Coherent (COHR) 10-K risk factor changes: FY2019 vs FY2018

Investments in [removed: Future Markets] [added: future markets] of [removed: Potential Significant Growth May Not Result] [added: potential significant growth may not result] in [removed: Expected Returns][added: the expected return.]

We [removed: have initiated investment] [added: continue to make investments in] programs with the goal of gaining a greater share of end markets using semiconductor lasers and other components including those used for 3D [removed: sensing.][added: sensing and emerging 5G technology.]

Our technologies could fail to fulfill, partially or [removed: completely] [added: completely,] our target customers’ [removed: finalized] specifications.

Further, we may be unable to fulfill the terms of our contracts with our target customers, which could result in penalties of a material nature, including [removed: consequential] damages, loss of market share and loss of reputation.

Our [removed: Competitive Position Depends] [added: competitive position depends] on [removed: Our Ability] [added: our ability] to [removed: Develop New Products] [added: develop new products] and [removed: Processes][added: processes.]

Our success in developing and selling new and enhanced products and processes depends upon a variety of factors including strategic product selection, efficient completion of product design and development, timely implementation of manufacturing and assembly processes, effective sales and marketing, [added: and] high-quality and successful product performance in the market.

Our [removed: Competitive Position May Still Require Significant Investments][added: competitive position may still require significant investments.]

If market demand is outside our organic capabilities, if a strategic acquisition is required and we cannot identify one or execute on it, and/or if financial investments that we undertake distract management, do not result in the expected return on investment, expose us to unforeseen liabilities or jeopardize our ability to comply with our credit facility covenants due to any inability to integrate the business, adjust to operating a larger and more complex organization, adapt to additional political and other requirements associated with the acquired business, retain staff, or work with [removed: the customers or otherwise] [added: customers,] we could suffer a material adverse effect on our business, results of operations or financial condition.

Our [removed: Future Success Depends] [added: future success depends] on [removed: Continued International Sales,] [added: continued international sales,] and [removed: Our Global Operations] [added: our global operations] are [removed: Complex,] [added: complex,] and [removed: Present Multiple Challenges] [added: present multiple challenges] to [removed: Manage][added: manage.]

Sales to customers in countries other than the United States accounted for approximately [removed: 68%, 69%] [added: 70%, 68%] and [removed: 63%] [added: 69%] of revenues during the years ended June 30, [removed: 2018, 2017] [added: 2019, 2018] and [removed: 2016,] [added: 2017,] respectively.

We manufacture products in the United States, China, Singapore, Vietnam, the Philippines, Germany, Switzerland, and the United [removed: Kingdom] [added: Kingdom,] and through a contract manufacturer in Thailand.

We also maintain direct sales offices in Hong Kong, Japan, Germany, China, Switzerland, Belgium, the United Kingdom, [removed: China,] Italy, South Korea, and Taiwan.

Foreign [removed: Currency Risk May Negatively Affect] [added: currency risk may negatively affect] our [removed: Revenues, Cost] [added: revenues, cost] of [removed: Sales] [added: sales] and [removed: Operating Margins] [added: operating margins] and [removed: Could Result] [added: could result] in [removed: Foreign Exchange Losses][added: foreign exchange losses.]

Any [removed: Inability] [added: inability] to [removed: Access Financial Markets] [added: access financial markets] from [removed: Time] [added: time] to [removed: Time] [added: time] to [removed: Raise Required Capital, Finance Our Working Capital Requirements] [added: raise required capital, finance our working capital requirements] or [removed: Our Acquisition Strategies,] [added: our acquisition strategies,] or [removed: Otherwise] [added: otherwise] to [removed: Support] [added: support] our [removed: Liquidity Needs Could Negatively Impact] [added: liquidity needs could negatively impact] our [removed: Ability] [added: ability] to [removed: Finance] [added: finance] our [removed: Operations, Meet Certain Obligations] [added: operations, meet certain obligations] or [removed: Implement] [added: implement] our [removed: Growth Strategy][added: growth strategy.]

We [removed: occasionally] borrow under our existing credit facilities to fund operations, including working capital investments, and to finance our acquisition strategies.

These disruptions may include turmoil in the financial services industry, volatility in the markets where our outstanding securities trade, and [added: changes in] general economic [removed: downturns] [added: conditions] in the areas where we do business.

Additional equity financing may be dilutive to the holders of our common stock, and debt financing, if available, may involve restrictive covenants that may limit our ability to undertake certain [removed: operational] activities that we otherwise would find to be desirable.

Further, debt service obligations associated with any [removed: such] debt financing could reduce our profitability.

We [removed: May Not Be Able] [added: may not be able] to [removed: Settle Conversions] [added: settle conversions] of [removed: Our Convertible Senior Notes] [added: our convertible senior notes] in [removed: Cash] [added: cash] or [removed: to Repurchase] [added: repurchase] the [removed: Notes] [added: notes] in [removed: Accordance] [added: accordance] with [removed: Their Terms][added: their terms.]

Holders of our outstanding convertible senior notes have the right to require us to repurchase all or a portion of their notes upon the occurrence of a fundamental change (as defined in the indenture governing the notes) at a repurchase price equal to 100% of the principal amount of the notes to be repurchased, plus accrued and unpaid [removed: interest, if any.][added: interest.]

However, we may not have enough available cash or be able to obtain financing at the time we are required to make repurchases of [removed: notes] surrendered [removed: therefor] [added: notes,] or pay cash with respect to notes being converted.

Our failure to repurchase notes at a time when the repurchase is required by the governing [removed: indenture] [added: indenture,] or to pay any cash upon conversion of the notes as required would constitute a default under the indenture.

We [removed: May Fail] [added: may fail] to [removed: Accurately Estimate] [added: accurately estimate] the [removed: Size] [added: size] and [removed: Growth] [added: growth] of [removed: Our Markets] [added: our markets] and [removed: Our Customers’ Demands][added: our customers’ demands.]

With respect to orders we initiate with our suppliers to address anticipated demand from our customers, certain suppliers may have required non-cancelable purchase commitments or advance payments from us, and those obligations and commitments could reduce our ability to adjust our inventory or expense levels to [added: reflect] declining market demands.

Unexpected [removed: decline] [added: declines] in customer demands can result in excess or obsolete inventory and [removed: result in] additional charges.

Because certain of our sales, research and [removed: development] [added: development,] and internal manufacturing overhead expenses are relatively fixed, a reduction in customer demand likely would decrease our gross margins and operating income.

We [removed: May Encounter Increased Competition][added: may encounter increased competition.]

Our failure to [removed: effectively] compete [added: effectively] could have a material adverse effect on our business, results of operations or financial condition.

There [removed: Are Limitations] [added: are limitations] on the [removed: Protection] [added: protection] of [removed: Our Intellectual Property] [added: our intellectual property] and [removed: We May From Time] [added: we may from time] to [removed: Time] [added: time] be [removed: Involved] [added: involved] in [removed: Costly Intellectual Property Litigation] [added: costly intellectual property litigation] or [removed: Indemnification][added: indemnification.]

We rely on a combination of trade secret, patent, copyright and trademark [removed: laws] [added: laws,] combined with employee confidentiality, noncompetition and nondisclosure agreements to protect our intellectual property rights.

There can be no assurance that the steps [removed: taken by us] [added: we take] will be adequate to prevent misappropriation of our technology or intellectual property.

Furthermore, there can be no assurance that [removed: third-parties] [added: third parties] will not assert infringement claims against us in the future.

Any such [removed: events] [added: event] could have a material adverse effect on our business, results of operations or financial condition.

A [removed: Significant Portion] [added: significant portion] of [removed: Our Business] [added: our business] is [removed: Dependent] [added: dependent] on [removed: Cyclical Industries][added: cyclical industries.]

Our business is dependent on the demand for products produced by end-users of industrial lasers, optical communication [removed: products] [added: products, components for semiconductor capital equipment,] and components for 3D sensing.

Changes in [removed: Laws] [added: laws] and [removed: Regulations Governing Data Privacy] [added: regulations governing data privacy] and [removed: Data Protection Could Have] [added: data protection could have] a [removed: Material Adverse Impact] [added: material adverse impact] on our [removed: Business][added: business.]

Data [removed: Breach Incidents] [added: breach incidents] and [removed: Breakdown] [added: breakdown] of [removed: Information] [added: information] and [removed: Communication Technologies Could Disrupt] [added: communication technologies could disrupt] our [removed: Operations] [added: operations] and [removed: Impact Our Financial Results][added: impact our financial results.]

Security breaches of our network or data, including physical or electronic break-ins, vendor service outages, computer viruses, attacks by hackers or similar breaches can create system disruptions, shutdowns, [removed: or] [added: and] unauthorized disclosure of confidential information.

[removed: Although we have not experienced an incident, if] [added: If] we are unable to prevent [added: or contain] such security or privacy breaches, our operations [removed: would] [added: could] be disrupted or we could suffer legal claims, loss of reputation, financial loss, property damage, or regulatory [removed: penalties because of lost or misappropriated information.][added: penalties.]

Global [removed: Economic Downturns May Adversely Affect Our Business, Operating Results] [added: economic downturns may adversely affect our business, operating results] and [removed: Financial Condition][added: financial condition.]

Adverse changes could also occur as a result of economic upswings, such as increased wages and scarce labor pools, and increased interest rates.

We may be unable to successfully implement our acquisitions strategy or integrate acquired companies and personnel with existing operations.

We have in the past acquired several companies, and our announced acquisition of Finisar is pending.

We may continue to expand and diversify our operations with additional acquisitions.

We may be unable to identify or complete prospective acquisitions for many reasons, including increasing competition from other potential acquirers, the effects of consolidation in our industries, and potentially high valuations of acquisition candidates.

In addition, applicable antitrust laws and other regulations may limit our ability to acquire targets or force us to divest an acquired business line.

If we are unable to identify suitable targets or complete acquisitions, our growth prospects may suffer, and we may not be able to realize sufficient scale and technological advantages to compete effectively in all markets.

To the extent we are successful in making acquisitions, we may be unsuccessful in integrating acquired companies or product lines with existing operations, or the integration may be more difficult or more costly than anticipated.

Some of the risks that may affect our ability to integrate or realize anticipated benefits from acquired companies, businesses or assets include those associated with:

| | • | unexpected losses of key employees of the acquired company; |

| | • | conforming the acquired company’s standards, processes, procedures and controls with our operations, including integrating Enterprise Resource Planning (“ERP”) systems and other key business applications; |

| | • | coordinating new product and process development; |

| | • | increasing complexity from combining operations; |

| | • | increasing the scope, geographic diversity and complexity of our operations; |

| | • | difficulties in consolidating facilities and transferring processes and know-how; and |

| | • | diversion of management’s attention from other business concerns. |

In connection with acquisitions, we may:

| | • | use a signification portion of our available cash; |

| | • | issue equity securities, which would dilute current shareholders’ percentage ownership; |

| | • | incur significant debt; |

| --- | --- | --- |

| | • | incur or assume contingent liabilities, known or unknown, including potential lawsuits, infringement actions or similar liabilities; |

| --- | --- | --- |

| | • | incur impairment charges related to goodwill or other intangibles; and |

| --- | --- | --- |

| | • | face antitrust or other regulatory inquiries or actions. |

| --- | --- | --- |

In addition, the market price of our common stock could be adversely affected if the effect of any acquisitions on our consolidated financial results is dilutive or is below the market's or financial analysts' expectations, or if there are unanticipated changes in the business or financial performance of the target company or the combined company.

Any failure to successfully integrate acquired businesses may disrupt our business and adversely impact our business, financial condition and results of operations.

| --- | --- | --- |

| --- | --- | --- |

Exports of certain of our products are subject to export controls imposed by the U.S. Government and administered by the U.S. Departments of State and Commerce.

In certain instances, these regulations may require pre-shipment authorization from the administering department.

For products subject to the Export Administration Regulations, or EAR, administered by the Department of Commerce's Bureau of Industry and Security, the requirement for a license is dependent on the type and end use of the product, the final destination, the identity of the end user and whether a license exception might apply.

Virtually all exports of products subject to the International Traffic in Arms Regulations, or ITAR, administered by the Department of State's Directorate of Defense Trade Controls, require a license.

Certain of our fiber optics products are subject to EAR controls and we historically have sold some

products, including certain products developed with government funding, subject to ITAR.

Products developed and manufactured in our foreign locations are subject to export controls of the applicable foreign nation.

Given the current global political climate, obtaining export licenses can be difficult and time-consuming.

Failure to obtain export licenses for these shipments, or having one or more of our customers be restricted from receiving exports from us, could significantly reduce our revenue and materially adversely affect our business, financial condition and results of operations.

We May Incur Substantially More Indebtedness

We and our subsidiaries may be able to incur substantial additional indebtedness in the future, including secured indebtedness, subject to the restrictions contained in our debt instruments.

We are not restricted under the terms of the indenture governing our outstanding convertible senior notes from incurring additional indebtedness, securing existing or future indebtedness, recapitalizing our debt obligations or taking a number of other actions that are not limited by the terms of the indenture.

Our credit facility currently restricts our ability to incur additional indebtedness, including secured indebtedness, but if our credit facility matures or is repaid, we may not be subject to such restrictions under the terms of any subsequent indebtedness.

The Conditional Conversion Feature of Our Outstanding Convertible Senior Notes, if Triggered, May Adversely Affect Our Financial Condition and Operating Results

In the event the conditional conversion feature of the notes is triggered, holders of notes will be entitled to convert the notes at any time during specified periods at their option.

If one or more holders elect to convert their notes, unless we elect to satisfy our conversion obligation by delivering solely shares of our common stock (other than paying cash in lieu of delivering any fractional share), we would be required to settle a portion or all of our conversion obligation through the payment of cash, which could adversely affect our liquidity.

Failure to comply with any of these laws and regulations could result in civil and criminal, monetary and non-monetary penalties, disruptions to our business, limitations on our ability to import and export products and services and damage to our reputation.

import and export requirements, anti-corruption and anti-bribery laws, foreign exchange controls and cash repatriation restrictions, foreign investment rules and regulations, data privacy requirements, anti-competition laws, employment and labor laws, pensions and social insurance, and environmental health, and safety laws and regulations.

We do not carry environmental impairment insurance.

For example, proposals for fundamental U.S. international tax reform, if enacted, could have a significant adverse impact on our effective tax rate.

