COHERENT CORP. [COHR] Filings

10-Q 1 iivi-20220930.htm 10-Q iivi-20220930

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 September 30, 2022


☐			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

________________________________________________________________

COHERENT CORP.

(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		16056
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 class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, no par value	COHR	Nasdaq Global Select Market
Series A Mandatory Convertible Preferred Stock, no par value	IIVIP	Nasdaq 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 filer	☐	Smaller 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 ☒

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

At November 7, 2022, 138,690,024 shares of Common Stock, no par value, of the registrant were outstanding.

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COHERENT CORP.

INDEX


		Page No.

PART I - FINANCIAL INFORMATION
Item 1.	Financial Statements:
	Condensed Consolidated Balance Sheets – September 30, 2022 and June 30, 2022 (Unaudited)	3
	Condensed Consolidated Statements of Earnings (Loss) – Three Months Ended September 30, 2022 and 2021 (Unaudited)	4
	Condensed Consolidated Statements of Comprehensive Income (Loss) – Three Months Ended September 30, 2022 and 2021 (Unaudited)	5
	Condensed Consolidated Statements of Cash Flows – Three Months Ended September 30, 2022 and 2021 (Unaudited)	6
	Condensed Consolidated Statements of Shareholders’ Equity and Mezzanine Equity – Three Months Ended September 30, 2022 and 2021 (Unaudited)	8
	Notes to Condensed Consolidated Financial Statements (Unaudited)	9
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	26
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	34
Item 4.	Controls and Procedures	34
PART II - OTHER INFORMATION
Item 1.	Legal Proceedings	35
Item 1A.	Risk Factors	35

Item 6.	Exhibits	36

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PART I - FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS

Coherent Corp. and Subsidiaries

Condensed Consolidated Balance Sheets (Unaudited)

($000)


	September 30, 2022		June 30, 2022
Assets
Current Assets
Cash, cash equivalents, and restricted cash	$	898,501	$	2,582,371
Accounts receivable - less allowance for doubtful accounts of $4,506 at September 30, 2022 and $4,206 at June 30, 2022	975,437		700,331
Inventories	1,346,940		902,559
Prepaid and refundable income taxes	23,205		19,585
Prepaid and other current assets	150,547		100,346
Total Current Assets	3,394,630		4,305,192
Property, plant & equipment, net	1,803,646		1,363,195
Goodwill	5,284,591		1,285,759
Other intangible assets, net	2,984,979		635,404

Deferred income taxes	28,451		31,714
Other assets	334,262		223,582
Total Assets	$	13,830,559	$	7,844,846
Liabilities, Mezzanine Equity and Shareholders' Equity
Current Liabilities
Current portion of long-term debt	$	129,011	$	403,212
Accounts payable	479,385		434,917
Accrued compensation and benefits	187,764		172,109
Operating lease current liabilities	38,855		27,574
Accrued income taxes payable	43,578		29,317
Other accrued liabilities	304,491		199,830
Total Current Liabilities	1,183,084		1,266,959
Long-term debt	4,494,282		1,897,214
Deferred income taxes	618,565		77,259
Operating lease liabilities	141,542		110,214
Other liabilities	230,568		109,922
Total Liabilities	6,668,041		3,461,568
Mezzanine Equity
Series B redeemable convertible preferred stock, no par value, 5% cumulative; issued - 215,000 and 75,000 shares at September 30, 2022 and June 30, 2022, respectively; redemption value - $2,225,658 and $798,181, respectively	2,153,480		766,803
Shareholders' Equity
Series A preferred stock, no par value, 6% cumulative; issued - 2,300,000 shares at September 30, 2022 and June 30, 2022	445,319		445,319
Common stock, no par value; authorized - 300,000,000 shares; issued - 153,089,681 shares at September 30, 2022; 120,923,171 shares at June 30, 2022	3,671,514		2,064,552
Accumulated other comprehensive loss	(101,431)		(2,167)
Retained earnings	1,273,850		1,348,125
	5,289,252		3,855,829
Treasury stock, at cost; 14,802,661 shares at September 30, 2022 and 13,972,758 shares at June 30, 2022	(280,214)		(239,354)
Total Shareholders' Equity	5,009,038		3,616,475
Total Liabilities, Mezzanine Equity and Shareholders' Equity	$	13,830,559	$	7,844,846

See notes to condensed consolidated financial statements.

