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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
________________________________________________________________
FORM 10-Q
________________________________________________________________
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended March 31, 2021
Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
for the transition period from                      to                     .
Commission File Number: 001-39375
________________________________________________________________
II-VI INCORPORATED
(Exact name of registrant as specified in its charter)
________________________________________________________________
PENNSYLVANIA25-1214948
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
375 Saxonburg Boulevard16056
Saxonburg,PA(Zip Code)
(Address of principal executive offices)
Registrant’s telephone number, including area code: 724-352-4455
N/A
(Former name, former address and former fiscal year, if changed since last report)
________________________________________________________________
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, no par valueIIVINasdaq Global Select Market
Series A Mandatory Convertible Preferred Stock, no par valueIIVIPNasdaq Global Select Market
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.:
Large accelerated filer
Accelerated filer
Non-accelerated filerSmaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act       
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  




Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:
At May 5, 2021, 104,884,278 shares of Common Stock, no par value, of the registrant were outstanding.


II-VI INCORPORATED
INDEX
Page No.
Condensed Consolidated Balance Sheets – March 31, 2021 and June 30, 2020 (Unaudited)
Condensed Consolidated Statements of Earnings (Loss) – Three and nine months ended March 31, 2021 and 2020 (Unaudited)
Condensed Consolidated Statements of Comprehensive Income (Loss) – Three and nine months ended March 31, 2021 and 2020 (Unaudited)
Condensed Consolidated Statements of Cash Flows – Nine months ended March 31, 2021 and 2020 (Unaudited)
Condensed Consolidated Statements of Shareholders’ Equity – Three and nine months ended March 31, 2021 and 2020

2

PART I - FINANCIAL INFORMATION
Item 1.    FINANCIAL STATEMENTS
II-VI Incorporated and Subsidiaries
Condensed Consolidated Balance Sheets (Unaudited)
($000)
March 31,
2021
June 30,
2020
Assets
Current Assets
Cash and cash equivalents$1,535,310 $493,046 
Accounts receivable - less allowance for doubtful accounts of $1,095 at March 31, 2021
and $1,698 at June 30, 2020
615,163 598,124 
Inventories673,744 619,810 
Prepaid and refundable income taxes9,133 12,279 
Prepaid and other current assets55,416 65,710 
Total Current Assets2,888,766 1,788,969 
Property, plant & equipment, net1,232,146 1,214,772 
Goodwill1,293,512 1,239,009 
Other intangible assets, net739,489 758,368 
Deferred income taxes36,191 22,938 
Other assets171,616 210,658 
Total Assets$6,361,720 $5,234,714 
Liabilities, Mezzanine Equity and Shareholders' Equity
Current Liabilities
Current portion of long-term debt$62,050 $69,250 
Accounts payable277,616 268,773 
Accrued compensation and benefits141,527 157,557 
Operating lease current liabilities23,264 24,634 
Accrued income taxes payable32,559 33,341 
Other accrued liabilities141,821 119,338 
Total Current Liabilities678,837 672,893 
Long-term debt1,323,402 2,186,092 
Deferred income taxes66,861 45,551 
Operating lease liabilities110,223 94,701 
Other liabilities141,049 158,674 
Total Liabilities2,320,372 3,157,911 
Mezzanine Equity
Series B redeemable convertible preferred stock, no par value, 5% cumulative; authorized - 215,000 shares; issued - 75,000 shares at March 31, 2021, redemption value - $750,100
716,200  
Shareholders' Equity
Series A preferred stock, no par value, 6% cumulative; authorized - 5,000,000 shares; issued - 2,300,000 shares at March 31, 2021
445,319  
Common stock, no par value; authorized - 300,000,000 shares; issued - 118,369,820 shares at March 31, 2021; 105,916,068 shares at June 30, 2020
2,011,210 1,486,947 
Accumulated other comprehensive income (loss)
4,501 (87,383)
Retained earnings1,071,362 876,552 
3,532,392 2,276,116 
Treasury stock, at cost; 13,489,953 shares at March 31, 2021 and 13,356,447 shares at June 30, 2020
(207,244)(199,313)
Total Shareholders' Equity3,325,148 2,076,803 
Total Liabilities, Mezzanine Equity and Shareholders' Equity$6,361,720 $5,234,714 
- See notes to condensed consolidated financial statements.
3

