United States

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

for the fiscal year ended June 30, 20172019

for the transition period from                     to                    .

Commission File Number: 0-16195

II-VI INCORPORATED

(Exact name of registrant as specified in its charter)

Registrant’s telephone number, including area code: 724-352-4455

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.     Yes  ☒    No  ☐

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act.     Yes   ☐    No   ☒

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes  ☒    No  ☐

Indicate by check mark whether the registrant has submitted electronically, and posted on its corporate Web site, if any, every Interactive Data File required to be submitted 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 and post such files).     Yes   ☒    No☐

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.   ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):Act:

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     Yes  ☐    No  ☒

Aggregate market value of outstanding Common Stock, no par value, held by non-affiliates of the Registrant at December 30, 2016,31, 2018, was approximately $1,763,329,797$2,023,369,000 based on the closing sale price reported on the Nasdaq Global Select Market. For purposes of this calculation only, directors and executive officers of the Registrant and their spouses are deemed to be affiliates of the Registrant.

Number of outstanding shares of Common Stock, no par value, at August 14, 2017,12, 2019, was 63,279,520.63,610,824.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s definitive proxy statement, which will be issued in connection with the 20172019 Annual Meeting of Shareholders of II-VI Incorporated, are incorporated by reference into Part III of this Annual Report on Form 10-K.

Forward-Looking Statements

This Annual Report on Form 10-K (including certain information incorporated herein by reference) contains forward-looking statements made pursuant to Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.1995 (the “PSLRA”). The statements in this Annual Report on Form 10-K that are not purely historical, but are forward-looking statements, including, without limitation, statements regarding our expectations, assumptions, beliefs, intentions or strategies regarding the future.  In some cases, these forward-looking statements can be identified by terminology such as, “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “believes,” “intends,” “estimates,” “predicts,” “projects,” “potential,” or “continue” or the negative of these terms or other comparable terminology. Forward-looking statements address, among other things, our assumptions, our expectations, our assessments of the size and growth rates of our markets, our growth strategies, our efforts to increase bookings, sales and revenues, projections of our future profitability, cash generation, success of our research, development and engineering investments, results of operations, capital expenditures, our financial condition, our ability to integrate acquired businesses or other “forward-looking” information and include statements about revenues, costs, investments, earnings, spending, margins, costs or our projections, actions, plans or strategies.

The forward-looking statements in this Annual Report on Form 10-K involve risks and uncertainties, which could cause actual results, performance or trends to differ materially from those expressed in the forward-looking statements herein or in previous disclosures. We believe that all forward-looking statements made by us have a reasonable basis, but there can be no assurance that these expectations, beliefs or projections will actually occur or prove to be correct.correct, at least on the timetable of our expectations. Actual results could materially differ from such statements.materially. We claim the protection of the safe harbor for forward-looking statements contained in the PSLRA for our forward-looking statements.

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 20182020 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:

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

The foregoing and additional risk factors are described in more detail herein under Item 1A. “Risk Factors”. All such factors, as well as factors described or referred to in other filings we make with the Securities and Exchange Commission (the “SEC”) from time to time, should be considered in evaluating our business and prospectus.prospects. Many of these factors are beyond our reasonable control. In addition, we operate in a highly competitive and rapidly changing environment, and, therefore, new risk factors can arise.arise and be present without market participants like us knowing until a substantial amount of time has passed. It is not possible for management to predict all such risk factors, assess the impact of all such risk factors on our business nor estimate the extent to which any individual risk factor, or combination of risk factors, nor to mitigate them all and therefore they may cause results to differ materially from those contained in any forward-looking statement. The forward-looking statements included in this Annual Report on Form 10-K speak only as of the date of this Annual Report on Form 10-K. We do not assume any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or developments, or otherwise, except as may be required by the securities laws. We caution you not to rely on them unduly.

Investors should also be aware that while II-VI Incorporated does communicate with securities analysts from time to time and those communications are conducted in accordance with applicable securities laws. Investors should not assume that II-VI Incorporated agrees with any statement or report issued by any analyst, irrespective of the content of the statement or report.