Coherent Corp. and Subsidiaries

Condensed Consolidated Statements of Earnings (Loss) (Unaudited)

($000, except per share data)


	Three Months Ended September 30,
	2022		2021
Revenues	$	1,344,570	$	795,111

Costs, Expenses, and Other Expense (Income)
Cost of goods sold	900,996		488,487
Internal research and development	121,084		88,966
Selling, general and administrative	280,014		122,608
Interest expense	61,889		12,191
Other expense (income), net	31,605		(7,582)
Total Costs, Expenses, & Other Expense (Income)	1,395,588		704,670

Earnings (Loss) Before Income Taxes	(51,018)		90,441

Income Tax Expense (Benefit)	(12,320)		15,977

Net Earnings (Loss)	$	(38,698)	$	74,464




Less: Dividends on Preferred Stock	$	35,577	$	17,082
Net Earnings (Loss) available to the Common Shareholders	$	(74,275)	$	57,382

Basic Earnings (Loss) Per Share	$	(0.56)	$	0.54

Diluted Earnings (Loss) Per Share	$	(0.56)	$	0.50

See notes to condensed consolidated financial statements.

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Coherent Corp. and Subsidiaries

Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited)

($000)


	Three Months Ended September 30,
	2022		2021
Net earnings (loss)	$	(38,698)	$	74,464
Other comprehensive income (loss):
Foreign currency translation adjustments	(132,371)		(14,381)
Change in fair value of interest rate swap, net of taxes of $3,452 and $734 for the three months ended September 30, 2022 and 2021, respectively	12,604		2,681
Change in fair value of interest rate cap, net of taxes of $9,258 for the three months ended September 30, 2022	20,464		—
Pension adjustment, net of taxes of $0 for the three months ended September 30, 2022	39		—
Comprehensive income (loss)	$	(137,962)	$	62,764

See notes to condensed consolidated financial statements.

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Coherent Corp. and Subsidiaries

Condensed Consolidated Statements of Cash Flows (Unaudited)

($000)


	Three Months Ended September 30,
	2022		2021
Cash Flows from Operating Activities
Net earnings (loss)	$	(38,698)	$	74,464
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation	64,669		49,297
Amortization	82,617		20,395
Share-based compensation expense	54,185		23,796
Amortization of discount on convertible debt and debt issuance costs	4,466		2,227

Unrealized gains on foreign currency remeasurements and transactions	(22,273)		(4,882)
Earnings from equity investments	(613)		(687)
Deferred income taxes	(14,479)		10,672

Loss on debt extinguishment	6,835		—
Increase (decrease) in cash from changes in (net of effect of acquisitions):
Accounts receivable	(1,326)		(1,821)
Inventories	7,514		(56,260)
Accounts payable	(42,865)		(4,248)
Contract liabilities	44,419		10,790
Income taxes	(8,633)		(6,826)
Accrued compensation and benefits	(44,910)		(56,273)

Other operating net assets (liabilities)	(11,330)		(8,308)
Net cash provided by operating activities	79,577		52,336
Cash Flows from Investing Activities
Additions to property, plant & equipment	(138,990)		(47,565)
Purchases of businesses, net of cash acquired	(5,488,556)		—




Other investing activities	(711)		—
Net cash used in investing activities	(5,628,257)		(47,565)
Cash Flows from Financing Activities


