets for each of the five succeeding fiscal years is as follows ($000):
Fiscal Year Ending June 30, |
| Amount |
| |
Remaining 2018 |
| $ | 7,000 |
|
2019 |
|
| 14,000 |
|
2020 |
|
| 13,000 |
|
2021 |
|
| 12,300 |
|
2022 |
|
| 10,900 |
|
|
|
The components of debt foras of the periodsdates indicated were as follows ($000):
March 31, 2023 | June 30, 2022 | ||||||||||
New Term A Facility, interest at adjusted SOFR, as defined, plus 1.750% | $ | 828,750 | $ | — | |||||||
Debt issuance costs, New Term A Facility and New Revolving Credit Facility | (19,290) | — | |||||||||
New Term B Facility, interest at adjusted SOFR, as defined, plus 2.750% | 2,676,000 | — | |||||||||
Debt issuance costs, New Term B Facility | (68,773) | — | |||||||||
1.30% Term loan due 2024 | 66 | — | |||||||||
1.00% State of Connecticut term loan due 2023 | 2,040 | — | |||||||||
Facility construction loan in Germany due 2030 | 23,126 | — | |||||||||
Existing Term A Facility, interest at LIBOR, as defined, plus 1.375% | — | 995,363 | |||||||||
Debt issuance costs, Existing Term A Facility and Existing Revolving Credit Facility | — | (18,396) | |||||||||
5.000% Senior Notes | 990,000 | 990,000 | |||||||||
Debt issuance costs and discount, Senior Notes | (7,086) | (7,703) | |||||||||
0.25% Convertible Senior Notes | — | 341,501 | |||||||||
Debt issuance costs and discount, 0.25% Convertible Senior Notes | — | (339) | |||||||||
Total debt | 4,424,833 | 2,300,426 | |||||||||
Current portion of long-term debt | (74,910) | (403,212) | |||||||||
Long-term debt, less current portion | $ | 4,349,923 | $ | 1,897,214 |
| December 31, |
|
| June 30, |
| ||
| 2017 |
|
| 2017 |
| ||
0.25% Convertible senior notes | $ | 345,000 |
|
| $ | - |
|
Convertible senior notes unamortized discount attributable to cash conversion option and debt issuance costs including initial purchaser discount |
| (62,424 | ) |
|
| - |
|
Term loan, interest at LIBOR, as defined, plus 1.75% and 1.50%, respectively |
| 75,000 |
|
|
| 85,000 |
|
Line of credit, interest at LIBOR, as defined, plus 1.75% and 1.50%, respectively |
| 100,000 |
|
|
| 252,000 |
|
Credit facility unamortized debt issuance costs |
| (1,308 | ) |
|
| (1,491 | ) |
Yen denominated line of credit, interest at LIBOR, as defined, plus 1.75% |
| 2,666 |
|
|
| 2,679 |
|
Note payable assumed in IPI acquisition |
| 3,834 |
|
|
| 3,834 |
|
Total debt |
| 462,768 |
|
|
| 342,022 |
|
Current portion of long-term debt |
| (20,000 | ) |
|
| (20,000 | ) |
Long-term debt, less current portion | $ | 442,768 |
|
| $ | 322,022 |
|
0.25% Convertible Senior Notes
Credit Facilities
On August 29, 2017, the Initial Purchasers exercised their Over-Allotment Option to purchase the entire $45 million in aggregate principal amount of additional Notes. The Notes mature
The sale of the Notes to the Initial Purchasers settled on August 29, 2017, and resulted in approximately $336 million in net proceeds to the Company after deducting the initial purchasers’ discount and the estimated offering expenses. The net proceeds from the offering and sale of the Notes were used, in part, to repurchase approximately $49.9 million of our Common Stock. The Company used the remaining net proceeds to repay $252 million on its revolving credit facility and to pay debt issuance costs of $10.1 million.
The Notes are governed by an Indenture between the Company, as issuer, and U.S. Bank, National Association, as trustee. The Notes will be our senior unsecured obligations and rank senior in right of payment to any of our indebtedness that is expressly subordinated in right of payment to the Notes; equal in right of payment to any of our indebtedness that is not so subordinated; effectively junior in right of payment to any of our secured indebtedness to the extent of the value of the assets securing such indebtedness; and structurally junior to all indebtedness and other liabilities (including trade payables) of our subsidiaries. In the event of our bankruptcy, liquidation, reorganization or other winding up, our assets that secure secured debt will be available to pay obligations on the Notes only after all indebtedness under such secured debt has been repaid in full from such assets. Upon conversion, the Company will pay or deliver, as the case may be, cash, shares of our Common Stock or a combination of cash and shares of our Common Stock, at the Company’s election.
As a result of our cash conversion option, the Company separately accounted for the value of the embedded conversion option as a debt discount. The value of the embedded conversion option was determined based on the estimated fair value of the debt without the conversion feature, which was determined using an expected present value technique (income approach) to estimate the fair value of similar nonconvertible debt; the debt discount is being amortized as additional non-cash interest expense over the term of the Notes using the effective interest method with an effective interest rate of 4.5% per annum.
The equity component is not remeasured as long as it continues to meet the conditions for equity classification. The initial conversion rate is 21.25 shares of Common Stock per $1,000 principal amount of Notes, which is equivalent to an initial conversion price of $47.06 per share of Common Stock. Throughout the term of the Notes, the conversion rate may be adjusted upon the occurrence of certain events.
Holders of the Notes will not receive any cash payment representing accrued and unpaid interest upon conversion of a note. Accrued but unpaid interest will be deemed to be paid in full upon conversion rather than cancelled, extinguished or forfeited.
Prior to the close of business on the business day immediately preceding June 1, 2022, the Notes will be convertible only upon satisfaction of at least one of the conditions as follows:
|
|
|
|
|
|
On or after June 1, 2022 until the close of business on the business day immediately preceding September 1, 2022 (the “Maturity Date”), holders were able to convert their Convertible Notes at any time. For the maturity date,fiscal quarter ended September 30, 2022, the holders may convert all or anyof the Convertible Notes converted $332 million of principal, which was recorded as current portion of their Notes,long-term debt at June 30, 2022, and received approximately 7 million shares of Coherent Common Stock in multiplessettlement of $1,000the conversions.
As of December 31, 2017, theConvertible Notes are not yet convertible. In accounting forno longer outstanding. At the transaction costsMaturity Date, the accrued interest on the Coherent Convertible Notes was immaterial. The total interest expense related to the Note issuance, the Company allocated the total amount of offering costs incurred to the debt and equity components based on their relative values. Offering costs attributable to the debt component, totaling $8.4 million, are being amortized as non-cash interest expense over the term of theConvertible Notes and offering costs attributable to the equity component, totaling $1.7 million, were recorded within stockholders' equity.
The following table sets forth total interest expense recognized related to the Noteswas immaterial for both the three and sixnine months ended DecemberMarch 31, 2017:
|
|
| Three Months Ended December 31, 2017 |
|
| Six Months Ended December 31, 2017 |
| ||
0.25% contractual coupon |
|
| $ | 219 |
|
| $ | 297 |
|
Amortization of debt discount and debt issuance costs including initial purchaser discount |
|
|
| 2,935 |
|
|
| 4,043 |
|
Interest expense |
|
| $ | 3,154 |
|
| $ | 4,340 |
|
On July 28, 2016, the Company amended and restated its existing credit agreement. The Third Amended and Restated Credit Agreement (the “Amended Credit Facility”) provides for a revolving credit facility of $325 million, as well as a $100 million term loan. The term loan is being repaid in consecutive quarterly principal payments on the first business day of each January, April, July and October, with the first payment having commenced on October 1, 2016, as follows: (i) twenty consecutive quarterly installments of $5 million and (ii) a final installment of all remaining principal due and payable on the maturity date of July 27, 2021. Amounts borrowed under the revolving credit facility are due and payable on the maturity date. The Amended Credit Facility is unsecured, but is guaranteed by each existing and subsequently acquired or organized wholly-owned domestic subsidiary of the Company. The Company has the option to request an increase to the size of the revolving credit facility in an aggregate additional amount not to exceed $100 million. The Amended Credit Facility has a five-year term through July 27, 2021 and has an interest rate of either a Base Rate Option or a Euro-Rate Option, plus an Applicable Margin, as defined in the agreement governing the Amended Credit Facility. If the Base Rate option is selected for a borrowing, the Applicable Margin is 0.00% to 1.25% and if the Euro-Rate Option is selected for a borrowing, the Applicable Margin is 1.00% to 2.25%. The Applicable Margin is based on the ratio of the Company’s consolidated indebtedness to consolidated EBITDA. Additionally, the Credit Facility is subject to certain covenants, including those relating to minimum interest coverage and maximum leverage ratios. As of December 31, 2017, the Company was in compliance with all financial covenants under its Amended Credit Facility.
Yen Loan
The Company’s Yen denominated line of credit is a 500 million Yen (approximately $4.4 million) facility. The Yen line of credit matures in August 2020. The interest rate is equal to LIBOR, as defined in the loan agreement, plus 0.625% to 1.75%. At December 31, 2017 and June 30, 2017, the Company had 300 million Yen borrowed. Additionally, the facility is subject to certain covenants, including those relating to minimum interest coverage and maximum leverage ratios. As of December 31, 2017, the Company was in compliance with all financial covenants under its Yen facility.
Note Payable
In conjunction with the acquisition of IPI, the Company assumed a non-interest bearing note payable owed to a major customer of IPI. The agreement if not terminated early by either party is payable in full in May 2019.
Aggregate Availability
Weighted Average Interest Rate
The weighted average interest rate of total borrowings was 1.4% and 2.1% for the six months ended December 31, 2017 and 2016, respectively.
Remaining Annual Principal Payments
Remaining annual principal payments under the Company’s existing credit obligations from December 31, 2017 were as follows:
|
|
|
|
|
|
|
|
|
| U.S. |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
| Dollar |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
| Term |
|
| Yen Line |
|
| Line of |
|
| Note |
|
| Convertible |
|
|
|
|
| |||||
Period |
| Loan |
|
| of Credit |
|
| Credit |
|
| Payable |
|
| Notes |
|
| Total |
| ||||||
Year 1 |
| $ | 20,000 |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | 20,000 |
|
Year 2 |
|
| 20,000 |
|
|
| - |
|
|
| - |
|
|
| 3,834 |
|
|
| - |
|
|
| 23,834 |
|
Year 3 |
|
| 20,000 |
|
|
| 2,666 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 22,666 |
|
Year 4 |
|
| 15,000 |
|
|
| - |
|
|
| 100,000 |
|
|
| - |
|
|
| - |
|
|
| 115,000 |
|
Year 5 |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 345,000 |
|
|
| 345,000 |
|
Total |
| $ | 75,000 |
|
| $ | 2,666 |
|
| $ | 100,000 |
|
| $ | 3,834 |
|
| $ | 345,000 |
|
| $ | 526,500 |
|
jurisdictions.
