COHERENT CORP. Forward-Looking Statements Certain statements contained in the Management's Discussion and Analysis of Financial Condition and Results of Operations are forward-looking statements as defined by Section 21E of the Securities Exchange Act of 1934, as amended, including statements regarding projected growth rates, markets, product development, financial position, capital expenditures and foreign currency exposure. Forward-looking statements are also identified by words such as "expects," "anticipates," "intends," "plans," "projects" or similar expressions. Although our management considers the expectations and assumptions on which the forward-looking statements in this Quarterly Report on Form 10-Q are based to have a reasonable basis, there can be no assurance that management's expectations, beliefs or projections as expressed in the forward-looking statements will actually occur or prove to be correct. In addition to general industry and global economic conditions, factors that could cause actual results to differ materially from those discussed in the forward-looking statements in this Quarterly Report on Form 10-Q include, but are not limited to: (i) the failure of any one or more of the expectations or assumptions on which such forward-looking statements are based to prove to be correct; and (ii) the risks relating to forward-looking statements and other "Risk Factors" discussed in the Company's Annual Report on Form 10-K for the fiscal year endedJune 30, 2020 and in the Company's other reports filed with theSecurities and Exchange Commission . The Company disclaims any obligation to update information contained in these forward-looking statements whether as a result of new information, future events or developments, or otherwise. In addition, we operate in a highly competitive and rapidly changing environment; new risk factors can arise, and it is not possible for management to anticipate all such risk factors, or to assess the impact of all such risk factors on our business or the extent to which any individual risk factor, or combination of risk factors, may cause results to differ materially from those contained in any forward-looking statement. The forward-looking statements included in this Quarterly Report on Form 10-Q are based only on information currently available to us and speak only as of the date of this Report. We do not assume any obligation, and do not intend to, update any forward-looking statements, whether as a result of new information, future developments or otherwise, except as may be required by the securities laws. Investors should, however, consult any further disclosures of a forward-looking nature that the Company may make in its subsequent Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, or other disclosures filed with or furnished to theSEC . Investors should also be aware that, while the Company does communicate with securities analysts from time to time, such communications are conducted in accordance with applicable securities laws. Investors should not assume that the Company agrees with any statement or report issued by any analyst irrespective of the content of the statement or report. OverviewII-VI Incorporated ("II-VI ," the "Company," "we," "us" or "our"), a worldwide leader in engineered materials and opto-electronic components, is a vertically integrated manufacturing company that develops innovative products for -------------------------------------------------------------------------------- communications, industrial, aerospace and defense, consumer electronics, semiconductor capital equipment, life sciences and automotive end markets. The Company produces a wide variety of application-specific photonic and electronic materials and components, and deploys them in various forms, including integration with advanced software. The Company generates revenues, earnings and cash flows from developing, manufacturing and marketing a broad portfolio of products for our end markets. We also generate revenue, earnings and cash flows from government-funded research and development contracts relating to the development and manufacture of new technologies, materials and products. Our customer base includes original equipment manufacturers, laser end users, system integrators of high-power lasers, manufacturers of equipment and devices for industrial, optical communications, consumer electronics, security and monitoring applications,U.S. government prime contractors, and variousU.S. government agencies. OnJuly 7, 2020 , the Company closed its underwritten public offering and sale of 2.3 million shares of Series A Mandatory Convertible Preferred Stock, as well as its underwritten