II-VI Incorporated and Subsidiaries
Condensed Consolidated Statements of Earnings (Unaudited)
($000, except per share data)


Three Months Ended
March 31,
20212020
Revenues$783,232 $627,041 
Costs, Expenses, and Other Expense (Income)
Cost of goods sold483,676 381,108 
Internal research and development83,231 94,764 
Selling, general and administrative131,244 82,133 
Interest expense13,034 28,530 
Other expense (income), net(21,432)7,168 
Total Costs, Expenses, & Other Expense (Income)689,753 593,703 
Earnings Before Income Taxes93,479 33,338 
Income Tax Expense 12,387 27,417 
Net Earnings $81,092 $5,921 
Less: Dividends on Preferred Stock$7,013 $ 
Net Earnings available to the Common Shareholders$74,079 $5,921 
Basic Earnings Per Share$0.71 $0.07 
Diluted Earnings Per Share$0.66 $0.06 
- See notes to condensed consolidated financial statements.













4


II-VI Incorporated and Subsidiaries
Condensed Consolidated Statements of Earnings (Loss) (Unaudited)
($000, except per share data)
Nine Months Ended
March 31,
20212020
Revenues$2,297,885 $1,633,781 
Costs, Expenses, and Other Expense (Income)
Cost of goods sold1,389,299 1,116,368 
Internal research and development246,337 238,584 
Selling, general and administrative357,323 306,846 
Interest expense45,833 63,888 
Other expense (income), net(246)12,734 
Total Costs, Expenses, & Other Expense (Income)2,038,546 1,738,420 
Earnings (Loss) Before Income Taxes259,339 (104,639)
Income Tax Expense44,081 13,651 
Net Earnings (Loss)$215,258 $(118,290)
Less: Dividends on Preferred Stock$20,353 $ 
Net Earnings (Loss) available to the Common Shareholders$194,905 $(118,290)
Basic Earnings (Loss) Per Share$1.88 $(1.43)
Diluted Earnings (Loss) Per Share$1.78 $(1.43)

5

II-VI Incorporated and Subsidiaries
Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited)
($000)
Three Months Ended
March 31,
Nine Months Ended
March 31,
2021202020212020
Net earnings (loss)$81,092 $5,921 $215,258 $(118,290)
Other comprehensive income (loss):
Foreign currency translation adjustments(18,400)(39,829)81,191 (28,258)
Change in fair value of interest rate swap, net of taxes of $2,299 and $2,929 for the three and nine months ended March 31, 2021, respectively, and $(8,475) and $(7,486) for the three and nine months ended March 31, 2020
8,394 (31,407)10,693 (27,798)
Pension adjustment, net of taxes of ($46) for the nine months ended March 31, 2020
   (167)
Comprehensive income (loss)$71,086 $(65,315)$307,142 $(174,513)
- See notes to condensed consolidated financial statements.
6