U.S. Tax Reform
Three Months Ended March 31, 2023 | Nine Months Ended March 31, 2023 | ||||||||||
Finance lease cost | |||||||||||
Amortization of right-of-use assets | $ | 417 | $ | 1,250 | |||||||
Interest on lease liabilities | 279 | 851 | |||||||||
Total finance lease cost | 696 | 2,101 | |||||||||
Operating lease cost | 13,324 | 39,817 | |||||||||
Total lease cost | $ | 14,020 | $ | 41,918 | |||||||
Cash Paid for Amounts Included in the Measurement of Lease Liabilities | |||||||||||
Operating cash flows from finance leases | $ | 279 | $ | 851 | |||||||
Operating cash flows from operating leases | 12,578 | 37,843 | |||||||||
Financing cash flows from finance leases | 369 | 1,056 | |||||||||
Weighted-Average Remaining Lease Term (in Years) | |||||||||||
Finance leases | 8.8 | ||||||||||
Operating leases | 6.7 | ||||||||||
Weighted-Average Discount Rate | |||||||||||
Finance leases | 5.6 | % | |||||||||
Operating leases | 5.5 | % |
Three Months Ended March 31, 2022 | Nine Months Ended March 31, 2022 | ||||||||||
Finance Lease Cost | |||||||||||
Amortization of right-of-use assets | $ | 417 | $ | 1,255 | |||||||
Interest on lease liabilities | 298 | 907 | |||||||||
Total finance lease cost | $ | 715 | $ | 2,162 | |||||||
Operating lease cost | 9,240 | 27,635 | |||||||||
Sublease income | — | 507 | |||||||||
Total lease cost | $ | 9,955 | $ | 29,290 | |||||||
Cash Paid for Amounts Included in the Measurement of Lease Liabilities | |||||||||||
Operating cash flows from finance leases | $ | 298 | $ | 907 | |||||||
Operating cash flows from operating leases | 8,899 | 26,565 | |||||||||
Financing cash flows from finance leases | 332 | 954 |
Three Months Ended March 31, | Nine Months Ended March 31, | ||||||||||||||||||||||
2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
Dividends per share | $ | 3.00 | $ | 3.00 | $ | 9.00 | $ | 9.00 | |||||||||||||||
Mandatory Convertible Preferred Stock dividends ($000) | 6,900 | 6,900 | 20,700 | 20,700 |
At December 31, 2017, been added to the Stated Value (such price the “Redemption Price,” and such right the “Put Right”); and
Three Months Ended March 31, | Nine Months Ended March 31, | ||||||||||||||||||||||||||||
2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||||||||
Dividends per share | $ | 136 | $ | 137 | $ | 404 | $ | 403 | |||||||||||||||||||||
Dividends ($000) | 27,969 | 9,732 | 83,267 | 28,743 | |||||||||||||||||||||||||
Deemed dividends ($000) | 1,202 | 516 | 3,570 | 1,490 |
The impact of the repatriation tax is expected to be offset by available net operating loss and credit carryforwards which currently have a valuation allowance. Thus the tax expense reported is reduced by the release of the valuation allowance on U.S. deferred tax assets. The reduction of the U.S. corporate tax rate caused the Company to adjust the U.S. deferred tax assets and liabilities to the lower U.S. statutory federal rate of 21%. However, the Company will continue to analyze certain aspects of the Tax Act which could affect the measurement of these balances or give rise to new deferred tax amounts. In addition, the Company has recorded withholding taxes on planned repatriation due to the change to a territorial tax system. The transitional impacts described above resulted in a cumulative provisional net charge of $15.8 million for the quarter ended December 31, 2017.
The changes included in the Tax Act are broad and complex. The final transition impacts of the Tax Act may differ from the estimates recorded during the quarter ended December 31, 2017, possibly materially, due to, among other things, changes in interpretations of the Tax Act, any legislative action to address questions that arise because of the Tax Act, any changes in accounting standards for income taxes or related interpretations in response to the Tax Act, or any updates or changes to estimates the Company has utilized to calculate the transition impacts, including impacts from changes to current year earnings estimates and foreign exchange rates of foreign subsidiaries. The Securities Exchange Commission has issued rules that allow for a measurement period of up to one year after the enactment date of the Tax Act to finalize the recording of the related tax impacts. The Company currently anticipates finalizing and recording any resulting adjustments by the end of the quarter ending December 31, 2018.
The following table sets forth the computation of diluted earnings (loss) per common share. For the three and nine months ended March 31, 2023, diluted earnings (loss) per share forexcluded the periods indicated. Weighted average shares issuable uponpotentially dilutive effect of the exercises of stock options and the release of performance and restricted shares, are not included incalculated based on the calculation because theyaverage stock price for each fiscal period, using the treasury stock method, as well as the shares of Coherent Common Stock issuable upon conversion of outstanding convertible debt, the Mandatory Convertible Preferred Stock and the Series B Convertible Preferred Stock (under the If-Converted method), as their effects were anti-dilutiveanti-dilutive.
Three Months Ended March 31, | Nine Months Ended March 31, | |||||||||||||||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||||||||||||
Numerator | ||||||||||||||||||||||||||
Net earnings (loss) | $ | 2,546 | $ | 49,002 | $ | (81,224) | $ | 191,123 | ||||||||||||||||||
Deduct Series A preferred stock dividends | (6,900) | (6,900) | (20,700) | (20,700) | ||||||||||||||||||||||
Deduct Series B dividends and deemed dividends | (29,171) | (10,248) | (86,837) | (30,233) | ||||||||||||||||||||||
Basic earnings (loss) available to common shareholders | $ | (33,525) | $ | 31,854 | $ | (188,761) | $ | 140,190 | ||||||||||||||||||
Effect of dilutive securities: | ||||||||||||||||||||||||||
Add back interest on Convertible Notes (net of tax) | $ | — | $ | 571 | $ | — | $ | 1,650 | ||||||||||||||||||
Diluted earnings (loss) available to common shareholders | $ | (33,525) | $ | 32,425 | $ | (188,761) | $ | 141,840 | ||||||||||||||||||
Denominator | ||||||||||||||||||||||||||
Weighted average shares | 139,113 | 106,323 | 136,990 | 106,079 | ||||||||||||||||||||||
Effect of dilutive securities: | ||||||||||||||||||||||||||
Common stock equivalents | — | 3,296 | — | 3,001 | ||||||||||||||||||||||
Convertible Notes | — | 7,330 | — | 7,330 | ||||||||||||||||||||||
Diluted weighted average common shares | 139,113 | 116,949 | 136,990 | 116,410 | ||||||||||||||||||||||
Basic earnings (loss) per common share | $ | (0.24) | $ | 0.30 | $ | (1.38) | $ | 1.32 | ||||||||||||||||||
Diluted earnings (loss) per common share | $ | (0.24) | $ | 0.28 | $ | (1.38) | $ | 1.22 |
|
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||
|
| December 31, |
|
| December 31, |
| ||||||||||
|
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
| ||||
Net earnings |
| $ | 9,596 |
|
| $ | 23,903 |
|
| $ | 30,737 |
|
| $ | 40,197 |
|
Divided by: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares |
|
| 62,302 |
|
|
| 62,390 |
|
|
| 62,523 |
|
|
| 62,205 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per common share |
| $ | 0.15 |
|
| $ | 0.38 |
|
| $ | 0.49 |
|
| $ | 0.65 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings |
| $ | 9,596 |
|
| $ | 23,903 |
|
| $ | 30,737 |
|
| $ | 40,197 |
|
Divided by: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares |
|
| 62,302 |
|
|
| 62,390 |
|
|
| 62,523 |
|
|
| 62,205 |
|
Dilutive effect of common stock equivalents |
|
| 2,736 |
|
|
| 2,017 |
|
|
| 2,638 |
|
|
| 1,794 |
|
Diluted weighted average common shares |
|
| 65,038 |
|
|
| 64,407 |
|
|
| 65,161 |
|
|
| 63,999 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per common share |
| $ | 0.15 |
|
| $ | 0.37 |
|
| $ | 0.47 |
|
| $ | 0.63 |
|
Three Months Ended March 31, | Nine Months Ended March 31, | ||||||||||||||||||||||
2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
Common stock equivalents | 2,416 | 2 | 2,334 | 12 | |||||||||||||||||||
Convertible Notes | — | — | 1,491 | — | |||||||||||||||||||
Series A Mandatory Convertible Preferred Stock | 10,697 | 8,915 | 10,331 | 8,915 | |||||||||||||||||||
Series B Convertible Preferred Stock | 26,511 | 9,217 | 26,185 | 9,105 | |||||||||||||||||||
Total anti-dilutive shares | 39,624 | 18,134 | 40,341 | 18,032 |
| Note 13. Segment Reporting |
In June 2017, the Company completed its acquisition of IPI. See Note 3. Acquisitions and Investment. The operating results of this acquisition have been reflected in the selected financial information of the Company’s II-VI Photonics segment since the date of acquisition.
In August 2017, the Company completed its acquisition of II-VI Compound Semiconductor Ltd. See Note 3. Acquisitions and Investment. The operating results of this acquisition have been reflected in the selected financial information of the Company’s II-VI Laser Solutions segment since the date of acquisition.