Proceeds from borrowings of Term A Facility	850,000		—
Proceeds from borrowings of Term B Facility	2,800,000		—
Proceeds from Revolving Credit Facility	65,000		—
Proceeds from issuance of Series B Preferred Shares	1,400,000		—


Payments on existing debt	(996,429)		(15,513)
Payments on convertible notes	(3,561)		—

Debt issuance costs	(126,516)		—
Equity issuance costs	(42,000)		—
Proceeds from exercises of stock options and purchases of stock under employee stock purchase plan	7,425		7,481

Payments in satisfaction of employees' minimum tax obligations	(40,885)		(13,017)
Payment of dividends	—		(13,808)
Other financing activities	(292)		(1,109)
Net cash provided by (used in) financing activities	3,912,742		(35,966)
Effect of exchange rate changes on cash, cash equivalents, and restricted cash	(42,273)		(522)
Net decrease in cash, cash equivalents, and restricted cash	(1,678,211)		(31,717)
Cash, Cash Equivalents, and Restricted Cash at Beginning of Period	2,582,371		1,591,892
Cash, Cash Equivalents, and Restricted Cash at End of Period	$	904,160	$	1,560,175
Cash paid for interest	$	45,963	$	8,326
Cash paid for income taxes	$	14,920	$	12,417
Additions to property, plant & equipment included in accounts payable	$	71,035	$	38,400

See notes to condensed consolidated financial statements.

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The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the condensed consolidated balance sheets that sum to the total of the same amounts shown in the condensed consolidated statements of cash flows. Restricted cash, non-current is included in the condensed consolidated balance sheets under 'Other Assets'. At September 30, 2022, we had $22 million of restricted cash.


	Three Months Ended September 30,
	2022		2021
Cash, cash equivalents, and restricted cash	$	898,501	$	1,560,175
Restricted cash, non-current	5,659		—
Total cash, cash equivalents, and restricted cash shown in the condensed consolidated statements of cash flows	$	904,160	$	1,560,175

See notes to condensed consolidated financial statements.

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Coherent Corp and Subsidiaries

Condensed Consolidated Statements of Shareholders’ Equity and Mezzanine Equity (Unaudited)

($000, including share amounts)


	Common Stock			Preferred Stock			Accumulated Other Comprehensive Income (Loss)		Retained Earnings		Treasury Stock			Total		Mezzanine Equity
	Shares	Amount		Shares	Amount						Shares	Amount				Preferred Shares	Amount
Balance - June 30, 2022	120,923	$	2,064,552	2,300	$	445,319	$	(2,167)	$	1,348,125	(13,973)	$	(239,354)	$	3,616,475	75	$	766,803
Share-based and deferred compensation activities	2,398	61,431		—	—		—		—		(830)	(40,860)		20,571		—	—
Coherent Acquisition	22,588	1,207,591		—	—		—		—		—	—		1,207,591		—	—
Convertible debt conversions	7,181	337,940		—	—		—		—		—	—		337,940		—	—
Net Loss	—	—		—	—		—		(38,698)		—	—		(38,698)		—	—
Foreign currency translation adjustments	—	—		—	—		(132,371)		—		—	—		(132,371)		—	—
Change in fair value of interest rate swap, net of taxes of $3,452	—	—		—	—		12,604		—		—	—		12,604		—	—
Change in fair value of interest rate cap, net of taxes of $9,258	—	—		—	—		20,464		—		—	—		20,464		—	—
Issuance of Series B shares	—	—		—	—		—		—		—	—		—		140	1,358,000
Pension adjustment, net of taxes of $0	—	—		—	—		39		—		—	—		39		—	—
Dividends	—	—		—	—		—		(35,577)		—	—		(35,577)		—	28,677
Balance - September 30, 2022	153,090	$	3,671,514	2,300	$	445,319	$	(101,431)	$	1,273,850	(14,803)	$	(280,214)	$	5,009,038	215	$	2,153,480


