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Acquisitions | 12 Months Ended
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Jun. 30, 2020
Business Combinations [Abstract] |
Acquisitions | Acquisitions Finisar Corporation On September 24, 2019 (the “Closing Date”), the Company completed its acquisition of Finisar, a global technology leader for subsystems and components for fiber optic communications. Pursuant to the terms of the Agreement and Plan of Merger, dated as of November 8, 2018 (the “Merger Agreement”), Mutation Merger Sub Inc., a wholly owned subsidiary of the Company (“Merger Sub”), merged with and into Finisar (the “Merger”), with Finisar surviving the Merger. Each issued and outstanding share of Finisar’s common stock was automatically cancelled and converted into the right to receive the following consideration (collectively, the “Merger Consideration”), at the election of the holder of the share of Finisar’s common stock: •$26.00 in cash, without interest (the “Cash Consideration”), •0.5546 of a share of the Company’s common stock (the “Stock Consideration”), or •a combination of $15.60 in cash, without interest, and 0.2218 of a share of the Company’s common stock (the “Mixed Consideration”). The per share Cash Consideration and Stock Consideration were subject to adjustment pursuant to the terms of the Merger Agreement such that the aggregate Merger Consideration consisted of approximately 60.0% cash and approximately 40.0% shares of the Company’s common stock (assuming a per share price of the Company’s common stock equal to the closing price as of November 8, 2018, which was $46.88 per share) across all shares of Finisar’s common stock (the “Proration Adjustment”). Following the Proration Adjustment, the resulting consideration for Cash Consideration was adjusted to $15.94 in cash and 0.2146 shares of the Company’s Common Stock. No adjustment was made to the Stock Consideration and Mixed Consideration. The total fair value of consideration paid in connection with the acquisition of Finisar consisted of the following (in $000):
| Shares |  | Per Share |  | Total Consideration
Cash paid for outstanding shares of Finisar common stock |  |  |  |  | $ | 1,879,086 |
II-VI common shares issued to Finisar stockholders | 26,712,822 |  |  | $ | 36.98 |  |  | 987,707 |
Replacement equity awards attributable to pre-combination service |  |  |  |  | 41,710 |
|  |  |  |  | $ | 2,908,503 |
The Company recorded $44.4 million of acquisition related costs in the year ended June 30, 2020, representing professional and other direct acquisition costs. These costs are recorded within selling, general, and administrative expense in our Consolidated Statements of Earnings (Loss). On the Closing Date, the Company entered into an Amended and Restated Credit Agreement, dated as of September 24, 2019 (the “Credit Agreement”), by and among the Company, Bank of America, N.A., as Administrative Agent, Swing Line Lender and an L/C Issuer, and the other lender parties thereto. Refer to Note 9 for additional information on the credit facility. From the Closing Date, Finisar contributed $938.4 million of our consolidated revenue for the year ended June 30, 2020. Finisar’s contribution to our consolidated net loss for the year ended June 30, 2020 was a loss of $94.6 million. Finisar's contribution included amortization expense of $47.4 million for the year ended June 30, 2020. Finisar's contribution to our consolidated net loss includes $26.1 million of severance, restructuring, and related expense for the year ended June 30, 2020. Additionally, a $87.7 million fair value adjustment to inventory was expensed through cost of goods sold during the year ended June 30, 2020. The Company allocated the fair value of the purchase price consideration to the tangible assets, liabilities, and intangible assets acquired, based on estimated fair values. The excess purchase price over those fair values is recorded as goodwill. Our valuation assumptions of acquired assets and assumed liabilities require significant estimates with respect to intangible assets. 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 Finisar. The Company’s intangible assets are comprised of customer relationships, trade names and developed technology. The estimated fair value of the customer relationships, trade names and developed technology are determined using the multi-period excess earnings method and relief from royalty methods. 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 estimated fair value of the developed technology is also dependent on the selection of the royalty rate used in the valuation method. Certain data necessary to complete the purchase price allocation remains preliminary, including, but not limited to, finalization of certain income tax computations and other assumed liabilities. The Company expects to complete the purchase price allocation within 12 months from the Closing Date, at which time the purchase price allocation set forth herein may be revised. Any such revisions or changes may be material. The Company utilized widely accepted income-based, market-based, and cost-based valuation approaches to perform the preliminary purchase price allocation. Income-based valuation approaches included the use of the multi-period excess earnings and relief-from-royalty methods for certain acquired intangible assets. Our preliminary allocation of the purchase price of Finisar, based on the estimated fair value of the assets acquired and liabilities assumed as of the Closing Date, is as follows (in $000):