The following tables summarize selected financial information of the Company’s operations by segment ($000):
|
| Three Months Ended December 31, 2017 |
| |||||||||||||||||
|
| II-VI |
|
|
|
|
|
| II-VI |
|
|
|
|
|
|
|
|
| ||
|
| Laser |
|
| II-VI |
|
| Performance |
|
|
|
|
|
|
|
|
| |||
|
| Solutions |
|
| Photonics |
|
| Products |
|
| Eliminations |
|
| Total |
| |||||
Revenues |
| $ | 109,817 |
|
| $ | 110,520 |
|
| $ | 61,133 |
|
| $ | - |
|
| $ | 281,470 |
|
Inter-segment revenues |
|
| 6,830 |
|
|
| 6,914 |
|
|
| 1,157 |
|
|
| (14,901 | ) |
|
| - |
|
Operating income |
|
| 9,493 |
|
|
| 16,930 |
|
|
| 6,124 |
|
|
| - |
|
|
| 32,547 |
|
Interest expense |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (4,644 | ) |
Other income (expense), net |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 1,965 |
|
Income taxes |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (20,272 | ) |
Net earnings |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 9,596 |
|
Depreciation and amortization |
|
| 8,948 |
|
|
| 6,568 |
|
|
| 3,893 |
|
|
| - |
|
|
| 19,409 |
|
Segment assets |
|
| 721,491 |
|
|
| 584,771 |
|
|
| 381,612 |
|
|
| - |
|
|
| 1,687,874 |
|
Expenditures for property, plant & equipment |
|
| 23,920 |
|
|
| 9,038 |
|
|
| 6,439 |
|
|
| - |
|
|
| 39,397 |
|
Investments |
|
| - |
|
|
| - |
|
|
| 67,068 |
|
|
| - |
|
|
| 67,068 |
|
|
| Three Months Ended December 31, 2016 |
| ||||||||||||||||||||||||||||||||||||||||||||||
|
| II-VI |
|
|
|
|
|
| II-VI |
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
|
| Laser |
|
| II-VI |
|
| Performance |
|
|
|
|
|
|
|
|
| Three Months Ended March 31, 2023 | |||||||||||||||||||||||||||||||
|
| Solutions |
|
| Photonics |
|
| Products |
|
| Eliminations |
|
| Total |
| Networking | Materials | Lasers | Unallocated & Other | Total | |||||||||||||||||||||||||||||
Revenues |
| $ | 81,483 |
|
| $ | 100,906 |
|
| $ | 49,433 |
|
| $ | - |
|
| $ | 231,822 |
| Revenues | $ | 551,099 | $ | 323,769 | $ | 365,326 | $ | — | $ | 1,240,194 | ||||||||||||||||||
Inter-segment revenues |
|
| 8,760 |
|
|
| 3,161 |
|
|
| 2,645 |
|
|
| (14,566 | ) |
|
| - |
| Inter-segment revenues | 17,759 | 96,604 | 317 | (114,680) | — | |||||||||||||||||||||||
Operating income |
|
| 7,593 |
|
|
| 15,901 |
|
|
| 3,642 |
|
|
| - |
|
|
| 27,136 |
| |||||||||||||||||||||||||||||
Operating income (loss) | Operating income (loss) | 49,476 | 67,826 | (49,914) | — | 67,388 | |||||||||||||||||||||||||||||||||||||||||||
Interest expense |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (1,365 | ) | Interest expense | — | — | — | — | (75,183) | |||||||||||||||||||||||
Other income (expense), net |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 6,045 |
| Other income (expense), net | — | — | — | — | 3,048 | |||||||||||||||||||||||
Income taxes |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (7,913 | ) | |||||||||||||||||||||||||||||
Income tax benefit | Income tax benefit | — | — | — | — | 7,293 | |||||||||||||||||||||||||||||||||||||||||||
Net earnings |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 23,903 |
| Net earnings | — | — | — | — | 2,546 | |||||||||||||||||||||||
Depreciation and amortization |
|
| 5,662 |
|
|
| 4,976 |
|
|
| 4,278 |
|
|
| - |
|
|
| 14,916 |
| Depreciation and amortization | 41,369 | 29,242 | 90,330 | — | 160,941 | |||||||||||||||||||||||
Expenditures for property, plant & equipment |
|
| 15,737 |
|
|
| 5,900 |
|
|
| 6,191 |
|
|
| - |
|
|
| 27,828 |
| Expenditures for property, plant & equipment | 6,441 | 78,666 | 12,038 | — | 97,145 | |||||||||||||||||||||||
Segment assets | Segment assets | 3,435,816 | 2,275,614 | 8,406,202 | — | 14,117,632 | |||||||||||||||||||||||||||||||||||||||||||
Goodwill | Goodwill | 1,012,006 | 273,341 | 3,219,790 | — | 4,505,137 |
|
| Six Months Ended December 31, 2017 |
| |||||||||||||||||
|
| II-VI |
|
|
|
|
|
| II-VI |
|
|
|
|
|
|
|
|
| ||
|
| Laser |
|
| II-VI |
|
| Performance |
|
|
|
|
|
|
|
|
| |||
|
| Solutions |
|
| Photonics |
|
| Products |
|
| Eliminations |
|
| Total |
| |||||
Revenues |
| $ | 203,079 |
|
| $ | 221,134 |
|
| $ | 118,760 |
|
| $ | - |
|
| $ | 542,973 |
|
Inter-segment revenues |
|
| 14,014 |
|
|
| 11,492 |
|
|
| 1,984 |
|
|
| (27,490 | ) |
|
| - |
|
Operating income |
|
| 12,757 |
|
|
| 36,429 |
|
|
| 13,138 |
|
|
| - |
|
|
| 62,324 |
|
Interest expense |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (8,289 | ) |
Other income (expense), net |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 2,732 |
|
Income taxes |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (26,030 | ) |
Net earnings |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 30,737 |
|
Depreciation and amortization |
|
| 17,254 |
|
|
| 12,731 |
|
|
| 8,240 |
|
|
| - |
|
|
| 38,225 |
|
Expenditures for property, plant & equipment |
|
| 37,176 |
|
|
| 19,616 |
|
|
| 20,031 |
|
|
| - |
|
|
| 76,823 |
|
|
| Six Months Ended December 31, 2016 |
| ||||||||||||||||||||||||||||||||||||||||||||||
|
| II-VI |
|
|
|
|
|
| II-VI |
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
|
| Laser |
|
| II-VI |
|
| Performance |
|
|
|
|
|
|
|
|
| Three Months Ended March 31, 2022 | |||||||||||||||||||||||||||||||
|
| Solutions |
|
| Photonics |
|
| Products |
|
| Eliminations |
|
| Total |
| Networking | Materials | Unallocated & Other | Total | ||||||||||||||||||||||||||||||
Revenues |
| $ | 160,773 |
|
| $ | 196,725 |
|
| $ | 95,844 |
|
| $ | - |
|
| $ | 453,342 |
| Revenues | $ | 559,560 | $ | 268,164 | $ | — | $ | 827,724 | ||||||||||||||||||||
Inter-segment revenues |
|
| 14,700 |
|
|
| 6,599 |
|
|
| 4,378 |
|
|
| (25,677 | ) |
|
| - |
| Inter-segment revenues | 23,945 | 59,345 | (83,290) | — | ||||||||||||||||||||||||
Operating income |
|
| 14,291 |
|
|
| 29,791 |
|
|
| 6,745 |
|
|
| - |
|
|
| 50,827 |
| |||||||||||||||||||||||||||||
Operating income (loss) | Operating income (loss) | 54,618 | 61,754 | (9,604) | 106,768 | ||||||||||||||||||||||||||||||||||||||||||||
Interest expense |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (2,611 | ) | Interest expense | — | — | — | (43,499) | ||||||||||||||||||||||||
Other income (expense), net |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 7,447 |
| Other income (expense), net | — | — | — | (241) | ||||||||||||||||||||||||
Income taxes |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (15,466 | ) | Income taxes | — | — | — | (14,027) | ||||||||||||||||||||||||
Net earnings |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 40,197 |
| Net earnings | — | — | — | 49,002 | ||||||||||||||||||||||||
Depreciation and amortization |
|
| 11,312 |
|
|
| 9,824 |
|
|
| 8,662 |
|
|
| - |
|
|
| 29,798 |
| Depreciation and amortization | 44,126 | 28,691 | — | 72,817 | ||||||||||||||||||||||||
Expenditures for property, plant & equipment |
|
| 35,862 |
|
|
| 12,497 |
|
|
| 9,463 |
|
|
| - |
|
|
| 57,822 |
| Expenditures for property, plant & equipment | 18,363 | 75,939 | — | 94,302 |
Nine Months Ended March 31, 2023 | |||||||||||||||||||||||||||||
Networking | Materials | Lasers | Unallocated & Other | Total | |||||||||||||||||||||||||
Revenues | $ | 1,756,327 | $ | 1,061,809 | $ | 1,136,913 | $ | — | $ | 3,955,049 | |||||||||||||||||||
Inter-segment revenues | 54,129 | 277,502 | 1,400 | (333,031) | — | ||||||||||||||||||||||||
Operating income (loss) | 230,497 | 224,633 | (337,020) | — | 118,110 | ||||||||||||||||||||||||
Interest expense | — | — | — | — | (207,976) | ||||||||||||||||||||||||
Other income (expense), net | — | — | — | — | (32,253) | ||||||||||||||||||||||||
Income tax benefit | — | — | — | — | 40,895 | ||||||||||||||||||||||||
Net earnings | — | — | — | — | (81,224) | ||||||||||||||||||||||||
Depreciation and amortization | 124,384 | 83,804 | 269,948 | — | 478,136 | ||||||||||||||||||||||||
Expenditures for property, plant & equipment | 80,654 | 215,038 | 47,307 | — | 342,999 | ||||||||||||||||||||||||
Nine Months Ended March 31, 2022 | |||||||||||||||||||||||||||||
Networking | Materials | Unallocated & Other | Total | ||||||||||||||||||||||||||
Revenues | $ | 1,607,114 | $ | 822,540 | $ | — | $ | 2,429,654 | |||||||||||||||||||||
Inter-segment revenues | 80,666 | 199,202 | (279,868) | — | |||||||||||||||||||||||||
Operating income (loss) | 164,481 | 165,071 | (29,511) | 300,041 | |||||||||||||||||||||||||
Interest expense | — | — | — | (72,752) | |||||||||||||||||||||||||
Other income (expense), net | — | — | — | 5,535 | |||||||||||||||||||||||||
Income taxes | — | — | — | (41,701) | |||||||||||||||||||||||||
Net earnings | — | — | — | 191,123 | |||||||||||||||||||||||||
Depreciation and amortization | 128,504 | 85,031 | — | 213,535 | |||||||||||||||||||||||||
Expenditures for property, plant & equipment | 53,779 | 142,211 | — | 195,991 | |||||||||||||||||||||||||
| Note 14. Share-Based Compensation |
Share-based compensation expense is allocated approximately 20% to costtotaled 10,959,354 shares of goods sold and 80% to selling, general and administrative expense, based on the employee classification of the grantees. issuable Coherent Common Stock.