PART I

Definitions

II-VI Incorporated (“II-VI,” the “Company,” “we,” “us,” or “our”) was incorporated in Pennsylvania in 1971. Our executive officesheadquarters are located at 375 Saxonburg Boulevard, Saxonburg, Pennsylvania 16056. Our telephone number is 724-352-4455. 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 wholly-ownedwholly owned subsidiaries. The Company’s name is pronounced “Two Six Incorporated.” The name II-VI refers to Groups II and VI on the Periodic Tableperiodic table of Elements (Zn and Se)elements from which II-VI originally designed and produced infrared optics for high-power CO₂ lasers used in materials processing. We address seven major markets. The majority of our revenues are attributable to the sale of engineered materials and optoelectronic components, devices, and devicessubsystems for the industrial laser applications,materials processing, optical communications, products, compound semiconductor substrate-based products and consumer products.aerospace and defense markets. Reference to “fiscal” or “fiscal year” means our fiscal year ended June 30 for the year referenced.

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.

The following acronymsterms are defined for reference: bismuth telluride (“Bi₂Te_{3 dimensional (“3D”}”); 4th generationcadmium telluride (“4G”) wireless; 5th generation (“5G”) wireless; carbon monoxide (“CO”CdTe”); carbon dioxide (“CO₂”); carbon monoxide (“CO”); chemical vapor deposited (“CVD”) materials including diamond; dense wavelength division multiplexing (“DWDM”); extreme ultravioletextreme-ultraviolet (“EUV”) lithography; 5th-generation (“5G”) wireless; 4th-generation (“4G”) wireless; gallium arsenide (“GaAs”); gallium nitride (“GaN”); gigabit Ethernet (“GbE”); gigabit per second (“Gb/s”); high-definition multimedia interface (“HDMI”); indium phosphide (“InP”); infrared (“IR”); intellectual property (“IP”); light detection and ranging (“LiDAR”); near infraredliquid crystal (“NIR”LC”); liquid crystal on silicon (“LCOS”); nanometers (“nm”); near-infrared (“NIR”); organic light-emitting diode (“OLED”); original equipment manufacturer (“OEM”); optical time domain reflectometer (“OTDR”); radio frequency (“RF”); reconfigurable optical add/drop multiplexer (“ROADM”); research, development, and engineering (“RD&E”); radio frequency (“RF”); reconfigurable add/drop multiplexer (“ROADM”); silicon carbide (“SiC”); three-dimensional (“3D”); ultraviolet (“UV”); vertical cavity surface emittingsurface-emitting laser (“VCSEL”); wavelength division multiplexing (“WDM”); wavelength selective switching (“WSS”); zinc selenide (“ZnSe”); and zinc sulfide (“ZnS”).

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.

General Description of Business

We develop, manufacture, and market engineered materials, optoelectronic components, and devices for precision use in industrial materials processing, optical communications, military,aerospace and defense, consumer electronics, semiconductor capital equipment, life sciencesciences, and automotive applications.applications and markets. We use advanced engineered materialmaterials growth technologies coupled with proprietary high-precision fabrication, micro-assembly,microassembly, optical thin-film coating, and electronic integration to enablemanufacture complex optoelectronic devices and modules. Our products are deployed in applications that we believe reduce costs and improve performance and reliability in a variety of applications, including (i) laser cutting, welding, and marking operations; (ii) 3D sensing consumer applications; (iii) optical, communicationdata, and wireless communications products; (iv) strategic aerospace and defense applications including intelligence, surveillance, and reconnaissance; (v) semiconductor processing and tooling; and (vi) thermoelectric cooling and power generationpower-generation solutions.

Through RD&E and acquisitions, II-VI has expanded its portfolio of materials grown and fabricated in-house.materials. We believe that the materials that we grow and fabricate are differentiated by one or a combination of unique optical, electrical, thermal, and mechanical properties. II-VI’s optics are shaped by precision surfacing techniques to meet the most stringent requirements for flat or curved geometries, functionalized with smooth or structured surfaces, or with patterned metallization. Proprietary processes developed at our global optical coating centers enhancedifferentiate our products’ durability to high energyagainst high-energy lasers and harshextreme operating environments. Optical coatings also provide the desired spectral characteristics ranging from the ultraviolet to the far-infrared. II-VI leverages these capabilities to deliver miniature- to large-scale precision optical assemblies, including those in combination with thermal management components, integrated electronics, and/or software.