The Securities and Exchange Commission has issued Staff Accounting Bulletin No. 118 (“SAB 118”) acknowledging that companies will potentially encounter situations for which the analysis of certain income tax effects of the Act will be incomplete by the time financial statements are required to be issued for reporting periods that include the enactment date.

In these situations, SAB 118 provides that reasonable estimates may be made for certain effects of the Act.

We have recorded provisional amounts using reasonable estimates based on the guidance in SAB 118 and we anticipate adjustments to such estimates as additional analysis is completed and new regulations and guidance are issued.

II-VI Incorporated (“II-VI,” the “Company,” “we,” “us” or “our”), a worldwide leader in engineered materials and optoelectronic components, is a vertically integrated manufacturing company that develops innovative products for diversified applications in the industrial materials processing, optical communications, [removed: military,] [added: aerospace and defense,] consumer electronics, semiconductor [added: capital] equipment, life science and automotive applications [removed: .][added: and markets.]

The Company generates revenues, earnings and cash flows from developing, manufacturing and marketing engineered materials and optoelectronic components and devices for precision use in industrial materials processing, optical communications, consumer electronics, semiconductor [added: capital] equipment, life sciences and automotive applications.

Our customer base includes OEMs, laser end-users, system integrators of high-power lasers, manufacturers of equipment and devices for the industrial, optical communications, [removed: military,] [added: aerospace and defense,] semiconductor, medical and life science markets, consumer, U.S. government prime contractors, various U.S. Government agencies and thermoelectric integrators.

As we grow, we are focused on scaling our Company and deriving the [added: continued] benefits of vertical integration as we strive to be a best in class competitor in all of our highly competitive markets.

Critical Accounting [added: Policies and] Estimates

Management believes the Company’s critical accounting estimates are those related to [removed: revenue recognition, inventory valuation,] business combinations, impairment of goodwill and indefinite-lived intangible assets, [removed: accrual of income taxes] and [removed: accounting for share-based compensation.][added: income taxes.]

Management has discussed the development and selection of these critical accounting [added: policies and] estimates with the Audit Committee of the Board of Directors and the Audit Committee has reviewed the related disclosure.

As of June 30, [removed: 2018,] [added: 2019,] no reporting units are at risk for impairment, as the fair value of the reporting units substantially exceeds the carrying values.

The Company did not use the optional qualitative assessment during the years ended June 30, [removed: 2018] [added: 2019] and [removed: 2017.][added: 2018.]

Based upon our annual quantitative goodwill and indefinite-lived intangible assets impairment tests, the Company did not record any [removed: impairments] [added: impairment] of goodwill or indefinite-lived intangible assets for the fiscal year ended June 30, [removed: 2018.][added: 2019.]

However, if the Company experiences cumulative pretax losses in a particular jurisdiction in a three year period, management then considers a series [removed: of factors in the determination of whether the deferred tax assets can be realized.]

The following table sets forth select items from our Consolidated Statements of Earnings for the years ended June 30, [removed: 2018] [added: 2019] and [removed: June 30, 2017] [added: 2018] ($ in millions except per share information):

| Cost of goods sold | | | [removed: 697.5] [added: 696.6] | | | | [removed: 60.2] [added: 60.1] | | | | 583.7 | | | | 60.1 | |

| Gross margin | | | [removed: 461.3] [added: 462.2] | | | | [removed: 39.8] [added: 39.9] | | | | 388.3 | | | | 39.9 | |

| Internal research and development | | [removed: 117.2] | [added: 116.9] | | | | 10.1 | | | | 96.8 | | | | 10.0 | |

| Selling, general and administrative | | | [removed: 208.8] [added: 208.6] | | | | 18.0 | | | | 176.0 | | | | 18.1 | |

| Interest and other, net | | | [removed: 13.1] [added: 14.6] | | | | [removed: 1.1] [added: 1.3] | | | | (3.3 | ) | | | (0.3 | ) |

| Diluted earnings per share | | $ | [removed: 1.35] [added: 1.63] | | | | | | | $ | [removed: 1.48] [added: 1.35] | | | | | |

Net earnings for fiscal year [removed: 2018] [added: 2019] were [removed: $88.0] [added: $107.5] million [removed: ($1.35] [added: ($1.63] per-share diluted), compared to [removed: $95.3] [added: $88.0] million [removed: ($1.48] [added: ($1.35] per-share diluted) for [removed: the same period last] fiscal [removed: year.][added: year 2018.]

[removed: Under the Act,] [added: The increase in] the [removed: Company’s] [added: fiscal year 2018’s] effective tax rate [removed: for fiscal year 2018 was 28.0% compared to 19.8% in fiscal year 2017;] [added: is] the [removed: Company recorded an additional] [added: result of approximately] $8.0 million of [added: increased] income tax [removed: expense, primarily] [added: expense] relating to [removed: withholding taxes on future] repatriation [removed: of] [added: on] foreign [added: source] earnings.

[removed: Fiscal] [added: Other income during fiscal] year 2017 [removed: was favorably impacted by other] [added: included approximately $7.0 million of] income [removed: relating to] [added: from] earn-out and technology transfer [removed: income the Company received as part of] [added: agreements from] the [added: Company’s] sale of [removed: the] [added: its ANADIGICS’] RF [removed: business of ANADIGICS.][added: business.]

Revenues for the year ended June 30, 2018 increased 19% to $1,158.8 million, compared to $972.0 million for the [removed: prior] fiscal [removed: year.][added: year ended June 30, 2017.]

The increase in revenues during the current fiscal year was driven by strong demand from customers across [removed: all] [added: the majority] of the Company’s business [removed: segments.][added: units.]

In particular, II-VI Laser Solution realized a 26% revenue growth from the [removed: prior year,] [added: fiscal year 2017,] driven by increased demand from industrial based customers for CO2, fiber and direct diode optics and components.

II-VI Performance Products recorded a [removed: 24%] [added: 23%] revenue increase during the current fiscal year, driven by strengthening demand for SiC substrate products addressing RF electronics and high-power switching and power conversion systems for [removed: automotive, communication] [added: automotive] and [removed: military] [added: communication end] markets.

Gross margin for the year ended June 30, [removed: 2018] [added: 2019] was [removed: $461.3] [added: $521.3] million, or [removed: 39.8%,] [added: 38.3%,] of total revenues, compared to [removed: $388.3] [added: $462.2] million, or [removed: 39.9%,] [added: 39.9%] of total [removed: revenues] [added: revenues,] for the same period last fiscal year.

Gross margin as a percentage of revenues was consistent with the [removed: prior] fiscal year [added: 2017] due to a balance of operating efficiencies and investments to expand capacity.

Company-funded internal research and development [removed: (“IR&D”)] expenses for the [removed: fiscal] year ended June 30, 2018 were [removed: $117.2] [added: $116.9] million, or 10.1% of revenues, compared to $96.8 million, or 10.0% of revenues, [removed: last] [added: for the] fiscal [removed: year.][added: year ended June 30, 2017.]

The increase in IR&D expenses is primarily the result of the [removed: current year] acquisition of Kaiam Laser Limited, acquired in August 2017, which contributed $14.6 million of expense.

Selling, general and administrative (“SG&A”) expenses for the year ended June 30, [removed: 2018] [added: 2019] were [removed: $208.8] [added: $233.5] million, or [removed: 18.0%] [added: 17.1%] of revenues, compared to [removed: $176.0] [added: $208.6] million, or [removed: 18.1%] [added: 18.0%] of revenues, last fiscal year.

Exclusive of these acquisitions, the increase in SG&A [added: expenses] is primarily due to increased operating costs to support the Company’s growing revenue and infrastructure base, as well as its ongoing merger and acquisition strategy.

Interest and other, net for the year ended June 30, 2018 was expense of [removed: $13.1] [added: $14.6] million compared to income of $3.3 million [removed: last fiscal year.][added: for the year ended June 30, 2017.]

The majority of the interest expense increase was related to the Company’s $345.0 million [added: aggregate principal amount of] convertible [removed: debt] [added: notes] issued in August 2017.

The Company’s year-to-date effective income tax rate at June 30, [removed: 2018] [added: 2019] was [removed: 28.0%,] [added: 16.6%,] compared to an effective tax rate of [removed: 19.8%] [added: 28.0%] last fiscal year.

[removed: Segment and Geographic Reporting,”] [added: See Note 14] to the [added: Company’s] Consolidated Financial Statements included in [added: Item 8 of] this Annual Report on Form 10-K for further information on the Company’s reportable segments and for the reconciliation of operating income to net earnings, which is incorporated herein by reference.

Revenues for the fiscal year ended June 30, [removed: 2018] [added: 2019] for II-VI Laser Solutions [removed: increased 26%] [added: decreased 2%] to [removed: $428.0] [added: $396.6] million, compared to revenues of [removed: $339.3] [added: $405.9] million last fiscal year.

The increase in revenues [removed: during the current] [added: from] fiscal year [added: 2017] was the result of increased demand from industrial based customers for the Company’s CO2, fiber and direct diode laser optics and components.

Operating income for the fiscal year ended June 30, [removed: 2018] [added: 2019] for II-VI Laser Solutions [removed: increased 19% to $36.8 million,] [added: of $40.3 million remained consistent] compared to [removed: $30.9 million] [added: the] last fiscal year.

The increase in operating income during [removed: the current] fiscal year [added: 2018] was the result of incremental margins realized from increased capacity utilization, increase in mix of higher margin products, offset somewhat by greater investment in growth markets.

The above operating results for the year ended June 30, 2018 include the Company’s [removed: recent] acquisition of [removed: IPI] [added: IPI,] which was acquired in June 2017.

\`

In September 2018, November 2018, and March 2019, the Company completed its acquisitions of CoAdna Holdings, Inc. (“CoAdna”), an additional product line, and Redstone Aerospace Corporation (“Redstone”), respectively.

See Note 3, Acquisitions, to our Consolidated Financial Statements contained in Item 8 of this Annual Report on Form 10-K.

The operating results of these acquisitions have been reflected in the selected financial information of the Company’s II-VI Photonics segment since the respective dates of the acquisitions, with the exclusion of Redstone which is reflected in the II-VI Performance Products Segment.

Pending Acquisition of Finisar Corporation

II-VI and Finisar have entered into an Agreement and Plan of Merger, dated as of November 8, 2018 (the “Merger Agreement”).

Pursuant to the terms of the Merger Agreement, Mutation Merger Sub Inc., a Delaware corporation and wholly owned subsidiary of II-VI, will be merged with and into Finisar, and Finisar will continue as the surviving corporation in the merger and a wholly owned subsidiary of II-VI (the “Merger”).

If the Merger is consummated, Finisar stockholders will be entitled to receive, at their election, consideration per share of common stock of Finisar (the “Finisar Common Stock”) consisting of (i) $26.00 in cash, without interest (the “Cash Consideration”), (ii) 0.5546 shares of II-VI common stock (the shares, the “II-VI Common Stock,” and the consideration, the “Stock Consideration”), or (iii) a combination of $15.60 in cash, without interest, and 0.2218 shares of II-VI Common Stock (the “Mixed Consideration,” and, together with the Cash Consideration and the Stock Consideration, the “Merger Consideration”).

The Cash Consideration and the Stock Consideration are subject to proration adjustment pursuant to the terms of the Merger Agreement such that the aggregate Merger Consideration will consist of approximately 60% cash and approximately 40% II-VI Common Stock assuming a per share price of II-VI common stock equal to the price when the Merger Agreement was signed on November 8, 2018, which was $46.88 per share.

At the effective time of the Merger (the “Effective Time”), each option granted pursuant to Finisar’s 2005 Stock Incentive Plan, as such plan has been further amended and restated (each, a “Finisar Stock Option”), or portion thereof, that is outstanding and unexercised as of immediately prior to the Effective Time (whether vested or unvested) will be cancelled, terminated and converted into the right to receive an amount of Mixed Consideration that would be payable to a holder of such number of shares of Finisar Common Stock equal to the quotient of (i) the product of (a) the excess, if any, of $26.00 over the exercise price per share of such Finisar Stock Option multiplied by (b) the number of shares of Finisar Common Stock subject to such Finisar Stock Option, divided by (ii) $26.00.

At the Effective Time, each restricted stock unit granted pursuant to Finisar’s 2005 Stock Incentive Plan, as such plan has been further amended and restated (each, a “Finisar Restricted Stock Unit”), or portion thereof , that is outstanding and subject to a performance-based vesting condition that relates solely to the value of Finisar Common Stock will, to the extent such Finisar Restricted Stock Unit vests in accordance with its terms in connection with the Merger (the “Participating RSUs”), be cancelled and extinguished and converted into the right to receive the Cash Consideration, the Stock Consideration or the Mixed Consideration at the election of the holder of such Participating RSUs, subject to proration adjustment.

At the Effective Time, each Finisar Restricted Stock Unit (or portion thereof) that is outstanding and unvested, does not vest in accordance with its terms in connection with the Merger and is either (x) subject to time-based vesting requirements only or (y) subject to a performance-based vesting condition other than the value of Finisar Common Stock will be assumed by II-VI (each, an “Assumed RSU”).

Each Assumed RSU will be subject to substantially the same terms and conditions as applied to the related Finisar Restricted Stock Unit immediately prior to the Effective Time, including the vesting schedule (and the applicable performance-vesting conditions in the case of a grant contemplated by clause (y) of the preceding sentence) and any provisions for accelerated vesting applicable thereto, except that the number of shares of II-VI Common Stock subject to each Assumed RSU will be equal to the product of (i) the number of shares of Finisar Common Stock underlying such unvested Finisar Restricted Stock Unit award as of immediately prior to the Effective Time multiplied by (ii) the sum of (a) 0.2218 plus (b) the quotient obtained by dividing (1) $15.60 by (2) the volume weighted average price per share of II-VI Common Stock (rounded to the nearest cent) on the Nasdaq Global Select Market for the ten consecutive trading days ending on (and including) the third trading day immediately prior to the Effective Time (with the resulting number rounded down to the nearest whole share).

II-VI filed with the SEC a registration statement on Form S-4 relating to the Merger, and that registration statement became effective in accordance with the provisions of Section 8(a) of the Securities Act of 1933, as amended, on February 7, 2019.

Shareholders of II-VI and stockholders of Finisar voted to approve proposals related to the Merger at special meetings held on March 26, 2019 by the respective companies.

The waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, with respect to the Merger has expired without a request for additional information.

Other regulatory approvals applicable to the Merger have been obtained in Germany, Mexico and Romania.

The completion of the Merger is subject to the satisfaction or waiver of certain additional customary closing conditions, including review and approval of the Merger by the State Administration for Market Regulation in China.

The Company is planning to refile with the State Administration for Market Regulation in China, extending the approval period.

Subject to the satisfaction or waiver of each of the closing conditions, II-VI and Finisar expect that the Merger will be completed in the second half of calendar 2019.

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.

On November 8, 2018, in connection with its entry into the Merger Agreement, II-VI entered into a commitment letter (together with a related fee letter) with Bank of America, N.A., which was subsequently amended and restated on December 7, 2018 and on December 14, 2018 (together with one or more related fee letters, the “Commitment Letter”).

Subject to the terms and conditions set forth in the Commitment Letter, the lender parties thereto severally committed to provide 100% of up to $2.425 billion in aggregate principal amount of senior secured credit facilities of II-VI.

On March 4, 2019, II-VI entered into a Credit Agreement, dated as of March 4, 2019 (as amended, the “New 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 lenders party thereto.

II-VI also entered into Amendment No. 1 to Credit Agreement, dated as of May 24, 2019, by and among the Company, Bank of America, N.A., as Administrative Agent, and the other lenders party thereto, which includes the final results of the syndication of the Term A Facility (as defined below).

Pursuant to the terms and subject to the conditions therein, the New Credit Agreement provides for senior secured financing of $1.705 billion in the aggregate, consisting of (i) a five-year senior secured first-lien term A loan facility in an aggregate principal amount of $1.255 billion (the “Term A Facility”) and (ii) a five-year senior secured first-lien revolving credit facility in an aggregate principal amount of $450.0 million (the “Revolving Credit Facility” and together with the Term A Facility, the “New Senior Credit Facilities”).

The New 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, subject to adjustment in accordance with the terms of the New Credit Agreement.

II-VI anticipates using the proceeds from the Term A Facility, together with

a separately committed term B loan facility in an aggregate principal amount of up to $720.0 million (the “Term B Facility”) and cash and short-term investments of II-VI and Finisar, to pay the cash portion of the merger consideration payable in connection with the Merger and related fees and expenses.

II-VI currently does not intend to draw on the Revolving Credit Facility in order to fund the cash portion of the merger consideration payable in connection with the Merger.

The funding obligations of the lenders under the New Senior Credit Facilities are subject to certain currently unsatisfied conditions, including the consummation of the Merger.

Accordingly, no borrowings are currently outstanding under the New Senior Credit Facilities, and II-VI currently is not able to borrow under the New Senior Credit Facilities.

Further, II-VI expects that the New Credit Agreement will be amended prior to the consummation of the Merger to reflect syndication of the Term B Facility and to finalize certain other terms in the New Credit Agreement.

Upon the consummation of the Merger, the New Senior Credit Facilities, governed by the New Credit Agreement as it may be amended as of such time, will be used (i) to refinance in full the Amended Credit Facility (as defined in Note 9 to the Company’s Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K) and (ii) on or after the date of the consummation of the Merger, to repay amounts owed in connection with Finisar’s outstanding convertible notes, currently in an aggregate principal amount outstanding of $575.0 million, including with the proceeds of a portion of the Term A Facility which will be available to II-VI for a certain period after the initial funding under the New Senior Credit Facilities.

Unless and until the Merger is consummated and the other currently unsatisfied conditions to the funding obligations of the lenders under the New Senior Credit Facilities are satisfied or waived, the Amended Credit Facility remains in effect in accordance with its terms.

Business Combinations

The Company accounts for business acquisitions under the acquisition method of accounting whereby the total purchase price was allocated to tangible and intangible assets acquired and liabilities assumed based on the respective fair values.

The Company believes that the accounting estimates related to business combinations are “critical accounting estimates” because the Company must, in determining the fair value of assets acquired, make assumptions about the future performance of the acquired business, including among other things, the forecasted revenue attributable to the asset group.

The valuation methodologies applied require the Company to determine a risk-adjusted discount rate that is reflective of the level of risk associated with these estimates to discount the forward-looking estimates to present value.

Different assumptions may result in materially different values for these assets, which would impact the Company’s financial position and future results of operations.

| --- | --- |

Revenue Recognition

Revenues for product shipments are realizable when we have persuasive evidence of a sales arrangement, the product has been shipped or delivered, the sales price is fixed or determinable and collectability is reasonably assured.

Title and risk of loss passes from the Company to its customer at the time of shipment in most cases, with the exception of certain customers for whom customer’s title does not pass and revenue is not recognized until the customer has received the product at its physical location.

The Company’s revenue recognition policy is consistently applied across the Company’s segments, product lines and geographical locations.

Further, for the periods covered herein, we did not have post shipment obligations such as training or installation, customer acceptance provisions, credits and discounts, rebates and price protection or other similar privileges.

Our distributors and agents are not granted price protection.

Our distributors and agents, who generate less than 10% of consolidated revenue, have no additional product return rights beyond the right to return defective products covered by our warranty policy.

We believe that our revenue recognition practices are consistent with Staff Accounting Bulletin 104 and that we have adequately considered the requirements of Accounting Standards Codification 605 Revenue Recognition.

Revenues generated from transactions other than product shipments are contract-related and have historically accounted for approximately 1% of the Company’s consolidated revenues.

Inventory

The Company generally records an inventory adjustment as a charge against earnings for all products on hand for more than 12 to 24 months, depending on the products that have not been sold to customers or cannot be further manufactured for sale to alternative customers.

An additional charge may be recorded for products on hand that are in excess of product sold to customers over the same periods noted above.

If actual market conditions are less favorable than projected, additional inventory adjustments may be required.

The Company’s inventory adjustments have historically been proven to be materially correct based upon actual write-offs incurred.

Business Acquisitions

The Company accounts for business acquisitions by establishing the acquisition-date fair value as the measurement for all assets acquired and liabilities assumed.

Certain provisions of U.S. GAAP prescribe, among other things, the determination of acquisition-date fair value of consideration paid in a business combination (including contingent consideration) and the exclusion of transaction and acquisition-related restructuring costs from acquisition accounting.

0.25% Convertible Senior Notes

Our 0.25% convertible senior notes are accounted for in accordance with ASC 470, Accounting for Convertible Debt Instruments That May be Settled in Cash upon Conversion (Including Partial Cash Settlement).

ASC Subtopic 470-20 requires the issuer of convertible debt that may be settled in shares or cash upon conversion at the issuer’s option, such as these notes, to account for the liability (debt) and equity (conversion option) components separately.

The value assigned to the debt component is the estimated fair value as of the issuance date of a similar debt instrument without the conversion option.

The amount of the equity component is calculated by deducting the fair value of the liability component from the principal amount of the convertible debt instrument.

The resulting debt discount is amortized as additional non-cash interest expense over the expected life of the notes utilizing the effective interest method.

Although ASC 470 has no impact on our actual past or future cash flows, it requires us to record non-cash interest expense as the debt discount is amortized.

Share-Based Compensation

The Company recognizes share-based compensation expense over the requisite service period of the individual grantees, which generally equals the vesting period.

The Company utilizes the Black-Scholes valuation model for estimating the fair value of share-based equity expense, using assumptions such as the risk-free interest rate, expected stock price volatility, expected stock option life and expected dividend yield.

The risk-free interest rate is derived from the average U.S. Treasury Note rate during the period, which approximates the rate in effect at the time of grant related to the expected life of the options.

Expected volatility is based on the historical volatility of the Company’s common stock over the period commensurate with the expected life of the options.

The expected life calculation is based on the observed time to post-vesting exercise and/or forfeitures of options by our employees.

The dividend yield is zero, based on the fact the Company has never paid cash dividends and has no current intention to pay cash dividends in the future.

The decrease in net earnings during current fiscal year from fiscal year 2017 was primarily driven by provisions under the Act and the Company’s related actions.

The Company also increased its investment in internal research and development relating to its new optoelectronic laser platform with the acquisition of Kaiam Laser Limited, and it ramped up its investment in other operations to address market shifts to new technologies driven by advanced engineered materials.

The Company recognized $7.0 million or $0.09 per share diluted of other income related to these transactions in fiscal year 2017.

The Company continues to ramp its investment in new material-based technologies addressing growing market trends in consumer electronics, communications and automotive markets.

The Company is working to identify and capitalize on synergies created from the Company’s recent acquisitions and is working to improve the SG&A leverage in the upcoming fiscal 2019 and beyond.

Other income last fiscal year included approximately $7.0 million of income from earn-out and technology transfer agreements from the Company’s sale of its ANADIGICS’ RF business.

The increase in the current fiscal year’s effective tax rate is the result of approximately $8.0 million of increased income tax expense relating to repatriation on foreign source earnings.

See “Note 12.

In the normal course of business, the Company uses certain techniques and derivative financial instruments as part of its overall risk management strategy, primarily focused on its exposure to the Japanese Yen, Chinese [removed: Renminbi] [added: Renminbi,] and the [removed: Euro.][added: Swiss Franc.]

Foreign currency [added: forward] exchange contracts are used to limit transactional exposure to changes in currency rates.

These contracts had a total notional amount of [removed: $12.0] [added: $17.0] million and [removed: $12.7] [added: $12.0] million at June 30, [removed: 2018] [added: 2019] and [removed: 2017,] [added: 2018,] respectively.

A 10% change in the yen to U.S. dollar exchange rate would have changed revenues in the range from a decrease of approximately [removed: $8.1] [added: $10.0] million to an increase of approximately [removed: $9.9] [added: $12.2] million for the year ended June 30, [removed: 2018.][added: 2019.]

[removed: During June 2018, the] [added: The] Company [removed: entered] [added: enters] into [removed: a $43.5 million] month-to-month forward [removed: contract that matured on June 29, 2018,] [added: contracts] to limit exposure to the Chinese Renminbi.

As of June 30, [removed: 2018,] [added: 2019,] the Company’s total borrowings of [removed: $496.5] [added: $467] million consisted of [removed: $147.7] [added: $162.8] million variable rate debt borrowings from a line of credit of [removed: $80.0] [added: $115.0] million denominated in U.S. dollars, a term loan denominated in U.S. dollars of [removed: $65.0] [added: $45.0] million, [added: and] a line of credit borrowing of [removed: $2.7] [added: $2.8] million denominated in Japanese yen.

A change in the interest rate of 100 basis points on these variable rate borrowings would have resulted in additional interest expense of [removed: $1.5] [added: $1.8] million for the fiscal year ended June 30, [removed: 2018.][added: 2019.]

During the year ended June 30, 2019, the Company recorded a loss of $2.0 million with respect to these forward contracts.

Swiss Franc

The Company enters into month-to-month forward contracts to limit exposure to the Swiss Franc.

During the year ended June 30, 2019, the Company recorded an immaterial loss with respect to these forward contracts.

The Company also has transactions denominated in Euros, British Pounds Sterling, Chinese Renminbi and Swiss Francs.

During June 2018, the Company entered into a $7.0 million month-to-month forward contract that matured on June 29, 2018, to limit exposure to the Yen.

Upon expiration of this contract, the Company recorded a loss of $0.2 million in the Consolidated Statement of Earnings.

Upon expiration of this contract, the Company recorded a loss of $1.2 million in the Consolidated Statement of Earnings.

Euro

The Company has short-term intercompany notes that are denominated in U.S. dollars with certain European subsidiaries.

A 10% change in the Euro to dollar exchange rate would have changed net earnings in the range from a decrease of $0.5 million to an increase of $0.6 million for the year ended June 30, 2018.

The Company monitors its positions and the credit ratings of the parties to these contracts.

While the Company may be exposed to potential losses due to risk in the event of non-performance by the counterparties to these financial instruments, it does not currently anticipate such losses.

Assets and liabilities of foreign operations are translated into U.S. dollars using the period-end exchange rates, while income and expenses are translated using the average exchange rates for the reporting period.

Translation adjustments are recorded as accumulated other comprehensive income within shareholders’ equity.

Discount Rate Risks

As of June 30, 2018, a 10% change in the Company’s discount rate used to determine the pension benefit obligation of the Switzerland Defined Benefit Plan would have had an immaterial impact on the Consolidated Financial Statements.

Reference to “II-VI,” the “Company,” “we,” “us,” or “our” in this Annual Report on Form 10-K, unless the context requires otherwise, refers to II-VI Incorporated and its [removed: wholly-owned] [added: wholly owned] subsidiaries.

We address [removed: 7] [added: seven] major markets.

The majority of our revenues are attributable to the sale of engineered materials and optoelectronic components, [removed: devices] [added: devices,] and subsystems for the industrial materials processing, optical [removed: communications] [added: communications,] and [removed: military] [added: aerospace and defense] markets.

The following [removed: acronyms] [added: terms] are defined for reference: [removed: 3 dimensional (“3D”); 4th generation (“4G”) wireless; 5th generation (“5G”) wireless;] bismuth telluride (“Bi2Te3”); cadmium telluride (“CdTe”); carbon [removed: monoxide (“CO”); carbon] dioxide (“CO2”); [added: carbon monoxide (“CO”);] chemical vapor deposited (“CVD”) materials including diamond; [removed: wavelength division multiplexing (“WDM”);] dense wavelength division multiplexing (“DWDM”); [removed: extreme ultraviolet] [added: extreme-ultraviolet] (“EUV”) lithography; [added: 5th-generation (“5G”) wireless; 4th-generation (“4G”) wireless;] gallium arsenide (“GaAs”); gallium nitride (“GaN”); gigabit Ethernet (“GbE”); gigabit per second (“Gb/s”); [added: high-definition multimedia interface (“HDMI”);] indium phosphide (“InP”); infrared (“IR”); [added: intellectual property (“IP”);] light detection and ranging (“LiDAR”); [removed: near infrared (“NIR”);] [added: liquid crystal (“LC”); liquid crystal on silicon (“LCOS”);] nanometers (“nm”); [removed: original equipment manufacturer (“OEM”);] [added: near-infrared (“NIR”);] organic light-emitting diode (“OLED”); [added: original equipment manufacturer (“OEM”);] optical time domain reflectometer (“OTDR”); [removed: research, development and engineering (“RD&E”);] radio frequency (“RF”); reconfigurable optical add/drop multiplexer (“ROADM”); [added: research, development, and engineering (“RD&E”);] silicon carbide (“SiC”); [added: three-dimensional (“3D”);] ultraviolet (“UV”); vertical cavity [removed: surface emitting] [added: surface-emitting] laser (“VCSEL”); [added: wavelength division multiplexing (“WDM”); wavelength selective switching (“WSS”);] zinc selenide (“ZnSe”); and zinc sulfide (“ZnS”).

