Form 8-K/A II-VI INC For: Jul 01

The accompanying notes to the unaudited pro forma condensed combined financial information;

The separate unaudited condensed consolidated financial statements of II-VI as of and for the nine months ended March 31, 2022 and the related notes, included in II-VI’s Quarterly Report on Form 10-Q for the period ended March 31, 2022;

The separate audited consolidated financial statements of II-VI as of and for the fiscal year ended June 30, 2021 and the related notes, included in II-VI’s Annual Report on Form 10-K for the fiscal year ended June 30, 2021;

The separate unaudited condensed consolidated financial statements of Coherent as of and for the six months ended April 2, 2022 and the related notes, included in Coherent’s Quarterly Report on Form 10-Q for the period ended April 2, 2022;

The separate audited consolidated financial statements of Coherent as of and for the fiscal year ended October 2, 2021 and the related notes, included in Coherent’s Annual Report on Form 10-K for the fiscal year ended October 2, 2021; and

The separate unaudited condensed consolidated financial statements of Coherent as of and for the nine months ended July 3, 2021 and the related notes, included in Coherent’s Quarterly Report on Form 10-Q for the period ended July 3, 2021.

Assets

Current Assets:

Cash, cash equivalents, and restricted cash

Accounts receivable—less allowance for doubtful accounts

Inventories

Prepaid and refundable income taxes

Prepaid and other current assets

Total Current Assets

Property, plant & equipment, net

Goodwill

Other intangible assets, net

Non-current restricted cash

Deferred income taxes

Other assets

Total Assets

Liabilities. Mezzanine Equity and Shareholders’ Equity

Current Liabilities:

Current portion of long-term debt

Accounts payable

Accrued compensation and benefits

Operating lease current liabilities

Accrued income taxes payable

Other accrued liabilities

Total Current Liabilities

Long-term debt

Deferred income taxes

Operating lease liabilities

Other liabilities

Total Liabilities

Mezzanine Equity

Series B redeemable convertible preferred stock

Total Mezzanine Equity

Shareholders’ Equity

Series A preferred stock

Common stock

Additional paid-in capital

Accumulated other comprehensive income (loss)

Retained earnings

Treasury stock, at cost

Total Shareholders’ Equity

Total Liabilities, Mezzanine Equity and Shareholders’ Equity

(Note 5A)

Revenues

Costs, Expenses, and Other Expense (Income)

Cost of goods sold

Internal research and development

Selling, general and administrative

Interest expense

Other expense (income), net

Total Costs, Expenses, & Other Expense (Income)

Earnings (Loss) Before Income Taxes

Income tax expense (benefit)

Net Earnings (Loss)

Less: Dividends on Preferred Stock

Net Earnings (Loss) available to the Common Shareholders

Basic Earnings (Loss) Per Share

Diluted Earnings (Loss) Per Share

Costs, Expenses, and Other Expense (Income)

Cost of goods sold

Internal research and development

Selling, general and administrative

Interest expense

Other expense (income), net

Total Costs, Expenses, & Other Expense (Income)

Earnings (Loss) Before Income Taxes

Income tax expense (benefit)

Net Earnings (Loss)

Less: Dividends on Preferred Stock

Net Earnings (Loss) available to the Common Shareholders

Basic Earnings (Loss) Per Share

Diluted Earnings (Loss) Per Share

The unaudited pro forma condensed combined balance sheet as of March 31, 2022 is presented as if II-VI’s acquisition of Coherent had occurred on March 31, 2022 and combines the historical balance sheet of II-VI as of March 31, 2022 with the historical balance sheet of Coherent as of April 2, 2022.

The unaudited pro forma condensed combined statement of earnings (loss) for the nine months ended March 31, 2022 has been prepared as if the merger had occurred on July 1, 2020 and combines II-VI’s historical statement of earnings for the nine months ended March 31, 2022 with Coherent’s historical statement of operations for the nine months ended April 2, 2022.

Coherent’s historical statement of operations for the nine months ended April 2, 2022 was prepared by taking the unaudited condensed consolidated statement of operations for the six months ended April 2, 2022, adding the audited consolidated statement of operations for the fiscal year ended October 2, 2021, and subtracting the unaudited condensed consolidated statement of operations for the nine months ended July 3, 2021.

The unaudited pro forma condensed combined statement of earnings (loss) for the year ended June 30, 2021 has been prepared as if the merger and the public offerings had occurred on July 1, 2020 and combines II-VI’s historical statement of earnings for the fiscal year ended June 30, 2021 with Coherent’s historical statement of operations for the twelve month period ended July 3, 2021.