Since 2013, II-VI also has offeredoffers a broad portfolio of compound semiconductor lasers that are used in a variety of applications in most of our end markets. These compound semiconductor lasers enable several types of high powerhigh-power lasers for materials processing,processing; optical signal amplification in terrestrial and submarine communications networks, high bit ratenetworks; high-bit-rate server connectivity between and within datacentersdatacenters; and 3D sensingfast and accurate measurements in biomedical instruments, consumer electronics.  electronics, and optical communications network monitoring.

II-VI continues to work to perfect its operational capabilities, develop next generationnext-generation products, and invest in new technology platforms. With a strategic focus on fast growingfast-growing and sustainable markets, II-VI pursues its vision of enabling the world to be safer, healthier, closer, and more efficient.

Information Regarding Market Segments and Foreign Operations

Financial data regarding our revenues, results of operations, industry segments, and international sales for the three years ended June 30, 20172019, are set forth in the Consolidated Statements of Earnings and in Note 1114 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 – Risk Factors of this Annual Report on Form 10-K related to our foreign operations, which are incorporated herein by reference.

Bookings and Backlog

We define our bookings as customer orders received that are expected to be converted to revenues over the next 12 months. For long-term customer orders, to address the inherent uncertainty of orders that extend far into the future, theThe Company records only those orders which are expected to be converted into revenues within 12 months from the end of the reporting period. Bookings are adjusted if changes in customer demands or production schedules cause the expected time of a delivery to extend beyond 12 months. For the fiscal year ended June 30, 2017,2019, our bookings were approximately $1.1$1.4 billion, compared towith bookings of approximately $875 million$1.2 billion for the fiscal year ended June 30, 2016.2018.

We define our backlog as bookings that have not been converted to revenues by the end of the reporting period. As of June 30, 2017,2019, our backlog was approximately $400$500 million, compared towith approximately $290$450 million as of June 30, 2016.2018.

Global Operations

II-VI is headquartered in Saxonburg, PA, with RD&E, 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, Florida, Ohio, Arizona, Colorado, and Illinois, and our non-U.S. production operations are based in China, Singapore, Vietnam, the Philippines, Germany, Switzerland, and Switzerland.the United Kingdom. We also utilize a contract manufacturer in Thailand.manufacturers and strategic suppliers. In addition to sales offices at most of our manufacturing sites, we have sales and marketing subsidiaries in Hong Kong, Japan, Germany, China, Switzerland, Belgium, the United Kingdom, Italy, South Korea, and Taiwan. Approximately 69%70% of our revenues for the fiscal year ended June 30, 20172019, were generated from sales to customers outside of the United States.

Employees

The table below summarizes the number of our employees as of June 30, 2017.2019, in the main functions. We have a long-standing practice of encouraging active employee participation in areas of operations and quality management. We believe our relations with our employees are good. We reward substantially all our employees with incentivesome form of variable compensation based on achievement of performance goals. There are approximately 136236 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 expiresexpired in June 2019.2019, and the Company is in the process of negotiating a new collective bargaining agreement. The collective bargaining agreement covering certain U.S. basedU.S.-based employees expires in January 2021. There are 849735 employees of II-VI Photop in China who work under contract manufacturing arrangements for customers of the Company.

Manufacturing Processes

Our success in developing and manufacturing many of our products depends on our ability to manufacture and refine technically-challengingto tailor the optical and physical properties of technically challenging materials and components. The ability to produce, 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’ instrumentssubsystems and systems. In the markets we serve, there are a limited number of high-quality suppliers of many of the components we 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 and risk management advantages. We employ numerous advanced manufacturing technologies and systems at our manufacturing facilities. These include metal–organic chemical vapor deposition and molecular beam epitaxy reactors, automated Computer Numeric Controlcomputer numeric control optical fabrication, high throughputhigh-throughput thin-film coaters, micro-precisionnanoprecision metrology, and custom-engineered automated furnace controls for crystal growth processes. Manufacturing products for use across the electro-magneticelectromagnetic spectrum requires the capability to repeatedly produce products with high yields to atomic tolerances. II-VI continuously updates its comprehensive quality management systems that feature manufacturing quality best practices. II-VI is committed to delivering products within specification, on time, and with high quality, with a goal of fully satisfying customers and continually improving.