We develop, [removed: manufacture] [added: manufacture,] and market engineered materials, optoelectronic [removed: components] [added: components,] and devices for precision use in industrial materials processing, optical communications, [removed: military,] [added: aerospace and defense,] consumer electronics, semiconductor [added: capital] equipment, life [removed: sciences] [added: sciences,] and automotive applications and markets.

We use advanced engineered materials growth technologies coupled with proprietary high-precision fabrication, [removed: micro-assembly,] [added: microassembly,] optical thin-film [removed: coating] [added: coating,] and electronic integration to manufacture complex optoelectronic devices and modules.

Our products are deployed in a variety of applications, including (i) laser cutting, [removed: welding] [added: welding,] and marking operations; (ii) 3D sensing consumer applications; (iii) optical, [removed: data] [added: data,] and wireless [removed: communication] [added: communications] products; (iv) strategic [removed: military] [added: aerospace and defense] applications including intelligence, [removed: surveillance] [added: surveillance,] and reconnaissance; (v) semiconductor processing and tooling; and (vi) thermoelectric cooling and [removed: power generation] [added: power-generation] solutions.

We believe that the materials [removed: that] we grow and fabricate are differentiated by one or a combination of unique optical, electrical, [removed: thermal] [added: thermal,] and mechanical properties.

Proprietary processes developed at our global optical coating centers differentiate our products’ durability against [removed: high energy] [added: high-energy] lasers and extreme operating environments.

II-VI leverages these capabilities to deliver miniature- to large-scale precision optical assemblies, including [added: those] in combination with thermal management components, integrated electronics, and/or software.

These compound semiconductor lasers enable high-power lasers for materials [removed: processing,] [added: processing;] optical signal amplification in terrestrial and submarine communications [removed: networks, high bit rate] [added: networks; high-bit-rate] server connectivity between and within [removed: datacenters,] [added: datacenters; and] fast and accurate measurements in biomedical instruments, consumer [removed: electronics] [added: electronics,] and optical communications network monitoring.

II-VI continues to work to perfect its operational capabilities, develop [removed: next generation] [added: next-generation] products, and invest in new technology platforms.

With a strategic focus on [removed: fast growing] [added: fast-growing] and sustainable markets, II-VI pursues its vision of enabling the world to be safer, healthier, [removed: closer] [added: closer,] and more efficient.

Financial data regarding our revenues, results of operations, industry [removed: segments] [added: segments,] and international sales for the three years ended June 30, [removed: 2018] [added: 2019,] are set forth in the Consolidated Statements of Earnings and in Note [removed: 12] [added: 14] to the Company’s Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K and are incorporated herein by reference.

We also discuss certain Risk Factors set forth in Item 1A [added: – Risk Factors] of this Annual Report on Form 10-K related to our foreign operations, which are incorporated herein by reference.

[removed: For long-term customer orders, to address the inherent uncertainty of orders that extend far into the future, the] [added: The] Company records only those orders which are expected to be converted into revenues within 12 months from the end of the reporting period.

For the [added: fiscal] year ended June 30, [removed: 2018,] [added: 2019,] our bookings were approximately [removed: $1.2 billion] [added: $1.4 billion,] compared [removed: to] [added: with] bookings of approximately [removed: $1.1] [added: $1.2] billion for the [added: fiscal] year ended June 30, [removed: 2017.][added: 2018.]

As of June 30, [removed: 2018,] [added: 2019,] our backlog was approximately [removed: $450] [added: $500] million, compared [removed: to] [added: with] approximately [removed: $400] [added: $450] million as of June 30, [removed: 2017.][added: 2018.]

II-VI is headquartered in Saxonburg, PA, with RD&E, [removed: manufacturing] [added: manufacturing,] and sales facilities worldwide.

Our U.S. production and research and development operations are located in Pennsylvania, California, New Jersey, Texas, Mississippi, Massachusetts, Connecticut, Delaware, New York, [removed: Florida] [added: Florida, Ohio, Arizona, Colorado,] and [removed: Illinois] [added: Illinois,] and our non-U.S. production operations are based in China, Singapore, Vietnam, the Philippines, Germany, [removed: Switzerland] [added: Switzerland,] and the United Kingdom.

Approximately [removed: 68%] [added: 70%] of our revenues for the fiscal year ended June 30, [removed: 2018,] [added: 2019,] were generated from sales to customers outside of the United States.

The table below summarizes the number of our employees as of June 30, [removed: 2018] [added: 2019,] in the main functions.

There are approximately [removed: 265] [added: 236] employees located in the United States and the Philippines who are covered under collective bargaining agreements.

The Company’s collective bargaining agreement in the Philippines [removed: expires] [added: expired] in June [removed: 2019.][added: 2019, and the Company is in the process of negotiating a new collective bargaining agreement.]

The collective bargaining agreement covering certain [removed: U.S. based] [added: U.S.-based] employees expires in January 2021.

There are [removed: 730] [added: 735] employees of [added: II-VI] Photop in China who work under contract manufacturing arrangements for customers of the Company.

[removed: |] Research, [removed: development & engineering | 1,513 | 13% |][added: Development, and Engineering]

| Sales, marketing, administration, [removed: finance] [added: finance,] and supporting services | [removed: 953] [added: 1,002] | 8% |

| Total: | [removed: 11,443] [added: 12,487] | 100% |

Our success in developing and manufacturing many of our products depends on our ability to manufacture and to tailor the optical and physical properties of [removed: technically-challenging] [added: technically challenging] materials and components.

The ability to produce, [removed: process] [added: process,] and refine these complex materials and to control their quality and in-process yields is an expertise of the Company that is critical to the performance of our customers’ [removed: instruments] [added: subsystems] and systems.

In the markets we serve, there are a limited number of high-quality suppliers of many of the components we [removed: manufacture] [added: manufacture,] and there are very few industry-standard products.

Our network of worldwide manufacturing sites allows us to manufacture our products in regions that provide cost-effective [added: and risk management] advantages.

These include [removed: metal organic] [added: metal–organic] chemical vapor deposition and molecular beam epitaxy reactors, automated [removed: Computer Numeric Control] [added: computer numeric control] optical fabrication, [removed: high throughput] [added: high-throughput] thin-film coaters, [removed: nano-precision metrology] [added: nanoprecision metrology,] and custom-engineered automated furnace controls for crystal growth processes.

Manufacturing products for use across the [removed: electro-magnetic] [added: electromagnetic] spectrum requires the capability to repeatedly produce products with high yields to atomic tolerances.

II-VI is committed to delivering products within specification, on [removed: time] [added: time,] and with high quality, with a goal of fully satisfying customers and continually improving.

Among the major feed stock and raw materials we use [removed: include] [added: are] zinc, selenium, ZnSe, ZnS, hydrogen selenide, hydrogen sulfide, [added: arsine, phosphine, hydrogen, silon,] tellurium, yttrium oxide, aluminum oxide, iridium, platinum, bismuth, silicon, thorium fluoride, antimony, carbon, graphite, GaAs, InP, copper, germanium, molybdenum, quartz, optical glass, [removed: diamond,] and [removed: other materials.][added: diamond.]

The continued [removed: high-quality] [added: high quality] of and access to these materials is critical to the stability and predictability of our manufacturing yields.

As discussed in greater detail in Item 1A – Risk [removed: Factors,] [added: Factors] of this Annual Report on Form 10-K, significant failure of our suppliers to deliver sufficient quantities of necessary high-quality materials to our specifications on a timely basis could have a materially adverse effect on our results of our operations.

[removed: The] [added: As of June 30, 2019, the] Company’s organizational structure is divided into three reporting segments for the purpose of making operational decisions and assessing financial performance: (i) II-VI Laser Solutions, (ii) II-VI Photonics, and (iii) II-VI Performance Products.

As of June 30, 2019, the Company’s operations were organized into three reporting segments: (i) II-VI Laser Solutions, (ii) II-VI Photonics, and (iii) II-VI Performance Products.

See below for a more detailed description of each of these segments.

In connection with the refinement of our business strategy, the Company has, effective July 1, 2019 realigned its organizational structure into two reporting segments for the purpose of making operational decisions and assessing financial performance: (i) Compound Semiconductors and (ii) Photonic Solutions.

The Company will report financial information for these new reporting segments in fiscal 2020 which should provide enhanced visibility and transparency into the operations, business drivers and the value of our enterprise.

This change in reporting is to occur beginning with periods commencing July 1, 2019.

Pending Acquisition of Finisar Corporation

II-VI and Finisar have entered into an Agreement and Plan of Merger, dated as of November 8, 2018 (the “Merger Agreement”).

Pursuant to the terms of the Merger Agreement, Mutation Merger Sub Inc., a Delaware corporation and wholly owned subsidiary of II-VI, will be merged with and into Finisar, and Finisar will continue as the surviving corporation in the merger and a wholly owned subsidiary of II-VI (the “Merger”).

If the Merger is consummated, Finisar stockholders will be entitled to receive, at their election, consideration per share of common stock of Finisar (the “Finisar Common Stock”) consisting of (i) $26.00 in cash, without interest (the “Cash Consideration”), (ii) 0.5546 shares of II-VI common stock (the shares, the “II-VI Common Stock,” and the consideration, the “Stock Consideration”), or (iii) a combination of $15.60 in cash, without interest, and 0.2218 shares of II-VI Common Stock (the “Mixed Consideration,” and, together with the Cash Consideration and the Stock Consideration, the “Merger Consideration”).

The Cash Consideration and the Stock Consideration are subject to proration adjustment pursuant to the terms of the Merger Agreement such that the aggregate Merger Consideration will consist of approximately 60% cash and approximately 40% II-VI Common Stock assuming a per share price of II-VI common stock equal to the price when the Merger Agreement was signed on November 8, 2018, which was $46.88 per share.

At the effective time of the Merger (the “Effective Time”), each option granted pursuant to Finisar’s 2005 Stock Incentive Plan, as such plan has been further amended and restated (each, a “Finisar Stock Option”), or portion thereof, that is outstanding and unexercised as of immediately prior to the Effective Time (whether vested or unvested) will be cancelled, terminated and converted into the right to receive an amount of Mixed Consideration that would be payable to a holder of such number of shares of Finisar Common Stock equal to the quotient of (i) the product of (a) the excess, if any, of $26.00 over the exercise price per share of such Finisar Stock Option multiplied by (b) the number of shares of Finisar Common Stock subject to such Finisar Stock Option, divided by (ii) $26.00.

At the Effective Time, each restricted stock unit granted pursuant to Finisar’s 2005 Stock Incentive Plan, as such plan has been further amended and restated (each, a “Finisar Restricted Stock Unit”), or portion thereof , that is outstanding and subject to a performance-based vesting condition that relates solely to the value of Finisar Common Stock will, to the extent such Finisar Restricted Stock Unit vests in accordance with its terms in connection with the Merger (the “Participating RSUs”), be cancelled and extinguished and converted into the right to receive the Cash Consideration, the Stock Consideration or the Mixed Consideration at the election of the holder of such Participating RSUs, subject to proration adjustment.

At the Effective Time, each Finisar Restricted Stock Unit (or portion thereof) that is outstanding and unvested, does not vest in accordance with its terms in connection with the Merger and is either (x) subject to time-based vesting requirements only or (y) subject to a performance-based vesting condition other than the value of Finisar Common Stock will be assumed by II-VI (each, an “Assumed RSU”).

Each Assumed RSU will be subject to substantially the same terms and conditions as applied to the related Finisar Restricted Stock Unit immediately prior to the Effective Time, including the vesting schedule (and the applicable performance-vesting conditions in the case of a grant contemplated by clause (y) of the preceding sentence) and any provisions for accelerated vesting applicable thereto, except that the number of shares of II-VI Common Stock subject to each Assumed RSU will be equal to the product of (i) the number of shares of Finisar Common Stock underlying such unvested Finisar Restricted Stock Unit award as of immediately prior to the Effective Time multiplied by (ii) the sum of (a) 0.2218 plus (b) the quotient obtained by dividing (1) $15.60 by (2) the volume weighted average price per share of II-VI Common Stock (rounded to the nearest cent) on the Nasdaq Global Select Market for the ten consecutive trading days ending on (and including) the third trading day immediately prior to the Effective Time (with the resulting number rounded down to the nearest whole share).

II-VI filed with the SEC a registration statement on Form S-4 relating to the Merger, and that registration statement became effective in accordance with the provisions of Section 8(a) of the Securities Act of 1933, as amended, on February 7, 2019.

Shareholders of II-VI and stockholders of Finisar voted to approve proposals related to the Merger at special meetings held on March 26, 2019 by the respective companies.

The waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, with respect to the Merger has expired without a request for additional information.

Other regulatory approvals applicable to the Merger have been obtained in Germany, Mexico and Romania.

The completion of the Merger is subject to the satisfaction or waiver of certain additional customary closing conditions, including review and approval of the Merger by the State Administration for Market Regulation in China.

The Company is planning to refile with the State Administration for Market Regulation in China, extending the approval period.

Subject to the satisfaction or waiver of each of the closing conditions, II-VI and Finisar expect that the Merger will be completed in the second half of calendar 2019.

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.

On November 8, 2018, in connection with its entry into the Merger Agreement, II-VI entered into a commitment letter (together with a related fee letter) with Bank of America, N.A., which was subsequently amended and restated on December 7, 2018 and on December 14, 2018 (together with one or more related fee letters, the “Commitment Letter”).

Subject to the terms and conditions set forth in the Commitment Letter, the lender parties thereto severally committed to provide 100% of up to $2.425 billion in aggregate principal amount of senior secured credit facilities of II-VI.

On March 4, 2019, II-VI entered into a Credit Agreement, dated as of March 4, 2019 (as amended, the “New 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 lenders party thereto.

II-VI also entered into Amendment No. 1 to Credit Agreement, dated as of May 24, 2019, by and among the Company, Bank of America, N.A., as Administrative Agent, and the other lenders party thereto, which includes the final results of the syndication of the Term A Facility (as defined below).