public offering and sale of approximately 10.7 million shares of its common stock. See Note 12. Equity and Redeemable Preferred Stock, to our Condensed Consolidated Financial Statements contained in this Quarterly Report on Form 10-Q for further details. OnMarch 31, 2021 the Company issued, sold and delivered to the Investor 75,000 shares of a new Series B-1 Convertible Preferred Stock of the Company for an aggregate purchase price of$750,000,000 . An additional 105,000 shares of a new Series B-2 Convertible Preferred Stock of the Company are to be sold and delivered immediately prior to the closing of the business combination with Coherent, Inc. See Note 12. Equity and Redeemable Preferred Stock, to our Condensed Consolidated Financial Statements contained in this Quarterly Report on Form 10-Q for further details. As we grow, we are focused on scaling our company and deriving the continued benefits of vertical integration as we strive to be a best in class competitor in all of our highly competitive markets. The Company may elect to change the way in which the Company operates or is organized in the future to enable the most efficient implementation of our strategy. Within this quarterly report on Form 10-Q for the three and nine months endedMarch 31, 2021 , the results of Innovion and Ascatron have been allocated to the Compound Semiconductors Segment. Pending Coherent Acquisition OnMarch 25, 2021 ,II-VI and Coherent Inc., aDelaware corporation ("Coherent"), andWatson Merger Sub Inc. , aDelaware corporation and wholly owned subsidiary ofII-VI ("Merger Sub"), entered into an Agreement and Plan of Merger (the "Merger Agreement"). Pursuant to the terms of the Merger Agreement, and subject to the conditions set forth therein, Merger Sub will be merged with and into Coherent, and Coherent will continue as the surviving corporation in the merger and a wholly owned subsidiary ofII-VI (the "Merger"). Pursuant to the terms of the Merger Agreement, and subject to the conditions set forth therein, at the effective time of the Merger (the "Effective Time"), each share of common stock of Coherent, par value$0.01 per share (the "Coherent Common Stock"), issued and outstanding immediately prior to the Effective Time (other than (x) shares of Coherent Common Stock owned byII-VI , Coherent or any direct or indirect wholly owned subsidiary ofII-VI or Coherent or (y) shares of Coherent Common Stock owned by stockholderswho have properly exercised and perfected appraisal rights underDelaware law, in each case immediately prior to the Effective Time), will be cancelled and extinguished and automatically converted into the right to receive the following consideration (collectively, the "Merger Consideration"):
(A)
(B) 0.91 of a validly issued, fully paid and nonassessable share of common stock
of
From and after the Effective Time, all of the shares of Coherent Common Stock
converted into the right to receive the Merger Consideration will no longer be
outstanding and will automatically be cancelled and cease to exist, and
uncertified shares of Coherent Common Stock represented by book-entry form
("Book-Entry Shares") and each certificate that, immediately prior to the
Effective Time, represented any such shares of Coherent Common Stock (each, a
"Certificate") will thereafter represent only the right to receive the Merger
Consideration into which the shares of Coherent Common Stock represented by such
Book-Entry Share or Certificate have been converted.
Pursuant to the terms of the Merger Agreement, each Coherent restricted stock
unit award (a "Coherent RSU"), other than Director RSUs (as defined below),
outstanding immediately prior to the Effective Time will be automatically
converted into time-based restricted stock units denominated in shares of II-VI
Common Stock entitling the holder to receive, upon settlement, a number of
shares II-VI Common Stock equal to the number of shares of Coherent Common Stock
subject to the Coherent
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RSU multiplied by the sum of (A) 0.91, and (B) the quotient obtained by dividing
the Cash Consideration by the volume weighted average price of a share of II-VI
Common Stock for a 10 trading day period ending prior to the closing of the
Merger (the "Closing"). For Coherent RSUs subject to performance-based vesting
conditions and metrics, the number of shares of II-VI Common Stock subject to
the converted Coherent RSUs will be determined after giving effect to the
Coherent Board of Director's determination of the number of Coherent RSUs
earned, based on the greater of the target or actual level of achievement of
such goals or metrics immediately prior to the Effective Time.
