10-Q 1 iivi-10q_20131231.htm 10-Q

 

that 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

x

Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended December 31, 2013

¨

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: 0-16195

 

II-VI INCORPORATED

(Exact name of registrant as specified in its charter)

 

 

 

 

PENNSYLVANIA

25-1214948

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

 

 

375 Saxonburg Boulevard

 

Saxonburg, PA

16056

(Address of principal executive offices)

(Zip Code)

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)

 

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  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

 

 

 

 

Large accelerated filer

x

Accelerated filer

¨

 

 

 

 

Non-accelerated filer

¨  

Smaller reporting company

¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:

At February 3, 2014, 62,623,420 shares of Common Stock, no par value, of the registrant were outstanding.

 

 

 


 

II-VI INCORPORATED

INDEX

 

 

 

Page No.

 

 

PART I - FINANCIAL INFORMATION

 

 

 

 

Item 1.

Financial Statements:

 

 

 

 

 

Condensed Consolidated Balance Sheets – December 31, 2013 and June 30, 2013 (Unaudited)

3

 

 

 

 

Condensed Consolidated Statements of Earnings – Three and six months ended December 31, 2013 and 2012 (Unaudited)

4

 

 

 

 

Condensed Consolidated Statements of Comprehensive Income – Three and six months ended December 31, 2013 and 2012 (Unaudited)

6

 

 

 

 

Condensed Consolidated Statements of Cash Flows – Six months ended December 31, 2013 and 2012 (Unaudited)

7

 

 

 

 

Condensed Consolidated Statement of Shareholders’ Equity – Six months ended December 31, 2013 (Unaudited)

8

 

 

 

 

Notes to Condensed Consolidated Financial Statements (Unaudited)

9

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

25

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

35

 

 

 

Item 4.

Controls and Procedures

36

 

 

PART II - OTHER INFORMATION

 

 

 

 

Item 1A.

Risk Factors

36

 

 

 

Item 2.

Unregistered Sales of Equity Securities

37

 

 

 

Item 6.

Exhibits

37

 

 

2


 

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

II-VI Incorporated and Subsidiaries

Condensed Consolidated Balance Sheets (Unaudited)

($000)

 

 

December 31,

 

 

June 30,

 

 

2013

 

 

2013

 

Assets

 

 

 

 

 

 

 

Current Assets

 

 

 

 

 

 

 

Cash and cash equivalents

$

212,683

 

 

$

185,433

 

Accounts receivable - less allowance for doubtful accounts of $1,008 at December 31, 2013 and $1,479 at June 30, 2013

 

113,182

 

 

 

107,173

 

Inventories

 

177,136

 

 

 

141,859

 

Deferred income taxes

 

11,044

 

 

 

10,794

 

Prepaid and refundable income taxes

 

4,449

 

 

 

4,543

 

Prepaid and other current assets

 

15,045

 

 

 

11,342

 

Total Current Assets

 

533,539

 

 

 

461,144

 

Property, plant & equipment, net

 

225,592

 

 

 

170,672

 

Goodwill

 

190,525

 

 

 

123,352

 

Other intangible assets, net

 

142,747

 

 

 

86,701

 

Investment

 

11,581

 

 

 

11,203

 

Deferred income taxes

 

2,957

 

 

 

2,696

 

Other assets

 

9,220

 

 

 

8,034

 

Total Assets

$

1,116,161

 

 

$

863,802

 

 

 

 

 

 

 

 

 

Liabilities and Shareholders' Equity

 

 

 

 

 

 

 

Current Liabilities

 

 

 

 

 

 

 

Current portion of long-term debt

$

20,000

 

 

$

-

 

Accounts payable

 

44,726

 

 

 

23,617

 

Accrued compensation and benefits

 

29,454

 

 

 

28,315

 

Accrued income tax payable

 

6,602

 

 

 

7,697

 

Deferred income taxes

 

146

 

 

 

110

 

Other accrued liabilities

 

25,397

 

 

 

34,695

 

Total Current Liabilities

 

126,325

 