	Common Stock			Preferred Stock			Accumulated Other Comprehensive Income (Loss)		Retained Earnings		Treasury Stock			Total		Mezzanine Equity
	Shares	Amount		Shares	Amount						Shares	Amount				Preferred Shares	Amount
Balance - June 30, 2021	119,127	$	2,028,273	2,300	$	445,319	$	14,267	$	1,136,777	(13,640)	$	(218,466)	$	3,406,170	75	$	726,178
Share-based and deferred compensation activities	844	30,567		—	—		—		—		(200)	(12,935)		17,632		—	—


Net Earnings	—	—		—	—		—		74,464		—	—		74,464		—	—
Foreign currency translation adjustments	—	—		—	—		(14,381)		—		—	—		(14,381)		—	—
Change in fair value of interest rate swap, net of taxes of $734	—	—		—	—		2,681		—		—	—		2,681		—	—


Dividends	—	—		—	—		—		(17,082)		—	—		(17,082)		—	10,182
Adjustment for ASU 2020-06	—	(56,388)		—	—		—		44,916		—	—		(11,472)		—	—
Balance - September 30, 2021	119,971	$	2,002,452	2,300	$	445,319	$	2,567	$	1,239,075	(13,840)	$	(231,401)	$	3,458,012	75	$	736,360

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Coherent Corp. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

Note 1. Basis of Presentation

The condensed consolidated financial statements of Coherent Corp. (“Coherent”, the “Company”, “we”, “us” or “our”) for the three months ended September 30, 2022 and 2021 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 financial statements and notes thereto included in the Company’s Annual Report on Form 10-K dated August 29, 2022. The condensed consolidated results of operations for the three months ended September 30, 2022 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, 2022 was derived from the Company’s audited consolidated financial statements.

The Company is closely monitoring the ongoing impact of the COVID-19 pandemic and related factors on all aspects of our business, including the impact to our employees, suppliers and customers, as well as the impact to our supply chain and the countries and markets in which Coherent operates. In particular, the Company is continuing to focus intensely on mitigating any resulting adverse impacts on our foreign and domestic operations, starting by prioritizing the safety of our employees, suppliers and customers.

We previously classified intangible asset amortization expense within Selling, general and administrative (“SG&A”) expenses in our Condensed Consolidated Statements of Earnings (Loss). Amortization expense on the developed technology intangible assets is now classified within Cost of goods sold, with amortization expense on customer lists and trade names remaining within SG&A expenses in our Condensed Consolidated Statements of Earnings (Loss). Prior period amounts have been conformed to the current period presentation, which resulted in an increase to Cost of goods sold and a decrease to SG&A expenses of $10 million for the three months ended September 30, 2021.

Note 2. Recently Issued Financial Accounting Standards

Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting

In March 2020, the Financial Accounting Standards Board (the "FASB") issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides optional expedients to ease the potential burden of accounting for the effects of reference rate reform as it pertains to contract modifications of debt and lease contracts and derivative contracts identified in a hedging relationship. These amendments are effective immediately and may be applied prospectively to contract modifications made and hedging relationships entered into or evaluated on or before December 31, 2022. The Company is in the process of evaluating the impact of the pronouncement.

Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers

In October 2021, the FASB issued ASU No. 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (“ASU 2021-08”), which requires an acquirer to recognize and measure contract assets and liabilities acquired in a business combination in accordance with Accounting Standards Codification ASC 606, Revenue from Contracts with Customers, rather than adjust them to fair value at the acquisition date. We have adopted this accounting standard as of July 1, 2022. The acquisition of Coherent, Inc. has been accounted for in accordance with ASU 2021-08, as will any future acquisitions. Results of operations for quarterly periods prior to adoption remain unchanged as a result of the adoption of ASU No. 2021-08. Refer to Note 3. Coherent Acquisition for further information.

Note 3. 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.