The converted Coherent RSUs generally will be subject to the same terms and
conditions that applied to the awards immediately prior to the Effective Time,
provided that any Coherent RSUs subject to performance-based vesting conditions
will be subject solely to time- and service-based vesting. Each Coherent RSU
that is outstanding as of the date of the Merger Agreement and as of immediately
prior to the Effective Time will be entitled to the following vesting
acceleration benefits:
(A) for any holder of Coherent RSUs who is a participant under Coherent's Change
of Control and Leadership Change Severance Plan (the "CIC Plan"), the
acceleration benefits under the CIC Plan upon such participant's involuntary
termination of employment in accordance with the terms and conditions set forth
therein; and
(B) for any holder who is not a participant in the CIC Plan, the following
vesting acceleration benefits upon his or her termination of employment by
Coherent, II-VI or their respective subsidiaries without "cause" within the
period beginning immediately following the date of the Closing and ending on the
date that is 12 months following the date of the Closing (or, if earlier,
December 31, 2022 ) (a "Qualifying Termination"), (1) if such holder's Qualifying
Termination occurs during calendar year 2021, the sum of: (x) 100% of the total
number of converted Coherent RSUs that otherwise would have vested during
calendar year 2021 under the applicable vesting schedule in effect on the
Closing had such holder remained employed with Coherent, II-VI or their
respective subsidiaries through the last applicable vesting date for such award
in calendar year 2021 (and reduced by the total number of converted Coherent
RSUs that vested in calendar year 2021 prior to such Qualifying Termination)
plus (y) 50% of the total number of converted Coherent RSUs that otherwise would
have vested during calendar year 2022 under the applicable vesting schedule in
effect on the Closing had such holder remained employed with Coherent, II-VI or
their respective subsidiaries through the last applicable vesting date for such
award in calendar year 2022, or (2) if such holder's Qualifying Termination
occurs during calendar year 2022, 50% of the total number of converted Coherent
RSUs that otherwise would have vested during calendar year 2022 under the
applicable vesting schedule in effect on the Closing had such holder remained
employed with Coherent, II-VI or their respective subsidiaries through the last
applicable vesting date for such award in calendar year 2022 (and reduced by the
total number of converted Coherent RSUs that vested in calendar year 2022 prior
to such Qualifying Termination).
Each Coherent RSU granted to a non-employee member of Coherent's Board of
Directors ("Director RSUs") (whether or not vested) that is outstanding
immediately prior to the Effective Time will automatically vest in full and be
cancelled and converted into the right to receive the Merger Consideration as if
such Director RSU had been settled in shares of Coherent Common Stock
immediately prior to the Effective Time.
The Boards of Directors of II-VI and Coherent have unanimously approved the
Merger and the Merger Agreement. The transaction is subject to customary closing
conditions, including the absence of certain legal impediments, the expiration
or termination of the required waiting periods under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended, regulatory approvals in other
applicable jurisdictions, including China , South Korea and Germany , the
effectiveness of a registration statement on Form S-4 registering the offering
of shares of II-VI Common Stock to be issued in connection with the Merger, and
approvals by the shareholders of II-VI and the stockholders of Coherent. The
transaction is not subject to any financing condition.
In connection with entering into the Merger Agreement, II-VI has obtained a
fully underwritten financing commitment pursuant to a commitment letter (the
"Commitment Letter"), dated as of March 25, 2021 , as further amended on April
21, 2021 , with JPMorgan Chase Bank, N.A ., Citigroup Global Markets Inc. , MUFG
Bank, Ltd. , MUFG Securities Americas Inc. , PNC
Capital Markets LLC, PNC Bank, National Association , HSBC Securities (USA) Inc. ,
HSBC Bank USA, National Association , Citizens Bank, N.A. , Mizuho Bank, Ltd. , BMO
Capital Markets Corp. , Bank of Montreal, TD Securities (USA) LLC , The
Toronto-Dominion Bank, New York Branch, TD Bank, N.A . and First National Bank of
Pennsylvania (collectively, the "Commitment Parties") pursuant to which the
Commitment Parties have committed to provide up to $5.125 billion in debt
financing (the debt financing under the Commitment Letter, the "Debt
Financing"). The obligation of the Commitment Parties to provide the Debt
Financing under the Commitment Letter is subject to a number of customary
conditions.