|
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||
December 31, |
|
| 2017 |
|
|
| 2016 |
|
|
| 2017 |
|
|
| 2016 |
|
Stock Options and Cash-Based Stock Appreciation Rights |
| $ | 2,062 |
|
| $ | 1,431 |
|
| $ | 4,525 |
|
| $ | 3,094 |
|
Restricted Share Awards and Cash-Based Restricted Share Unit Awards |
|
| 2,181 |
|
|
| 1,682 |
|
|
| 4,744 |
|
|
| 3,560 |
|
Performance Share Awards and Cash-Based Performance Share Unit Awards |
|
| 1,154 |
|
|
| 720 |
|
|
| 2,440 |
|
|
| 1,328 |
|
|
| $ | 5,397 |
|
| $ | 3,833 |
|
| $ | 11,709 |
|
| $ | 7,982 |
|
Three Months Ended March 31, | Nine Months Ended March 31, | |||||||||||||||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||||||||||||
Stock Options and Cash-Based Stock Appreciation Rights | $ | 767 | $ | 1,635 | $ | 927 | $ | 4,107 | ||||||||||||||||||
Restricted Share Awards and Cash-Based Restricted Share Unit Awards | 29,533 | 13,317 | 103,003 | 44,449 | ||||||||||||||||||||||
Performance Share Awards and Cash-Based Performance Share Unit Awards | 2,936 | 2,614 | 13,267 | 8,380 | ||||||||||||||||||||||
$ | 33,236 | $ | 17,566 | $ | 117,197 | $ | 56,936 |
| Note 15. Fair Value of Financial Instruments |
|
|
|
|
|
|
|
|
|
In
In June 2017,Senior Notes based on quoted market prices as of the last trading day prior to March 31, 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. The Company 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 8. Debt for details on the Company’s debt facilities.
March 31, 2023 | June 30, 2022 | ||||||||||||||||||||||
Fair Value | Carrying Value | Fair Value | Carrying Value | ||||||||||||||||||||
Convertible Notes | $ | — | $ | — | $ | 382,601 | $ | 341,162 | |||||||||||||||
Senior Notes | $ | 901,326 | $ | 982,914 | $ | 865,527 | $ | 982,297 |
Company's earnings, on the revaluation of its aggregate net assets or liabilities in respective currencies, to foreign currency risk. At DecemberMarch 31, 2017,2023, the Company 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.
In November 2017, Realized gains related to these contracts for the Company acquired a 93.8% equity ownership of a privately held company. The Company has the right to purchase all of the outstanding interest of each of the minority equity holdersthree and the minority equity holders have the right to cause the Company to purchase all of outstanding interest at any time on or after the third anniversary of the investment or earlier upon certain events. The Company performed a Monte Carlo simulation to estimate the fair value of the net put option at the investment datenine months ended March 31, 2023 were $0 million and recorded a liability of $2.2$5 million, respectively, and were included in other long-term liabilitiesexpense (income), net in the Condensed Consolidated Balance Sheet at December 31, 2017 in accordance with ASC 815-10, Derivatives and Hedging. The fair valueStatements of the net put option will be adjusted on a quarterly basis with any changes in the fair value recorded through earnings.
The fair values of the contingent earnout arrangements and the net put option were measured using valuations based upon other unobservable inputs that are significant to the fair value measurement (Level 3)Earnings (Loss).
The Company estimated the fair value of the 0.25% convertible notes based on quoted market prices as of the last trading day prior to December 31, 2017; however, the convertible notes have only a limited trading volume and as such this fair value estimate is not necessarily the value at which the convertible notes could be retired or transferred. The Company concluded that this fair value measurement should be categorized within Level 2. The carrying value of the convertible notes is net of unamortized discount and issuance costs. See Note 7. Debt for details on the Company’s debt facilities. The fair value and carrying value of the convertible notes were as follows at December 31, 2017 ($000):
|
| Fair Value |
|
| Carrying Value |
| ||
Convertible notes |
| $ | 414,863 |
|
| $ | 282,576 |
|
The following table provides a summary by level of the fair value of financial instruments that are measured on a recurring basis or for which fair value is disclosed for the periods presented ($000):
|
| Fair Value Measurements at December 31, 2017 Using: |
| |||||||||||||
|
|
|
|
|
| Quoted Prices in |
|
| Significant |
|
|
|
|
| ||
|
|
|
|
|
| Active Markets |
|
| Other |
|
| Significant |
| |||
|
|
|
|
|
| for Identical |
|
| Observable |
|
| Unobservable |
| |||
|
|
|
|
|
| Assets |
|
| Inputs |
|
| Inputs |
| |||
|
| December 31, 2017 |
|
| (Level 1) |
|
| (Level 2) |
|
| (Level 3) |
| ||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency forward contracts |
| $ | 68 |
|
| $ | - |
|
| $ | 68 |
|
| $ | - |
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contingent earnout arrangements |
| $ | 5,580 |
|
| $ | - |
|
| $ | - |
|
| $ | 5,580 |
|
Net put option |
| $ | 2,233 |
|
| $ | - |
|
| $ | - |
|
| $ | 2,233 |
|
|
| Fair Value Measurements at June 30, 2017 Using: |
| |||||||||||||
|
|
|
|
|
| Quoted Prices in |
|
| Significant |
|
|
|
|
| ||
|
|
|
|
|
| Active Markets |
|
| Other |
|
| Significant |
| |||
|
|
|
|
|
| for Identical |
|
| Observable |
|
| Unobservable |
| |||
|
|
|
|
|
| Assets |
|
| Inputs |
|
| Inputs |
| |||
|
| June 30, 2017 |
|
| (Level 1) |
|
| (Level 2) |
|
| (Level 3) |
| ||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency forward contracts |
| $ | 191 |
|
| $ | - |
|
| $ | 191 |
|
| $ | - |
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contingent earnout arrangements |
| $ | 5,795 |
|
| $ | - |
|
| $ | - |
|
| $ | 5,795 |
|
The Company’s policy is to report transfers into and out of Levels 1 and 2 of the fair value hierarchy at fair values as of the beginning of the period in which the transfers occur. There were no transfers in and out of Levels 1 and 2 of the fair value hierarchy during the three months ended December 31, 2017.
The following table presents a reconciliation of the beginning and ending fair value measurements of the Company’s Level 3 contingent earnout arrangements related to the acquisition of II-VI EpiWorks and IPI ($000):
|
| Significant |
| |
|
| Unobservable Inputs |
| |
|
| (Level 3) |
| |
Balance at July 1, 2017 |
| $ | 5,795 |
|
Contingent earnout arrangements: |
|
|
|
|
Payments |
|
| - |
|
Purchase price adjustment - IPI |
|
| (35 | ) |
Net put option |
|
| 2,233 |
|
Changes in fair value recorded in other expense, (income) |
|
| (180 | ) |
Balance at December 31, 2017 |
| $ | 7,813 |
|
The fair values of cash and cash equivalents are considered Level 1 among the fair value hierarchy and approximate fair value because of the short-term maturity of those instruments. The Company’s borrowings including its capital lease obligation are considered Level 2 among the fair value hierarchy and are variable interest rates and accordingly their principal amount approximate fair value.
|
|
The Company records a warranty reserve as a charge against earnings based on a percentage of sales utilizing actual warranty claims over the last twelve months. The following table summarizes the change in the carrying value of the Company’s warranty reserve, which is a component of Other accrued liabilities in the Company’s Condensed Consolidated Balance Sheets ($000):
Six Months Ended December 31, 2017 |
| Amount |
| |
Balance-beginning of year |
| $ | 4,546 |
|
Settlements during the period |
|
| (2,475 | ) |
Additional warranty liability recorded |
|
| 1,908 |
|
Balance-end of period |
| $ | 3,979 |
|
|
|
The Company has a pension plan (the “Swiss Plan”) covering employees of the Zurich, Switzerland subsidiary. Net periodic pension costs associated with the Swiss Plan included the following ($000):
|
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||
|
| December 31, |
|
| December 31, |
| ||||||||||
|
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
| ||||
Service cost |
| $ | 946 |
|
| $ | 871 |
|
| $ | 1,898 |
|
| $ | 1,768 |
|
Interest cost |
|
| 107 |
|
|
| 38 |
|
|
| 214 |
|
|
| 78 |
|
Expected return on plan assets |
|
| (213 | ) |
|
| (175 | ) |
|
| (428 | ) |
|
| (356 | ) |
Net amortization |
|
| 45 |
|
|
| 561 |
|
|
| 150 |
|
|
| 397 |
|
Net periodic pension costs |
| $ | 885 |
|
| $ | 1,295 |
|
| $ | 1,834 |
|
| $ | 1,887 |
|
The Company contributed $1.0 and $1.9 million to the Swiss Plan during the three and six months ended December 31, 2017, respectively, and $0.9 million and $1.8 million during the three and six months ended December 31, 2016, respectively. The Company currently anticipates contributing an additional estimated amount of approximately $1.8 million to the Swiss Plan during the remainder of fiscal year 2018.
| Note 16. Share Repurchase Programs |
In August 2017, in conjunction with the Company’s offering and sale of the Notes, the Company’s Board of Directors authorized the Company to purchase up to $50 million of its Common Stock with a portion of the net proceeds received from the offering and sale of the Notes. The shares that were purchased by the Company pursuant to this authorization were retained as treasury stock and are available for general corporate purposes. The Company purchased 1,414,900 shares of its Common Stock for approximately $49.9 million pursuant to this authorization.