Pursuant to the terms and subject to the conditions therein, the New Credit Agreement provides for senior secured financing of $1.705 billion in the aggregate, consisting of (i) a five-year senior secured first-lien term A loan facility in an aggregate principal amount of $1.255 billion (the “Term A Facility”) and (ii) a five-year senior secured first-lien revolving credit facility in an aggregate principal amount of $450.0 million (the “Revolving Credit Facility” and together with the Term A Facility, the “New Senior Credit Facilities”).

The New 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, subject to adjustment in accordance with the terms of the New Credit Agreement.

II-VI anticipates using the proceeds from the Term A Facility, together with a separately committed term B loan facility in an aggregate principal amount of up to $720.0 million (the “Term B Facility”) and cash and short-term investments of II-VI and Finisar, to pay the cash portion of the merger consideration payable in connection with the Merger and related fees and expenses.

II-VI currently does not intend to draw on the Revolving Credit Facility in order to fund the cash portion of the merger consideration payable in connection with the Merger.

The funding obligations of the lenders under the New Senior Credit Facilities are subject to certain currently unsatisfied conditions, including the consummation of the Merger.

Accordingly, no borrowings are currently outstanding under the New Senior Credit Facilities, and II-VI currently is not able to borrow under the New Senior Credit Facilities.

Further, II-VI expects that the New Credit Agreement will be amended prior to the consummation of the Merger to reflect syndication of the Term B Facility and to finalize certain other terms in the New Credit Agreement.

Upon the consummation of the Merger, the New Senior Credit Facilities, governed by the New Credit Agreement as it may be amended as of such time, will be used (i) to refinance in full the Amended Credit Facility (as defined in Note 9 to the Company’s Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K) and (ii) on or after the date of the consummation of the Merger, to repay amounts owed in connection with Finisar’s outstanding convertible notes, currently in an aggregate principal amount outstanding of $575.0 million, including with the proceeds of a portion of the Term A Facility which will be available to II-VI for a certain period after the initial funding under the New Senior Credit Facilities.

Unless and until the Merger is consummated and the other currently unsatisfied conditions to the funding obligations of the lenders under the New Senior Credit Facilities are satisfied or waived, the Amended Credit Facility remains in effect in accordance with its terms.

| Direct production | 9,778 | 78% |

| II-VI Industrial Laser | • Laser heads and modules; Q-switched laser modules; high-power, uncooled pump laser modules; laser solutions for super-hard materials processing; high-brightness direct-diode laser engines | |

Aerospace and Defense Market

Moreover, our recently acquired optical beam combining and directing technologies, along with our fiber laser components, are enabling High Energy Laser (HEL) systems and applications.

As of June 30, 2019, we employed 1,707 people in RD&E functions.

| Direct production | 8,977 | 79% |

| II-VI OEG | • VCSELs for 3D sensing in consumer electronics and automotive • RF devices for communications | |

| II-VI Compound Semiconductor | • RF electronic devices for military applications | |

| II-VI EpiWorks | • III-V epitaxial wafers to enable higher performance photonic and RF components for consumer, communications, network and mobile applications, including wireless handsets, tablets and the Internet of things | |

| II-VI SUWTECH | • Diode pumped solid state lasers, green lasers and Q-switched lasers • Laser diode modules for multiple markets and applications, including aiming, leveling, range finding, machine vision, bio-medical instrumentation, Raman spectroscopy, and fluorescence spectroscopy • Fiber coupled high power diode lasers in the 8xx and 9xx nm wavelength ranges for fiber laser and solid state laser pumping, as well as for medical and other applications | |

| II-VI LASERTECH | • Laser cutting and drilling machines for processing a wide variety of super hard materials such as CVD diamond, polycrystalline diamond, polycrystalline cubic boron nitride, and ceramics among others as well as for high efficiency laser cutting of non-conductive materials | |

| II-VI DIRECTPHOTONICS | • High brightness, high power direct diode laser engines for cutting, welding, and thermal processing applications, including optimized solutions for aluminum and aluminum-copper processing applications | |

Another emerging and fast growing application is the processing of displays for consumer electronics, including those based on the OLED technology that are scribed with CO lasers and sealed with UV lasers.

Military Market

| | | | |

As of June 30, 2018, we employed 1,513 people in RD&E functions, 1,439 of whom are engineers or scientists.

During his career at II-VI he has assumed

10-K 1 [removed: iivi-10k_20180630.htm] [added: iivi-10k_20190630.htm] 10-K

for the fiscal year ended June 30, [removed: 2018][added: 2019]

| Title of [removed: Each Class] [added: each class] | [added: Trading Symbol(s)] | Name of [removed: Each Exchange] [added: each exchange] on [removed: Which Registered] [added: which registered] |

| Common Stock, no par value | [added: IIVI] | Nasdaq Global Select Market |

Indicate by check mark whether the registrant has submitted [removed: electronically and posted on its corporate Web site, if any,] [added: electronically,] every Interactive Data File required to be submitted [removed: and posted] pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit [removed: and post] such files).

See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange [removed: Act.][added: Act:]

| Non-accelerated filer | ☐ | [removed: (Do not check if a smaller reporting company)] | | Smaller reporting company | | ☐ |

Aggregate market value of outstanding Common Stock, no par value, held by non-affiliates of the Registrant at December [removed: 29, 2017,] [added: 31, 2018,] was approximately [removed: $2,867,219,000] [added: $2,023,369,000] based on the closing sale price reported on the Nasdaq Global Select Market.

Number of outstanding shares of Common Stock, no par value, at August [removed: 22, 2018,] [added: 12, 2019,] was [removed: 63,595,874.][added: 63,610,824.]

Portions of the registrant’s definitive proxy statement, which will be issued in connection with the [removed: 2018] [added: 2019] Annual Meeting of Shareholders of II-VI Incorporated, are incorporated by reference into Part III of this Annual Report on Form 10-K.

The following factors, among others, in some cases have affected and in the future could affect our financial performance and actual results, and could cause actual results for fiscal [removed: 2019] [added: 2020] and beyond to differ materially from those expressed or implied in any forward-looking statements included in this Annual Report on Form 10-K or otherwise made by our management:

| | • | Investments in future markets of potential significant growth may not result in [added: the] expected [removed: returns.] [added: return.] |

| | • | [removed: Our] [added: To retain our] competitive position may [removed: still] require significant investments. |

| | • | Our future success depends on continued international sales, and our global operations are complex [removed: to manage,] and present multiple challenges to manage. |

| | • | There are limitations on the protection of our intellectual [removed: property] [added: property,] and we may from time to time be involved in costly intellectual property litigation or indemnification. |

| | • | A significant portion of our business [removed: depends] [added: is dependent] on cyclical industries. |

| | • | Changes in U.S. trade policies could impact [removed: the Company’s] [added: our] international operations and the cost of [removed: imported] goods [added: imported] into the [removed: U.S.,] [added: United States,] which may narrow the size of our markets, materially impact our revenues or increase our operating costs and expose us to contract litigation. |

| | • | Some systems that use our products are complex in design, and our products may contain defects that are not [removed: known or] detected until [removed: deployed] [added: deployed,] which could increase our costs, reduce our revenues, cause us to lose key customers and may expose us to litigation arising from derivative lawsuits related to consumer products. |

| | • | Our success depends on our ability to attract, [removed: retain,] [added: retain] and develop key personnel and requires continued good relations with our employees. |

In addition, we operate in a highly competitive and rapidly changing environment, and, therefore, new risk factors can arise and be present without market [removed: players] [added: participants] like us knowing until a substantial amount of time has passed.

| | | |

| | • | We may be unable to successfully implement our acquisitions strategy or integrate acquired companies and personnel with existing operations. |

| | • | We contract with a number of large end-user service providers and product companies that have considerable bargaining power, which may require us to agree to terms and conditions that could have an adverse effect on our business or ability to recognize revenues. |

| | • | We depend on large purchases from a few significant customers, and any loss, cancellation, reduction or delay in purchases by these customers could harm our business. |

| --- | --- | --- |

| | • | The manufacturing of our products may be adversely affected if we are unable to manufacture certain products in our manufacturing facilities. |

| --- | --- | --- |

| | • | Failure to accurately forecast our revenues could result in additional charges for obsolete or excess inventories or non-cancelable purchase commitments. |

| --- | --- | --- |

| | • | If we fail to maintain an effective system of disclosure controls and internal control over financial reporting, our ability to produce timely and accurate financial statements or comply with applicable regulations could be impaired. |

| --- | --- | --- |

Risk Factors Relating to Our Pending Acquisition of Finisar Corporation (“Finisar”)

| | • | Although we expect that our acquisition of Finisar will result in cost savings, synergies and other benefits, the combined company may not realize those benefits because of market conditions, trade and tariff changes, integration difficulties and other challenges. |

| --- | --- | --- |

| | • | We will incur significant transaction-related costs in connection with our pending acquisition of Finisar. |

| --- | --- | --- |

| | • | Our pending acquisition of Finisar is subject to conditions, including certain conditions that may not be satisfied, and may not be completed on a timely basis, or at all. Failure to complete our pending acquisition of Finisar could have material and adverse effects on us. |

| --- | --- | --- |

| | • | Each of II-VI and Finisar is subject to business uncertainties and contractual restrictions while our acquisition of Finisar is pending, which could adversely affect each of Finisar’s and II-VI’s business and operations. |

| --- | --- | --- |

| | • | The market price of our Common Stock may decline in the future as a result of the Merger. |

| --- | --- | --- |

ityP!@

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.

(Check one):

| | • | We may incur substantially more indebtedness. |

| | • | The conditional conversion feature of our outstanding convertible senior notes, if triggered, may adversely affect our financial condition and operating results. |

Information regarding our principal U.S. properties at June 30, [removed: 2018] [added: 2019] is set forth below:

| Location | | Primary Use(s) | | Primary Business Segment(s) | | Approximate Square [removed: Footage] | | [added: | |] Ownership |

| Saxonburg, PA | | Manufacturing and Research and Development | | II-VI Laser Solutions and II-VI Performance Products | | [removed: 230,000] [added: 235,000] | | [added: | |] Owned and Leased |

| Warren, NJ | | Manufacturing and [removed: Research and Development] | | II-VI Laser Solutions | | 159,000 | | [added: | |] Leased |

| [removed: Murrieta, CA] [added: Dallas, TX] | | Manufacturing and Research and Development | | II-VI Performance Products | | [removed: 111,000] [added: 68,000] | | [added: | | Owned and] Leased |

| Newark, DE | | Manufacturing and [removed: Research and Development] | | II-VI Performance Products | | [removed: 163,000] [added: 135,000] | | [added: | |] Leased |

| Champaign, IL | | Manufacturing and [removed: Research and Development] | | II-VI Laser Solutions | | 69,000 | | [added: | |] Leased |

| [removed: Dallas, TX] [added: Monroe, CT] | | Manufacturing and [removed: Research and Development] | | II-VI Performance Products | | [removed: 68,000] [added: 48,000] | | [removed: Owned and] [added: | |] Leased |

| Warrendale, PA | | Corporate Administrative Offices | | N/A | | [added: |] 63,000 | | [added: |] Leased |

| Pine Brook, NJ | | Manufacturing and [removed: Research and Development] | | II-VI Performance Products | | [removed: 54,000] [added: 47,000] | | [added: | |] Leased |

| [removed: Monroe, CT] [added: Tustin, CA] | | Manufacturing and [removed: Research and Development] | | II-VI Performance Products | | [removed: 48,000] [added: 31,000] | | [added: | |] Leased |

| Easton, PA | | Manufacturing and [removed: Research and Development] | | II-VI Laser Solutions and II-VI Performance Products | | 48,000 | | [added: | |] Leased |

| Santa Rosa, CA | | Manufacturing and [removed: Research and Development] | | II-VI Photonics | | 39,000 | | [added: | |] Leased |

| Starkville, MS | | Manufacturing | | II-VI Performance Products | | [removed: 32,000] | [added: 35,000] | [added: | |] Leased |

| [removed: Tustin, CA] [added: Philadelphia, PA] | | Manufacturing and [removed: Research and Development] | | II-VI Performance Products | | [removed: 31,000] [added: 30,000] | | [added: | |] Leased |

| [removed: Philadelphia, PA] [added: Hillsborough, NJ] | | Manufacturing and [removed: Research and Development] | | II-VI Performance Products | | [removed: 30,000] [added: 23,000] | | [added: | |] Leased |

| [removed: Hillsborough, NJ] [added: United Kingdom] | | [removed: Manufacturing and] [added: Manufacturing,] Research and Development | | II-VI [added: Laser Solutions and II-VI] Photonics | | [removed: 23,000] | [added: 319,000] | [added: | | Owned and] Leased |

Information regarding our principal foreign properties at June 30, [removed: 2018] [added: 2019] is set forth below:

| China | | Manufacturing, Research and Development, and Distribution | | II-VI Laser Solutions, II-VI Photonics and II-VI Performance Products | | [removed: 1,556,000] | [added: 1,694,000] | [added: | |] Leased |

| [removed: United Kingdom] [added: Switzerland] | | Manufacturing, Research and [removed: Development] [added: Development, and Distribution] | | II-VI Laser Solutions [removed: and II-VI Photonics] | | [removed: 319,000] | [added: 118,000] | [removed: Owned and] [added: | |] Leased |

| Philippines | | Manufacturing | | II-VI Laser Solutions and II-VI Performance Products | | [removed: 314,000] | [added: 318,000] | [added: | |] Leased |

| Vietnam | | Manufacturing | | II-VI Photonics and II-VI Performance Products | | [removed: 176,000] | [added: 192,000] | [added: | |] Owned and Leased |

| [removed: Switzerland] [added: Germany] | | [removed: Manufacturing, Research and Development,] [added: Manufacturing] and Distribution | | II-VI Laser [removed: Solutions] [added: Solutions, II-VI Photonics and II-VI Performance Products] | | [removed: 117,000] | [added: 81,000] | [added: | | Owned and] Leased |

| [removed: Germany] [added: Singapore] | | Manufacturing [removed: and Distribution] | | II-VI Laser [removed: Solutions, II-VI Photonics] [added: Solutions] and II-VI Performance Products | | [removed: 81,000] | [added: 38,000] | [removed: Owned and] [added: | |] Leased |

| [removed: Singapore] [added: Murrieta, CA] | | Manufacturing [added: and] | | II-VI [removed: Laser Solutions and II-VI] Performance Products | | [removed: 38,000] [added: 108,000] | | [added: | |] Leased |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| | | | | | | Footage | | | | |

| | | | | | | | | | | |

| | | Research and Development | | | | | | | | |

| | | Research and Development | | | | | | | | |

| | | Research and Development | | | | | | | | |

| | | Research and Development | | | | | | | | |

| | | Research and Development | | | | | | | | |

| | | Research and Development | | | | | | | | |

| | | Research and Development | | | | | | | | |

| | | Research and Development | | | | | | | | |

| | | Research and Development | | | | | | | | |

| | | Research and Development | | | | | | | | |

| | | Research and Development | | | | | | | | |

| | | | | | | Approximate Square | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| Location | | Primary Use(s) | | Primary Business Segment(s) | | Footage | | | | Ownership |

| --- | --- | --- | --- | --- | --- | --- | --- | --- |

In August 2017, in conjunction with the Company’s offering and sale of our outstanding convertible notes, the Company’s Board of Directors authorized the Company to purchase up to $50 million of its common stock with a portion of the net proceeds received from the offering and sale of the [removed: Notes.][added: convertible notes.]