Coherent’s historical statement of operations for the twelve month period ended July 3, 2021 was prepared by taking the unaudited condensed consolidated statement of operations for the nine months ended July 3, 2021, adding the audited consolidated statement of operations for the fiscal year ended October 3, 2020, and subtracting the unaudited condensed consolidated statement of operations for the nine months ended July 4, 2020.

Refer to the table below for a summary of reclassification adjustments made to present Coherent’s balance sheet as of April 2, 2022 to conform with that of II-VI’s:

(in 000’s)

Coherent Historical Consolidated Balance
Sheet Line Items

II-VI Historical Consolidated Balance Sheet
Line Items

Coherent Historical

Consolidated
Balances

As of April 2, 2022

Reclassification

Coherent Reclassed

As of April 2, 2022

Reclassification of $1.5 million of restricted cash to cash, cash equivalents, and restricted cash.

Reclassification of $39.8 million of prepaid expenses and other assets to prepaid and refundable income taxes.

Reclassification of $156.3 million of other assets to deferred income taxes.

Reclassification of $67.1 million of other current liabilities to accrued compensation and benefits.

Reclassification of $14.2 million of other current liabilities to operating lease current liabilities.

Reclassification of $18.9 million of other long-term liabilities to deferred income taxes.

Reclassification of $57.1 million of other long-term liabilities to operating lease liabilities.

Refer to the table below for a summary of adjustments made to present Coherent’s statement of operations for the nine months ended April 2, 2022 to conform with that of II-VI’s:

(in 000’s)

Coherent Historical Consolidated Statements
of Operations Line Items

II-VI Historical Consolidated Statements of
Earnings (Loss) Line Items

Coherent

Nine Months Ended

April 2, 2022

Reclassification

Coherent Reclassed

Nine Months Ended

April 2, 2022

Reclassification of $1.7 million of amortization of intangible assets to selling, general and administrative.

Reclassification of $0.4 million of interest income to other expense (income), net.

Reclassification of $3.5 million of merger and acquisition costs to selling, general and administrative.

Refer to the table below for a summary of adjustments made to present Coherent’s statement of operations for the year ended June 30, 2021 to conform with that of II-VI’s:

(in 000’s)

Coherent Historical Consolidated
Statements of Operations Line Items

II-VI Historical Consolidated Statements of

Earnings (Loss) Line Items

Coherent

Year Ended

July 3, 2021

Reclassification

Coherent Reclassed

Year Ended

July 3, 2021

Reclassification of $2.9 million of amortization of intangible assets to selling, general and administrative.

Reclassification of $0.5 million of interest income to other expense (income), net.

Reclassification of $234.6 million of merger and acquisition costs to selling, general and administrative. Included in Coherent’s merger and acquisition costs is a termination fee of $217.6 million related to the termination of a prior merger agreement. These costs will not affect the condensed combined statement of earnings (loss) beyond twelve months after the acquisition date.

In II-VI’s historical statement of earnings for the fiscal year ended June 30, 2021, intangible asset amortization expense was classified within selling, general and administrative (“SG&A”). II-VI’s historical statement of earnings (loss) for the nine months ended March 31, 2022 now classifies amortization expense on the developed technology intangible assets within cost of goods sold, with amortization expense on customer lists and trade names remaining within SG&A expenses. In order to conform to the current period presentation, a reclassification adjustment resulted in an increase to cost of goods sold and a decrease to SG&A expenses of $38.8 million for the fiscal year ended June 30, 2021.

(in 000’s)

Shares of II-VI common stock issued to Coherent stockholders (ii)

Converted Coherent RSUs attributable to pre-combination service (iii)

Estimated payment of Coherent debt (iv)

Estimated payment of Coherent transaction expenses (v)

Estimated aggregate merger consideration

The cash component of the aggregate merger consideration is based on 24,821,852 shares of outstanding Coherent common stock being exchanged and the $220.00 per share cash portion of the merger consideration.

Value of shares of II-VI common stock issued is based on 24,821,852 shares of outstanding Coherent common stock being exchanged and 0.91 of a share of II-VI common stock issued at a closing share price of $50.95 on June 30, 2022.

As discussed in “Description of the Merger”, certain equity awards of Coherent were replaced by II-VI’s equity awards with similar terms. The portion of the fair value of II-VI’s equity awards attributable to the pre-combination service period represents aggregate merger consideration. The remainder of the fair value will be recognized as compensation expense subsequent to the merger.