In August 2014, the Company’s Board of Directors authorized the Company to purchase up to $50 million of itsCoherent 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. The Company did not repurchase any shares pursuant to this Program during the six monthsquarter ended DecemberMarch 31, 2017. Through December2023. As of March 31, 2017,2023, the Company has cumulatively purchased 1,316,5871,416,587 shares of itsCoherent Common Stock pursuant to the Program for approximately $19.0$22 million.
|
|
Foreign Currency Translation Adjustment | Interest Rate Swap | Interest Rate Cap | Defined Benefit Pension Plan | Total Accumulated Other Comprehensive Income | |||||||||||||||||||||||||
AOCI - June 30, 2022 | $ | (34,572) | $ | 11,735 | $ | 14,306 | $ | 6,364 | $ | (2,167) | |||||||||||||||||||
Other comprehensive income before reclassifications | 157,805 | 17,895 | 7,646 | 1,151 | 184,497 | ||||||||||||||||||||||||
Amounts reclassified from AOCI | — | (11,876) | — | — | (11,876) | ||||||||||||||||||||||||
Net current-period other comprehensive income | 157,805 | 6,019 | 7,646 | 1,151 | 172,621 | ||||||||||||||||||||||||
AOCI - March 31, 2023 | $ | 123,233 | $ | 17,754 | $ | 21,952 | $ | 7,515 | $ | 170,454 |
|
| Foreign |
|
|
|
|
|
| Total |
| ||
|
| Currency |
|
| Defined |
|
| Accumulated Other |
| |||
|
| Translation |
|
| Benefit |
|
| Comprehensive |
| |||
|
| Adjustment |
|
| Pension Plan |
|
| Income (Loss) |
| |||
AOCI - June 30, 2017 |
| $ | (8,460 | ) |
| $ | (5,318 | ) |
| $ | (13,778 | ) |
Other comprehensive income before reclassifications |
|
| 15,182 |
|
|
| - |
|
|
| 15,182 |
|
Amounts reclassified from AOCI (A) |
|
| - |
|
|
| 118 |
|
|
| 118 |
|
Net current-period other comprehensive income |
|
| 15,182 |
|
|
| 118 |
|
|
| 15,300 |
|
AOCI - December 31, 2017 |
| $ | 6,722 |
|
| $ | (5,200 | ) |
| $ | 1,522 |
|
(A) This reclassification
|
|
The Company’s OptoElectronic Devices subsidiary entered into a capital lease related to a building in Warren, New Jersey. The following table shows the future minimum lease payments due under the non-cancelable capital lease ($000):
Fiscal Year Ending June 30, |
| Amount |
| |
2018 (remaining) |
|
| 1,290 |
|
2019 |
|
| 2,579 |
|
2020 |
|
| 2,579 |
|
2021 |
|
| 2,579 |
|
2022 |
|
| 2,579 |
|
Thereafter |
|
| 24,503 |
|
|
|
|
|
|
Total minimum lease payments |
| $ | 36,109 |
|
Less amount representing interest |
|
| 12,145 |
|
|
|
|
|
|
Present value of capitalized payments |
| $ | 23,964 |
|
Less: current portion |
|
| 1,103 |
|
|
|
|
|
|
Long-term portion |
| $ | 22,861 |
|
The current and long-term portion
|
|
Forward-Looking Statements
This Quarterly Report on Form 10-Q, including
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.
Introduction
II-VI Incorporated
software to enable its customers.
In June 2017,deriving the continued benefits of vertical integration as we strive to be a best in class competitor in all of our highly competitive markets. The Company may elect to change the way in which the Company completed itsoperates or is organized in the future to enable the most efficient implementation of our strategy.
In August 2017,magnitude brighter than any other optical source. Lasers also have the Company completed its acquisitionability to be pulsed at almost any repetition rate, even beyond a billion times per second, and are the technology which underpins the global fiber optic communications network, as well as producing the shortest man-made pulses of II-VI Compound Semiconductors Ltd. See Note 3. Acquisitionsany technology known.
industrial grade ultrafast lasers continues to open up new applications for laser processing.
which are inherently subjective.
|
| Three Months Ended |
|
| Three Months Ended |
| ||||||||||
|
| December 31, 2017 |
|
| December 31, 2016 |
| ||||||||||
|
|
|
|
|
| % of |
|
|
|
|
|
| % of |
| ||
|
|
|
|
|
| Revenues |
|
|
|
|
|
| Revenues |
| ||
Total revenues |
| $ | 281.5 |
|
|
| 100.0 | % |
| $ | 231.8 |
|
|
| 100.0 | % |
Cost of goods sold |
|
| 172.0 |
|
|
| 61.1 |
|
|
| 137.6 |
|
|
| 59.3 |
|
Gross margin |
|
| 109.5 |
|
|
| 38.9 |
|
|
| 94.2 |
|
|
| 40.7 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Internal research and development |
|
| 27.8 |
|
|
| 9.9 |
|
|
| 23.6 |
|
|
| 10.2 |
|
Selling, general and administrative |
|
| 49.1 |
|
|
| 17.4 |
|
|
| 43.5 |
|
|
| 18.8 |
|
Interest and other, net |
|
| 2.8 |
|
|
| 1.0 |
|
|
| (4.7 | ) |
|
| (2.0 | ) |
Earnings before income tax |
|
| 29.8 |
|
|
| 10.6 |
|
|
| 31.8 |
|
|
| 13.7 |
|
Income taxes |
|
| 20.2 |
|
|
| 7.2 |
|
|
| 7.9 |
|
|
| 3.4 |
|
Net earnings |
| $ | 9.6 |
|
|
| 3.4 | % |
| $ | 23.9 |
|
|
| 10.3 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share |
| $ | 0.15 |
|
|
|
|
|
| $ | 0.37 |
|
|
|
|
|
Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | ||||||||||||||||||||||
% of Revenues | % of Revenues | ||||||||||||||||||||||
Total revenues | $ | 1,240 | 100 | % | $ | 828 | 100 | % | |||||||||||||||
Cost of goods sold | 820 | 66 | 506 | 61 | |||||||||||||||||||
Gross margin | 420 | 34 | 322 | 39 | |||||||||||||||||||
Operating expenses: | |||||||||||||||||||||||
Internal research and development | 126 | 10 | 97 | 12 | |||||||||||||||||||
Selling, general and administrative | 226 | 18 | 118 | 14 | |||||||||||||||||||
Interest and other, net | 72 | 6 | 44 | 5 | |||||||||||||||||||
Earnings (loss) before income taxes | (5) | — | % | 63 | 8 | ||||||||||||||||||
Income taxes | (7) | (1) | % | 14 | 2 | ||||||||||||||||||
Net earnings (loss) | $ | 3 | — | % | $ | 49 | 6 | % | |||||||||||||||
Diluted earnings (loss) per share | $ | (0.24) | $ | 0.28 |
|
| Six Months Ended |
|
| Six Months Ended |
| |||||||||||||||||||||||||||||||||
|
| December 31, 2017 |
|
| December 31, 2016 |
| |||||||||||||||||||||||||||||||||
|
|
|
|
|
| % of |
|
|
|
|
|
| % of |
| Nine Months Ended March 31, 2023 | Nine Months Ended March 31, 2022 | |||||||||||||||||||||||
|
|
|
|
|
| Revenues |
|
|
|
|
|
| Revenues |
| % of Revenues | % of Revenues | |||||||||||||||||||||||
Total revenues |
| $ | 543.0 |
|
|
| 100.0 | % |
| $ | 453.3 |
|
|
| 100.0 | % | Total revenues | $ | 3,955 | 100 | % | $ | 2,430 | 100 | % | ||||||||||||||
Cost of goods sold |
|
| 327.6 |
|
|
| 60.3 |
|
|
| 271.5 |
|
|
| 59.9 |
| Cost of goods sold | 2,680 | 68 | 1,490 | 61 | ||||||||||||||||||
Gross margin |
|
| 215.4 |
|
|
| 39.7 |
|
|
| 181.8 |
|
|
| 40.1 |
| Gross margin | 1,275 | 32 | 940 | 39 | ||||||||||||||||||
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Operating expenses: | ||||||||||||||||||||||
Internal research and development |
|
| 53.3 |
|
|
| 9.8 |
|
|
| 45.4 |
|
|
| 10.0 |
| Internal research and development | 376 | 10 | 281 | 12 | ||||||||||||||||||
Selling, general and administrative |
|
| 99.7 |
|
|
| 18.4 |
|
|
| 85.6 |
|
|
| 18.9 |
| Selling, general and administrative | 781 | 20 | 358 | 15 | ||||||||||||||||||
Interest and other, net |
|
| 5.7 |
|
|
| 1.0 |
|
|
| (4.9 | ) |
|
| (1.1 | ) | Interest and other, net | 240 | 6 | 67 | 3 | ||||||||||||||||||
Earnings before income tax |
|
| 56.7 |
|
|
| 10.4 |
|
|
| 55.7 |
|
|
| 12.3 |
| |||||||||||||||||||||||
Earnings (loss) before income taxes | Earnings (loss) before income taxes | (122) | (3) | % | 233 | 10 | |||||||||||||||||||||||||||||||||
Income taxes |
|
| 26.0 |
|
|
| 4.8 |
|
|
| 15.5 |
|
|
| 3.4 |
| Income taxes | (41) | (1) | % | 42 | 2 | |||||||||||||||||
Net earnings |
| $ | 30.7 |
|
|
| 5.7 | % |
| $ | 40.2 |
|
|
| 8.9 | % | |||||||||||||||||||||||
Net earnings (loss) | Net earnings (loss) | $ | (81) | (2) | % | $ | 191 | 8 | % | ||||||||||||||||||||||||||||||
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||
Diluted earnings per share |
| $ | 0.47 |
|
|
|
|
|
| $ | 0.63 |
|
|
|
|
| |||||||||||||||||||||||
Diluted earnings (loss) per share | Diluted earnings (loss) per share | $ | (1.38) | $ | 1.22 |
Executive Summary
Net earnings for the three months ended December 31, 2017 were $9.6 million ($0.15 per-share diluted), compared to $23.9 million ($0.37 per-share diluted) for the same period last fiscal year. Net earnings for the six months ended December 31, 2017 were $30.7 million ($0.47 per share diluted), compared to $40.2 million ($0.63 per share diluted) for the six months ended December 31, 2016.
During December 2017, the Tax Cuts and Jobs Act (“Tax Act”) was signed into law by the President of the United States. The Tax Act imposes a one-time repatriation tax on deemed repatriation of historical earnings of foreign subsidiaries. The impact of the repatriation tax is expected to be offset by available net operating loss and credit carryforwards which currently have valuation allowances. Thus the tax expense reported is reduced by the release of the valuation allowances on U.S. deferred tax assets. The reduction of the U.S. corporate tax rate caused us to adjust our U.S. deferred tax assets and liabilities to the lower federal base rate of 21%. In addition, the Company has recorded withholding taxes on planned repatriation due to the change to a territorial tax system. These transitional impacts resulted in a provisional net charge of $15.8 million ($0.24 per-share diluted), for both the three and six months ended December 31, 2017.