II-VI Incorporated and Subsidiaries
Condensed Consolidated Statements of Cash Flows (Unaudited)
($000)
Nine Months Ended March 31,
20212020
Cash Flows from Operating Activities
Net earnings (loss)$215,258 $(118,290)
Adjustments to reconcile net earnings (loss) to net cash provided by operating activities:
Depreciation138,300 101,755 
Amortization61,570 45,369 
Share-based compensation expense54,417 48,916 
Amortization of discount on convertible debt and debt issuance costs15,512 15,920 
Debt extinguishment costs24,747 3,960 
Losses on foreign currency remeasurements and transactions4,260 8,149 
Earnings from equity investments(2,011)(1,777)
Deferred income taxes(2,959)(32,698)
Impairment of investment 4,980 
Increase (decrease) in cash from changes in (net of effect of acquisitions):
Accounts receivable(8,454)16,750 
Inventories(27,155)95,598 
Accounts payable(2,320)(8,480)
Income taxes(7,592)(11,178)
Accrued compensation and benefits(16,030)(12,330)
Other operating net assets (liabilities)(691)(36,152)
Net cash provided by operating activities446,852 120,492 
Cash Flows from Investing Activities
Additions to property, plant & equipment(105,331)(107,975)
Purchases of businesses, net of cash acquired(34,431)(1,036,609)
Other investing activities(1,057)(3,042)
Net cash used in investing activities(140,819)(1,147,626)
Cash Flows from Financing Activities
Proceeds from issuance of common shares460,000  
Proceeds from issuance of Series A preferred shares460,000  
Proceeds from issuance of Series B preferred shares750,000  
Proceeds from borrowings of Term A Facility 1,241,000 
Proceeds from borrowings of Term B Facility 720,000 
Proceeds from borrowings of Revolving Credit Facility 160,000 
Proceeds from borrowings under prior Credit Facility 10,000 
Payments on Finisar Notes (560,112)
Payments on borrowings under prior Term Loan, Credit Facility and other loans (176,596)
Payments on borrowings under Term A Facility(121,538)(31,026)
Payments on borrowings under Term B Facility(714,600)(3,600)
Payments on borrowings under Revolving Credit Facility(74,000)(70,000)
Debt issuance costs (63,510)
Equity issuance costs(58,596) 
Proceeds from exercises of stock options and purchases of stock under employee stock purchase plan31,562 5,056 
Common stock repurchase  (1,625)
Payments in satisfaction of employees' minimum tax obligations(8,253)(15,680)
Payment of dividends(13,419) 
Other financing activities(1,967)(2,010)
Net cash provided by financing activities709,189 1,211,897 
Effect of exchange rate changes on cash and cash equivalents27,042 (1,528)
Net increase in cash and cash equivalents1,042,264 183,235 
Cash and Cash Equivalents at Beginning of Period493,046 204,872 
Cash and Cash Equivalents at End of Period$1,535,310 $388,107 
Cash paid for interest$17,963 $46,430 
Cash paid for income taxes$53,696 $34,144 
Additions to property, plant & equipment included in accounts payable$21,650 $16,254 
- See notes to condensed consolidated financial statements.
7

II-VI Incorporated and Subsidiaries
Condensed Consolidated Statements of Shareholders’ Equity (Unaudited)
($000, including share amounts)


Common StockPreferred StockAccumulated Other Comprehensive Income (Loss)Retained EarningsTreasury StockTotalMezzanine Equity
SharesAmountSharesAmountSharesAmountPreferred SharesAmount
Balance - June 30, 2020105,916 $1,486,947  $ $(87,383)$876,552 (13,356)$(199,313)$2,076,803 — $— 
Share-based and deferred compensation activities575 16,764 — — — — (120)(5,498)11,266 — — 
Shares issued in underwritten public offering10,698 438,589 2,300 445,319 — — — — 883,908 — — 
Net Earnings— — — — — 46,266 — — 46,266 — — 
Foreign currency translation adjustments— — — — 35,524 — — — 35,524 — — 
Change in fair value of interest rate swap, net of taxes of $(152)
— — — — (555)— — — (555)— — 
Dividends— — — — — (6,535)— — (6,535)— — 
Balance - September 30, 2020117,189 1,942,300 2,300 445,319 (52,414)916,283 (13,476)(204,811)3,046,677 — — 
Share-based and deferred compensation activities854 43,533 — — — — (11)(1,318)42,215 — — 
Net Earnings— — — — — 87,900 — — 87,900 — — 
Foreign currency translation adjustments— — — — 64,067 — — — 64,067 — — 
Change in fair value of interest rate swap, net of taxes of $782
— — — — 2,854 — — — 2,854 — — 
Dividends— — — — — (6,900)— — (6,900)— — 
Balance - December 31, 2020118,043 1,985,833 2,300 445,319 14,507 997,283 (13,487)(206,129)3,236,813 — — 
Share-based and deferred compensation activities327 25,377 — — — — (3)(1,115)24,262 — — 
Series B shares issued in March 2021— — — — — — — — 75 716,087 
Accretion to redemption value of Series B shares issued in March 2021— — — — — (9)— — (9)— 9 
Net Earnings— — — — — 81,092 — — 81,092 — — 
Foreign currency translation adjustments— — — — (18,400)— — — (18,400)— — 
Change in fair value of interest rate swap, net of taxes of $2,299
— — — — 8,394 — — — 8,394 — — 
Dividends— — — — — (7,004)— — (7,004) 104 
Balance - March 31, 2021118,370 $2,011,210 2,300 $445,319 $4,501 $1,071,362 (13,490)$(207,244)$3,325,148 75 $716,200 