Sources of Supply

TheAmong the major feed stock and raw materials we use includeare zinc, selenium, ZnSe, ZnS, hydrogen selenide, hydrogen sulfide, 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, diamond, and other materials.diamond.

The continued high-qualityhigh quality of and access to these materials is critical to the stability and predictability of our manufacturing yields. We test materials at the onset ofand throughout the production process. Additional research and capital investment may be needed to better define future material specifications. We have not experienced significant production delays due to shortages of materials. However, we do occasionally experience problems associated with vendor-supplied materials not meeting contract specifications for quality or purity. As discussed in greater detail in Item 1A – Risk 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.

Business Units

TheAs 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. These segments, and the business units within the segments, are reflected in the organizationorganizational chart below:

II-VI Laser Solutions designs, manufactures, and markets optical and electro-optical components and materials sold under the II-VI Infrared brand name andthat are used primarily in high-power CO₂ lasers, fiber-delivered beam delivery systems, and processing tools and direct diodetools; direct-diode lasers for industrial lasersuse sold under the II-VI HIGHYAG and II-VI Laser Enterprise brand names.name. II-VI Laser Solutions also manufactures compound semiconductor epitaxial wafers under the II-VI EpiWorks brand name for applications in optical components, wireless devices, and high-speed communication systemscommunications systems; and manufactures 6-inch gallium arsenide wafers allowing for the production of high performancehigh-performance lasers, optoelectronics, and integrated circuits in high volume sold under the II-VI Laser Enterprise, II-VI EpiWorks, II-VI Compound Semiconductor Ltd., and II-VI OptoElectronic Devices Division brand names.

II-VI Photonics manufactures crystal materials, optics, microchip lasers, and optoelectronic modules for use in optical communicationcommunications networks and other diverse consumer, life sciences, and commercial applications. In addition, the segment also manufactures pump lasers, optical isolators, and optical amplifiers, and micro-optics for optical amplifiers for both terrestrial and submarine applications within the optical communications market.market; direct-diode laser modules, subsystems, and systems sold under the II-VI Suwtech and II-VI DIRECTPHOTONICS brand names; and super-hard materials processing laser systems sold under the II-VI LASERTECH brand name.

II-VI Performance Products designs, manufactures, and markets infrared optical components and high-precision optical assemblies for military,aerospace and defense, medical, and commercial laser imaging applications. In addition, the segment designs, manufactures, and markets unique silicon carbide engineered materials for thermoelectric devices and silicon carbidesubsystems for SiC applications servicing the semiconductor militaryequipment, aerospace and medicaldefense, communications, automotive, and life science markets.

During the fiscal year ended June 30, 2017, the Company completed the following acquisitions:

DPI  joined the II-VI Laser Solutions segment and IPI joined the II-VI Photonics segment.  See Note 2 to the Company’s Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K for additional information regarding the Company’s acquisitions, which information is incorporated herein by reference.

II-VI’s segments are organized by business unit at the group or division level. Each of these business units develops and markets products as described below.

Our Markets

Our market-focused businesses are organized by technology and products. Our businesses are composed of the following primary markets: Materials Processing, Communications (“Comms”), Militarycommunications, materials processing, aerospace and Semiconductor Equipment (“Semi Cap”). Other markets (“Other”) include: Life Sciences, Consumer Electronicsdefense, semiconductor capital equipment, life sciences, consumer electronics, and Automotive. The table below summarizes our revenue by reported segments and the distribution of that revenue by end markets.automotive.