Exclusive of the impact from the Tax Act, net earnings were favorably impacted by the incremental revenues recognized for both the current three and six month periods due to increased demand from customers in the industrial material, communication, integrated circuits, semiconductor capital equipment and RF and power generation markets. The financial results include the acquisitions of IPI and II-VI Compound Semiconductor Ltd. for the current fiscal periods. These two acquisitions contributed $5.9 million and $11.9 million in revenues, respectively, and $1.5 million and $4.8 million in net losses, respectively, for the three and six months ended December 31, 2017. The net losses for these acquisitions were at the II-VI Compound Semiconductor Ltd. business as the Company continues to invest in new material technology platforms to address the anticipated growing consumer electronics markets.
Gross margin.Gross margin for the three months ended DecemberMarch 31, 20172023 was $109.5$420 million, or 38.9%34% of total revenues, compared to $94.2$322 million, or 40.7%39% of total revenues, for the same period last fiscal year. year, a decrease of 500 basis points. The decrease as a percent of revenue for the three months ended March 31, 2023 included $21 million of incremental amortization expense related to technology acquired as a result of the Merger. Gross margins excluding the incremental amortization decreased 327 basis points for the three months ended March 31, 2023 compared to the prior year period primarily due to lower revenues, less favorable mix of revenues, underutilized operating capacity in several plants, and the unfavorable foreign exchange rates.
Internal researchproducts.
Selling, general and administrative. Selling, general and administrative (“SG&A”) expensesrevenue for the three months ended DecemberMarch 31, 2017 were $49.1 million, or 17.4% of revenues,2023 compared to $43.5 million, or 18.8% of revenues, for the same period last fiscal year.SG&A expenses foryear was the six months ended December 31, 2017 were $99.7 million, or 18.4% of revenues, compared to $85.6 million, or 18.9% of revenues. SG&A includes $2.0 million and $3.1 million, respectively, for the three and six months ended December 31, 2017 for the combined acquisitions of Integrated Photonics, Inc. and Compound Semiconductor Ltd. Exclusiveresult of the acquisitions, thecomparatively larger sales and administrative efforts required to sell an entire laser system versus components and subsystems, as well as incremental amortization expense of $52 million. The increase in SG&A was primarily dueas a percentage of revenue for the nine months ended March 31, 2023 compared to increased costs to support the Company’s growing revenue base. The Company is aggressively working to capitalize on synergies created from the Company’s recent acquisitions and working to improve the SG&A leverage throughoutsame period last fiscal year 2018.
was the result of the comparatively larger sales and administrative efforts required to sell an entire laser system versus components and subsystems, incremental amortization expense of $156 million and higher one time-charges related to the Merger of $79 million for integration, share-based compensation, and transaction fees.
incremental interest income.
and foreign jurisdictions.
II- VI Laser Effective July 1, 2022, the Company is reporting its financial results in the following three designated segments: (i) Materials, (ii) Networking, and (iii) Lasers. Financial results in prior years had been reported in the following two segments: (i) Compound Semiconductors, and (ii) Photonic Solutions. The Materials segment represents the former Compound Semiconductors segment and the Networking segment represents the former Photonic Solutions segment. The Lasers segment represents Legacy Coherent. In addition, prior year numbers were recast to reflect the transfer of two entities between the Networking and Materials segments.
|
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|
| % |
| ||||||||||||||||||||||||||||||||||||
|
| Three Months Ended |
|
| % |
|
| Six Months Ended |
|
| Increase |
| |||||||||||||||||||||||||||||||||||||||||||||||
|
| December 31, |
|
| Increase |
|
| December 31, |
|
| (Decrease) |
| Three Months Ended March 31, | % Increase | Nine Months Ended March 31, | % Increase | |||||||||||||||||||||||||||||||||||||||||||
|
| 2017 |
|
| 2016 |
|
|
|
|
|
| 2017 |
|
| 2016 |
|
|
|
|
| 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||||||||||||||||||
Revenues |
| $ | 109.8 |
|
| $ | 81.5 |
|
|
| 35 | % |
| $ | 203.1 |
|
| $ | 160.8 |
|
|
| 26 | % | Revenues | $ | 551 | $ | 560 | (2)% | $ | 1,756 | $ | 1,607 | 9% | ||||||||||||||||||||||||
Operating income |
| $ | 9.5 |
|
| $ | 7.6 |
|
|
| 25 | % |
| $ | 12.8 |
|
| $ | 14.3 |
|
|
| (10 | %) | Operating income | $ | 49 | $ | 55 | (9)% | $ | 230 | $ | 164 | 40% |
The above operating results for the three and six months ended December 31, 2017, include the Company’s acquisition of II-VI Compound Semiconductor Ltd. which was acquired in August 2017.
Revenues for the three months ended DecemberMarch 31, 2017 for II-VI Laser Solutions increased 35%2023 decreased 2% to $109.8$551 million, compared to revenues of $81.5$560 million for the same period last fiscal year. Revenues for the sixnine months ended DecemberMarch 31, 2017 for II-VI Laser Solutions2023 increased 26%9% to $203.1$1,756 million, compared to $160.8$1,607 million for the same period last fiscal year. The decrease in revenue of $8 million during the three months ended March 31, 2023 was primarily due to decreases in the communications market driven by decreased revenues in the communications end market. The increase in revenues forof $149 million during the three and six month periodsnine months ended DecemberMarch 31, 2017 compared2023 was primarily due to the same periods last fiscal year was the result of increased product demand from customersrevenue year-over-year in the industrial markets for the segment’s CO2, fiber laser and direct diode laser components. In addition, the segment has seen increased demand for its diamond optics used in the extreme ultraviolet lithography markets as well as VCSELs used in consumer, datacom and other markets.
communications market.
II-VI Photonicsour three segments.
|
| Three Months Ended |
|
| % |
|
| Six Months Ended |
|
| % |
| |||||||||||||||||||||||||||||||||||||||||||||||
|
| December 31, |
|
| Increase |
|
| December 31, |
|
| Increase |
| Three Months Ended March 31, | % Increase (Decrease) | Nine Months Ended March 31, | % Increase (Decrease) | |||||||||||||||||||||||||||||||||||||||||||
|
| 2017 |
|
| 2016 |
|
|
|
|
|
| 2017 |
|
| 2016 |
|
|
|
|
| 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||||||||||||||||||
Revenues |
| $ | 110.5 |
|
| $ | 100.9 |
|
|
| 10 | % |
| $ | 221.1 |
|
| $ | 196.7 |
|
|
| 12 | % | Revenues | $ | 324 | $ | 268 | 21% | $ | 1,062 | $ | 823 | 29% | ||||||||||||||||||||||||
Operating income |
| $ | 16.9 |
|
| $ | 15.9 |
|
|
| 6 | % |
| $ | 36.4 |
|
| $ | 29.8 |
|
|
| 22 | % | Operating income | $ | 68 | $ | 62 | 10% | $ | 225 | $ | 165 | 36% |
The above operating results for the three and six months ended December 31, 2017, include the Company’s recent acquisition of IPI which was acquired in June 2017.
sensing products.
II-VI Performance Products ($ in millions)
|
| Three Months Ended |
|
| % |
|
| Six Months Ended |
|
| % |
| ||||||||||||
|
| December 31, |
|
| Increase |
|
| December 31, |
|
| Increase |
| ||||||||||||
|
| 2017 |
|
| 2016 |
|
|
|
|
|
| 2017 |
|
| 2016 |
|
|
|
|
| ||||
Revenues |
| $ | 61.2 |
|
| $ | 49.4 |
|
|
| 24 | % |
| $ | 118.8 |
|
| $ | 95.8 |
|
|
| 24 | % |
Operating income |
| $ | 6.1 |
|
| $ | 3.6 |
|
|
| 69 | % |
| $ | 13.1 |
|
| $ | 6.7 |
|
|
| 96 | % |
Revenues for the three months ended December 31, 2017 for II-VI Performance Products increased 24% to $61.2 million compared to $49.4 million for the same period last fiscal year. Revenues for the six months ended December 31, 2017 increased 24% to $118.8 million compared to $95.8 million for the same period last fiscal year. The increase in revenues for both the three and six month periods ended December 31, 2017 compared to the same periods last fiscal year was driven by increased demand for the segment’s silicon carbide products addressing RF electronics and high-power voltage switching and power conversion systems for automotive, communications and military markets. In addition, the segment has seen increased demand for materials and components for the semiconductor equipment market.
Operating income for the three months ended December 31, 2017 for II-VI Performance Products increased 69% to $6.1 million, compared to $3.6 million for the same period last fiscal year. Operating income for the six months ended December 31, 2017 increased 96% to $13.1 million compared to $6.7 million for the same period last fiscal year. The increase in operating income for boththe nine months ended March 31, 2023 was driven by strong sales in electronics markets, partially offset by slower sales in industrial markets. The margin percentage was lower than the nine months ended March 31, 2022 due to mix and variations in demand across the operations.
Three Months Ended March 31, | % Increase (Decrease) | Nine Months Ended March 31, | % Increase (Decrease) | ||||||||||||||||||||||||||||||||
2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||||||||||||||
Revenues | $ | 365 | $ | — | N/A | $ | 1,137 | $ | — | N/A | |||||||||||||||||||||||||
Operating income | $ | (50) | $ | — | N/A | $ | (337) | $ | — | N/A |
$73 million of amortization expense related to the preliminary fair value of intangible assets acquired, and $13 million of integration costs. Operating loss for the nine months ended March 31, 2023 was $337 million. The loss was driven by $222 million 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, one-time charges of $39 million for transaction fees and financing, $48 million of integration costs, and $18 million of nonrecurring share based compensation.