Shares purchased by the Company are retained as treasury stock and [removed: are] available for general corporate purposes.

As of June 30, [removed: 2018,] [added: 2019,] the Company has cumulatively purchased [removed: 1,316,587] [added: 1,366,587] shares of its common stock pursuant to the Program for approximately [removed: $19.0] [added: $20.7] million.

The dollar value of shares as of June 30, [removed: 2018] [added: 2019] that may yet be purchased under the Program is approximately [removed: $31.0 million.][added: $29.3 million]

The following table provides information with respect to purchases of the Company’s equity securities during the quarter ended June 30, [removed: 2018.][added: 2019.]

| Period | | Shares Purchased | | | | Per Share | | | | Programs [removed: (a)] | | | | Program | | |

| April 1, [removed: 2018] [added: 2019] to April 30, [removed: 2018] [added: 2019] | | | [removed: 516] [added: \-] | | [removed: (1)] | $ | [removed: 40.40] [added: \-] | | | | \- | | | $ | 30,906,904 | |

| (1) | Includes [removed: 516] [added: 2,594] shares of our common stock transferred to the Company from employees in satisfaction of minimum tax withholding obligations associated with the vesting of restricted share awards. |

The information incorporated by reference in Item 12 of this Annual Report on Form 10-K, from our [removed: 2018] [added: 2019] Proxy Statement under the heading “Equity Compensation Plan Information,” is hereby also incorporated by reference into this Item 5.

The following graph compares cumulative total shareholder return on the Company’s common stock with the cumulative total shareholder return of the Nasdaq Composite Index and with a peer group of companies constructed by the Company for the period from June 30, [removed: 2013,] [added: 2014,] through June 30, [removed: 2018.][added: 2019.]

The Company’s current fiscal year peer group includes Cabot Microelectronics Corporation, Franklin Electric [removed: Co.,] [added: Co.] Inc., MKS Instruments, Inc., Silicon [removed: Laboratories,] [added: Laboratories Inc.,] Lumentum Holdings Inc., Finisar [removed: Corp,] [added: Corporation,] Coherent, Inc. and Corning [removed: Inc.][added: Incorporated.]

[removed: ][added: ]

The Company’s common stock is traded on the Nasdaq Global Select Market (“Nasdaq”) under the symbol “IIVI.” As of August 12, 2019, there were approximately 824 holders of record of our common stock.

During the fiscal year ended June 30, 2019, the Company purchased 50,000 shares of its common stock for $1.6 million under this program.

The Company did not repurchase shares pursuant to this Program during the fiscal years ended June 30, 2018 and 2017.

| May 1, 2019 to May 31, 2019 | 2,594 | | | | (1) | $ | 32.86 | | | | \- | | | $ | 30,906,904 | |

| June 1, 2019 to June 30, 2019 | | | \- | | | $ | 32.32 | | | | 50,000 | | | $ | 29,290,759 | |

| --- | --- |

The Company’s common stock is traded on the Nasdaq Global Select Market (“Nasdaq”) under the symbol “IIVI.” The following table sets forth the range of high and low trading prices per share of the Company’s common stock for the fiscal periods indicated, as reported by Nasdaq.

| | | High | | | | Low | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- |

| Fiscal 2018 | | | | | | | | |

| First Quarter | | $ | 41.43 | | | $ | 34.00 | |

| Second Quarter | | $ | 52.55 | | | $ | 39.60 | |

| Third Quarter | | $ | 53.08 | | | $ | 36.60 | |

| Fourth Quarter | | $ | 49.30 | | | $ | 38.05 | |

| | | | | | | | | |

| Fiscal 2017 | | | | | | | | |

| First Quarter | | $ | 24.46 | | | $ | 17.76 | |

| Second Quarter | | $ | 32.45 | | | $ | 23.80 | |

| Third Quarter | | $ | 41.10 | | | $ | 29.10 | |

| Fourth Quarter | | $ | 36.35 | | | $ | 27.25 | |

On August 22, 2018, the last reported sale price for the Company’s common stock was $47.15 per share.

As of such date, there were approximately 806 holders of record of our common stock.

| May 1, 2018 to May 31, 2018 | 860 | | | | (2) | $ | 44.61 | | | | \- | | | $ | 30,906,904 | |

| June 1, 2018 to June 30, 2018 | | | 52,947 | | (3) | $ | 46.55 | | | | \- | | | $ | 30,906,904 | |

| (2) | Includes 860 shares of our common stock transferred to the Company from employees in satisfaction of minimum tax withholding obligations associated with the vesting of restricted share awards. |

| (3) | Includes 52,947 shares of our common stock transferred to the Company from employees in satisfaction of minimum tax withholding obligations associated with the vesting of restricted share awards. |

| Year Ended June 30, | | [removed: 2018] [added: 2019] | | | | | [removed: 2017] [added: 2018] | | | | | [removed: 2016] [added: 2017] | | | | | [removed: 2015] [added: 2016] | | | | | [removed: 2014] [added: 2015] | | | |

| Net revenues [removed: from continuing operations] | | $ | | [removed: 1,158,794] [added: 1,362,496] | | | $ | | [removed: 972,046] [added: 1,158,794] | | | $ | | [removed: 827,216] [added: 972,046] | | | $ | | [removed: 741,961] [added: 827,216] | | | $ | | [removed: 683,261] [added: 741,961] | |

| [removed: Earnings from continuing operations] [added: Net earnings] | | | | [removed: 88,002] [added: 107,517] | | | | | [removed: 95,274] [added: 88,002] | | | | | [removed: 65,486] [added: 95,274] | | | | | [removed: 65,975] [added: 65,486] | | | | | [removed: 38,316] [added: 65,975] | |

| Diluted weighted average shares outstanding | | | | [removed: 65,133] [added: 65,804] | | | | | [removed: 64,507] [added: 65,133] | | | | | [removed: 62,909] [added: 64,507] | | | | | [removed: 62,586] [added: 62,909] | | | | | [removed: 63,686] [added: 62,586] | |

| June 30, | | [removed: 2018] [added: 2019] | | | | | [removed: 2017] [added: 2018] | | | | | [removed: 2016] [added: 2017] | | | | | [removed: 2015] [added: 2016] | | | | | [removed: 2014] [added: 2015] | | | |

| Working capital | | $ | | [removed: 525,370] [added: 542,348] | | | $ | | [removed: 517,344] [added: 525,370] | | | $ | | [removed: 411,721] [added: 517,344] | | | $ | | [removed: 373,812] [added: 411,721] | | | $ | | [removed: 370,666] [added: 373,812] | |

| Total assets | | | | [removed: 1,761,661] [added: 1,953,773] | | | | | [removed: 1,477,297] [added: 1,761,661] | | | | | [removed: 1,211,981] [added: 1,477,297] | | | | | [removed: 1,057,273] [added: 1,211,981] | | | | | [removed: 1,070,753] [added: 1,057,273] | |

| Long-term debt | | | | [removed: 419,013] [added: 443,163] | | | | | [removed: 322,022] [added: 419,013] | | | | | [removed: 215,307] [added: 322,022] | | | | | [removed: 155,066] [added: 215,307] | | | | | [removed: 220,787] [added: 155,066] | |

| Total debt | | | | [removed: 439,013] [added: 466,997] | | | | | [removed: 342,022] [added: 439,013] | | | | | [removed: 235,307] [added: 342,022] | | | | | [removed: 175,066] [added: 235,307] | | | | | [removed: 240,787] [added: 175,066] | |

| Retained earnings | | | | [removed: 836,064] [added: 943,581] | | | | | [removed: 748,062] [added: 836,064] | | | | | [removed: 652,788] [added: 748,062] | | | | | [removed: 587,302] [added: 652,788] | | | | | [removed: 521,327] [added: 587,302] | |

| Shareholders' equity | | | | [removed: 1,024,311] [added: 1,133,209] | | | | | [removed: 900,563] [added: 1,024,311] | | | | | [removed: 782,338] [added: 900,563] | | | | | [removed: 729,081] [added: 782,338] | | | | | [removed: 675,043] [added: 729,081] | |

| Basic earnings per share | | | | 1.69 | | | | | 1.41 | | | | | 1.52 | | | | | 1.07 | | | | | 1.08 | |

| Diluted earnings per share | | | | 1.63 | | | | | 1.35 | | | | | 1.48 | | | | | 1.04 | | | | | 1.05 | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| Earnings from discontinued operation | | | | \- | | | | | \- | | | | | \- | | | | | \- | | | | | 133 | |

| Net earnings | | | | 88,002 | | | | | 95,274 | | | | | 65,486 | | | | | 65,975 | | | | | 38,449 | |

| Basic earnings per shares: | | | | | | | | | | | | | | | | | | | | | | | | | |

| Continuing operations | | | | 1.41 | | | | | 1.52 | | | | | 1.07 | | | | | 1.08 | | | | | 0.62 | |

| Discontinued operation | | | | \- | | | | | \- | | | | | \- | | | | | \- | | | | | \- | |

| Consolidated | | | | 1.41 | | | | | 1.52 | | | | | 1.07 | | | | | 1.08 | | | | | 0.62 | |

| Diluted earnings per shares: | | | | | | | | | | | | | | | | | | | | | | | | | |

| Continuing operations | | | | 1.35 | | | | | 1.48 | | | | | 1.04 | | | | | 1.05 | | | | | 0.60 | |

| Consolidated | | | | 1.35 | | | | | 1.48 | | | | | 1.04 | | | | | 1.05 | | | | | 0.60 | |

Management conducted an evaluation of the effectiveness of the Company’s internal control over financial reporting as of June 30, [removed: 2018.][added: 2019.]

Management excluded from the scope of its assessment of internal control over financial reporting the [removed: operations and related assets] [added: internal controls] of [removed: Kaiam Laser Limited,] [added: CoAdna Holdings,] Inc., which was acquired in [removed: August 2017.][added: September 2018, and Redstone Aerospace Corporation, which was acquired in March 2019.]

The recent [removed: acquisition] [added: acquisitions] excluded from management’s assessment of internal controls over financial reporting represented approximately [removed: $107.2] [added: $98.1] million and [removed: $98.1million] [added: $84.1 million] of total assets and net assets, respectively, as of June 30, [removed: 2018] [added: 2019] and approximately [removed: $3.4] [added: $15.5] million and [removed: $12.5] [added: $1.2] million of total revenues and net loss, respectively, for the fiscal year then ended.

Based on the evaluation, management concluded that as of June 30, [removed: 2018,] [added: 2019,] the Company’s internal controls over financial reporting were effective.

Ernst & Young LLP, an independent registered public accounting firm, has issued its report on the effectiveness of our internal control over financial reporting as of June 30, [removed: 2018.][added: 2019.]

We have audited II-VI Incorporated and Subsidiaries’ internal control over financial reporting as of June 30, [removed: 2018,] [added: 2019,] based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria).

In our opinion, II-VI Incorporated and Subsidiaries (the Company) maintained, in all material respects, effective internal control over financial reporting as of June 30, [removed: 2018,] [added: 2019,] based on the COSO criteria.

As indicated in the accompanying Management’s Report on Internal Control Over Financial Reporting, management’s assessment of and conclusion on the effectiveness of internal control over financial reporting did not include the internal controls of [removed: Kaiam Laser Limited, Inc.,] [added: CoAdna Holdings, Inc. (“CoAdna”) and Redstone Aerospace Corporation (“Redstone”),] which [removed: is] [added: are] included in the June 30, [removed: 2018] [added: 2019] consolidated financial statements of the Company and constituted [removed: $107.2] [added: $98.1] million and [removed: $98.1] [added: $84.1] million of total and net assets, respectively, as of June 30, [removed: 2018] [added: 2019] and [removed: $3.4] [added: $15.5] million and [removed: $12.5] [added: $1.2] million of revenues and net loss, respectively, for the fiscal year then ended.

Our audit of internal control over financial reporting of the Company also did not include an evaluation of the internal control over financial reporting of [removed: Kaiam Laser Limited, Inc.][added: CoAdna and Redstone.]

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of June 30, [removed: 2018] [added: 2019] and [removed: 2017,] [added: 2018,] the related consolidated statements of earnings, comprehensive income, shareholders’ equity and cash flows for each of the three years in the period ended June 30, [removed: 2018,] [added: 2019,] and the related notes and the financial statement schedule listed in the Index at Item 15(a)(2) and our report dated August [removed: 28, 2018] [added: 16, 2019] expressed an unqualified opinion thereon.