In connection with entering into the Merger Agreement, II-VI entered into an
investment agreement, dated as of March 25, 2021 (the "Investment Agreement")
(as amended and restated as of March 30, 2021 , the "Amended and Restated
Investment
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Agreement"), with BCPE Watson (DE) SPV, LP , an affiliate of Bain Capital, LP
(the "Investor"). Pursuant to the terms of the Amended and Restated Investment
Agreement, and subject to the conditions set forth therein:
(A) on March 31, 2021 , the Company issued, sold and delivered to the Investor
75,000 shares of a new Series B-1 Convertible Preferred Stock, no par value per
share ("II-VI Series B-1 Convertible Preferred Stock"), for $10,000 per share
(the "Equity Per Share Price"), resulting in an aggregate purchase price of
$750.0 million ;
(B) the Company agreed to issue, sell and deliver to the Investor, immediately
prior to Closing, 105,000 shares of a new Series B-2 Convertible Preferred
Stock, no par value per share ("II-VI Series B-2 Convertible Preferred Stock,"
and together with the II-VI Series B-1 Convertible Preferred Stock, "New II-VI
Convertible Preferred Stock"), for a purchase price per share equal to the
Equity Per Share Price, resulting in an aggregate purchase price of $1.050
billion ; and
(C) the Company offered to the Investor an option to purchase up to an
additional 35,000 shares of II-VI Series B-2
Convertible Preferred Stock for a purchase price per share equal to the Equity
Per Share Price, resulting in an
aggregate purchase price of up to $350.0 million
The shares of New II-VI Convertible Preferred Stock accrue dividends at 5.00%
per annum, subject to increase if II-VI defaults on payment obligations with
respect to the New II-VI Convertible Preferred Stock, not to exceed 14% per
annum. Until the fourth anniversary of the applicable issuance date of each
series of New II-VI Convertible Preferred Stock, dividends are payable solely
in-kind. After the fourth anniversary, dividends are payable on the applicable
series, at the Company's option, in cash, in-kind or as a combination of both.
Subject to the satisfaction or waiver of each of the closing conditions, II-VI
and Coherent expect that the Merger will be completed prior to the end of
calendar year 2021. However, it is possible that factors outside the control of
both companies could result in the Merger being completed at a different time or
not at all.
The expenses associated with the pending acquisition for the three and nine
months ended March 31, 2021 have not been allocated to an Operating Segment, and
are presented in the Unallocated and Other within this quarterly report on Form
10-Q.
Critical Accounting Estimates
The preparation of financial statements and related disclosures are in
conformity with accounting principles generally accepted in the United States of
America and the Company's discussion and analysis of its financial condition and
results of operations require the Company's management to make judgments,
assumptions and estimates that affect the amounts reported in its condensed
consolidated financial statements and accompanying notes. Note 1 of the Notes to
Consolidated Financial Statements in the Company's Annual Report on Form 10-K
dated August 26, 2020 describes the significant accounting policies and methods
used in the preparation of the Company's consolidated financial statements.
New Accounting Standards
See Note 2. Recently Issued Accounting Pronouncements to our unaudited condensed
consolidated financial statements in Part I, Item 1 of this Quarterly Report on
Form 10-Q for a description of recent accounting pronouncements, including the
expected dates of adoption and estimated effects, if any, on our consolidated
financial statements.
COVID-19 Update
On March 11, 2020 , the World Health Organization designated the novel
coronavirus known as COVID-19 as a global pandemic. In response to the global
spread of COVID-19, governments at various levels have implemented unprecedented
response measures. Overall, the COVID-19 pandemic has significantly curtailed
global economic activity and caused significant volatility and disruption in
global financial markets. Certain of the measures taken in response to the
COVID-19 pandemic have adversely affected, and could in the future materially
adversely impact, our business, results of operations, financial condition and
stock price.
In particular, the COVID-19 pandemic is having a significant impact on global
markets due to resulting supply chain and production disruptions, workforce and
travel restrictions, quarantines and lockdown orders, reduced spending and other
similar measures implemented by many companies and other factors. Following the
initial outbreak of COVID-19, we experienced temporary disruptions to our
operations in China . While these operations have returned to active service,
most of our administrative facilities continue working remotely.
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Our focus continues to be the protection of the health and safety of our
employees and business partners. In our facilities, we have deployed new safety
measures, including use of protective equipment, social distancing, mandatory
COVID-19 testing, contact tracing, cleaning protocols for high touch areas, foot
traffic flow, air filtering and flow, guidance to employees on matters such as
effective hygiene and disinfection, limited and remote access working where
feasible, and strict restrictions on non-essential employees from entering our
facilities. We also are prioritizing efforts to understand and support the
changing business needs of our customers and suppliers in light of restrictions
that are applicable to them.