8

Common StockPreferred StockAccumulated Other Comprehensive Income (Loss)Retained EarningsTreasury StockTotalMezzanine Equity
SharesAmountSharesAmountSharesAmountPreferred Shares
Balance - June 30, 201976,315 $382,423 — $— $(24,221)$943,581 (12,604)$(168,574)$1,133,209 $— 
Share-based and deferred compensation activities708 59,043 — — — — (251)(9,832)49,211 — 
Common stock repurchase— — — — — — — — — — 
Shares issued related to Finisar acquisition26,713 987,707 — — — — — — 987,707 — 
Net Loss— — — — — (25,998)— — (25,998)— 
Foreign currency translation adjustments— — — — (13,019)— — — (13,019)— 
Change in fair value of interest rate swap, net of taxes— — — — — — — — — — 
Pension adjustment, net of taxes of $23
— — — — 84 — — — 84 — 
Balance - September 30, 2019103,736 1,429,173 — — (37,156)917,583 (12,855)(178,406)2,131,194 — 
Share-based and deferred compensation activities307 12,007 — — — — (175)(5,614)6,393 — 
Common stock repurchase— — — — — — (50)(1,625)(1,625)— 
Net Loss— — — — — (98,213)— — (98,213)— 
Foreign currency translation adjustments— — — — 24,590 — — — 24,590 — 
Change in fair value of interest rate swap, net of taxes of $989
— — — — 3,609 — — — 3,609 — 
Pension adjustment, net of taxes of $(92)
— — — — (251)— — — (251)— 
Balance - December 31, 2019104,043 1,441,180 — — (9,208)819,370 (13,080)(185,645)2,065,697 — 
Share-based and deferred compensation activities235 18,174 — — — — (23)(649)17,525 — 
Common stock repurchase— — — — — — — — — — 
Net Earnings— — — — — 5,921 — — 5,921 — 
Foreign currency translation adjustments— — — — (39,829)— — — (39,829)— 
Change in fair value of interest rate swap, net of taxes of $(8,475)
— — — — (31,407)— — — (31,407)— 
Pension adjustment, net of taxes— — — — — — — — — — 
Balance - March 31, 2020104,278 $1,459,354 — $— $(80,444)$825,291 (13,103)$(186,294)$2,017,907 $— 

9

II-VI Incorporated and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
Note 1.    Basis of Presentation
The condensed consolidated financial statements of II-VI Incorporated (“II-VI”, the “Company”, “we”, “us” or “our”) for the three and nine months ended March 31, 2021 and 2020 are unaudited. In the opinion of management, all adjustments considered necessary for a fair presentation for the periods presented have been included. All adjustments are of a normal recurring nature unless disclosed otherwise. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) have been condensed or omitted. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K dated August 26, 2020. The condensed consolidated results of operations for the three and nine months ended March 31, 2021 are not necessarily indicative of the results to be expected for the full fiscal year. The Condensed Consolidated Balance Sheet information as of June 30, 2020 was derived from the Company’s audited consolidated financial statements.
In March 2020, the World Health Organization declared the outbreak of COVID-19 as a pandemic, which continues to spread throughout the United States and world. The Company is closely monitoring the impact of the COVID-19 pandemic on all aspects of our business including the impact to our suppliers and customers as well as the impact to the countries and markets in which II-VI operates. At the onset of the COVID-19 outbreak, the Company began focusing intensely on mitigating the adverse impacts of COVID-19 on foreign and domestic operations starting by protecting its employees, suppliers and customers.
Note 2.    Recently Issued Financial Accounting Standards
Financial Instruments - Credit Losses
In June 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2016-13, Financial Instruments - Credit Losses (Topic 326), which modifies the measurement of expected credit losses on certain types of financial instruments, including trade receivables. The Company adopted this standard on July 1, 2020. The adoption did not have a material impact on the Company's condensed consolidated financial statements.
Debt - Debt with Conversion and Other Options and Derivatives and Hedging - Contracts in Entity's Own Equity
In August 2020, the FASB issued ASC Update No. 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity's Own Equity (Subtopic 815-40) ("ASU 2020-06"). The update simplifies the accounting for convertible instruments by eliminating two accounting models (i.e., the cash conversion model and beneficial conversion feature model) and reducing the number of embedded conversion features that could be recognized separately from the host contract. ASU 2020-06 also enhances transparency and improves disclosures for convertible instruments and earnings per share guidance. ASC 2020-06 is effective for annual reporting periods beginning after December 15, 2021, including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020. This update permits the use of either the modified retrospective or fully retrospective method of transition. We are in the process of evaluating the effect of this adoption on our financial position and results of operations.
Note 3.     Pending Coherent Acquisition

