Sherman officials said Finisar Corp., which announced it would begin producing components for Apple’s iPhone products locally more than a year ago, has already had a significant impact on the city.

Finisar announced on Dec. 13, 2017, it would hire 500 new employees to expand its production of vertical-cavity surface-emitting lasers at its new Sherman facility to help meet Apple’s demand for the technology in its iPhone line. VCSELs are small semiconductor devices that emit light vertically and measure the depth at which that light is reflected. That depth-sensing technology helps power Apple product features such as facial recognition, portrait mode selfies and proximity-sensing capabilities.

“We’ve seen in the impact from some of their employees moving here and we’ve seen a very direct impact from their construction activities in our sales tax,” City Manager Robby Hefton said of Finisar in December. “We’re about to see the impact from our property tax standpoint. Jan. 1, of 2018, which is tax revenue for this year that we’re in, is going to be minimal compared to what it will be this time next year (2019) because of all the improvements that they’ve made. We’re seeing direct impact both on city revenues and just the employees moving to town.”

Finisar Sherman General Manager and Vice President Jeff Brown said in December the company has hired 250 employees and expects more will be added as the facility moves toward commercial production. The company shipped out its first samples in the fall. Brown said Finisar’s total investment in the Sherman facility is expected to be approaching $200 million by the end of 2019.

“The factory space in Sherman has been completed,” Brown said via email in December. “We are now focusing on adding office space and modernizing the existing office space. We expect to continue some level of construction through most of 2019.”

In early December, Finisar announced its financial results for the second quarter of the 2019 year. Among the highlights listed of the second quarter listed by the company was an approximately $11 million increase over the first quarter of the year in cash, cash equivalents and short-term investments despite higher than normal capital expenditures associated with the continued progress on the Sherman facility and the construction of a third building at its Wuxi, China, manufacturing site.

“I am pleased to report that revenues grew over the prior quarter and gross margins also improved over the prior quarter and were above our guidance estimate, primarily due to favorable product mix and continued focus on reducing manufacturing overhead,” CEO Michael Hurlston said in a prepared statement. “In addition, we were able to accelerate the process of improving efficiencies and reducing relative operating expense levels faster than expected. In combination, this led to increased earnings per share, exceeding the high end of our guidance range.”

Acquisition impact

In November, it was announced Finisar is to be acquired by global manufacturer of engineered materials and optoelectronic components II-VI Incorporated in a deal worth about $3.2 billion. In a teleconference call held following the announcement, Hurlston said he believes the combined company will have substantial growth potential.

“By joining II-VI, I’m confident that we’ll be able to accelerate our growth in ways that neither of our teams could achieve as independent companies,” Hurlston said. “Further, we believe this transaction represents a compelling value composition for Finisar shareholders as it delivers immediate cash value while providing the opportunity to participate in the significant upside potential of our combined organizations once the transaction is completed.”

The definitive merger agreement, which has been approved by the boards of both companies, states II-VI will acquire Finisar in a cash and stock transaction that will see Finisar’s stockholders receiving, on a pro-rated basis, $15.60 per share in cash and 0.2218 shares of II-VI common stock.

Brown didn’t directly address in impact the potential acquisition by II-VI would have on the Sherman facility, but indicated VCSEL production will continue locally.

”As we have communicated to our employees, we continue to believe that Sherman is a world class facility and is expected to deliver high volume VCSEL output for years to come,” Brown said.

During the teleconference call, II-IV President and CEO Vincent D. Mattera Jr. said the merger will create a formidable photonics and compound semiconductor company.

“We believe that combining with Finisar will enable us to be even more effective as we accelerate the development of our portfolio of products in the emerging markets of 5G, 3D sensing, cloud computing, electric and autonomous vehicles and advanced microelectronics manufacturing,” Mattera said. “Together we will be capable of serving the broad set of fast-growing markets of communications, consumer electronics, military, industrial processing lasers, automotive semiconductor equipment and life sciences.”

Hefton said the city knows the local Finisar facility is in growth mode, but he believes it will be around for a long time to come, even with the potential acquisition.

“What I have read and gleaned from that, that (II-VI) is not a competitor, that’s someone in their supply chain,” Hefton said. “So it’s vertical integration, which always increases efficiencies and kind of stabalizes the market. So I think it’s actually a good thing for them.”

Mattera said the combined company plans to utilize its existing operations to the best of their capabilities. Once the transaction closes, Finisar and II-VI will have over 24,000 employees in 70 locations worldwide. Finisar Director of Corporate Communications Victoria McDonald said, in a prepared statement issued via email at the time of the announcement, the company expects the transaction to close in the middle of 2019, subject to approval by each company’s shareholders, antitrust regulatory approvals and other customary closing conditions.

Local incentives

The Sherman Economic Development Corp. approved a $1 million incentive agreement with Finisar in March that will provide the company four payments of $250,000 each over a two-year period as it invests $160 million in capital equipment and construction in its Sherman facility.

SEDCO Executive Vice President Stacey Jones said Finisar received its certificate of occupancy at the Sherman facility in October and has provided documentation of more than $80 million in investments locally. SEDCO then provided the company its first two incentive payments — which amounted to $500,000 — in the fall.

Jones said Finisar has not yet applied for its third $250,000 incentive payment, but previously explained the company could receive the balance of its $1 million incentive by the end of April.

“Filling up the MEMC building with Finisar was a great thing for the whole community,” Jones said. “I think it made people feel good to see the building come alive again and they’ve become a very important part of our industrial community. They hit the ground running and got involved and just fit so well with our other companies that give back to our community on a consistent basis.”

In addition to the SEDCO incentive, the Sherman City Council unanimously approved a 10-year tax abatement and a five-year Chapter 380 tax rebate agreement for Finisar in March. City staff estimated the tax abatement agreement would save the company around $3.3 million in property taxes, and the tax rebate agreement would save it around $1.2 million.

The 10-year tax abatement agreement will give Finisar a 60 percent tax abatement for each of the first three years, a 55 percent abatement for each of the following three years and a 50 percent abatement for the final four years of the agreement. The five-year tax rebate agreement will see the city giving a grant back to Finisar after its full tax bill is paid in years 11 through 15. The grants will be for 45 percent of the taxes paid in each of the first two years of the agreement, 40 percent for the third and fourth years and 35 percent for the final year.

In April, the Grayson County Commissioners Court approved a 10-year tax abatement agreement and five-year tax rebate agreement for Finisar that matched the terms of Sherman’s agreements.

“We appreciate the continued partnership with the community as we move from our startup phase toward production operations,” Brown said last month.