The estimated cash paid by II-VI to settle Coherent’s Euro Term Loan of $384.9 million.

The estimated cash paid by II-VI on the Closing Date to settle Coherent’s transaction expenses of $87.1 million.

(in 000’s)

Assets:

Cash, cash equivalents, and restricted cash

Accounts receivable

Inventories (i)

Prepaid and refundable income taxes

Prepaid and other current assets

Property, plant & equipment, net (ii)

Non-current restricted cash

Deferred income taxes

Other assets

Other intangible assets, net (iii)

Goodwill

Liabilities:

Current portion of long-term debt

Accounts payable

Accrued compensation and benefits

Operating lease current liabilities

Accrued income taxes payable

Other accrued liabilities

Long-term debt

Deferred income taxes

Operating lease liabilities

Other liabilities

Preliminary aggregate acquisition consideration

The unaudited pro forma condensed combined balance sheet has been adjusted to record Coherent’s inventories at a preliminary fair value of approximately $513.0 million, an increase of $95.7 million from the carrying value. The unaudited pro forma condensed combined statement of earnings (loss) for the year ended June 30, 2021 has been adjusted to recognize additional cost of goods sold related to the increased basis. The additional costs are not anticipated to affect the condensed combined statements of earnings (loss) beyond twelve months after the acquisition date.

The unaudited pro forma condensed combined balance sheet has been adjusted to record Coherent’s property, plant and equipment (consisting of land, buildings and improvements, equipment, furniture and fixtures, and leasehold improvements) at a preliminary fair value of approximately $575.1 million, an increase of $269.2 million from the carrying value. The unaudited pro forma condensed combined statements of earnings (loss) have been adjusted to recognize additional depreciation expense related to the increased basis under cost of goods sold. The additional depreciation expense is computed with the assumption that the various categories of assets will be depreciated over a useful life of 10-15 years on a straight-line basis.

Preliminary identifiable intangible assets in the unaudited pro forma condensed combined financial information consists of the following:

(in 000’s)

Preliminary fair value of intangible assets acquired:

Trade names and trademarks

Customer relationships

Developed technology

Intangible assets acquired

Reflects adjustment to cash, cash equivalents and restricted cash:

(in 000’s)

Pro forma transaction accounting adjustments:

II-VI transaction costs (i)

Coherent transaction costs (i)

Payment of Coherent debt (ii)

Cash paid for outstanding Coherent common stock

Net pro forma transaction accounting adjustment to cash, cash equivalents and restricted cash

Pro forma transaction accounting adjustments—financing:

Cash proceeds from Term Loan A Facility and Term Loan B Facility, net of debt issuance costs

Remaining payment of Bridge Loan Commitment fees, revolving credit facility fees and other financing-related costs (iv)

Cash from issuance of II-VI Series B convertible preferred stock, net of equity issuance costs

Payment of II-VI debt and accrued interest (iii)

Net pro forma transaction accounting adjustment—financing to cash, cash equivalents and restricted cash

These costs consist of legal advisory, financial advisory, accounting and consulting costs. For II-VI transaction costs, $3.4 million settled amounts recorded in other accrued liabilities. See Note 4(o). For Coherent transaction costs, these costs include a $4.3 million prepayment of Coherent’s directors’ and officers’ liability insurance. See Note 4(q).

The cash paid by II-VI to settle Coherent’s Euro Term Loan of $384.9 million.

The cash paid to settle II-VI’s senior secured first-lien term A loan facility with Bank of America including accrued interest.

Of this amount, $13.9 million settled amounts recorded in other accrued liabilities. See Note 4(o).

Reflects the preliminary purchase accounting adjustment for inventories based on the acquisition method of accounting.

(in 000’s)

Pro forma transaction accounting adjustments:

Elimination of Coherent’s inventories—carrying value

Preliminary fair value of acquired inventories

Net pro forma transaction accounting adjustment to inventories

Reflects the preliminary purchase accounting adjustment for estimated intangibles based on the acquisition method of accounting. Refer to Note 3 above for additional information on the acquired intangible assets expected to be recognized.

(in 000’s)

Pro forma transaction accounting adjustments:

Elimination of Coherent’s historical net book value of intangible assets

Preliminary fair value of acquired intangibles

Net pro forma transaction accounting adjustment to other intangible assets, net

Preliminary goodwill adjustment of $4,023.4 million which represents the elimination of historical goodwill and excess of the estimated aggregate merger consideration over the preliminary fair value of the underlying assets acquired and liabilities assumed.