The full extent of the impact of the COVID-19 pandemic and the related responses
on our operational and financial performance continues to be uncertain and will
depend on many factors outside our control, including, without limitation, the
duration and severity of the pandemic, the efficacy of vaccines relative to
existing and emerging virus strains, the broad availability of the vaccines, the
imposition of protective public safety measures, and the impact of the pandemic
on the global economy as a whole and, in particular, demand for our products.
Due to these uncertainties, we cannot reasonably estimate the related impact on
us at this time.
For additional information regarding the risks that we face as a result of the
COVID-19 pandemic, please see Item 1A, Risk Factors, in the Annual Report on
Form 10-K for the year ended June 30, 2020 . Further, to the extent the COVID-19
pandemic adversely affects our business and financial results, it also may have
the effect of heightening many of the other risks described in the risk factors
included in the Annual Report on Form 10-K for the year ended June 30, 2020 and
in our subsequent filings with the Securities and Exchange Commission .
Results of Operations ($ in millions, except per share data)
The following tables set forth select items from our Condensed Consolidated
Statements of Earnings (Loss) for the three and nine months ended March 31, 2021
and 2020 ($ in millions):
Three Months Ended Three Months Ended
March 31, 2021 March 31, 2020
% of % of
Revenues Revenues
Total revenues $ 783.2 100.0 % $ 627.0 100.0 %
Cost of goods sold 483.7 61.8 381.1 60.8
Gross margin 299.6 38.2 245.9 39.2
Operating expenses:
Internal research and development 83.2 10.6 94.8 15.1
Selling, general and administrative 131.2 16.8 82.1 13.1
Interest and other, net (8.4) (1.1) 35.7 5.7
Earnings before income taxes 93.5 11.9 33.3 5.3
Income taxes 12.4 1.6 27.4 4.4
Net earnings $ 81.1 10.4 % $ 5.9 0.9 %
Diluted earnings per share $ 0.66 $ 0.06
32
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Nine Months Ended Nine Months Ended
March 31, 2021 March 31, 2020
% of % of
Revenues Revenues
Total revenues $ 2,297.9 100.0 % $ 1,633.8 100.0 %
Cost of goods sold 1,389.3 60.5 1,116.4 68.3
Gross margin 908.6 39.5 517.4 31.7
Operating expenses:
Internal research and development 246.3 10.7 238.6 14.6
Selling, general and administrative 357.3 15.5 306.8 18.8
Interest and other, net 45.6 2.0 76.6 4.7
Earnings (loss) before income taxes 259.4 11.3 (104.6) (6.4)
Income taxes 44.1 1.9 13.7 0.8
Net earnings (loss) $ 215.3 9.4 % $ (118.3) (7.2) %
Diluted earnings (loss) per share $ 1.78 $ (1.43)
Consolidated
Revenues. Revenues for the three months ended March 31, 2021 increased 25% to
$783.2 million , compared to $627.0 million for the same period last fiscal year.
Revenues for the nine months ended March 31, 2021 increased 41% to $2,297.9
million , compared to $1,633.8 million for the same period last fiscal year.
During the three and nine months ended March 31, 2021 , Finisar Corporation
("Finisar") operations contributed $360.7 million and $1,059.7 million ,
respectively, in revenues, as compared to $281.6 million and $610.4 million in
the same periods of the prior fiscal year. In addition to revenue contributed by
Finisar , the Company realized increased revenues within its product lines for
consumer electronics and communications.
Gross margin. Gross margin for the three months ended March 31, 2021 was $299.6
million , or 38.2% of total revenues, compared to $245.9 million , or 39.2% of
total revenues, for the same period last fiscal year. Gross margin for the nine
months ended March 31, 2021 was $908.6 million , or 39.5% of total revenues,
compared to $517.4 million , or 31.7% of total revenues, for the same period last
fiscal year. The decline in gross margin of 100 basis points for the three
months ended March 31, 2021 was driven by a shift in product mix in the
Company's Photonic Solutions segment towards lower margin products. The
improvement in the gross margin by 780 basis points for the nine months ended
March 31, 2021 compared to the same period last year was driven by $87.7 million
of additional cost of goods sold related to the fair value adjustment of the
acquired Finisar inventory recorded in the nine months ended March 31, 2020 , in
addition to favorable product mix in the Compound Semiconductors segment driven
by higher margins on the Company's products for consumer electronics.