Communications Market:

II-VI’s optical communications products and technologies enable the next generation of high-speed optical transmission systems, networks, and datacenter solutions necessary to meet the accelerating global bandwidth demand. At the core of both terrestrial and undersea optical networks, our market-leading 980 nm pump lasers boost the power of the optical signal in the fiber optic cable at intervals along the way to enable a larger number of high speedhigh-speed signals to be transmitted over longer distances. Our latest generation of 980 nm pump lasers along with miniature tunable filters and hybrid passives areis part of our ultra-compactultracompact family of components critical to a new generation of small size, long reachsmall-size, long-reach DWDM transmission modules operating at 100, 200, and 400 Gb/s.

Customers continue to rely on us for our industry-leading optical amplification and embedded monitoring solutions for their next generationnext-generation ROADM systems to compensate for the inherent signal loss and to monitor the signal integrity. Our proprietary OTDR modules allow systems to automatically detect and pinpoint issues along the transmission path in real time. The accelerating adoption of applications such as cloud computing areis driving the rapid growth of datacenter buildouts. Our high-speed 25 Gb/s VCSELs enable intra-datacenter transceivers to transmit and receive signals. Our miniature WDM thin filmthin-film filter assemblies are used to increase the bandwidth within many modern transceiver designs100 GbE transceivers by combining wavelengths at the transmitter end and separating them out at the receiver end.

In mobile wireless applications, II-VI supplies base SiC substrates to customers who manufacture RF power amplifier devices that are embedded in remote radio heads in 4G wireless basesbase stations to boost the power of the RF signal before it reaches the antenna. These devices are also widely expected to be embedded in next generationnext-generation active antennas for 5G wireless, where multiple devices per antenna will be required to enable higher bandwidth. SiC has a high number of intrinsic physical and electronic advantages, such as high thermal conductivity, that enables themit to operate at high-powerhigh power levels and still dissipate the excess heat generated.

Materials Processing Market:

Our industrial laser optics and solutions for the materials processing market remain in strong demand. There continues to be a steady global demand to support existing installations and new deployments of CO₂ and fiber laser systems, especially for our greater than 1 kilowatt high-power handling optics and beam delivery solutions.systems. Our vertically integrated and market leadingmarket-leading ZnSe optics and components, due to their inherent low loss at around 10 micron10-micron wavelength, have enabled high-power CO₂ laser systems for many decades and remain critical to the steady stream of new deployments as well as to the continued operation, serving as replacement optics offor the installed base of CO₂ lasers. II-VI continues to introduce products that address new and growing applications for low-power CO₂ lasers, such as cutting textiles, leather, wood, and other organic materials, for which the CO₂ laser’s 10 micron10-micron wavelength is ideally suited. CO₂ lasers are also at the core of EUV lithography systems, which are now emerging on the market to enable a new generation of smaller and more powerful personal integrated circuits for internet of things computing devices.

Over the past several years, fiber laser-based systems operating at one micron1-micron wavelength in pulsed or continuous mode have taken a central role in nearly all materials processing segments, and especially for precision machining such as marking and micro drilling.micro-drilling. From the laser chips that generate the input optical power to the beam delivery systems that direct the output optical power to the target, II-VI supplies a broad set of laser optics and fused fiber products that enable many functions within these systems. The same set of II-VI products is also at the core of existing and emerging direct diodedirect-diode laser systems. II-VI is also driving innovation with a direct-diode laser engine small enough to be mounted on a robotic arm so that the end user can apply square beams directly to the work pieceworkpiece at wavelengths optimized for aluminum processing.

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. II-VI’s broad portfolio of coated optics and crystal materials serve all of these growing laser markets.

MilitaryAerospace and Defense Market:

Our focus in the military market is enabling lasers forII-VI aerospace and defense optical products and technologies enable targeting, night vision, and navigation as well as intelligence, surveillance, and reconnaissance systems. 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.

Multiple fighter jets are equipped with our large arealarge-area sapphire windows that surround advanced electro-optical targeting and imaging systems. Infrared domes are used on missiles with infrared guidance systems ranging from small man-portablehuman-portable designs to larger designs mounted on helicopters, fixed-wing aircraft, and ground vehicles. High-precision domes are an integral component of a missile’s targeting system, providing efficient tactical capability while serving as a multi-functional protective cover tofor its internal components.