 

 

94,434

 

Long-term debt

 

262,858

 

 

 

114,036

 

Deferred income taxes

 

13,423

 

 

 

4,095

 

Other liabilities

 

46,091

 

 

 

15,129

 

Total Liabilities

 

448,697

 

 

 

227,694

 

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 - 70,744,108 shares at December 31, 2013; 70,223,286 shares at June 30, 2013

 

206,593

 

 

 

194,284

 

Accumulated other comprehensive income

 

19,973

 

 

 

15,600

 

Retained earnings

 

500,141

 

 

 

482,878

 

 

 

726,707

 

 

 

692,762

 

Treasury stock, at cost, 8,144,800 shares at December 31, 2013 and 8,011,733 shares at June 30, 2013

 

(59,243

)

 

 

(56,654

)

Total Shareholders' Equity

 

667,464

 

 

 

636,108

 

Total Liabilities and Shareholders' Equity

$

1,116,161

 

 

$

863,802

 

- 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

 

 

December 31,

 

 

2013

 

 

2012

 

Revenues

 

 

 

 

 

 

 

Domestic

$

60,569

 

 

$

51,479

 

International

 

111,196

 

 

 

73,628

 

Total Revenues

 

171,765

 

 

 

125,107

 

 

 

 

 

 

 

 

 

Costs, Expenses and Other Expense (Income)

 

 

 

 

 

 

 

Cost of goods sold

 

118,371

 

 

 

77,839

 

Internal research and development

 

11,355

 

 

 

5,626

 

Selling, general and administrative

 

32,471

 

 

 

26,174

 

Interest expense

 

1,169

 

 

 

223

 

Other expense (income), net

 

(1,125

)

 

 

(4,551

)

Total Costs, Expenses and Other Expense (Income)

 

162,241

 

 

 

105,311

 

 

 

 

 

 

 

 

 

Earnings from Continuing Operations Before Income Taxes

 

9,524

 

 

 

19,796

 

 

 

 

 

 

 

 

 

Income Taxes

 

2,086

 

 

 

6,721

 

 

 

 

 

 

 

 

 

Earnings from Continuing Operations

 

7,438

 

 

 

13,075

 

 

 

 

 

 

 

 

 

Earnings (loss) from Discontinued Operation, net of income tax

 

131

 

 

 

(608

)

 

 

 

 

 

 

 

 

Net Earnings

 

7,569

 

 

 

12,467

 

Less:  Net Earnings Attributable to Redeemable Noncontrolling Interest

 

-

 

 

 

267

 

Net Earnings Attributable to II-VI Incorporated

$

7,569

 

 

$

12,200

 

 

 

 

 

 

 

 

 

Earnings (loss) Attributable to II-VI Incorporated: Basic Earnings (loss) Per Share:

 

 

 

 

 

 

 

Continuing Operations

$

0.12

 

 

$

0.20

 

Discontinued Operation

$

-

 

 

$

(0.01

)

Consolidated

$

0.12

 

 

$

0.19

 

 

 

 

 

 

 

 

 

Earnings (loss) Attributable to II-VI Incorporated: Diluted Earnings (loss) Per Share:

 

 

 

 

 

 

 

Continuing Operations

$

0.12

 

 

$

0.20

 

Discontinued Operation

$

-

 

 

$

(0.01

)

Consolidated

$

0.12

 

 

$

0.19

 

- See notes to condensed consolidated financial statements.

 

 

4


 

II-VI Incorporated and Subsidiaries

Condensed Consolidated Statements of Earnings (Unaudited)

($000 except per share data)

 

 

Six Months Ended

December 31,

 

 

2013

 

 

2012

 

Revenues

 

 

 

 

 

 

 

Domestic

$

124,259

 

 

$

103,762

 

International

 

197,526

 

 

 

149,343

 

Total Revenues

 

321,785

 

 

 

253,105

 

 

 

 

 

 

 

 

 

Costs, Expenses and Other Expense (Income)

 

 

 

 

 

 

 

Cost of goods sold

 