Internal research and development. Internal research and development ("IR&D")
expenses for the three months ended March 31, 2021 were $83.2 million , or 10.6%
of revenues, compared to $94.8 million , or 15.1% of revenues, for the same
period last fiscal year. IR&D expenses for the nine months ended March 31, 2021
were $246.3 million , or 10.7% of revenue, compared to $238.6 million , or 14.6%
of revenues, for the same period last fiscal year. The decrease in IR&D as a
percentage of revenue over prior year was the result of qualification of the
Company's Sherman, Texas wafer fabrication facility.
Selling, general and administrative. Selling, general and administrative
("SG&A") expenses for the three months ended March 31, 2021 were $131.2 million ,
or 16.8% of revenues, compared to $82.1 million , or 13.1% of revenues, for the
same period last fiscal year. SG&A expenses for the nine months ended March 31,
2021 were $357.3 million , or 15.5% of revenues, as compared to $306.8 million ,
or 18.8% of revenues, for the same period last fiscal year. The increase in SG&A
as a percentage of revenue for the three month period compared to the same
period last fiscal year was primarily the result of transaction costs incurred
in the current year related to the Coherent acquisition. During the three months
ended March 31, 2021 restructuring costs and restructuring related and
transaction expenses of approximately $16.7 million as compared to $5.9 million
during the same period last fiscal year. The decrease in SG&A as a percentage of
revenue for the nine month period compared to the same period last fiscal year
was primarily the result of restructuring related and transaction costs incurred
in the prior year related to the Finisar acquisition. During the nine months
ended March 31, 2021 transaction expenses totaled $20.1 million as compared to
$66.7 million during the same period last fiscal year.
33
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Interest and other, net. Interest and other, net for the three months ended
March 31, 2021 was income of $8.4 million , compared to expense of $35.7 million
for the same period last fiscal year. Interest and other, net for the nine
months ended March 31, 2021 was expense of $45.6 million , compared to expense of
$76.6 million for the same period last fiscal year. Included in interest and
other, net, were interest expense on borrowings, equity earnings from
unconsolidated investments, foreign currency gains and losses, expense of debt
issuance costs, and interest income on excess cash balances. For the three
months ended March 31, 2021 , interest and other, net decreased by $44.1 million
in comparison to the same period last fiscal year, driven by the gain recognized
on the mark to market adjustment on the forward sale agreement associated with
the Bain equity, in addition to lower levels of debt outstanding subsequent to
the payment of the Term B facility in the first quarter of 2021. For the nine
months ended March 31, 2021 interest and other, net decreased by $31.0 million
compared to the same period last fiscal year, driven by lower levels of debt
outstanding and gains of $7.0 million and $11.4 million recognized in relation
to the Innovion acquisition and the forward sale agreement, respectively. These
gains were offset by $24.7 million of debt issuance costs recognized in
conjunction with the repayment of the Company's Term B Facility.
There were foreign currency losses of $4.3 million for the current nine-month
period due to the volatility in the foreign exchange market, compared to $8.1
million of losses for the nine months ended March 31, 2020 .
Income taxes. The Company's year-to-date effective income tax rate at March 31,
2021 was 17.0%, compared to an effective tax benefit of 13% for the same period
last fiscal year. The variations between the Company's effective tax rate and
the U.S. statutory rate of 21% were primarily due to tax rate differentials
between U.S. and foreign jurisdictions, the impact of the U.S. enacted tax
legislation partially offset by research and development incentives in certain
jurisdictions, and foreign tax credits.