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 principal 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 $62 million of acquisition related costs in the three months ended September 30, 2022, representing professional and other direct acquisition costs. These costs are recorded within SG&A expense in our Condensed Consolidated Statement of Earnings (Loss). Approximately 23 million shares of Coherent's common stock, no par value ("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, property, plant & equipment and deferred income taxes.

The purchase price allocation set forth herein 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. The Company utilized market available benchmarking analysis to perform the preliminary allocation.

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):



	Allocation as of 7/1/2022
Assets
Current Assets
Cash, cash equivalents, and restricted cash	$	393,324
Accounts receivable	270,928
Inventories (i)	497,345
Prepaid and refundable income taxes	8,869
Prepaid and other current assets	41,467
Total Current Assets	1,211,933
Property, plant & equipment, net (ii)	424,228
Deferred income taxes	1,115
Other assets	102,726
Other intangible assets, net (iii)	2,425,454
Goodwill	4,005,727
Total Assets	$	8,171,183
Liabilities
Current Liabilities
Current portion of long-term debt	$	4,504
Accounts payable	116,754
Accrued compensation and benefits	60,596
Operating lease current liabilities	13,002
Accrued income taxes payable	16,936
Other accrued liabilities	136,042
Total Current Liabilities	347,834
Long-term debt	22,991
Deferred income taxes	563,824
Operating lease liabilities	43,313
Other liabilities	97,438
Total Liabilities	$	1,075,400

Preliminary aggregate acquisition consideration	$	7,095,783

(i) The condensed combined balance sheet has been adjusted to record Legacy Coherent’s inventories at a preliminary fair value of approximately $497 million, an increase of $91 million from the carrying value. The condensed combined statement of earnings (loss) for the three months ended September 30, 2022 has been adjusted to recognize additional cost of goods sold of approximately $45 million related to the increased basis. The additional costs will be amortized over the expected period during which the acquired inventory is sold and are not anticipated to affect the condensed combined statements of earnings (loss) beyond twelve months after the Closing Date.

(ii) The condensed combined 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 $424 million, an increase of $128 million from the carrying value. The condensed combined 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.

(iii) Preliminary identifiable intangible assets in the unaudited condensed combined financial information consist of the following and are being amortized over their estimated useful lives in the condensed combined statements of earnings (loss) (in $000):


	Preliminary Fair Value		Estimated Useful Life
Trade names and trademarks	$	225,654	N/A
Customer relationships	979,324		10 years
Developed technology	1,220,476		8 years
Intangible assets acquired	$	2,425,454

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 September 30, 2022 were $392 million, and $128 million, respectively. Goodwill in the amount of $4.0 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 months ended September 30, 2022, 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.

The unaudited supplemental pro forma financial information for the periods presented is as follows (in $000):


	Three Months Ended September 30, 2022		Three Months Ended September 30, 2021
Revenue	$	1,344,570	$	1,186,785
Net Earnings (Loss)	79,770		(202,363)

Note 4. 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.

As of July 1, 2022, the Company disaggregates revenue into four end markets: industrial, communications, electronics and instrumentation. All prior period market and segment disclosure information has been reclassified to conform to the current reporting structure.

Effective July 1, 2022, the Company updated the operating segments due to the closing of the Merger. In addition, prior year numbers were recast to reflect the transfer of two entities between the Networking and Materials segments. See Note 13. Segment Reporting for further details.

The following tables summarize disaggregated revenue for the three months ended September 30, 2022 and 2021 ($000):


	Three Months Ended September 30, 2022
	Networking		Materials		Lasers		Total
Industrial	$	18,693	$	144,083	$	298,241	$	461,017
Communications	563,521		21,877		—		585,398
Electronics	3,822		176,622		—		180,444
Instrumentation	10,512		13,062		94,137		117,711
Total Revenues	$	596,548	$	355,644	$	392,378	$	1,344,570