Nine Months Ended March 31, | |||||||||||
2023 | 2022 | ||||||||||
Proceeds from long-term borrowings and revolving credit facility | $ | 3,715 | $ | — | |||||||
Net proceeds from debt and equity issuances | 1,358 | 990 | |||||||||
Net cash provided by operating activities | 453 | 276 | |||||||||
Effect of exchange rate changes on cash and cash equivalents and other items | 23 | 43 | |||||||||
Proceeds from exercises of stock options and purchases of stock under employee stock purchase plan | 22 | 17 | |||||||||
Other items | (3) | (2) | |||||||||
Payments on Convertible Debt and Finisar Notes | (4) | (15) | |||||||||
Payment of dividends | (21) | (28) | |||||||||
Payments in satisfaction of employees' minimum tax obligations | (52) | (15) | |||||||||
Debt issuance costs | (127) | (10) | |||||||||
Additions to property, plant & equipment | (343) | (196) | |||||||||
Payments on existing debt | (1,209) | (47) | |||||||||
Purchases of businesses, net of cash acquired | (5,489) | — |
|
| Six Months Ended |
| |||||
|
| December 31, |
| |||||
|
| 2017 |
|
| 2016 |
| ||
Net proceeds on long-term borrowings |
| $ | 183.0 |
|
| $ | 29.0 |
|
Net cash provided by operating activities |
|
| 59.7 |
|
|
| 58.7 |
|
Proceeds from exercises of stock options |
|
| 6.8 |
|
|
| 7.7 |
|
Purchases of businesses |
|
| (81.0 | ) |
|
| (0.6 | ) |
Additions to property, plant & equipment |
|
| (77.6 | ) |
|
| (57.8 | ) |
Purchase of equity investment |
|
| (51.5 | ) |
|
| - |
|
Purchases of treasury shares |
|
| (49.9 | ) |
|
| - |
|
Debt issuance costs |
|
| (10.1 | ) |
|
| (1.4 | ) |
Payments in satisfaction of employees' minimum tax obligations |
|
| (3.6 | ) |
|
| (2.3 | ) |
Effect of exchange rate changes on cash and cash equivalents and other items |
|
| 6.8 |
|
|
| (5.5 | ) |
Net cash provided by operating activities:
Net cash used in investing activities:
Net cash used in investing activities was $209.9 millionthe lenders, and other parties thereto, and JP Morgan Chase Bank, N.A., as administrative agent and collateral agent, which provides for the six months ended December 31, 2017, compared to net cash usedsenior secured financing of $58.2 million for the same period last fiscal year. The net cash used in investing activities during the six months ended December 31, 2017 included $77.6 million$4.0 billion, consisting of cash paid for investments in capital expenditures, $81.0 million of cash paid for the acquisition of II-VI Compound Semiconductor Ltd. and $51.5 million for a 93.8% equity investment in a U.S. based technology company. Net cash used of $58.2 million for the prior fiscal year was mainly investments in capital expenditures.
Net cash provided by financing activities:
Net cash provided by financing activities was $126.2 million for the six months ended December 31, 2017, compared to net cash provided by financing activities of $33.6 million for the same period last fiscal year. During the current fiscal year, the Company completed its offering and sale of $345 millionterm loan A credit facility (the “Term A Facility”), with an aggregate principal amount of convertible notes. In addition, the Company borrowed $100$850 million, on its revolvinga term loan B credit facility to fund its investments in capital expenditures(the “Term B Facility” and, its investments in technology platforms. The net proceeds fromtogether with the convertible debt offering was used to repay $252 million onTerm A Facility, the revolver, $10 million on the term loan, and $10.1 million of debt issuance costs and to repurchase $49.9 million of Common Stock. The Company also realized $6.8 million of proceeds from the exercise of stock options offset by $3.6 million on payments in satisfaction of employees’ minimum tax obligations.
0.25% Convertible Senior Notes
On August 24, 2017, the Company entered into a purchase agreement“Term Facilities”), with Merrill Lynch, Pierce, Fenner & Smith Incorporated, as representatives of the several initial purchasers named therein (collectively, the “Initial Purchasers”), to issue and sell $300 millionan aggregate principal amount of our 0.25% convertible senior notes due 2022 (the "Notes") in a private placement to qualified institutional buyers within the meaning of Rule 144A under the Securities Act of 1933, as amended. In addition, we granted the Initial Purchasers a 30-day option to purchase up to an additional $45$2,800 million, aggregate principal amount of the Notes (the “Over-Allotment Option”).
On August 29, 2017, the Initial Purchasers exercised their Over-Allotment Option to purchase the entire $45 million in aggregate principal amount of additional Notes. The Notes mature on September 1, 2022, unless earlier repurchased by the Company or converted by holders in accordance with the terms of the Notes. Interest is payable semi-annually in arrears on March 1 and September 1 of each year, beginning on March 1, 2018.
The sale of the Notes to the Initial Purchasers settled on August 29, 2017, and resulted in approximately $336 million in net proceeds to the Company after deducting the initial purchasers’ discount and the estimated offering expenses. The net proceeds from the offering and sale of the Notes were used, in part, to repurchase approximately $49.9 million of our Common Stock. The Company used the remaining net proceeds to repay $252 million on its revolving credit facility and to pay debt issuance costs of $10.1 million.
The Notes are governed by an Indenture between the Company, as issuer, and U.S. Bank, National Association, as trustee. The Notes will be our senior unsecured obligations and rank senior in right of payment to any of our indebtedness that is expressly subordinated in right of payment to the Notes; equal in right of payment to any of our indebtedness that is not so subordinated; effectively junior in right of payment to any of our secured indebtedness to the extent of the value of the assets securing such indebtedness; and structurally junior to all indebtedness and other liabilities (including trade payables) of our subsidiaries. In the event of our bankruptcy, liquidation, reorganization or other winding up, our assets that secure secured debt will be available to pay obligations on the Notes only after all indebtedness under such secured debt has been repaid in full from such assets. Upon conversion, the Company will pay or deliver, as the case may be, cash, shares of our Common Stock or a combination of cash and shares of our Common Stock, at the Company’s election.
As a result of our cash conversion option, the Company separately accounted for the value of the embedded conversion option as a debt discount. The value of the embedded conversion option was determined based on the estimated fair value of the debt without the conversion feature, which was determined using an expected present value technique (income approach) to estimate the fair value of similar nonconvertible debt; the debt discount is being amortized as additional non-cash interest expense over the term of the Notes using the effective interest method with an effective interest rate of 4.5% per annum.
The equity component is not remeasured as long as it continues to meet the conditions for equity classification. The initial conversion rate is 21.25 shares of Common Stock per $1,000 principal amount of Notes, which is equivalent to an initial conversion price of $47.06 per share of Common Stock. Throughout the term of the Notes, the conversion rate may be adjusted upon the occurrence of certain events.
Holders of the Notes will not receive any cash payment representing accrued and unpaid interest upon conversion of a note. Accrued but unpaid interest will be deemed to be paid in full upon conversion rather than cancelled, extinguished or forfeited.
Prior to the close of business on the business day immediately preceding June 1, 2022, the Notes will be convertible only upon satisfaction of at least one of the conditions as follows:
|
|
|
|
|
|
On or after June 1, 2022 until the close of business on the business day immediately preceding the maturity date, holders may convert all or any portion of their Notes, in multiples of $1,000 principal amount, at the option of the holder regardless of the foregoing circumstances.
As of December 31, 2017, the Notes are not yet convertible. In accounting for the transaction costs related to the Note issuance, the Company allocated the total amount of offering costs incurred to the debt and equity components based on their relative values. Offering costs attributable to the debt component, totaling $8.4 million, are being amortized as non-cash interest expense over the term of the Notes, and offering costs attributable to the equity component, totaling $1.7 million, were recorded within stockholders' equity.
The following table sets forth total interest expense recognized related to the Notes for the three months ended December 31, 2017:
|
|
| Three Months Ended December 31, 2017 |
|
| Six Months Ended December 31, 2017 |
| ||
0.25% contractual coupon |
|
| $ | 219 |
|
| $ | 297 |
|
Amortization of debt discount and debt issuance costs including initial purchaser discount |
|
|
| 2,935 |
|
|
| 4,043 |
|
Interest expense |
|
| $ | 3,154 |
|
| $ | 4,340 |
|
Amended Credit Facility
On July 28, 2016, the Company amended and restated its existing credit agreement. The Third Amended and Restated Credit Agreement (the “Amended Credit Facility”) provides for a revolving credit facility of $325 million, as well as a $100 million term loan. The term loan is being repaid in consecutive quarterly principal payments on the first business day of each January, April, July(the “Revolving Credit Facility” and, October,together with the first payment having commenced on October 1, 2016, as follows: (i) twenty consecutive quarterly installments of $5 million and (ii) a final installment of all remaining principal due and payable onTerm Facilities, the maturity date of July 27, 2021. Amounts borrowed under the revolving credit facility are due and payable on the maturity date. The Amended“Senior Credit Facility is unsecured, but is guaranteed by each existing and subsequently acquired or organized wholly-owned domestic subsidiary of the Company. The Company has the option to request an increase to the size of the revolving credit facilityFacilities”), in an aggregate additionalavailable amount notof $350 million, including a letter of credit sub-facility of up to exceed $100$50 million. The AmendedOn 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 haseach bear interest at an adjusted SOFR rate subject to a five-year term through July 27, 2021 and has an interest rate0.10% floor plus a range of either a Base Rate Option or a Euro-Rate Option, plus an Applicable Margin, as defined in the agreement governing the Amended Credit Facility. If the Base Rate option is selected for a borrowing, the Applicable Margin is 0.00%1.75% to 1.25% and if the Euro-Rate Option is selected for a borrowing, the Applicable Margin is 1.00% to 2.25%. The Applicable Margin is2.50%, based on the ratio ofCompany’s total net leverage ratio. The Term A Facility and the Company’s consolidated indebtedness to consolidated EBITDA. Additionally, theRevolving Credit Facility borrowings bear interest at adjusted SOFR plus 1.75% as of March 31, 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 expense of $69 million and $183 million for the three and nine months ended March 31, 2023, respectively, which is subject to certain covenants,included in interest expense in the Consolidated Statements of Earnings (Loss).
Yen Loan
The Company’s Yen denominated line of credit is a 500 million Yen (approximately $4.4 million) facility. The Yen line of credit matures in August 2020. The interest rate is equal to LIBOR, as defined in the loan agreement, plus 0.625% to 1.75%. At December 31, 2017 and June 30, 2017,2023, the Company had 300 million Yen borrowed. Additionally, the facility is subject to certain covenants, including those relating to minimum interest coverage and maximum leverage ratios. As of December 31, 2017, the Company was in compliance with all financial covenants under its Yen facility.
Aggregate Availability
The Company had aggregate availability of $225.6 million and $73.5 million under its lines of credit as of December 31, 2017 and June 30, 2017, respectively. The amounts availableno borrowings outstanding under the Company’s lines of credit are reduced by outstanding letters of credit. As of December 31, 2017 and June 30, 2017, total outstanding letters of credit supported by these credit facilities were $1.2 million for both periods.
Weighted Average Interest Rate
The weighted average interest rate of total borrowings was 1.4% and 2.1% forRevolving Credit Facility. In the three months ended December 31, 2017 and 2016, respectively.