212,080

 

 

 

155,438

 

Internal research and development

 

19,102

 

 

 

11,211

 

Selling, general and administrative

 

67,564

 

 

 

52,530

 

Interest expense

 

1,652

 

 

 

259

 

Other expense (income), net

 

(1,072

)

 

 

(5,312

)

Total Costs, Expenses and Other Expense (Income)

 

299,326

 

 

 

214,126

 

 

 

 

 

 

 

 

 

Earnings from Continuing Operations Before Income Taxes

 

22,459

 

 

 

38,979

 

 

 

 

 

 

 

 

 

Income Taxes

 

5,329

 

 

 

10,983

 

 

 

 

 

 

 

 

 

Earnings from Continuing Operations

 

17,130

 

 

 

27,996

 

 

 

 

 

 

 

 

 

Earnings (loss) from Discontinued Operation, net of income tax

 

133

 

 

 

(2,397

)

 

 

 

 

 

 

 

 

Net Earnings

$

17,263

 

 

$

25,599

 

Less:  Net Earnings Attributable to Redeemable Noncontrolling Interest

 

-

 

 

 

681

 

Net Earnings Attributable to II-VI Incorporated

$

17,263

 

 

$

24,918

 

 

 

 

 

 

 

 

 

Earnings (loss) Attributable to II-VI Incorporated: Basic Earnings (loss) Per Share:

 

 

 

 

 

 

 

Continuing Operations

$

0.27

 

 

$

0.44

 

Discontinued Operation

$

-

 

 

$

(0.04

)

Consolidated

$

0.28

 

 

$

0.40

 

 

 

 

 

 

 

 

 

Earnings (loss) Attributable to II-VI Incorporated: Diluted Earnings (loss) Per Share:

 

 

 

 

 

 

 

Continuing Operations

$

0.27

 

 

$

0.43

 

Discontinued Operation

$

-

 

 

$

(0.04

)

Consolidated

$

0.27

 

 

$

0.39

 

- See notes to condensed consolidated financial statements.

 

5


 

II-VI Incorporated and Subsidiaries

Condensed Consolidated Statements of Comprehensive Income (Unaudited)

($000)

 

 

Three Months Ended

 

 

Six Months Ended

 

 

December 31,

 

 

December 31,

 

 

2013

 

 

2012

 

 

2013

 

 

2012

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net earnings

$

7,569

 

 

$

12,467

 

 

$

17,263

 

 

$

25,599

 

Other comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

2,158

 

 

 

2,043

 

 

 

4,373

 

 

 

3,122

 

Comprehensive income

$

9,727

 

 

$

14,510

 

 

$

21,636

 

 

$

28,721

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net earnings attributable to redeemable noncontrolling interest

$

-

 

 

$

267

 

 

$

-

 

 

$

681

 

Other comprehensive income (loss) attributable to redeemable noncontrolling interest:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustment attributable to redeemable noncontrolling interest

 

-

 

 

 

57

 

 

 

-

 

 

 

(216

)

Comprehensive income attributable to redeemable noncontrolling interest

$

-

 

 

$

324

 

 

$

-

 

 

$

465

 

Comprehensive income attributable to II-VI Incorporated

$

9,727

 

 

$

14,186

 

 

$

21,636

 

 

$

28,256

 

- See notes to condensed consolidated financial statements.

 

6


 

II-VI Incorporated and Subsidiaries

Condensed Consolidated Statements of Cash Flows (Unaudited)

($000)

 

 

Six Months Ended

 

 

December 31,

 

 

2013

 

 

2012

 

Cash Flows from Operating Activities

 

 

 

 

 

 

 

Net earnings

$

17,263

 

 

$

25,599

 

Adjustments to reconcile net earnings to net cash provided by operating activities:

 

 

 

 

 

 

 

(Earnings) loss from discontinued operation, net of tax

 

(133

)

 

 

2,397

 

Depreciation

 

20,656

 

 

 

16,793

 

Amortization

 

5,577

 

 

 

2,374

 

Share-based compensation expense

 