Segment Reporting
Revenues and operating income for the Company's reportable segments are
discussed below. Operating income differs from net earnings (loss) in that
operating income excludes certain operational expenses included in other expense
(income) - net as reported. Management believes operating income to be a useful
measure for investors, as it reflects the results of segment performance over
which management has direct control and is used by management in its evaluation
of segment performance. See Note 14. Segment Reporting, to our unaudited
condensed consolidated financial statements in Part I, Item 1 of this Quarterly
Report on Form 10-Q for further information on the Company's reportable segments
and for the reconciliation of the Company's operating income to net earnings
(loss), which is incorporated herein by reference.
Photonic Solutions ($ in millions)
Three Months Ended Nine Months Ended
March 31, % Increase March 31, % Increase
2021 2020 2021 2020
Revenues $ 508.0 $ 417.8 22% $ 1,488.6 $ 1,019.5 46%
Operating income $ 48.3 $ 48.7 (1)% $ 147.2 $ 0.8 18,457%
Revenues for the three months ended March 31, 2021 increased 22% to $508.0
million , compared to $417.8 million for the same period last fiscal year.
Revenues for the nine months ended March 31, 2021 increased 46% to $1,488.6
million , compared to $1,019.5 million for the same period last fiscal year. The
increase in revenue during the three months ended March 31, 2021 , was primarily
due to sustained demand for products in communications. The increase in revenues
during the nine months ended March 31, 2021 was primarily due to the acquisition
of Finisar , which contributed $376.4 million in incremental revenue for the nine
months ended March 31, 2021 , as compared to prior year, in addition to the
sustained demand for products in communications.
Operating income for the three months ended March 31, 2021 decreased 1% to $48.3
million , compared to operating income of $48.7 million for the same period last
fiscal year. The decrease in operating income was driven by a shift in product
mix towards lower margin products. Operating income for the nine months ended
March 31, 2021 increased to $147.2 million , compared to an operating income of
$0.8 million for the same period last fiscal year. The increase in operating
income during the current nine-month period compared to the same period last
fiscal year was primarily driven by the incremental margin realized from the
increased revenues during the current year, product mix towards higher margin
profiles, and the realization of synergies and plant efficiency associated with
the Finisar acquisition. Additionally, the nine months ended March 31, 2021
included expenses of $80.7 million related to the fair market value step-up of
inventory.
Compound Semiconductors ($ in millions)
34
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Three Months Ended Nine Months Ended
March 31, % Increase March 31, % Increase
2021 2020 2021 2020
Revenues $ 275.3 $ 209.3 32% $ 809.3 $ 592.2 37%
Operating income $ 52.5 $ 24.9 111% $ 173.5 $ 42.6 307%
Revenues for the three months ended March 31, 2021 for Compound Semiconductors
increased 32% to $275.3 million , compared to revenues of $209.3 million for the
same period last fiscal year. Revenues for the nine months ended March 31, 2021
for Compound Semiconductors increased 37% to $809.3 million , compared to $592.2
million for the same period last fiscal year. The increase in revenues during
the three and nine months ended March 31, 2021 primarily related to the sharp
increase in product shipments addressing the consumer electronics market.
Operating income for the three months ended March, 31 2021 increased 111% to
$52.5 million , compared to an operating income of $24.9 million for the same
period last fiscal year. Operating income for the nine months ended March 31,
2021 increased 307% to $173.5 million , compared to $42.6 million for the same
period last fiscal year. The increase in operating income during the three and
nine months ended March 31, 2021 , compared to the same period last fiscal year
was primarily driven by a sharp increase in product shipments addressing the
consumer market. In addition, the prior year three and nine months ended,
included unabsorbed operating costs incurred at the segment's Sherman, Texas
wafer fabrication facility during its qualification phase.