In August 2017, in conjunction with2022, we repaid the Company’s offering and sale of the Notes, the Company’s Board of Directors authorized the Company to purchase up to $50$65 million of its Common Stock with a portion of the net proceeds received from the offering and sale of the Notes. The shares that were purchased by the Company pursuant to this authorization were retained as treasury stock and are available for general corporate purposes. The Company purchased 1,414,900 shares of its Common Stock for approximately $49.9 million pursuant to this authorization.
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 purchasedwas borrowed 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. The Company did not repurchase shares pursuant to this Program during the sixthree months ended December 31, 2017. Through December 31, 2017, the Company has purchased 1,316,587 shares of its Common Stock pursuant to the Program for approximately $19.0 million.
The Company’sSeptember 30, 2022.
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| December 31, |
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| June 30, |
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| 2017 |
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| 2017 |
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Cash and cash equivalents |
| $ | 254.5 |
|
| $ | 271.9 |
|
Available borrowing capacity |
|
| 225.6 |
|
|
| 73.5 |
|
Total debt obligation |
|
| 526.5 |
|
|
| 343.5 |
|
March 31, 2023 | June 30, 2022 | |||||||||||||
Cash, cash equivalents, and restricted cash | $ | 901 | $ | 2,582 | ||||||||||
Available borrowing capacity under New Revolving Credit Facility | 348 | 450 | ||||||||||||
Total debt obligations | 4,425 | 2,300 |
Contractual Obligations
The following table presents information aboutthis business acquisition, no changes in the Company’s contractual obligations and commitments as of December 31, 2017.
Tabular-Disclosure of Contractual Obligations
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| Payments Due By Period |
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| Less Than 1 |
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| 1-3 |
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| 3-5 |
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| More Than 5 |
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Contractual Obligations |
| Total |
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| Year |
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| Years |
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| Years |
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| Years |
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($000) |
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Long-term debt obligations |
| $ | 526,500 |
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| $ | 20,000 |
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| $ | 46,500 |
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| $ | 460,000 |
|
| $ | - |
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Interest payments(1) |
|
| 33,119 |
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|
| 7,522 |
|
|
| 13,215 |
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|
| 5,994 |
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|
| 6,388 |
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Capital lease obligations |
|
| 23,962 |
|
|
| 1,103 |
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|
| 2,424 |
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|
| 2,749 |
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|
| 17,686 |
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Operating lease obligations(2) |
|
| 92,399 |
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|
| 16,035 |
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|
| 26,887 |
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|
| 15,929 |
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|
| 33,548 |
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Purchase obligations(3) (4) |
|
| 29,550 |
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|
| 22,093 |
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|
| 7,450 |
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| 7 |
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|
| - |
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Other long-term liabilities reflected on the Registrant's balance sheet under GAAP |
|
| - |
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|
| - |
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|
| - |
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|
| - |
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| - |
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Total |
| $ | 705,530 |
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| $ | 66,753 |
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| $ | 96,476 |
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| $ | 484,679 |
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| $ | 57,622 |
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The Company’s gross unrecognized income tax benefit at December 31, 2017 has been excluded from the table above because the Company is not currently able to reasonably estimate the amount by which the liability will increase or decrease over time. However, at this time, the Company does not expect a significant payment related to these obligations within the next year.
Pension obligations are not included in the table above. The Company expects the remaining defined benefit plan employer contributions for fiscal year 2018 to be $1.8 million. Estimated funding obligations are determined by asset performance, workforce and retiree demographics, tax and employment laws and other actuarial assumptions which may change the annual funding obligations.
MARKET RISKS
The Company is exposed to market risks arising from adverse changesCompany’s unaudited condensed consolidated financial statements in foreign currency exchange rates and interest rates. In the normal coursePart I, Item 1 of business, the Company uses a variety of techniques and derivative financial instruments as part of its overall risk management strategy, which is primarily focusedthis Quarterly Report on its exposure in relation to the Japanese Yen, Chinese Renminbi, and the Euro. No significant changes have occurred in the techniques and instruments used other than those described below.
Foreign Exchange Risks
In the normal course of business, the Company enters into foreign currency forward exchange contracts with its financial institutions. The purpose of these contracts is to hedge ordinary business risks regarding foreign currencies on product sales. Foreign currency exchange contracts are used to limit transactional exposure to changes in currency rates.
Japanese Yen
The Company enters into foreign currency forward contracts that permit it to sell specified amounts of Japanese Yen expected to be received from its export sales for pre-established U.S. dollar amounts at specified dates. The forward contracts are denominated in the same foreign currencies in which export sales are denominated. These contracts provide the Company with an economic hedge in which settlement will occur in future periods, thereby limiting the Company’s exposure. These contracts had a total notional amount of $14.7 million and $12.7 million at December 31, 2017 and June 30, 2017, respectively.
A 10% change in the Yen to U.S. dollar exchange rate would have changed revenues in the range from a decrease of $2.0 million to an increase of $2.4 millionForm 10-Q for the six months ended Decemberentire period from July 1, 2022 to March 31, 2017.
Chinese Renminbi
The Company enters into month-to-month forward contracts at varying amounts maturing monthly to limit exposure to the Chinese Renminbi. The Company has recorded $1.7 million of unrealized foreign currency gains in the Condensed Consolidated Statement of Earnings related to these contracts for the six months ended December 31, 2017.
The Company enters into month-to-month forward contracts at varying amounts maturing monthly to limit exposure to the Euro. The Company has recorded $0.6 million of unrealized foreign currency gains in the Condensed Consolidated Statement of Earnings related to these contracts for the six months ended December 31, 2017.
The Company has short-term intercompany notes that are denominated in U.S. dollars with one2023 and represented 60% of the Company’s European subsidiaries. A 10% change in the Euro to U.S. dollar exchange rate would have changed net earnings in the range from a decreaseconsolidated total assets as of $0.8 million to an increase of $1.0 million for the six months ended DecemberMarch 31, 2017.
The Company monitors its positions2023 and the credit ratings29% of the parties to these contracts. While the Company may be exposed to potential losses due to risk in the event of non-performance by the counterparties to these financial instruments, it does not currently anticipate such losses.
Assets and liabilities of foreign operations are translated into U.S. dollars using the period-end exchange rate, while income and expenses are translated using the average exchange rates for the reporting period. Translation adjustments are recorded as accumulated other comprehensive income within shareholders’ equity.
Interest Rate Risks
As of December 31, 2017, the Company’s consolidated total outstanding borrowings of $526.5 million consisted of $177.7 million of variable rate debt borrowings from a line of credit of $2.7 million denominated in Japanese Yen, borrowings under a term loan of $75.0 million under the Company’s Credit Facility denominated in U.S. dollars and a line of credit borrowing of $100.0 million under the Company’s Credit Facility denominated in U.S. dollars. As such, the Company is exposed to market risks arising from changes in interest rates. An increase in the interest rate of these borrowings of 1% would have resulted in additional interest expense of $0.4 and $1.1 millionrevenues for the three and six months ended DecemberMarch 31, 2017.
Evaluation
The Company’sderivative financial instruments as part of its overall risk management evaluated, withstrategy, which is primarily focused on its exposure in relation to the participationChinese Renminbi, Euro, Swiss Franc, Japanese Yen, Singapore Dollar and Korean Won. No significant changes have occurred in the techniques and instruments used.
Item 1. LEGAL PROCEEDINGS |
Item 1A. RISK FACTORS |
U.S. Federal income tax reform could adversely affect us.
On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act significantly revises the U.S. corporate income tax by, among other things, lowering U. S. corporate income tax rates and implementing a territorial tax system. The changes included in the Tax Act are broad and complex. The final transition impacts
In August 2017, in conjunction with the Company’s offering and sale of the Notes, the Company’s Board of Directors authorized the Company to purchase up to $50 million of its Common Stock with a portion of the net proceeds received from the offering and sale of the Notes. The shares that were purchased by the Company pursuant to this authorization were retained as treasury stock and are available for general corporate purposes. The Company purchased 1,414,900 shares of its Common Stock for approximately $49.9 million pursuant to this authorization.
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. As of December 31, 2017, the Company has purchased 1,316,587 shares of its Common Stock pursuant to the Program for approximately $19.0 million. The dollar value of shares that may yet be purchased under the Program is approximately $31.0 million.
The following table sets forth repurchases of our Common Stock during the quarter ended December 31, 2017:
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| Total Number of |
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| Dollar Value of |
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| Shares Purchased |
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| Shares That May |
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| as Part of Publicly |
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| Yet be Purchased |
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| Total Number of |
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| Average Price Paid |
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| Announced Plans or |
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| Under the Plan or |
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Period |
| Shares Purchased |
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| Per Share |
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| Programs |
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| Program |
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October 1, 2017 to October 31, 2017 |
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| - |
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| $ | - |
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|
| - |
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| $ | 30,906,904 |
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November 1, 2017 to November 30, 2017 |
|
| - |
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|
| $ | - |
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|
| - |
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| $ | 30,906,904 |
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December 1, 2017 to December 31, 2017 |
|
| - |
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|
| $ | - |
|
|
| - |
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| $ | 30,906,904 |
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Total |
|
| - |
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|
| $ | - |
|
|
| - |
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Incorporated herein by reference | ||||||||||||||||||||||||||||||||
Exhibit No. | Form | Exhibit No. | Filing Date | File No. | ||||||||||||||||||||||||||||
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10.01* | ||||||||||||||||||||||||||||||||
31.01* |
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31.02* | ||||||||||||||||||||||||||||||||
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32.01* | ||||||||||||||||||||||||||||||||
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32.02* | ||||||||||||||||||||||||||||||||
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101.INS | Inline XBRL Instance Document - the instance document does not appear in the interactive data file because XBRL tags are embedded within the inline XBRL document | |||||||||||||||||||||||||||||||
| Inline XBRL Taxonomy Extension Schema Document | |||||||||||||||||||||||||||||||
101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |||||||||||||||||||||||||||||||
101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document | |||||||||||||||||||||||||||||||
101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document | |||||||||||||||||||||||||||||||
101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |||||||||||||||||||||||||||||||
104 | Cover Page Interactive Data File - the cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. |
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The Registrant will furnish to the Commission upon request copies
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(Registrant) | ||||||||||
Date: | By: |
| /s/ Vincent D. Mattera, Jr. | |||||||
Vincent D. Mattera, Jr | ||||||||||
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Date: | By: |
| /s/ Mary Jane Raymond | |||||||
Mary Jane Raymond | ||||||||||
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39