7,195

 

 

 

6,534

 

Loss on foreign currency remeasurements and transactions

 

638

 

 

 

810

 

Earnings from equity investment

 

(378

)

 

 

(593

)

Deferred income taxes

 

(1,862

)

 

 

2,307

 

Excess tax benefits from share-based compensation expense

 

(416

)

 

 

(387

)

Increase (decrease) in cash from changes in:

 

 

 

 

 

 

 

Accounts receivable

 

(4,739

)

 

 

19,665

 

Inventories

 

1,207

 

 

 

(8,683

)

Accounts payable

 

18,764

 

 

 

(4,894

)

Income taxes

 

(3,588

)

 

 

1,688

 

Other operating net assets

 

(5,507

)

 

 

(4,062

)

Net cash provided by operating activities:

 

 

 

 

 

 

 

Continuing Operations

 

54,677

 

 

 

59,548

 

Discontinued Operation

 

1,197

 

 

 

1,429

 

Net cash provided by operating activities

 

55,874

 

 

 

60,977

 

Cash Flows from Investing Activities

 

 

 

 

 

 

 

Additions to property, plant & equipment

 

(14,289

)

 

 

(13,144

)

Purchases of businesses, net of cash acquired

 

(175,201

)

 

 

(126,397

)

Proceeds received on contractual settlement from Thailand flood

 

-

 

 

 

2,436

 

Other investing activities

 

-

 

 

 

1,465

 

Net cash used in investing activities:

 

 

 

 

 

 

 

Continuing Operations

 

(189,490

)

 

 

(135,640

)

Discontinued Operation

 

-

 

 

 

(33

)

Net cash used in investing activities

 

(189,490

)

 

 

(135,673

)

Cash Flows from Financing Activities

 

 

 

 

 

 

 

Proceeds from borrowings

 

183,000

 

 

 

113,000

 

Payments on borrowings

 

(14,000

)

 

 

(1,000

)

Payment on earnout arrangement

 

(2,200

)

 

 

-

 

Payments of redeemable noncontrolling interest

 

(8,789

)

 

 

(217

)

Proceeds from exercises of stock options

 

2,805

 

 

 

1,625

 

Purchases of treasury stock

 

-

 

 

 

(10,840

)

Payment of deferred financing costs

 

(950

)

 

 

(560

)

Minimum tax withholding requirements

 

(740

)

 

 

(137

)

Excess tax benefits from share-based compensation expense

 

416

 

 

 

387

 

Net cash provided by financing activities

 

159,542

 

 

 

102,258

 

Effect of exchange rate changes on cash and cash equivalents

 

1,324

 

 

 

304

 

Net increase in cash and cash equivalents

 

27,250

 

 

 

27,866

 

Cash and Cash Equivalents at Beginning of Period

 

185,433

 

 

 

134,944

 

Cash and Cash Equivalents at End of Period

$

212,683

 

 

$

162,810

 

Cash paid for interest

$

1,617

 

 

$

184

 

Cash paid for income taxes

$

9,123

 

 

$

6,379

 

Non cash transactions:

 

 

 

 

 

 

 

Purchase of business - holdback amount recorded in other accrued liabilities

$

2,000

 

 

$

-

 

Purchase of business - holdback amount recorded in other liabilities

$

10,000

 

 

$

-

 

Capital lease obligation incurred on facility lease

$

12,005

 

 

$

-

 

Purchase of business utilizing earnout arrangement recorded in other liabilities

$

-

 

 

$

4,200

 

Purchase of business utilizing deferred purchae price recorded in other accrued liabilities

$

-

 

 

$

700

 

- See notes to condensed consolidated financial statements.