	Three Months Ended September 30, 2021
	Networking		Materials		Total
Industrial	$	21,729	$	154,884	$	176,613
Communications	498,632		19,875		518,507
Electronics	2,967		77,020		79,987
Instrumentation	7,685		12,319		20,004
Total Revenues	$	531,013	$	264,098	$	795,111

Contract Liabilities

Payments received from customers are based on invoices or billing schedules as established in contracts with customers. Contract liabilities relate to billings in advance of performance under the contract. Contract liabilities are recognized as revenue when the performance obligation has been performed. During the three months ended September 30, 2022, the Company recognized revenue of $6 million related to customer payments that were included as contract liabilities in the Condensed Consolidated Balance Sheet as of June 30, 2022. The Company had $191 million of contract liabilities recorded in the Condensed Consolidated Balance Sheet as of September 30, 2022. Contract liabilities acquired from the Merger totaled $77 million. As of September 30, 2022, $108 million of deferred revenue is included other accrued liabilities and $83 million is included within other liabilities on the Condensed Consolidated Balance Sheet.

Note 5. Inventories

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


	September 30, 2022		June 30, 2022
Raw materials	$	444,010	$	318,758
Work in progress	581,752		408,405
Finished goods	321,178		175,396
	$	1,346,940	$	902,559

During the three months ended September 30, 2022, as part of the Coherent, Inc. acquisition, a fair value inventory step-up in the amount of $91 million was recorded as part of the preliminary purchase price allocation. The inventory step-up will be amortized to cost of goods sold over the expected period during which the acquired inventory is sold. Refer to Note 3. Coherent Acquisition for additional information. These costs are non-recurring in nature and not anticipated to affect the condensed combined statements of earnings (loss) beyond twelve months after the Closing Date.

Note 6. Property, Plant and Equipment

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


	September 30, 2022		June 30, 2022
Land and improvements	$	36,271	$	19,368
Buildings and improvements	609,839		415,530
Machinery and equipment	1,841,274		1,651,762
Construction in progress	354,341		271,605
Finance lease right-of-use asset	25,000		25,000
	2,866,725		2,383,265
Less accumulated depreciation	(1,063,079)		(1,020,070)
	$	1,803,646	$	1,363,195

During the three months ended September 30, 2022, as part of the Coherent, Inc. acquisition, a fair value step-up in the amount of $128 million was recorded to property, plant and equipment as part of the preliminary purchase price allocation. The step-up will be amortized over the useful lives of the related assets. Refer to Note 3. Coherent Acquisition for additional information.

Note 7. Goodwill and Other Intangible Assets

Changes in the carrying amount of goodwill were as follows ($000):


	Three Months Ended September 30, 2022
	Networking		Materials		Lasers		Total
Balance-beginning of period	$	1,048,743	$	237,016	$	—	$	1,285,759
Transfer between segments1	(35,466)		35,466		—		—
Goodwill acquired	—		—		4,005,727		4,005,727

Foreign currency translation	(4,199)		(2,285)		(411)		(6,895)
Balance-end of period	$	1,009,078	$	270,197	$	4,005,316	$	5,284,591

1 - Refer to Note 13. Segment Reporting for information regarding the segment transfer of goodwill between segments.

The gross carrying amount and accumulated amortization of the Company’s intangible assets other than goodwill as of September 30, 2022 and June 30, 2022 were as follows ($000):


	September 30, 2022						June 30, 2022
	Gross Carrying Amount		Accumulated Amortization		Net Book Value		Gross Carrying Amount		Accumulated Amortization		Net Book Value
Technology	$	1,701,446	$	(191,158)	$	1,510,288	$	473,845	$	(144,409)	$	329,436
Trade Names	248,014		(7,660)		240,354		22,536		(7,454)		15,082
Customer Lists	1,441,510		(207,173)		1,234,337		464,880		(173,994)		290,886
Other	1,557		(1,557)		—		1,563		(1,563)		—
Total	$	3,392,527	$	(407,548)	$	2,984,979	$	962,824	$	(327,420)	$	635,404

Refer to Note 3. Coherent Acquisition for additional information on intangibles acquired in the three months ended September 30, 2022.