Rotary and fixed-wing aircraft also use missile warning systems to protect against shoulder fired man-portablethe threat of shoulder-fired human-portable missiles. Our competencies in materialmaterials growth for UV crystals and our optical assembly capabilities provide significant support to these common missile warning systems. A key attribute toof several of these systems is the ability to filter electro-magneticelectromagnetic interference using micro-finemicrofine conductive mesh patterns. This technology is also applied to non-optical applications for absorbing and transmitting energy from the surfaces of aircraft and missiles.

Many militaryaerospace and defense systems employ laser designation and range-finding capabilities supported by our semiconductor laserslaser bars and yttrium-based materialssolid state laser host crystals and laser optics, all manufactured in-house, as well asand benefit from our competency in short waveshort-wave infrared and visible optics. Our thermo-electricthermoelectric coolers are used to increase thermal imaging sensitivity or to maintain a constant window temperature in various visible and infrared applications for night vision and sighting applications.

We provide a range of battlefield-ready technologies for soldier equipment orand specifically designed variants for law enforcement. Our precision patterned reticles arecan be embedded in rifle scopes. Our reaction bondedreaction-bonded boron carbide materials are shaped into torso plates and employed as in-aircraft cabin and protective body armor. Our thermo-electricthermoelectric coolers are used to regulate the soldier’s body heat. They are also used to convert heat produced by battlefield fuel burners into electrical power, for example, to extend battery life on the battlefield.

We maintain engineering and manufacturing facilities in the United States with strictly controlled access that are dedicated to our U.S. government supported contracts.

Semiconductor Capital Equipment Market:

Semiconductor capital equipment requires advanced materials to meet the need for tighter tolerances, enhanced thermal stability, faster wafer transfer speeds, and reduced stage settling times. Our metal matrixmetal-matrix composites and reaction bondedreaction-bonded ceramics enable these applications, thanks to their optimum combination of light weight, strength, hardness, and coefficient of thermal expansion. Our reaction bondedreaction-bonded SiC materials are used to manufacture wafer chucks, light-wavelightweight scanning stages, and high temperature, corrosion resistanthigh-temperature corrosion-resistant wafer support systems. Our cooled SiC mirrors and precision patterned reticles are used in the illumination systems of lithography tools.

In the emerging market of EUV lithography systems, CO₂ lasers are used to generate extreme ultraviolet radiation.extreme-ultraviolet light. These CO₂ lasers and beam delivery systems leverage our broad portfolio of CO₂ laser optics, CdTe Modulators, high power handlingmodulators, and high-power damage-resistant polycrystalline CVD diamond windows to route the powerful laser beam to a tin droplet from which EUV light will emanate. Due to theirits very high mechanical and thermal performance characteristics, our reaction bondedreaction-bonded SiC areis used in structural support systems that are integral to EUV lithography optics to meet critical requirements for optical system stability.

Life Sciences Market:

Today theThe majority of our business in the life sciences end market is in analytical tools. Many such analytical tools found in modern biotech laboratories are based on some form of interaction with light. This applies to flow cytometry, cell sorting, confocal microscopy, DNA genome sequencing, Raman spectroscopy, fluorescence spectroscopy, and particle sizing, to name a few. Our multi-coloredmulticolored laser engines along with our broad portfolio of application-specific optics, filters, and gratings are embedded in these analytical tools. We also supply objective lenses, precision patterned reticles, and assemblies for microscopes.

Genome sequencing involves temperature cyclingtemperature-cycling DNA in flow cells with a high degree of temperature uniformity and precision. We believe that our thermal engines are the state of the art in chiller technology, and they achieve what we believe to be industry-leading temperature control and uniformity across large areas. Our green lasers are used to excite the fluorescence of the DNA to reveal theirits structure. Our flow cells are micro-machinedmicromachined with a high degree of precision to insureensure the smooth flow of sample fluids undergoing analysis. Our thermal engines are also used in a multitude of other biomedical applications, for example, to measure substance concentration in complex mixtures, to protect blood supplies, and to perform heating- and cooling-based physical therapy.