We have audited the accompanying consolidated balance sheets of II-VI Incorporated and Subsidiaries (the Company) as of June 30, [removed: 2018] [added: 2019] and [removed: 2017,] [added: 2018,] the related consolidated statements of earnings, comprehensive income, shareholders’ equity and cash flows for each of the three years in the period ended June 30, [removed: 2018,] [added: 2019,] and the related notes and the financial statement schedule listed in the Index at Item 15(a)(2) (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at June 30, [removed: 2018] [added: 2019] and [removed: 2017,] [added: 2018,] and the results of its operations and its cash flows for each of the three years in the period ended June 30, [removed: 2018,] [added: 2019,] in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of June 30, [removed: 2018,] [added: 2019,] based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated August [removed: 28, 2018] [added: 16, 2019] expressed an unqualified opinion thereon.

| June 30, | | [added: 2019 | | | |] 2018 | | | | 2017 | | |

| Cash and [removed: cash equivalents] [added: Cash Equivalents at Beginning of Period] | | [removed: $] | 247,038 | | | [removed: $] | 271,888 | | [added: | | 218,445 | |]

| Accounts receivable - less allowance for doubtful accounts of [removed: $837] [added: $1,292] at June 30, [removed: 2018] [added: 2019] and [removed: $1,314] [added: $837] at June 30, [removed: 2017] [added: 2018] | | | [removed: 215,032] [added: 269,642] | | | | [removed: 193,379] [added: 215,032] | |

| Inventories | | | [removed: 248,268] [added: 296,282] | | | | [removed: 203,695] [added: 248,268] | |

| Prepaid and refundable income taxes | | | [removed: 7,845] [added: 11,778] | | | | [removed: 6,732] [added: 7,845] | |

| Prepaid and other current assets | | | [removed: 43,654] [added: 30,337] | | | | [removed: 26,602] [added: 43,654] | |

| Total Current Assets | | | [removed: 761,837] [added: 812,911] | | | | [removed: 702,296] [added: 761,837] | |

| Property, plant & equipment, net | | | [removed: 524,890] [added: 582,790] | | | | [removed: 367,728] [added: 524,890] | |

| Goodwill | | | [removed: 270,678] [added: 319,778] | | | | [removed: 250,342] [added: 270,678] | |

| Other intangible assets, net | | | [removed: 125,069] [added: 139,324] | | | | [removed: 133,957] [added: 125,069] | |

| Investments | | | [removed: 69,215] [added: 76,208] | | | | [removed: 11,727] [added: 69,215] | |

| Deferred income taxes | | | [removed: 2,046] [added: 8,524] | | | | [removed: 3,023] [added: 2,046] | |

| Other assets | | | [removed: 7,926] [added: 14,238] | | | | [removed: 8,224] [added: 7,926] | |

| Total Assets | | $ | [removed: 1,761,661] [added: 1,953,773] | | | $ | [removed: 1,477,297] [added: 1,761,661] | |

| Current portion of long-term debt | | $ | [removed: 20,000] [added: 23,834] | | | $ | 20,000 | |

| Accounts payable | | | [removed: 89,774] [added: 104,462] | | | | [removed: 65,540] [added: 89,774] | |

| Accrued compensation and benefits | | | [removed: 66,322] [added: 71,847] | | | | [removed: 58,178] [added: 66,322] | |

| Accrued income taxes payable | | | [removed: 17,392] [added: 20,476] | | | | [removed: 12,178] [added: 17,392] | |

| Other accrued liabilities | | | [removed: 42,979] [added: 49,944] | | | | [removed: 29,056] [added: 42,979] | |

| Total Current Liabilities | | | [removed: 236,467] [added: 270,563] | | | | [removed: 184,952] [added: 236,467] | |

| Long-term debt | | | [removed: 419,013] [added: 443,163] | | | | [removed: 322,022] [added: 419,013] | |

| Deferred income taxes | | | [removed: 27,241] [added: 23,913] | | | | [removed: 15,345] [added: 27,241] | |

| Other liabilities | | | [removed: 54,629] [added: 82,925] | | | | [removed: 54,415] [added: 54,629] | |

| Total Liabilities | | | [removed: 737,350] [added: 820,564] | | | | [removed: 576,734] [added: 737,350] | |

| Common stock, no par value; authorized - 300,000,000 shares; issued - [removed: 75,692,683] [added: 76,315,337] shares at June 30, [removed: 2018; 74,081,451] [added: 2019; 75,692,683] shares at June 30, [removed: 2017] [added: 2018] | | | [removed: 351,761] [added: 382,423] | | | | [removed: 269,638] [added: 351,761] | |

| Accumulated other comprehensive income (loss) | | | [removed: (3,780] [added: (24,221] | ) | | | [removed: (13,778] [added: (3,780] | ) |

| Retained earnings | | | [removed: 836,064] [added: 943,581] | | | | [removed: 748,062] [added: 836,064] | |

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

| | |

| | Accounting for acquisition of CoAdna Holdings, Inc. |

| Description of the Matter | As discussed in Note 3 to the consolidated financial statements, during the year ended June 30, 2019, the Company completed the acquisition of CoAdna Holdings, Inc (“CoAdna”) for a total purchase price of approximately $42.8 million, net of cash acquired. The acquisition was accounted for under the acquisition method of accounting whereby the total purchase price was allocated to tangible and intangible assets acquired and liabilities assumed based on the respective fair values. Auditing the Company’s accounting for its acquisition of CoAdna was complex due to the significant estimation uncertainty in determining the fair value of identified intangible assets, which principally consisted of customer relationships and developed technology. The significant estimation uncertainty was primarily due to the sensitivity of the respective fair values to underlying assumptions about the future performance of the acquired business which rely upon innovation and growth within the optical communications market and applicability of the existing offerings to future technologies. The Company used the multi-period excess earnings method and the relief from royalty method to value the customer relationships and developed technology, respectively. The significant assumptions used to estimate the fair value of the customer relationships included the forecasted revenue and earnings generated by the customer relationships and a discount rate that reflected the level of risk associated with the future cash flows attributable to the customer relationships. The significant assumptions used to estimate the fair value of the developed technology included the forecasted revenue generated by the asset group and a discount rate that reflected the level of risk associated with the future revenue attributable to the developed technology. These significant assumptions are forward-looking and could be affected by future economic and market conditions. |

| | |

| How We Addressed the Matter in Our Audit | We tested controls that address the risks of material misstatement relating to the valuation of the customer relationships and developed technology. For example, we tested controls over management’s review of the significant assumptions, such as the acquired business’s forecasted revenue and earnings and the discount rates used in the valuation. To test the estimated fair value of the acquired customer relationships and developed technology, our audit procedures included, among others, assessing the appropriateness of the valuation methodologies and testing the significant assumptions discussed above and the underlying data used by the Company. For example, we compared the forecasted revenue and earnings to current industry and economic trends as well as the historic financial performance of the acquired business and its primary customers, and compared the projected revenue growth to the assumptions used in the valuation of the Company’s Photonics reporting unit. We also performed sensitivity analyses to evaluate the changes in the fair value of the intangible assets that would result from changes in the significant assumptions. We involved our valuation specialist to assist in evaluating the valuation techniques and discount rate used to value the customer relationships and developed technology, which included comparison of the selected discount rate to the acquired business’s weighted average cost of capital, an evaluation of the relationship of the weighted average cost of capital, internal rate of return and weighted-average return on assets, and consideration of implied deal multiples exhibited by recent transactions of guideline public companies. |

| | Accounting for acquisition of Redstone Aerospace Corporation |

| Description of the Matter | As discussed in Note 3 to the consolidated financial statements, during the year ended June 30, 2019, the Company completed the acquisition of Redstone Aerospace Corporation (“Redstone”) for a total purchase price of approximately $29.7 million, net of cash acquired. The acquisition was accounted for under the acquisition method of accounting whereby the total purchase price was allocated to tangible and intangible assets acquired and liabilities assumed based on the respective fair values. Auditing the Company’s accounting for its acquisition of Redstone was complex due to the significant estimation uncertainty in determining the fair value of identified intangible assets, which principally consisted of developed technology. The significant estimation uncertainty was primarily due to the sensitivity of the respective fair value to underlying assumptions about the future performance of the acquired business which rely upon significant revenue growth arising from accelerating the deployment and expansion of the acquired business’s operating capacity as well as market-participant based revenue synergies. The Company used the relief from royalty method to value the developed technology. The significant assumptions used to estimate the fair value of the developed technology included the forecasted revenue generated by the asset group and a discount rate that reflected the level of risk associated with the future revenue attributable to the developed technology. These significant assumptions are forward-looking and could be affected by future economic and market conditions. |

| How We Addressed the Matter in Our Audit | We tested controls that address the risks of material misstatement relating to the valuation of the developed technology. For example, we tested controls over management’s review of the significant assumptions, such as the acquired business’s forecasted revenue and the discount rate used in the valuation. To test the estimated fair value of the acquired developed technology, our audit procedures included, among others, assessing the appropriateness of the valuation methodology and testing the significant assumptions discussed above and the underlying data used by the Company. For example, we compared the forecasted revenue growth rate to current industry and economic trends and performed sensitivity analyses to evaluate the changes in the fair value of the intangible asset that would result from changes in the significant assumptions, including the timing of projected revenue growth. We involved our valuation specialist to assist in evaluating the valuation techniques and discount rate used to value the developed technology, which included comparison of the selected discount rate to the acquired business’s weighted average cost of capital, an evaluation of the relationship of the weighted average cost of capital, internal rate of return and weighted-average return on assets, and consideration of guideline public company benchmarking analyses reflecting the composition of purchase prices for similar transactions. |

August 16, 2019

August 16, 2019

| Cash and cash equivalents | | $ | 204,872 | | | $ | 247,038 | |

| | | | 1,301,783 | | | | 1,184,045 | |

| Cost of goods sold | | | 841,147 | | | | 696,591 | | | | 583,684 | |

| Internal research and development | | | 139,163 | | | | 116,875 | | | | 96,806 | |

| Net earnings | | $ | 107,517 | | | $ | 88,002 | | | $ | 95,274 | |

| ($000, including share amounts) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |

| Balance - June 30, 2019 | | | 76,315 | | | $ | | 382,423 | | | $ | | (24,221 | ) | | $ | | 943,581 | | | | (12,604 | ) | | $ | | (168,574 | ) | | $ | | 1,133,209 | |

| Net earnings | | $ | 107,517 | | | $ | 88,002 | | | $ | 95,274 | |

| Amortization of discount on convertible debt and debt issuance costs | | | 12,550 | | | | 10,057 | | | | \- | |

| Contract liabilities | | | 15,889 | | | | 1,168 | | | | 2,345 | |

| Payments on earnout considerations | | | (4,524 | ) | | | \- | | | | (2,000 | ) |

Our customers may discover defects in our products after the products have been fully deployed and operated under peak stress conditions.

If we are unable to correct defects or other problems, we could experience, among other things, loss of customers, increased costs of product returns and warranty expenses, damage to our brand reputation, failure to attract new customers or achieve market acceptance, diversion of development and engineering resources, or legal action by our customers.

Revenue is recognized under ASC 606 when or as obligations under the terms of a contract with the Company’s customer have been satisfied and control has transferred to the customer.

The Company has elected to exclude all taxes from the measurement of the transaction price.

For contracts with commercial customers, which comprise the majority of the Company’s performance obligations, ownership of the goods and associated revenue are transferred to customers at a point in time, generally upon shipment of a product (“Direct Ship Parts”) to the customer or receipt of the product by the customer and without significant judgments.

The majority of contracts typically require payment within 30 to 60 days after transfer of ownership to the customer.

Contracts with the United States (“U.S.”) government through its prime contractors are typically for products or services with no alternative future use to the Company with an enforceable right to payment for performance completed to date, whereas commercial contracts typically have alternative use.

Customized products with no alternative future use to the Company with an enforceable right to payment for performance completed to date are recorded over time utilizing the output method of units delivered.

The Company considers this to be a faithful depiction of the transfer to the customer of revenue over time due to short cycle time and immaterial work-in-process balances.

The majority of contracts typically require payment within 30 to 60 days after transfer of ownership to the customer.

Service revenue includes repairs, non-recurring engineering, tolling arrangements and installation.

Repairs, tolling and installation activities are usually completed in a short period of time (normally less than one month) and therefore recorded at a point in time when the services are completed.

Non-recurring engineering arrangements are typically recognized over time under the time and material practical expedient, as the entity has a right to consideration from a customer, in an amount that corresponds directly with the value to the customer of the entity’s performance completed to date.

The majority of contracts typically require payment within 60 days.

Under ASC 606, the Company expenses sales commissions when incurred because the amortization period would have been one year or less.

These costs are recorded within selling, general and administration expenses.

August 28, 2018

| | | | 1,184,045 | | | | 1,003,922 | |

| Cost of goods sold | | | 697,506 | | | | 583,693 | | | | 514,403 | |

| Internal research and development | | | 117,244 | | | | 96,810 | | | | 60,354 | |

| Balance - June 30, 2015 | | | 71,780 | | | $ | | 226,609 | | | $ | | 8,665 | | | $ | | 587,302 | | | | (10,565 | ) | | $ | | (93,495 | ) | | $ | | 729,081 | |

| Proceeds from the sale of business | | | \- | | | | \- | | | | 45,000 | |

| Payment on earnout consideration | | | \- | | | | (2,000 | ) | | | \- | |

| Other financing activities | | | \- | | | | \- | | | | 587 | |

| Cash and Cash Equivalents at Beginning of Period | | | 271,888 | | | | 218,445 | | | | 173,634 | |

| Purchases of business - earnout consideration recorded in Other accrued liabilities | | $ | \- | | | $ | 2,250 | | | $ | 1,935 | |

The Company accounts for contingent consideration received in accordance with the “Loss Recovery Approach” under U.S. GAAP.

Contingent consideration is accounted for as a gain contingency and not recognized in other expense (income), net until all contingencies have been satisfied.

The Company recognizes revenues for product shipments when persuasive evidence of a sales arrangement exists, the product has been shipped or delivered, the sale price is fixed or determinable and collectability is reasonably assured.

Title and risk of loss passes from the Company to its customer at the time of shipment in most cases with the exception of certain customers.

For these customers, title does not pass and revenue is not recognized until the customer has received the product at its physical location.

Revenues generated from transactions other than product shipments are contract related and have historically accounted for approximately 1% of consolidated revenues.

We believe our revenue recognition practices have adequately considered the requirements under U.S. GAAP.

Shipping and Handling Costs.

Shipping and handling costs billed to customers are included in revenues.

Shipping and handling costs incurred by the Company are included in selling, general and administrative expenses in the accompanying Consolidated Statements of Earnings.

Total shipping and handling revenue and costs included in revenues and in selling, general and administrative expenses were not significant for the fiscal years ended June 30, 2018, 2017 and 2016.

In January 2017, the FASB issued ASU 2017-04, Intangibles – Goodwill and Other (Topic 350): Simplifying the Accounting for Goodwill Impairment.