7


 

 II-VI Incorporated and Subsidiaries

Condensed Consolidated Statement of Shareholders’ Equity (Unaudited)

(000)

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

 

Comprehensive

 

 

Retained

 

 

Treasury Stock

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Income

 

 

Earnings

 

 

Shares

 

 

Amount

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance-June 30, 2013

 

70,223

 

 

$

194,284

 

 

$

15,600

 

 

$

482,878

 

 

 

(8,012

)

 

$

(56,654

)

 

$

636,108

 

Shares issued under share-based compensation plans

 

521

 

 

 

2,908

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

2,908

 

Minimum tax withholding requirements

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(42

)

 

 

(799

)

 

 

(799

)

Share-based compensation expense

 

-

 

 

 

7,195

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

7,195

 

Net earnings

 

-

 

 

 

-

 

 

 

-

 

 

 

17,263

 

 

 

-

 

 

 

-

 

 

 

17,263

 

Treasury stock under deferred compensation arrangements

 

-

 

 

 

1,790

 

 

 

-

 

 

 

-

 

 

 

(91

)

 

 

(1,790

)

 

 

-

 

Excess tax benefits from share-based compensation expense

 

-

 

 

 

416

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

416

 

Foreign currency translation adjustments

 

-

 

 

 

-

 

 

 

4,373

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

4,373

 

Balance-December 31, 2013

 

70,744

 

 

$

206,593

 

 

$

19,973

 

 

$

500,141

 

 

 

(8,145

)

 

$

(59,243

)

 

$

667,464

 

- See notes to condensed consolidated financial statements.

 

8


 

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” or the “Company”) for the three and six months ended December 31, 2013 and 2012 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 for the fiscal year ended June 30, 2013. The consolidated results of operations for the three and six months ended December 31, 2013 are not necessarily indicative of the results to be expected for the full fiscal year. The June 30, 2013 Condensed Consolidated Balance Sheet information was derived from the Company’s audited financial statements.

In conjunction with the acquisitions of Oclaro, Inc.’s (“Oclaro”) Switzerland-based semiconductor laser business on September 12, 2013, and Oclaro’s fiber amplifier and micro-optics business on November 1, 2013, the Company has established a new reporting segment “Active Optical Products” which reports the operating results of these two recently acquired businesses.

Note  2.

Discontinued Operation

During the three months ended December 31, 2013, the Company completed the discontinuance of its tellurium product line by exiting all business activities associated with this product line.  This product line was previously serviced by PRM and was included as part of the Military & Materials segment.   Prior periods have been restated to present this product line on a discontinued operation basis.   The revenues and earnings (losses) of the tellurium product line have been reflected as a discontinued operation for the periods presented as follows: ($000):

 

 

Three Months Ended

 

 

Six Months Ended

 

 

December 31,

 

 

December 31,

 

 

2013

 

 

2012

 

 

2013

 

 

2012

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues

$

697

 

 

$

782

 

 

$

1,849

 

 

$

5,076

 

Earnings (loss) from discontinued operation before income taxes

131

 

 

 

(533

)

 

133

 

 

 

(2,397

)

Income tax benefit (expense)

 

-

 

 

 

(75

)

 

 

-

 

 

 

-

 

Earnings from discontinued operation, net of taxes

$

131

 

 

$

(608

)

 

$

133

 

 

$

(2,397

)

 

Note  3.

Recent Accounting Pronouncements

In March 2013, the Financial Accounting Standards Board (“FASB”) issued an accounting standards update related to a parent’s accounting for the cumulative translation adjustment upon de-recognition of certain subsidiaries or groups of assets within a foreign entity or of an investment in a foreign entity. The update clarifies the applicable guidance under current U.S. GAAP for the release of the cumulative translation adjustment upon a reporting entity’s de-recognition of a subsidiary or group of assets within a foreign entity or part or all of its investment in a foreign entity. The update requires a reporting entity, which either sells a part or all of its investment in a foreign entity or ceases to have a controlling financial interest in a subsidiary or group of assets within a foreign entity, to release any related cumulative translation adjustment into net income. This update is effective prospectively for fiscal years beginning after December 15, 2013 and will be effective for the Company beginning in the first quarter of fiscal year 2015. The adoption of this standard is not expected to have a significant impact on the Company’s consolidated financial statements.