(in 000’s)

Pro forma transaction accounting adjustments:

Elimination of Coherent’s historical goodwill

Goodwill per purchase price allocation (Note 3)

Net pro forma transaction accounting adjustment to goodwill

Reflects the originating deferred taxes resulting from pro forma fair value adjustments of the acquired assets and assumed liabilities based on the applicable statutory tax rate with the respective estimated purchase price allocation. The effective tax rate of the combined company could be significantly different (either higher or lower) depending on post-merger activities, including cash needs, the geographical mix of income and changes in tax law. Because the tax rates used for the pro forma financial information are estimated, the blended rate will likely vary from the actual effective rate in periods subsequent to completion of the merger. This determination is preliminary and subject to change based upon the final determination of the fair value of the acquired assets and assumed liabilities.

Reflects the term loan facilities, net of unamortized debt issuance costs and original issue discount, to fund a portion of the merger. II-VI drew down on debt under the Credit Agreement for $3,650 million for purposes of these unaudited pro forma condensed combined financial statements. The adjustment to current and long-term debt is comprised of the following items:

(in 000’s)

Pro forma transaction accounting adjustments:

Settlement of Coherent’s Euro term loan

Net pro forma transaction accounting adjustments to debt

Pro forma transaction accounting adjustments—financing:

Revolving credit facility (i)

Term Loan A Facility

Debt issuance costs related to Term Loan A Facility

Term Loan B Facility

Debt issuance costs related to Term Loan B Facility

Net proceeds from new debt financing

Settlement of II-VI debt

Reclassification of Senior Notes, net of debt issuance costs (ii)

Net pro forma transaction accounting adjustments—financing to current portion of long-term debt and long-term debt

$5.7 million of fees related to the establishment of the $350 million senior secured revolving credit facility pursuant to the Credit Agreement is capitalized to other assets.

In II-VI’s historical condensed consolidated balance sheet as of March 31, 2022, the Senior Notes were presented within the current portion of long-term debt. This was due to the fact that if (i) the merger had not been consummated on or prior to 11:59 p.m., Eastern Time, on December 15, 2022 or (ii) II-VI informed the Trustee, in writing or otherwise announces in writing that the merger was no longer being pursued and/or the merger agreement had been terminated without consummation of the merger, II-VI would be required to redeem all of the outstanding Senior Notes at a redemption price equal to 100% of the principal amount of the Senior Notes, plus accrued and unpaid interest, if any, to, but excluding, the applicable redemption date. Given the merger has been consummated, for purposes of these unaudited pro forma condensed combined financial statements, the Senior Notes have been reclassified from current portion of long-term debt to long-term debt as of March 31, 2022.

Reflects the issuance of shares of II-VI Series B-2 convertible preferred stock in the equity financing reflected in mezzanine equity as the Series B-2 preferred stock is redeemable for cash outside of the control of II-VI.

(in 000’s)

Pro forma transaction accounting adjustments—financing:

II-VI Series B-2 preferred stock issuance

Less: Equity issuance costs

Net pro forma transaction accounting adjustment to Series B redeemable convertible preferred stock

Reflects the elimination of Coherent’s historical common stock, the preliminary common stock consideration component of the merger, and adjustments related to stock-based compensation impacts upon the merger.

(in 000’s)

Elimination of Coherent’s historical common stock

Shares of II-VI common stock issued to Coherent stockholders

Converted Coherent RSUs attributable to pre-combination service

Accelerated vesting of CIC Plan participant’s Converted Coherent RSUs (i)

Net pro forma transaction accounting adjustment to common stock

Represents the accelerated vesting of Converted RSUs for employees who participate in the CIC Plan and are expected to be terminated in conjunction with the merger. At this time, II-VI has not made final conclusions with respect to labor matters of the combined company. Accordingly, the estimate of severance costs may change materially.

Reflects the elimination of Coherent’s historical additional paid-in capital.

Reflects the elimination of Coherent’s retained earnings, write-off of II-VI debt issuance costs associated with the senior secured first-lien term A loan facility with Bank of America, the payment of transaction costs, and the accelerated vesting of certain Converted RSUs for participants in the CIC Plan.