Liquidity and Capital Resources
Historically, our primary sources of cash have been from operations, long-term
borrowing, and advance funding from customers. Other sources of cash include
proceeds from the issuance of equity, proceeds received from the exercises of
stock options, and sale of equity investments and businesses. Our historic uses
of cash have been for capital expenditures, investment in research and
development, business acquisitions, payments of principal and interest on
outstanding debt obligations, payments of debt and equity issuance costs to
obtain financing and payments in satisfaction of employees' minimum tax
obligations. Supplemental information pertaining to our sources and uses of cash
for the periods indicated is presented as follows:
Sources (uses) of Cash (millions):
Nine Months Ended
2021 2020
Net cash provided by operating activities $ 446.9 $ 120.5
Net proceeds from equity issuance 1,611.4 -
Proceeds from exercises of stock options and purchases of stock under employee stock purchase plan
31.6 5.1
Effect of exchange rate changes on cash and cash equivalents and other items
27.0 (1.5)
Proceeds on long-term borrowings - 2,131.0
Payments on Finisar Notes - (560.1)
Debt issuance costs - (63.5)
Common stock repurchases - (1.6)
Payments under prior term loan and credit facility - (176.6)
Payments under new long-term borrowings and credit facility (910.1) (104.6)
Additions to property, plant & equipment (105.3) (108.0)
Purchases of businesses, net of cash acquired (34.4) (1,036.6)
Payment of dividends (13.4) -
Payments in satisfaction of employees' minimum tax obligations (8.3) (15.7)
Other items (3.0) (5.2)
Net cash provided by operating activities:
Net cash provided by operating activities was $446.9 million during the current
nine-month period compared to $120.5 million of cash used by operating
activities during the same period last fiscal year. The increase in cash flows
provided by operating activities during the nine months ended March 31, 2021
compared to the same period last fiscal year was primarily driven by additional
net earnings of $333.5 million in the nine months ended March 31, 2021 compared
to the same period last fiscal year.
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Lower earnings in the prior year resulted from acquisition-related expenses incurred for the acquisition ofFinisar . Acquisition-related expenses include transaction expenses, and expensing of the fair value write-up of acquired inventory. Net cash used in investing activities: Net cash used in investing activities was$140.8 million for the nine months endedMarch 31, 2021 , compared to net cash used of$1,147.6 million for the same period last fiscal year. Net cash used in investing activities during the current period primarily included$34.4 million for net cash paid for the acquisitions ofAscatron AB andINNOViON Corporation and$105.3 million of capital expenditures to continue to increase capacity to meet the growing demand for the Company's product portfolio. Net cash used in investing activities from the nine-month period endedMarch 31, 2020 was primarily used to fund theFinisar acquisition. Net cash provided by financing activities: Net cash provided by financing activities was$709.2 million for the nine months endedMarch 31, 2021 , compared to net cash provided by financing activities of$1,211.9 million for the same period last fiscal year. Net cash provided by financing activities was primarily impacted by$1,611.4 million of net proceeds from the Company's underwritten public offering inJuly 2020 as well as the issuance of the Series B Preferred Stock inMarch 2021 , offset by cash used to repay borrowings of$910.1 million . Senior Credit Facilities The Company currently has Senior Credit Facilities withBank of America, N.A ., as Administrative Agent, SwingLine Lender and an L/C Issuer, and the other lenders party thereto. The credit agreement governing the Senior Credit Facilities (the "Credit Agreement") provides for senior secured financing of$2.425 billion in the aggregate, consisting of (i)Aggregate principal amount of$1,255 million for a five-year senior secured first-lien term A loan facility (the "Term A Facility"), (ii)Aggregate principal amount of$720 million for a seven-year senior secured term B loan facility (the "Term B Facility" and together with the Term A Facility, the "Term Loan Facilities"), which was repaid in full during the quarter endedSeptember 30, 2020 , and (iii)Aggregate principal amount of$450 million for a five-year senior secured first-lien revolving credit facility (the "Revolving Credit Facility" and together with the Term Loan Facilities, the "Senior Credit Facilities"). The Credit Agreement also provides for a letter of credit sub-facility not to exceed$25.0 million and a swing loan sub-facility initially not to exceed$20.0 million . The Term B Facility was repaid in full by the Company subsequent to the public offerings that closed onJuly 7, 2020 . Additional information regarding the underwritten public offering is set forth in Note 12. Additional information regarding the Senior Credit Facilities and certain of the Company's other indebtedness is set forth in Note 9. Debt to our unaudited condensed consolidated financial statements in Part 1, Item 1 of this Quarterly Report on Form 10-Q.
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