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Note 8. Debt

The components of debt as of the dates indicated were as follows ($000):


	September 30, 2022		June 30, 2022
New Term A Facility, interest at LIBOR, as defined, plus 2.00%	$	850,000	$	—
New Revolving Credit Facility, interest at LIBOR, as defined, plus 2.00%	65,000		—
Debt issuance costs, New Term A Facility and New Revolving Credit Facility	(22,251)		—
New Term B Facility, interest at LIBOR, as defined, plus 2.75%	2,800,000		—
Debt issuance costs, New Term B Facility	(76,581)		—
1.30% Term loan due 2024	260		—
1.00% State of Connecticut term loan due 2023	2,426		—
Facility construction loan in Germany due 2030	21,965		—
Existing Term A Facility, interest at LIBOR, as defined, plus 1.375%	—		995,363

Debt issuance costs, Existing Term A Facility and Existing Revolving Credit Facility	—		(18,396)


5.000% Senior Notes	990,000		990,000
Debt issuance costs and discount, Senior Notes	(7,526)		(7,703)
0.25% Convertible Senior Notes	—		341,501
Debt issuance costs and discount, 0.25% Convertible Senior Notes	—		(339)

Total debt	4,623,293		2,300,426
Current portion of long-term debt	(129,011)		(403,212)
Long-term debt, less current portion	$	4,494,282	$	1,897,214

Senior Credit Facilities

On July 1, 2022, Coherent entered into a 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 the Term A Facility, with an aggregate principal amount of $850 million, the Term B Facility, with an aggregate principal amount of $2,800 million, and the New Revolving Credit Facility, in an aggregate principal amount of $350 million, including a letter of credit sub-facility of up to $50 million. The New Term A Facility and the Revolving Credit Facility each bear interest at LIBOR subject to a 0.00% floor plus a range of 1.75% to 2.50%, based on the Company’s total net leverage ratio. The Term A Facility and the Revolving Credit Facility borrowings are initially expected to bear interest at LIBOR plus 2.00%. The New Term B Facility bears interest at LIBOR (subject to a 0.50% floor) plus 2.75%. In relation to the Term Facilities, the Company incurred interest expense of $50 million in the three months ended September 30, 2022, which is included in interest expense in the Condensed Consolidated Statements of Earnings (Loss).

Proceeds of the loans borrowed under the Term Facilities on July 1, 2022, together with other financing sources (including the net proceeds from Coherent's offer and sale of its 5.000% Senior Notes due 2029 (the "Senior Notes") and cash on hand) were used to fund the cash portion of the Merger consideration, the repayment of certain indebtedness (including the repayment in full of all amounts outstanding under the Prior Credit Agreement as defined below), and certain fees and expenses in connection with the Merger and otherwise for general corporate purposes.

The Company capitalized approximately $90 million of debt issuance costs during the three months ended September 30, 2022. These capitalized costs are presented as contra-debt within the long-term debt caption in the Condensed Consolidated Balance Sheet. Amortization of debt issuance costs related to the New Term Facilities for the three months ended September 30, 2022 totaled $4 million and is included in interest expense in the Condensed Consolidated Statements of Earnings (Loss). As of September 30, 2022, the Company was in compliance with all covenants under the New Term Facilities.

Prior Senior Credit Facilities

Through June 30, 2022, the Company had senior credit facilities (the "Prior Senior Credit Facilities") with Bank of America, N.A., as Administrative Agent, Swing Line Lender and an L/C Issuer, and the other lenders party thereto.

The credit agreement governing the Senior Credit Facilities (the "Prior Credit Agreement") provided for senior secured financing of $2.4 billion in the aggregate, consisting of

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(i)Aggregate principal amount of $

COHERENT CORP. [COHR] Filings

COHERENT CORP. [IIVIP] Filings