In February 2013, the FASB issued an accounting standards update related to disclosure requirements of reclassifications out of accumulated other comprehensive income. The adoption of the guidance requires the Company to provide information about the amounts reclassified out of accumulated other comprehensive income by component. In addition, the Company is required to present, either on the face of the statement where net income is presented or in the notes, significant amounts reclassified from each component of accumulated other comprehensive income and the income statement line items affected by the reclassification. This update was effective for the Company beginning in the first quarter of fiscal year 2014 and did not have a significant impact on the Company’s consolidated financial statements.

9


 

Note  4.

Acquisitions

Oclaro’s Fiber Amplifier and Micro-Optics Business

In November 2013, the Company acquired certain assets of Oclaro used in the fiber amplifier and micro-optics business. The total consideration consisted of $88.6 million. At closing the Company paid $79.6 million in cash, a $4.0 million holdback by the Company for 14 months to address any post-closing adjustments or claims, with the remaining $5.0 million previously paid to Oclaro, Inc. on September 12, 2013. The Company operates the business under the name II-VI Network Solutions Division (“Network Solutions”) and includes it with II-VI Laser Enterprise, GmbH in the Company’s new operating segment, Active Optical Products. Network Solutions is a manufacturer of fiber amplifiers and micro-optics used in the optical communications market. Due to the timing of the acquisition, the Company is still in the process of completing its fair market valuation, including the valuation of certain tangible and intangible assets as well as deferred income taxes. The purchase price of the Network Solutions acquisition is summarized as follows ($000):

 

 

Net cash paid at acquisition date

$

79,600

 

Cash previously paid

 

5,000

 

Holdback amount recorded in Other liabilities

 

4,000

 

Purchase price

$

88,600

 

 

The following table presents the preliminary allocation of the purchase price of the assets acquired at the date of acquisition, as the Company intends to finalize its accounting for the acquisition of Network Solutions during fiscal year 2014 ($000):

 

Assets

 

 

 

Inventories

$

11,314

 

Property, plant & equipment

 

20,546

 

Intangible assets

 

28,795

 

Goodwill

 

27,945

 

Total assets acquired

$

88,600

 

 

The goodwill of $27.9 million is included in the Active Optical Products segment and is attributed to the expected synergies and the assembled workforce of Network Solutions. All of the goodwill is deductible for income tax purposes.

The amount of revenues and net loss from operations of Network Solutions included in the Company’s Condensed Consolidated Statement of Earnings for the three months ended December 31, 2013 was $13.2 million and $1.4 million, respectively.

 

Oclaro’s Switzerland-Based Semiconductor Laser Business

In September 2013, the Company acquired all of the outstanding shares of Oclaro Switzerland GmbH, a limited liability company formed under the laws of the Swiss confederation, as well as certain additional assets of Oclaro. used in the semiconductor laser business. The total consideration consisted of $90.6 million, net of cash acquired of $1.7 million, a $6.0 million holdback amount by the Company for 15 months to address any post-closing adjustments or claims, and a $2.0 million holdback amount for potential post-closing working capital adjustments. The Company operates the acquired business under the name Laser Enterprise and includes it in the Company’s new operating segment, Active Optical Products. Laser Enterprise is a manufacturer of high-power semiconductor laser components enabling fiber and direct diode laser systems for material processing, medical, consumer and printing applications. In addition, the segment manufactures pump lasers for optical amplifiers for both terrestrial and submarine applications and vertical cavity surface emitting lasers (VCSELS) for optical navigation, optical interconnects and optical sensing applications.