On March 25, 2021, II-VI and Coherent Inc., a Delaware corporation (“Coherent”), and Watson Merger Sub Inc., a Delaware corporation and wholly owned subsidiary of II-VI ("Merger Sub"), entered into an Agreement and Plan of Merger (the "Merger Agreement"). Pursuant to the terms of the Merger Agreement, and subject to the conditions set forth therein, Merger Sub will be merged with and into Coherent, and Coherent will continue as the surviving corporation in the merger and a wholly owned subsidiary of II-VI (the “Merger”).

Pursuant to the terms of the Merger Agreement, and subject to the conditions set forth therein, at the effective time of the Merger (the "Effective Time"), each share of common stock of Coherent, par value $0.01 per share (the "Coherent Common Stock”), issued and outstanding immediately prior to the Effective Time (other than (x) shares of Coherent Common Stock owned by II-VI, Coherent or any direct or indirect wholly owned subsidiary of II-VI or Coherent or (y) shares of Coherent Common Stock owned by stockholders who have properly exercised and perfected appraisal rights under Delaware law, in each
10


case immediately prior to the Effective Time), will be cancelled and extinguished and automatically converted into the right to receive the following consideration (collectively, the "Merger Consideration"):

(A) $220.00 in cash, without interest (the "Cash Consideration"), plus

(B) 0.91 of a validly issued, fully paid and nonassessable share of common stock of II-VI, no par value per share ("II-VI Common Stock")

From and after the Effective Time, all of the shares of Coherent Common Stock converted into the right to receive the Merger Consideration will no longer be outstanding and will automatically be cancelled and cease to exist, and uncertified shares of Coherent Common Stock represented by book-entry form ("Book-Entry Shares") and each certificate that, immediately prior to the Effective Time, represented any such shares of Coherent Common Stock (each, a "Certificate") will thereafter represent only the right to receive the Merger Consideration into which the shares of Coherent Common Stock represented by such Book-Entry Share or Certificate have been converted.

Pursuant to the terms of the Merger Agreement, each Coherent restricted stock unit award (a “Coherent RSU”), other than Director RSUs (as defined below), outstanding immediately prior to the Effective Time will be automatically converted into time-based restricted stock units denominated in shares of II-VI Common Stock entitling the holder to receive, upon settlement, a number of shares II-VI Common Stock equal to the number of shares of Coherent Common Stock subject to the Coherent RSU multiplied by the sum of (A) 0.91, and (B) the quotient obtained by dividing the Cash Consideration by the volume weighted average price of a share of II-VI Common Stock for a 10 trading day period ending prior to the closing of the Merger (the “Closing”). For Coherent RSUs subject to performance-based vesting conditions and metrics, the number of shares of II-VI Common Stock subject to the converted Coherent RSUs will be determined after giving effect to the Coherent Board of Director’s determination of the number of Coherent RSUs earned, based on the greater of the target or actual level of achievement of such goals or metrics immediately prior to the Effective Time.