This standard removes the second step of the goodwill impairment test, where a determination of the fair value of individual assets and liabilities of a reporting unit were needed to measure the goodwill impairment.

Under this updated standard, goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill.

The Company has adopted this standard for any impairment test that is performed after July 1, 2017 as permitted under the standard.

In March 2016, the FASB issued ASU 2016-09, Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting.

This update simplifies several aspects of the accounting for employee share-based payment transactions, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, and classification in the statement of cash flows.

Under this ASU, excess tax benefits or deficiencies are recognized in income tax expense in the Consolidated Statement of Earnings.

Upon adoption of this ASU, the Company had a valuation allowance for its U.S. deferred tax assets and did not recognize any tax benefit.

Had the Company not had a valuation allowance, the Company would have recognized a tax benefit of $2.4 million.

The impact to the Company’s dilutive shares under this new standard was immaterial.

In July 2015, the FASB issued ASU 2015-11, Inventory (Topic 330): Simplifying the Measurement of Inventory.

This update simplifies the measurement of inventory valuation at the lower of cost or net realizable value.

Net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation.

In March 2016, the FASB issued ASU 2016-07, Investments – Equity Method and Joint Ventures (Topic 323): Simplifying the Transition to the Equity Method of Accounting.

This update eliminates the requirement to retrospectively apply the equity method in previous periods when an investor obtains significant influence over an investee.

Based on review and analysis of our contracts, the standard primarily impacts our II-VI Performance Product segment, which has long-term production contracts with customers that sell to the U.S. Government.

Prior to adoption of the new standard, revenue was generally recognized for these contracts at a point-in-time as units were shipped, while under the new standard, revenue will be recognized over time, principally under the units-of-delivery method which faithfully depicts the transfer of control to the customers.

This change will result in an immaterial change in revenue for these contracts and no transition adjustment is anticipated for July 1, 2018.

We have updated the accounting policies affected by this standard, redesigned our related internal controls over financial reporting and are expanding the disclosures to be included in our first quarter 2019 Condensed Consolidated Financial Statements to meet the new requirements.

Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of June 30, [removed: 2018,] [added: 2019,] the Company’s disclosure controls and procedures are effective.

Refer to Management’s Report on Internal Control Over Financial Reporting included in Item [removed: 8.][added: 8 of this Annual Report of Form 10-K.]

We intend to satisfy any disclosure requirements under Item 5.05 of Form 8-K regarding an amendment to, or waiver from, a provision of the Code of Business Conduct and Ethics by posting such information on our web site.

The information required by this item is incorporated herein by reference to the information set forth under the caption “Director Compensation in Fiscal Year [removed: 2018,”] [added: 2019,”] “Executive Compensation,” “Compensation Committee Report” and “Compensation and Risk” in the Company’s Proxy Statement.

Schedule II – Valuation and Qualifying Accounts for each of the three fiscal years in the period ended June 30, [removed: 2018] [added: 2019] is set forth under Item 8 of this Annual Report on Form 10-K.

| 10.10 | | [Employment Agreement, dated March 6, 2017, by and between II-VI Incorporated and Jo Anne Schwendinger [removed: *](https://www.sec.gov/Archives/edgar/data/820318/000156459018022409/iivi-ex1010_9.htm)] [added: *](http://www.sec.gov/Archives/edgar/data/820318/000156459018022409/iivi-ex1010_9.htm)] | | [removed: Filed herewith.] [added: Incorporated herein by reference to Exhibit 10.10 to II-VI’s Annual Report on Form 10-K (File No. 000-16195) filed on August 28, 2018.] |

| [removed: 10.11] [added: 10.57] | | [removed: [Consulting Agreement, dated June 30, 2016, between] [added: [Form of Nonqualified Stock Option Agreement under the] II-VI Incorporated [removed: and Carl J. Johnson*](http://www.sec.gov/Archives/edgar/data/820318/000156459017008137/iivi-ex1001_555.htm)] [added: 2018 Omnibus Incentive Plan*](http://www.sec.gov/Archives/edgar/data/820318/000156459019002429/iivi-ex1001_18.htm)] | | Incorporated herein by reference to Exhibit 10.01 to II-VI’s [removed: Current] [added: Quarterly] Report on Form 10-Q (File No. 000-16195) for the quarter ended [removed: March] [added: December] 31, [removed: 2017.] [added: 2018.] |

| 10.13 | | [removed: [](https://www.sec.gov/Archives/edgar/data/820318/000156459018022409/iivi-ex1013_15.htm)] [added: [](http://www.sec.gov/Archives/edgar/data/820318/000156459018022409/iivi-ex1013_15.htm)] [ Form of Executive Employment Agreement [removed: ](https://www.sec.gov/Archives/edgar/data/820318/000156459018022409/iivi-ex1013_15.htm)] [added: ](http://www.sec.gov/Archives/edgar/data/820318/000156459018022409/iivi-ex1013_15.htm)] | | [removed: Filed herewith] [added: Incorporated herein by reference to Exhibit 10.13 to II-VI’s Annual Report on Form 10-K (File No. 000-16195) filed on August 28, 2018.] |

| 10.14 | | [Form of Exhibit 1 to Employment [removed: Agreement](https://www.sec.gov/Archives/edgar/data/820318/000156459018022409/iivi-ex1014_13.htm)] [added: Agreement](http://www.sec.gov/Archives/edgar/data/820318/000156459018022409/iivi-ex1014_13.htm)] | | [removed: Filed herewith] [added: Incorporated herein by reference to Exhibit 10.14 to II-VI’s Annual Report on Form 10-K (File No. 000-16195) filed on August 28, 2018.] |

| 10.15 | | [Form of Indemnification [removed: Agreement](https://www.sec.gov/Archives/edgar/data/820318/000156459018022409/iivi-ex1015_8.htm)] [added: Agreement](http://www.sec.gov/Archives/edgar/data/820318/000156459018022409/iivi-ex1015_8.htm)] | | [removed: Filed herewith] [added: Incorporated herein by reference to Exhibit 10.15 to II-VI’s Annual Report on Form 10-K (File No. 000-16195) filed on August 28, 2018.] |

| [removed: 10.18] [added: 10.61] | | [removed: [First Amendment to] [added: [Form of Stock Appreciation Rights Agreement under] the II-VI Incorporated [removed: Amended and Restated Employees’ Stock Purchase Plan](http://www.sec.gov/Archives/edgar/data/820318/0000820318-96-000011.txt)] [added: 2018 Omnibus Incentive Plan](http://www.sec.gov/Archives/edgar/data/820318/000156459019002429/iivi-ex1005_15.htm)*] | | Incorporated herein by reference to Exhibit [removed: 10.01] [added: 10.05] to II-VI’s Quarterly Report on Form 10-Q (File No. 000-16195) for the quarter ended [removed: March] [added: December] 31, [removed: 1996.] [added: 2018.] |

| 21.01 | | [List of Subsidiaries of II-VI [removed: Incorporated](https://www.sec.gov/Archives/edgar/data/820318/000156459018022409/iivi-ex2101_10.htm)] [added: Incorporated](https://www.sec.gov/Archives/edgar/data/820318/000156459019032471/iivi-ex2101_558.htm)] | | Filed herewith. |

| 23.01 | | [Consent of Ernst & Young [removed: LLP](https://www.sec.gov/Archives/edgar/data/820318/000156459018022409/iivi-ex2301_14.htm)] [added: LLP](https://www.sec.gov/Archives/edgar/data/820318/000156459019032471/iivi-ex2301_559.htm)] | | Filed herewith. |

| 31.01 | | [Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended, and Section 302 of the Sarbanes-Oxley Act of [removed: 2002](https://www.sec.gov/Archives/edgar/data/820318/000156459018022409/iivi-ex3101_7.htm)] [added: 2002](https://www.sec.gov/Archives/edgar/data/820318/000156459019032471/iivi-ex3101_10.htm)] | | Filed herewith. |

| 31.02 | | [Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended, and Section 302 of the Sarbanes-Oxley Act of [removed: 2002](https://www.sec.gov/Archives/edgar/data/820318/000156459018022409/iivi-ex3102_12.htm)] [added: 2002](https://www.sec.gov/Archives/edgar/data/820318/000156459019032471/iivi-ex3102_11.htm)] | | Filed herewith. |

| 32.01 | | [Certification of the Chief Executive Officer pursuant to Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended, and 18 U.S.C. § 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of [removed: 2002](https://www.sec.gov/Archives/edgar/data/820318/000156459018022409/iivi-ex3201_6.htm)] [added: 2002](https://www.sec.gov/Archives/edgar/data/820318/000156459019032471/iivi-ex3201_7.htm)] | | Furnished herewith. |

| 32.02 | | [Certification of the Chief Financial Officer pursuant to Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended, and 18 U.S.C. § 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of [removed: 2002](https://www.sec.gov/Archives/edgar/data/820318/000156459018022409/iivi-ex3202_11.htm)] [added: 2002](https://www.sec.gov/Archives/edgar/data/820318/000156459019032471/iivi-ex3202_8.htm)] | | Furnished herewith. |

| 2.01 | | [Agreement and Plan of Merger, dated November 8, 2018, by and among II-VI Incorporated, Mutation Merger Sub Inc. and Finisar Corporation.](http://www.sec.gov/Archives/edgar/data/1094739/000110465918067123/a18-39922_1ex2d1.htm) | | Incorporated herein by reference to Exhibit 2.1 to II-VI’s Current Report on Form 8-K (File No. 000-16195) filed on November 9, 2018. |

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| 4.03 | | [Description of II-VI’s Securities Registered Pursuant to Section 12 of the Securities Exchange Act of 1934.](https://www.sec.gov/Archives/edgar/data/820318/000156459019032471/iivi-ex403_560.htm) | | Filed herewith. |

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| 10.55 | | [II-VI Incorporated 2018 Employee Stock Purchase Plan*](http://www.sec.gov/Archives/edgar/data/820318/000119312518324694/d505039dex101.htm) | | Incorporated herein by reference to Exhibit 10.1 to II-VI’s Current Report on Form 8-K (File No. 000-16195) filed on November 13, 2018. |

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| 10.56 | | [II-VI Incorporated 2018 Omnibus Incentive Plan*](http://www.sec.gov/Archives/edgar/data/820318/000119312518324694/d505039dex102.htm) | | Incorporated herein by reference to Exhibit 10.2 to II-VI’s Current Report on Form 8-K (File No. 000-16195) filed on November 13, 2018. |

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| 10.58 | | [Form of Restricted Share Unit Settled In Shares Award Agreement under the II-VI Incorporated 2018 Omnibus Incentive Plan*](http://www.sec.gov/Archives/edgar/data/820318/000156459019002429/iivi-ex1002_17.htm) | | Incorporated herein by reference to Exhibit 10.02 to II-VI’s Quarterly Report on Form 10-Q (File No. 000-16195) for the quarter ended December 31, 2018. |

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| 10.59 | | [Form of Restricted Share Unit Settled In Cash Award Agreement under the II-VI Incorporated 2018 Omnibus Incentive Plan*](http://www.sec.gov/Archives/edgar/data/820318/000156459019002429/iivi-ex1003_16.htm) | | Incorporated herein by reference to Exhibit 10.03 to II-VI’s Quarterly Report on Form 10-Q (File No. 000-16195) for the quarter ended December 31, 2018. |

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| 10.60 | | [Form of Restricted Share Unit Settled In Shares Award Agreement under the II-VI Incorporated 2018 Omnibus Incentive Plan*](http://www.sec.gov/Archives/edgar/data/820318/000156459019002429/iivi-ex1004_14.htm) | | Incorporated herein by reference to Exhibit 10.04 to II-VI’s Quarterly Report on Form 10-Q (File No. 000-16195) for the quarter ended December 31, 2018. |

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| 10.62 | | [Credit Agreement, dated March 4, 2019, by and among II-VI Incorporated, Bank of America, N.A., as Administrative Agent, Swing Line Lender and an L/C Issuer, and the other lenders party thereto](http://www.sec.gov/Archives/edgar/data/820318/000156459019017964/iivi-ex1001_147.htm) | | Incorporated herein by reference to Exhibit 10.01 to II-VI’s Quarterly Report on Form 10-Q (File No. 000-16195) for the quarter ended March 31, 2019. |

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| 10.63 | | [Amendment No. 1 to Credit Agreement, dated as of May 24, 2019, by and among II-VI Incorporated, Bank of America, N.A., as Administrative Agent, and the other lenders party thereto.](http://www.sec.gov/Archives/edgar/data/820318/000119312519162819/d755441dex101.htm) | | Incorporated herein by reference to Exhibit 10.1 to II-VI’s Current Report on Form 8-K (File No. 000-16195) filed on May 31, 2019. |

| 10.17 | | II-VI Incorporated Amended and Restated Employees’ Stock Purchase Plan (P) | | Incorporated herein by reference to Exhibit 10.04 to II-VI’s Registration Statement on Form S-1 (File No. 33-16389). |

| Date: August [removed: 28, 2018] [added: 16, 2019] | | By: | | /s/ Vincent D. Mattera Jr. |

| | | | | [removed: President and] Chief Executive Officer [added: and Director] |

| Date: August [removed: 28, 2018] [added: 16, 2019] | | By: | | /s/ Mary Jane Raymond |

| Date: August [removed: 28, 2018] [added: 16, 2019] | | By: | | /s/ Francis J. Kramer |

| | | | | Chairman of the Board [removed: and Director] |

| Date: August [removed: 28, 2018] [added: 16, 2019] | | By: | | /s/ Joseph J. Corasanti |

| Date: August [removed: 28, 2018] [added: 16, 2019] | | By: | | /s/ RADM Marc Y. E. Pelaez (retired) |

| Date: August [removed: 28, 2018] [added: 16, 2019] | | By: | | /s/ Howard H. Xia |

| Date: August [removed: 28, 2018] [added: 16, 2019] | | By: | | /s/ Shaker Sadasivam |

| Date: August [removed: 28, 2018] [added: 16, 2019] | | By: | | /s/ Enrico Digirolamo |

| | | | | Chief Executive Officer |

| Date: August 16, 2019 | | By: | | /s/ Vincent D. Mattera Jr. |

| | | | | |

| | | | | Director |

| Date: August 28, 2018 | | By: | | /s/ William Schromm |

| | | | | William Schromm |