Clinical procedures are increasingly performed with tools that embed our lasers and optics. For example, our semiconductor laser bars are used in hair and wrinkle removal procedures, and our custom designedcustom-designed lens assemblies are used for laser eye surgery. We continue to leverage our core lasers,laser, optics, and temperature controltemperature-control expertise into new applications to grow our business in the life sciences.

Consumer Electronics Market:

II-VI manufactures low costlow-cost VCSELs, VCSEL arrays, and low angle shift filters for the consumer electronics market. Our VCSEL products leverage our world-class 6-inch GaAs platform, comprisingcombining our epitaxial wafer growth and wafer fabrication capabilities.

Our VCSELs, unlike many on the market, have already been designed into consumer products such as the computer mouse as well as for menu navigation in smart phones and in carvehicle steering wheels. Our VCSELs are also widely deployed in datacenters and in the emerging market for HDMI optical cables. This expertise in VCSEL technology is being leveraged for the upcomingemerging 3D sensing market. FollowingWith our acquisition in fiscal year 2016acquisitions of a 6-inch epitaxy and wafer capabilities, we have invested significantly in fiscal year 2017 to completeround out our capacity expansion and be ready to ramp our sales significantly in the near future.expansion.

Automotive Market:

Power conversionPower-conversion electronics for high-efficiency electric vehicles need a combination of high-powerhigh power density, high-efficiencyhigh efficiency, and high temperaturehigh-temperature operation that areis only afforded by advanced materialmaterials systems based on SiC substrates. Our SiC substrates are available in large diameters and have what we believe to be best-in-class quality and low defect levels.

Our thermo-electricthermoelectric modules are used to cool the batteries to extend their operating life. They are also more efficient than resistive heaters when used in heated car seats and extend a battery’san electric vehicle’s range of travel in cold environments.

To operate safely, self-driving cars will rely on control systems that are informed by a comprehensive number of sensors. One such sensor is based on LiDAR, which employs semiconductor lasers to properly identify and measure the distance to obstacles ahead. Our GaAs-based semiconductor laser platform, which already enables a broad portfolio of products in communications and materials processing, is now being scaled further for consumer electronics and will be leveraged to deliver a highly reliable and cost-effective laser product for this emerging market.

Marketing and Sales

We market our products through a direct sales force and through representatives and distributors around the world. Our market strategy is focused on understanding our customers’ requirements and building market awareness and acceptance of our products. New products are continually being produceddeveloped and introduced to our new and established customers in all markets.

The Company has centralized its worldwide marketing and sales functions across the Company’s business units. Sales offices have been strategically established to best serve and distribute products to our worldwide customer base. There isare significant cooperation, coordination, and synergies among our business units, thatwhich capitalize on the most efficient and appropriate marketing channels to address diverse applications within our markets.

Our sales forces developforce develops effective communications with our OEM and end-user customers worldwide. Products are actively marketed through targeted mailings, telemarketing, select advertising, and attendance at trade shows, and customer partnerships. Our sales force includes a highly-trainedhighly trained team of applications engineers to assist customers in designing, testing, and qualifying our partsproducts as key components of our customers’ systems. As of June 30, 2017,2019, we employed approximately 246273 individuals in sales, marketing, and support.

We do business with a number of customers in the defense industry, who in turn generally contract with a governmental entity, typically a U.S. governmentalgovernment agency. Most governmental programs are subject to funding approval and can be modified or terminated without warning by a legislative or administrative body. For further information regarding our exposure to government markets, see the discussion set forth in Item 1A – Risk Factors of this Annual Report on Form 10-K.

Customers

The mainrepresentative groups of customers by segments are as follows:

Competition

We believe we areII-VI is a global leader in many of ourits product families. We compete partly on the basis of our reputation for offering the highly engineered nature of our products, product and technology roadmaps, IP,intellectual property, ability to scale, quality, on-time delivery, time, technical support, and pricing. We believe that we compete favorably with respect to these factors and that our vertical integration, manufacturing facilities and equipment, experienced technical and manufacturing employees, and worldwide marketing and distribution channels provide us with competitive advantages. The mainrepresentative groups of our competitors by segment are as follows:

In addition to competitors who manufacture products similar to those we produce, there are other technologies and products available that may compete with our technologies and products.