The converted Coherent RSUs generally will be subject to the same terms and conditions that applied to the awards immediately prior to the Effective Time, provided that any Coherent RSUs subject to performance-based vesting conditions will be subject solely to time- and service-based vesting. Each Coherent RSU that is outstanding as of the date of the Merger Agreement and as of immediately prior to the Effective Time will be entitled to the following vesting acceleration benefits:

(A) for any holder of Coherent RSUs who is a participant under Coherent’s Change of Control and Leadership Change Severance Plan (the “CIC Plan”), the acceleration benefits under the CIC Plan upon such participant’s involuntary termination of employment in accordance with the terms and conditions set forth therein; and

(B) for any holder who is not a participant in the CIC Plan, the following vesting acceleration benefits upon his or her termination of employment by Coherent, II-VI or their respective subsidiaries without “cause” within the period beginning immediately following the date of the Closing and ending on the date that is 12 months following the date of the Closing (or, if earlier, December 31, 2022) (a “Qualifying Termination”), (1) if such holder’s Qualifying Termination occurs during calendar year 2021, the sum of: (x) 100% of the total number of converted Coherent RSUs that otherwise would have vested during calendar year 2021 under the applicable vesting schedule in effect on the Closing had such holder remained employed with Coherent, II-VI or their respective subsidiaries through the last applicable vesting date for such award in calendar year 2021 (and reduced by the total number of converted Coherent RSUs that vested in calendar year 2021 prior to such Qualifying Termination) plus (y) 50% of the total number of converted Coherent RSUs that otherwise would have vested during calendar year 2022 under the applicable vesting schedule in effect on the Closing had such holder remained employed with Coherent, II-VI or their respective subsidiaries through the last applicable vesting date for such award in calendar year 2022, or (2) if such holder’s Qualifying Termination occurs during calendar year 2022, 50% of the total number of converted Coherent RSUs that otherwise would have vested during calendar year 2022 under the applicable vesting schedule in effect on the Closing had such holder remained employed with Coherent, II-VI or their respective subsidiaries through the last applicable vesting date for such award in calendar year 2022 (and reduced by the total number of converted Coherent RSUs that vested in calendar year 2022 prior to such Qualifying Termination).

Each Coherent RSU granted to a non-employee member of Coherent’s Board of Directors (“Director RSUs”) (whether or not vested) that is outstanding immediately prior to the Effective Time will automatically vest in full and be cancelled and converted into the right to receive the Merger Consideration as if such Director RSU had been settled in shares of Coherent Common Stock immediately prior to the Effective Time.

The Boards of Directors of II-VI and Coherent have unanimously approved the Merger and the Merger Agreement. The transaction is subject to customary closing conditions, including the absence of certain legal impediments, the expiration or termination of the required waiting periods under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended,



regulatory approvals in other applicable jurisdictions, including China, South Korea and Germany, the effectiveness of a registration statement on Form S-4 registering the offering of shares of II-VI Common Stock to be issued in connection with the Merger, and approvals by the shareholders of II-VI and the stockholders of Coherent. The transaction is not subject to any financing condition.

In connection with entering into the Merger Agreement, II-VI has obtained a fully underwritten financing commitment pursuant to a commitment letter (the “Commitment Letter”), dated as of March 25, 2021, as further amended on April 21, 2021, with JPMorgan Chase Bank, N.A., Citigroup Global Markets Inc., MUFG Bank, Ltd., MUFG Securities Americas Inc., PNC
Capital Markets LLC, PNC Bank, National Association, HSBC Securities (USA) Inc., HSBC Bank USA, National Association, Citizens Bank, N.A., Mizuho Bank, Ltd., BMO Capital Markets Corp., Bank of Montreal, TD Securities (USA) LLC, The Toronto-Dominion Bank, New York Branch, TD Bank, N.A. and First National Bank of Pennsylvania (collectively, the "Commitment Parties") pursuant to which the Commitment Parties have committed to provide up to $5.125 billion in debt financing (the debt financing under the Commitment Letter, the “Debt Financing”). The obligation of the Commitment Parties to provide the Debt Financing under the Commitment Letter is subject to a number of customary conditions.