|  | Preliminary Purchase Price Allocation |  |  |  |  |  |
|  | Previously |  |  |  | Measurement |  |
|  | Reported |  | Reclassification |  | Period |  | As Adjusted
|  | September 30, 2019 |  | Adjustments |  | Adjustments (a) |  | (preliminary)
Cash and cash equivalents |  | $ | 842,764 |  |  | $ | (287) |  |  | $ | — |  |  | $ | 842,477 |
Accounts receivable |  | 260,864 |  |  | — |  |  | (1,523) |  |  | 259,341 |
Inventories |  | 437,867 |  |  | — |  |  | 1,841 |  |  | 439,708 |
Property, plant & equipment (b) |  | 748,858 |  |  | — |  |  | (91,145) |  |  | 657,713 |
Intangible assets (c) |  | 827,689 |  |  | — |  |  | (162,489) |  |  | 665,200 |
Other assets (d) (h) |  | 82,624 |  |  | 287 |  |  | (6,443) |  |  | 76,468 |
Deferred tax assets (e) |  | — |  |  | — |  |  | 16,267 |  |  | 16,267 |
Accounts payable |  | (123,707) |  |  | — |  |  | — |  |  | (123,707) |
Other accrued liabilities (d) (f) (h) |  | (148,425) |  |  | (43,964) |  |  | (9,727) |  |  | (202,116) |
Deferred tax liabilities (e) |  | (197,809) |  |  | 43,964 |  |  | 86,805 |  |  | (67,040) |
Debt |  | (575,000) |  |  | — |  |  | — |  |  | (575,000) |
Goodwill |  | 759,239 |  |  | — |  |  | 159,953 |  |  | 919,192 |
Total Purchase Price (g) |  | $ | 2,914,964 |  |  | $ | — |  |  | $ | (6,461) |  |  | $ | 2,908,503 |
(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 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. (b) The Company estimated the fair value of the property, plant, and equipment acquired as part of the Finisar acquisition to be $657.7 million. Upon finalization of the valuation, the fair value of the property, plant, and equipment was decreased by $91.1 million as of June 30, 2020 with a corresponding increase to goodwill. (c) The Company estimated the fair value of the intangible assets acquired as part of the Finisar acquisition to be $665.2 million. Upon finalization of the valuation, the fair value of the intangible assets was decreased by $162.5 million as of June 30, 2020 with a corresponding increase to goodwill. (d) The Company reassessed the lease term and discount rates on the right of use assets acquired as part of the Finisar acquisition. As a result, the preliminary fair value of the right of use assets acquired were decreased by $16.0 million during the measurement period with a corresponding decrease in the lease liability. (e) The Company has adjusted its deferred tax asset and liability positions as of June 30, 2020, to $16.3 million and $67.0 million respectively, as a result of measurement period adjustments. (f) In addition to the $16.0 million reduction of lease liabilities described in (d) above, the Company recorded approximately $11.5 million of uncertain tax positions, approximately $13.4 million of warranty reserve liabilities, and approximately $5.5 million of increases in other liabilities, as measurement period adjustments. (g) Total purchase price decreased $6.5 million for the deferred tax impact of the purchase price component associated with replacement equity awards attributable to pre-combination service of Finisar employees. (h) Other assets and other accrued liabilities increased $6.8 million for a litigation matter and related insurance recovery. As of June 30, 2020, the goodwill has been recorded within the Photonic Solutions reporting unit. As of June 30, 2020, the other intangible assets have been recorded within the Photonic Solutions and Compound Semiconductors segments. The preliminary goodwill of $919.2 million arising from the acquisition is attributed to the expected synergies, including future cost savings, and other benefits expected to be generated by combining II-VI and Finisar. Substantially all of the goodwill recognized is not expected to be deductible for tax purposes. Se e Note 8 f or additional information on goodwill and intangibles. Supplemental Pro Forma Information (Unaudited) 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, and is not 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 unaudited supplemental pro forma information presents the combined results of operations for the years ended June 30, 2020 and 2019 as if Finisar had been acquired as of July 1, 2018. 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, and interest expense and amortization of debt issuance costs related to the Senior Credit Facilities as defined i n Note 9. The unaudited supplemental pro forma financial information for the period presented is as follows (in $000):
|  | Year Ended June 30, 2020 |  | Year Ended June 30, 2019
Revenue |  | $ | 2,638,278 |  |  | $ | 2,625,714 |
Net Earnings (Loss) |  | $ | 12,902 |  |  | $ | (138,452) |

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- Definition The entire disclosure for a business combination (or series of individually immaterial business combinations) completed during the period, including background, timing, and recognized assets and liabilities. The disclosure may include leverage buyout transactions (as applicable). + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -URI http://asc.fasb.org/topic&trid=2303972 + Details
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