Due to the timing of the acquisition, the Company is still in the process of completing its fair market valuation, including the valuation of certain tangible and intangible assets as well as deferred income taxes. The purchase price of the Laser Enterprise acquisition is summarized as follows ($000):

 

 

Net cash paid at acquisition date

$

90,601

 

Holdback amount recorded in Other accrued liabilities

 

2,000

 

Holdback amount recorded in Other liabilities

 

6,000

 

Purchase price

$

98,601

 

 

10


 

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 Laser Enterprise during fiscal year 2014 ($000):

 

Assets

 

 

 

Inventories

$

26,071

 

Prepaid and other assets

 

1,963

 

Deferred income taxes

 

2,371

 

Property, plant & equipment

 

28,068

 

Intangible assets

 

32,593

 

Goodwill

 

39,206

 

Total assets acquired

$

130,272

 

 

 

 

 

Liabilities

 

 

 

Accounts payable

$

2,214

 

Deferred income taxes

 

13,467

 

Accrued income taxes

 

2,714

 

Other accrued liabilities

 

13,276

 

Total liabilities assumed

$

31,671

 

Net assets acquired

$

98,601

 

 

The goodwill of Laser Enterprise of $39.2 million is included in the Active Optical Products segment and is attributed to the expected synergies and the assembled workforce of Laser Enterprise. None of the goodwill is deductible for income tax purposes.

The amount of revenues and net loss from operations of Laser Enterprise included in the Company’s Condensed Consolidated Statement of Earnings for the three months ended December 31, 2013 was $20.2 million and $3.3 million, respectively, and was $25.0 million and $4.0 million, respectively, for the six months ended December 31, 2013.

In conjunction with the acquisitions of Network Solutions and Laser Enterprise, the Company expensed transactions costs of approximately $0.3 million and $3.7 million, net of tax, for the three and six months ended December 31, 2013, respectively.  These costs were recorded within selling, general and administrative expenses in the Condensed Consolidated Statements of Earnings.

Pro Forma Information

The following unaudited pro forma consolidated results of operations for the three months ended December 31, 2013 and 2012 have been prepared as if the acquisitions of Network Solutions and Laser Enterprise had occurred on July 1, 2012, the beginning of the Company’s fiscal year 2013, which is the fiscal year prior to this acquisition. As a result, certain transaction related expenses of $0.3 million and $3.7 million (net of tax) for the three and six months periods were only included in the earliest periods presented below ($000 except per share data).

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

December 31,

 

 

December 31,

 

 

2013

 

 

2012

 

 

2013

 

 

2012

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net revenues

$

181,204

 

 

$

170,457

 

 

$

373,436

 

 

$

343,804

 

Earnings from continuing operations attributable to II-VI Incorporated

 

10,912

 

 

 

10,032

 

 

 

25,493

 

 

 

16,272

 

Basic earnings per share from continuing operations attributable to II-VI Incorporated

 

0.17

 

 

 

0.16

 

 

 

0.41

 

 

 

0.26

 

Diluted earnings per share from continuing operations attributable to II-VI Incorporated

 

0.17

 

 

 

0.16

 

 

 

0.40

 

 

 

0.25

 

 

The pro forma results are not necessarily indicative of what actually would have occurred if the transactions had occurred as described above, are not intended to be a projection of future results and do not reflect any cost savings that might be achieved from the combined operations.

11


 

 

Note  5.

Investment

The Company has an equity investment in Guangdong Fuxin Electronic Technology (“Fuxin”) based in Guangdong Province, China of 20.2%, which is accounted for under the equity method of accounting. The total carrying value of the investment recorded at December 31, 2013 and June 30, 2013 was $11.6 million and $11.2 million, respectively. During the three months ended December 31, 2013 and 2012, the Company’s pro-rata share of earnings from this investment was $0.1 million and $0.2 million, respectively, and was $0.4 million and $0.6 million during the six months ended December 31, 2013 and 2012, respectively, and were recorded in Other expense (income), net in the Condensed Consolidated Statements of Earnings.

Note  6.

Inventories

The components of inventories were as follows ($000):

 

 

December 31,

 

 

June 30,

 

 

2013

 

 

2013

 

 

 

 

 

 

 

 

 

Raw materials

$

67,101

 

 

$

59,290

 

Work in progress

 

58,637

 

 

 

43,895

 

Finished goods

 

51,398

 

 

 

38,674

 

 

$

177,136

 

 

$

141,859

 

 

Note  7.

Property, Plant and Equipment

Property, plant and equipment consists of the following ($000):

 

December 31,

 

 

June 30,