In connection with entering into the Merger Agreement, II-VI entered into an investment agreement, dated as of March 25, 2021, (the "Investment Agreement") (as amended and restated as of March 30, 2021, the "Amended and Restated Investment Agreement"), with BCPE Watson (DE) SPV, LP, an affiliate of Bain Capital, LP (the "Investor"). Pursuant to the terms of the Amended and Restated Investment Agreement, and subject to the conditions set forth therein:

(A) on March 31, 2021, the Company issued, sold and delivered to the Investor 75,000 shares of a new Series B-1 Convertible Preferred Stock, no par value per share (“II-VI Series B-1 Convertible Preferred Stock”), for $10,000 per share (the “Equity Per Share Price”), resulting in an aggregate purchase price of $750.0 million;

(B) the Company agreed to issue, sell and deliver to the Investor, immediately prior to Closing, 105,000 shares of a new Series B-2 Convertible Preferred Stock, no par value per share ("II-VI Series B-2 Convertible Preferred Stock," and together with the II-VI Series B-1 Convertible Preferred Stock, "New II-VI Convertible Preferred Stock"), for a purchase price per share equal to the Equity Per Share Price, resulting in an aggregate purchase price of $1.050 billion; and

(C) the Company offered to the Investor an option to purchase up to an additional 35,000 shares of II-VI Series B-2 Convertible Preferred Stock for a purchase price per share equal to the Equity Per Share Price, resulting in an aggregate purchase price of up to $350.0 million.

The shares of New II-VI Convertible Preferred Stock accrue dividends at 5.00% per annum, subject to increase if II-VI defaults on payment obligations with respect to the New II-VI Convertible Preferred Stock, not to exceed 14% per annum. Until the fourth anniversary of the applicable issuance date of each series of New II-VI Convertible Preferred Stock, dividends are payable solely in-kind. After the fourth anniversary, dividends are payable on the applicable series, at the Company’s option, in cash, in-kind or as a combination of both.

Subject to the satisfaction or waiver of each of the closing conditions, II-VI and Coherent expect that the Merger will be completed prior to the end of calendar year 2021. However, it is possible that factors outside the control of both companies could result in the Merger being completed at a different time or not at all.

The expenses associated with the pending acquisition for the three and nine months ended March 31, 2021 have not been allocated to an Operating Segment, and are presented in the Unallocated and Other within this quarterly report on Form 10-Q.
Note 4.    Acquisitions and Investments
Acquisition of Ascatron AB
On August 20, 2020, the Company acquired all of the outstanding shares of Ascatron AB ("Ascatron"), located in Sweden. The acquisition will add essential elements to the Company's vertically integrated silicon carbide technology platform. Purchase price consideration totaled $36.7 million.
Due to the timing of the acquisition, the Company is in the process of measuring the fair value of assets acquired and liabilities assumed, including tangible and intangible assets and related deferred income taxes. The following table presents a
preliminary allocation of the purchase price of the assets acquired and liabilities assumed at the date of acquisition ($000):



Previously Reported September 30, 2020
Measurement Period Adjustments (a)
As Adjusted (preliminary)
Assets
Developed technology$20,000 $(3,622)$16,378 
Goodwill18,922 3,018 21,940 
Other assets2,511 683 3,194 
Total assets acquired$41,433 $79 $41,512 
Liabilities
Non-interest bearing liabilities$(203)$(1,101)$(1,304)
Deferred tax liability(4,526)1,022 (3,504)
Total liabilities assumed$(4,729)$(79)$(4,808)
Net assets acquired$36,704 $ $36,704 
(a) The Company recorded measurement period adjustments to its preliminary acquisition date fair values due to the refinement of its valuation models, assumptions and inputs. The measurement period adjustments were based upon information obtained about facts and circumstances that existed at the acquisition date that, if known, would have affected the measurement of the amounts recognized at that date.
The goodwill is recorded in the Compound Semiconductors segment and is attributed to the workforce acquired as part of the transaction. The goodwill is non-deductible for income tax purposes. Transaction expenses related to the acquisition totaled $2.1 million for the nine months ended March 31, 2021 and are included in Selling, General and Administrative expenses in the Condensed Consolidated Statements of Earnings. Technology is being amortized with a remaining life of approximately 17 years.
The revenues and net loss from Ascatron included in the Company’s Condensed Consolidated Statement of Earnings for the three months ended March 31, 2021 were $0.3 million and $1.1 million, respectively.
The revenues and net loss from Ascatron included in the Company’s Condensed Consolidated Statement of Earnings for the nine months ended March 31, 2021 were $1.0 million and $2.2 million, respectively.