(in 000’s)

II-VI transaction costs (i)

Severance cost (ii)

Accelerated vesting of CIC Plan participant’s Converted Coherent RSUs (iii)

Net pro forma transaction accounting adjustments to retained earnings

Pro forma transaction accounting adjustments—financing:

Write-off of II-VI debt issuance costs

Bridge Loan Commitment fees and other financing-related costs

Net pro forma transaction accounting adjustments—financing to retained earnings

These costs consist of financial advisory, legal advisory, accounting and consulting costs.

Represents $13.8 million of severance costs due to Coherent employees who participate in the CIC Plan and are expected to be terminated in conjunction with the merger. At this time, II-VI has not made final conclusions with respect to labor matters of the combined company. Accordingly, the estimate of severance costs may change materially.

Represents the accelerated vesting of Converted RSUs for employees who participate in the CIC Plan and are expected to be terminated in conjunction with the merger.

Reflects the elimination of Coherent’s historical accumulated other comprehensive loss.

Reflects the preliminary purchase accounting adjustment for property, plant and equipment, net based on the acquisition method of accounting.

(in 000’s)

Elimination of Coherent’s historical net book value of property, plant & equipment, net

Preliminary fair value of acquired property, plant & equipment

Net pro forma transaction accounting adjustments to property, plant & equipment, net

Reflects the accrual of severance costs due to Coherent employees who participate in the CIC Plan and are expected to be terminated in conjunction with the merger. At this time, II-VI has not made final conclusions with respect to labor matters of the combined company.

There were certain II-VI financing related costs that were capitalized as a prepaid and other current asset related to the Term B Facility and the Bridge Loan Commitment. The entire prepaid asset of approximately $5.1 million has been removed as of the balance sheet date. Approximately $4.7 million has been recorded as a debt issuance cost and a reduction to long-term debt and approximately $0.4 million has been recorded as interest expense given the cancellation of the Bridge Loan.

Reflects the tax withholding payable for CIC Plan participants, settlement of II-VI accrued interest on the senior secured first-lien term A loan facility with Bank of America and the payment of other financing-related costs incurred through the balance sheet date.

(in 000’s)

Pro forma transaction accounting adjustments:

CIC Plan Tax Withholding Payable (see Note 4(p))

Settlement of II-VI transaction costs payable

Settlement of Coherent transaction costs payable

Net pro forma transaction accounting adjustments to other accrued liabilities

Pro forma transaction accounting adjustments—financing:

Settlement of II-VI accrued interest

Settlement of other financing-related costs

Net pro forma transaction accounting adjustments—financing to other accrued liabilities

Reflects a repurchase of a portion of the accelerated RSUs for employees that participated in the CIC Plan. The proceeds from this repurchase were withheld to satisfy the employees’ tax withholding requirements. II-VI will remit this amount subsequent to the pro forma balance sheet date.

Reflects the prepayment of Coherent’s directors’ and officers’ liability insurance which covers a six-year period beginning on the Closing Date.

Adjustments included in the Coherent Transaction Accounting Adjustments column and Transaction Accounting Adjustments – Financing column in the accompanying unaudited pro forma condensed combined statements of earnings (loss) for the nine months ended March 31, 2022 and fiscal year ended June 30, 2021 are as follows:

Reflects the adjustments to cost of goods sold, including the amortization of the estimated fair value of intangibles, the removal of historical stock-based compensation expense and the recognition of the estimated post-close stock-based compensation expense for the Converted RSUs, the estimated fair value of inventories recognized through cost of goods sold during the first year after the merger and the incremental depreciation expense from the fair value adjustment to property, plant and equipment.

(in 000’s)

Removal of historical Coherent stock-based compensation expense

Record stock-based compensation expense

Inventory step-up flowing through cost of goods sold (i)

Removal of historical Coherent amortization of intangible assets

Amortization of intangible assets

Property, plant and equipment depreciation step-up

Net pro forma transaction accounting adjustment to cost of goods sold

These costs are non-recurring in nature and not anticipated to affect the condensed combined statements of earnings (loss) beyond twelve months after the acquisition date.

Reflects the adjustments to internal research and development expenses associated with the removal of historical stock-based compensation expense and the recognition of the estimated post-close stock-based compensation expense for the Converted RSUs.

(in 000’s)

Removal of historical Coherent stock-based compensation expense

Record stock-based compensation expense

Net pro forma transaction accounting adjustment to internal research and development expense

Reflects the adjustments to SG&A including the removal of historical stock-based compensation expense and the recognition of the estimated post-close stock-based compensation expense for the Converted RSUs, amortization of intangible assets and the estimated transaction costs expensed.