| Coherent Acquisition | Coherent Acquisition On July 1, 2022 (the “Closing Date”), the Company completed its acquisition of Coherent, Inc. (the “Merger”), a global provider of lasers and laser-based technology for scientific, commercial, and industrial customers, in a combined cash and stock transaction in accordance with the Agreement and Plan of Merger dated March 25, 2021 (the “Merger Agreement”). Pursuant to the terms of the Merger Agreement, and subject to the conditions set forth therein, each share of common stock of legacy Coherent, Inc. (“Legacy Coherent”), par value $0.01 per share (the “Legacy Coherent Common Stock”), issued and outstanding immediately prior to July 1, 2022, was canceled and extinguished and automatically converted into the right to receive $220.00 in cash and 0.91 of a share of Coherent's common stock, no par value (“Coherent Common Stock”). Following the completion of the Legacy Coherent acquisition, the Company announced a new brand identity, including a corporate name change to Coherent Corp. (Nasdaq: COHR) on September 8, 2022. On the Closing Date, the Company entered into a Credit Agreement (the “Credit Agreement”) by and among the Company, the lenders, and other parties thereto, and JP Morgan Chase Bank, N.A., as administrative agent and collateral agent, which provides for senior secured financing of $4.0 billion, consisting of a new term loan A credit facility (the “Term A Facility”) in an aggregate principal amount of $850 million a new term loan B credit facility (the “Term B Facility”) (and, together with the Term A Facility, the “Term Facilities”) in an aggregate principal amount of $2.8 billion, and a new revolving credit facility (the “Revolving Credit Facility”) in an aggregate available amount of $350 million, including a letter of credit sub-facility of up to $50 million. For additional information on the credit facility refer to Note 8. Debt. In order to complete the funding of the Merger, the Company had a net cash outflow of $2.1 billion on July 1, 2022. The Company recorded $10 million and $72 million of acquisition related costs in the three and six months ended December 31, 2022, respectively, representing professional and other direct acquisition costs. These costs are recorded within Selling, general and administrative expense in our Condensed Consolidated Statement of Earnings (Loss). Approximately 23 million shares of Coherent Common Stock in the aggregate were issued in conjunction with the closing of the Merger. Total preliminary Merger consideration was $7.1 billion, including replacement equity awards attributable to pre-combination service for certain Legacy Coherent restricted stock units. The preliminary total fair value of consideration paid in connection with the acquisition of Coherent, Inc. consisted of the following (in $000): Shares Per Share Total Consideration Cash paid for merger consideration — — $ 5,460,808 Shares of COHR common stock issued to Legacy Coherent stockholders 22,587,885 $49.83 1,125,554 Converted Legacy Coherent RSUs attributable to pre-combination service — — 82,037 Payment of Legacy Coherent debt — — 364,544 Payment of Legacy Coherent transaction expenses — — 62,840 $ 7,095,783 The Company allocated the fair value of the preliminary purchase price consideration to the tangible assets, liabilities, and intangible assets acquired, generally based on estimated fair values. The excess preliminary purchase price over those fair values is recorded as goodwill. Our valuation assumptions of acquired assets and assumed liabilities require significant estimates, especially with respect to intangible assets, inventories, property, plant & equipment and deferred income taxes. In determining the fair value of intangible assets acquired, the Company must make assumptions about the future performance of the acquired business, including among other things, the forecasted revenue growth attributable to the asset group and projected operating expenses inclusive of expected synergies, future cost savings, and other benefits expected to be achieved by combining the Company and Legacy Coherent. The Company’s intangible assets are comprised of trade names and trademarks, customer relationships, developed technology and backlog. The Company utilized widely accepted income-based, market-based, and cost-based valuation approaches to perform the preliminary purchase price allocation. The estimated fair value of the customer relationships and backlog are determined using the multi-period excess earnings method and the estimated fair value of the trade names and trademarks and developed technology are determined using the relief from royalty method. Both methods require forward looking estimates that are discounted to determine the fair value of the intangible asset using a risk-adjusted discount rate that is reflective of the level of risk associated with future estimates associated with the asset group that could be affected by future economic and market conditions. The purchase price allocation set forth is preliminary and will be revised as third party valuations are finalized or additional information becomes available during the measurement period, which could be up to 12 months from the Closing Date. Any such revisions or changes may be material. We expect to finalize pushdown accounting as soon as practicable, but no later than twelve months from the Closing Date. Our preliminary allocation of the purchase price of Legacy Coherent, based on the estimated fair value of the assets acquired and liabilities assumed as of the Closing Date, is as follows (in $000): Preliminary Allocation as of 7/1/2022 Previously Reported September 30, 2022 Measurement Period Adjustments (i) As Adjusted (preliminary) Assets Current Assets Cash, cash equivalents, and restricted cash $ 393,324 $ — $ 393,324 Accounts receivable 270,928 — 270,928 Inventories (ii) 497,345 66,581 563,926 Prepaid and refundable income taxes (iii) 8,869 (1,592) 7,277 Prepaid and other current assets 41,467 — 41,467 Total Current Assets 1,211,933 64,989 1,276,922 Property, plant & equipment, net (iv) 424,228 16,704 440,932 Deferred income taxes (iii) 1,115 (793) 322 Other assets 102,726 — 102,726 Other intangible assets, net (v) 2,425,454 1,079,546 3,505,000 Goodwill 4,005,727 (910,633) 3,095,094 Total Assets $ 8,171,183 $ 249,813 $ 8,420,996 Liabilities Current Liabilities Current portion of long-term debt $ 4,504 $ — $ 4,504 Accounts payable 116,754 — 116,754 Accrued compensation and benefits 60,596 — 60,596 Operating lease current liabilities 13,002 — 13,002 Accrued income taxes payable 16,936 — 16,936 Other accrued liabilities (vi) 136,042 702 136,744 Total Current Liabilities 347,834 702 348,536 Long-term debt 22,991 — 22,991 Deferred income taxes (iii) 563,824 249,674 813,498 Operating lease liabilities 43,313 — 43,313 Other liabilities (vi) 97,438 (563) 96,875 Total Liabilities $ 1,075,400 $ 249,813 $ 1,325,213 Preliminary aggregate acquisition consideration $ 7,095,783 $ — $ 7,095,783 (i) 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 following 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. (ii) The condensed combined balance sheet has been adjusted to record Legacy Coherent’s inventories at a preliminary fair value of approximately $564 million, an increase of $67 million from the preliminary fair value reported at September 30, 2022 with a corresponding decrease to goodwill. The Condensed Combined Statement of Earnings (Loss) for the three and six months ended December 31, 2022 includes cost of goods sold of approximately $112 million and $158 million, respectively, related to the increased basis in the preliminary fair value compared to the carrying value. The $112 million cost of goods sold recognized in the three months ended December 31, 2022 includes an increase of $33 million due to the measurement period adjustment which relates to a previous reporting period. The costs are being amortized over the expected period during which the acquired inventory is sold, the six months ended December 31, 2022, and thus are not anticipated to affect the Condensed Consolidated Statements of Earnings (Loss) beyond twelve months after the Closing Date. (iii) The Company has adjusted its prepaid and refundable income taxes, deferred tax asset and deferred tax liability positions as of December 31, 2022, to $7 million, $0 million and $813 million, respectively, as a result of measurement period adjustments. (iv) The Condensed Consolidated Balance Sheet has been adjusted to record Legacy 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 $441 million, an increase of $17 million from the preliminary fair value reported at September 30, 2022 with a corresponding decrease to goodwill. The Condensed Consolidated Statements of Earnings (Loss) have been adjusted to recognize additional depreciation expense related to the increased basis. The additional depreciation expense is computed with the assumption that the various categories of assets will be depreciated over their remaining useful lives on a straight-line basis. (v) Preliminary identifiable intangible assets in the condensed combined balance sheet increased $1.1 billion from the preliminary fair value reported at September 30, 2022 with a corresponding decrease to goodwill. Intangibles amortization recorded in cost of goods sold for the three and six months ended December 31, 2022 was $6 million and $43 million, respectively, and included a reduction in the current quarter of $16 million due to the measurement period adjustment which relates to a previous reporting period. Intangibles amortization recorded in selling, general and administrative expenses for the three and six months ended December 31, 2022 was $80 million and $105 million, respectively, and included an increase in the current quarter of $27 million due to the measurement period adjustment which relates to a previous reporting period. Preliminary identifiable intangible assets consist of the following and are being amortized over their estimated useful lives in the Condensed Consolidated Statements of Earnings (Loss) (in $000): Preliminary Estimated Useful Life Trade names and trademarks $ 430,000 N/A Customer relationships 1,830,000 15 years Developed technology 1,157,500 13.5 years Backlog 87,500 1.0 year Intangible assets acquired $ 3,505,000 (vi) The Company recorded approximately $1 million of increases in other current liabilities and $1 million of decreases in other liabilities as measurement period adjustments. Operating results, including goodwill and intangibles, of Legacy Coherent are reflected in the Company’s consolidated financial statements from the Closing Date, within the Lasers segment. Revenues and net loss for the Lasers segment for the three months ended December 31, 2022 were $379 million and $171 million, respectively. Revenues and net loss for the Lasers segment for the six months ended December 31, 2022 were $772 million and $299 million, respectively. Goodwill in the amount of $3.1 billion arising from the acquisition is attributed to the expected synergies, including future cost savings, and other benefits expected to be generated by combining Coherent and Legacy Coherent. Substantially all of the goodwill recognized is not expected to be deductible for tax purposes. Supplemental Pro Forma Information The supplemental pro forma financial information presented below is for illustrative purposes only and is not necessarily indicative of the financial position or results of operations that would have been realized if the acquisition had been completed on the date indicated, does not reflect synergies that might have been achieved, nor is it indicative of future operating results or financial position. The pro forma adjustments are based upon currently available information and certain assumptions that we believe are reasonable under the circumstances. The following supplemental pro forma information presents the combined results of operations for the three and six months ended December 31, 2022 and December 31, 2021, as if Legacy Coherent had been acquired as of July 1, 2021. The supplemental pro forma information includes adjustments to amortization and depreciation for acquired intangible assets, property, plant and equipment, adjustments to share-based compensation expense, fair value adjustments on the inventories acquired, transaction costs, interest expense and amortization of debt issuance costs related to the Senior Credit Facilities (as defined in Note 8. Debt). The unaudited supplemental pro forma financial information for the periods presented is as follows (in $000): Three Months Ended December 31, 2022 Three Months Ended December 31, 2021 Revenue $ 1,370,285 $ 1,191,326 Net Earnings (Loss) 101,349 (65,115) Six Months Ended December 31, 2022 Six Months Ended December 31, 2021 Revenue $ 2,714,855 $ 2,378,111 Net Earnings (Loss) 211,420 (241,375) |