Purchase of Equity Investment in INNOViON Corporation
On October 1, 2020, II-VI acquired the remaining 6.1% interest in INNOViON Corporation ("Innovion") for $4.4 million. Innovion is a provider of ion implantation services supporting unique capabilities in semiconductor materials processing. This acquisition will add essential elements to the Company's vertically integrated silicon carbide technology platform.

Through the period ended September 30, 2020, the Company held a 93.9% investment in Innovion which was accounted for as an equity method investment. The Company accounted for the acquisition of the remaining equity of Innovion as a step acquisition, which required remeasurement of the Company's previous ownership interest to fair value prior to completing purchase accounting. Using step acquisition accounting, the Company increased the value of its previously held equity investment to its fair value of $66.6 million, which resulted in a gain of approximately $7.0 million, recorded in other expense (income), net in the Condensed Consolidated Statement of Operations in the second quarter of fiscal year 2021.

The Company utilized widely accepted income-based, market-based, and cost-based valuation approaches to perform the preliminary purchase price allocation and determine the fair value of the previously held equity method investment. Income-based valuation approaches included the use of the multi-period excess earnings and relief-from-royalty methods for certain acquired intangible assets.

Due to the timing of the acquisition, the Company is in the process of measuring the fair value of assets acquired and liabilities assumed, including tangible and intangible assets and related deferred income taxes. The following table presents a preliminary allocation of the purchase price of the assets acquired and liabilities assumed at the date of acquisition ($000):





Previously Reported December 31, 2020
Measurement Period Adjustments (a)
As Adjusted (preliminary)
Assets
Developed technology$15,000 $(240)$14,760 
Customer lists10,000 (1,003)8,997 
Goodwill29,478 1,901 31,379 
Property, plant, & equipment16,556 (1,832)14,724 
Right of use asset10,644 — 10,644 
Other assets12,450 32 12,482 
Total assets acquired$94,128 $(1,141)$92,987 
Liabilities
Non-interest bearing liabilities$(14,050)$506 $(13,544)
Interest bearing liabilities(3,430)— (3,430)
Deferred tax liabilities(5,743)635 (5,108)
Total liabilities assumed$(23,223)$1,141 $(22,082)
Net assets acquired$70,905 $ $70,905 

(a) The Company recorded measurement period adjustments to its preliminary acquisition date fair values due to the refinement of its valuation models, assumptions and inputs. The measurement period adjustments were based upon information obtained about facts and circumstances that existed at the acquisition date that, if known, would have affected the measurement of the amounts recognized at that date.

The goodwill is recorded in the Compound Semiconductors segment and is attributed to the workforce acquired as part of the transaction. The goodwill is non-deductible for income tax purposes. Technology is being amortized with a remaining life of approximately 16 years. Customer lists are being amortized with a remaining life of approximately 14 years. Transaction expenses for the six months ended March 31, 2021 were insignificant.

The revenues from Innovion included in the Company’s Condensed Consolidated Statement of Earnings for the three months ended March 31, 2021 was $6.9 million. The net loss for the same period was insignificant.

The revenues and net loss from Innovion included in the Company’s Condensed Consolidated Statement of Earnings for the nine months ended March 31, 2021 were $14.1 million and $1.1 million, respectively.
Note 5.    Revenue from Contracts with Customers
The Company believes that disaggregating revenue by end market provides the most relevant information regarding the nature, amount, timing, and uncertainty of revenues and cash flows.
The following tables summarize disaggregated revenue for the three and nine months ended March 31, 2021 and 2020 ($000):
Three Months Ended March 31, 2021Nine Months Ended March 31, 2021
Photonic
Solutions
Compound
Semiconductors
Unallocated & OtherTotalPhotonic
Solutions
Compound
Semiconductors
Unallocated & OtherTotal
Communications$476,234 $34,130 $— $510,364