Our Strategy

Our strategy is to grow businesses with world-class engineered materialmaterials capabilities to advance our current customers’ strategies, penetrate new markets through innovative technologies and platforms, and enable new applications in large and growing markets. A key strategy of ours is to develop and manufacture high-performance materials and, in certain cases, components from those materials that are differentiated from those produced by our competitors. We focus on providing components that are critical to the heart of our customers’ assembly lines for products serving the applications mentioned above.

A substantialWe have grown the number and size of our key accounts substantially. Now, a significant portion of our business is based on sales orders with market leaders, which enable our forward planning and production efficiencies. We intend to continue capitalizing and executing on this proven model, participating effectively in the growth of the markets discussed above, and continuing our focus on operational excellence as we execute our primary business strategies in the areas of:strategies:

Research, Development, and Engineering

During the fiscal year ended June 30, 2017,2019, the Company continued to identify, invest in, and focus our research and development on new products across the Companyand platform technologies in an effort to accelerate our organic growth. This approach is managed under a disciplined innovation program that we refer to as the “II-VI Phase Gate Process”.Process.”

Our research and development program includes internally and externally funded research and development expenditures targeting an overall annual investment of between 7% and 10% of product revenues. From time to time, the ratio of externally funded contract activity to internally funded contract activity varies due to the unevenness of government fundedgovernment-funded research programs and changes in the focus of our internally funded research programs. We are committed to having the right mix of internally and externally funded research that ties closely to our long-term strategic objectives. The Company continues to believe that externally funded research and development will decrease in the near term due to governmental budget constraints.

We devote significant resources to RD&E programs directed at the continuous improvement of our existing products and processes and to the timely development of new materials, technologies, materials and products. We believe that our RD&E activities are essential to establishestablishing and maintainmaintaining a leadership position in each of the markets we serve. As of June 30, 2017,2019, we employed 1,1171,707 people in RD&E functions, 687 of whom are engineers or scientists.functions. In addition, certain manufacturing personnel support or participate in our research and development efforts on an ongoing basis. We believe this interaction between the development and manufacturing functions enhances the direction of our projects, and design for manufacturing, reducing costs and accelerating technology transfers.

During the fiscal year ended June 30, 2017,2019, we focused our research and developmentRD&E investments in the following areas:

The development of our products and manufacturing processes is largely based on proprietary technical know-how and expertise. We rely on a combination of contract provisions, trade secret laws, invention disclosures, and patents to protect our proprietary rights. We

have entered into selective intellectual property licensing agreements. We have asserted in the past, and expect that we will continue to assert, andas well as vigorously protect, our intellectual property rights. We have a total of approximately 800 patents globally.

Internally funded research and development expenditures were $96.8$139.2 million, $60.4$116.9 million, and $51.3$96.8 million for the fiscal years ended June 30,2019, 2018, and 2017, 2016 and 2015, respectively. For these same periods, externally funded research and development expenditures were $7.8$14.7 million, $12.7 million, and $8.7 million, respectively, and $9.5 million, respectively.were included in cost of goods sold in the Consolidated Statements of Earnings.

Export and Import Compliance

We are required to comply with various export/import control and economic sanction laws, including:

Foreign governments have also implemented similar export and import control regulations, which may affect our operations or transactions subject to their jurisdiction. For additional discussions regarding our import and export compliance, see the discussion set forth in Item 1A – Risk Factors of this Annual Report Form on Form 10-K.

Trade Secrets, Patents, and Trademarks

Our use of trade secrets, proprietary know-how, trademarks, copyrights, patents, and contractual confidentiality, and IP ownership provisions help us develop and maintain our competitive position with respect to our products and manufacturing processes. We aggressively pursue process and product patents in certain areas of our businesses.businesses, and in certain jurisdictions across the globe. We have entered into selective intellectual property licensing agreements. We have in the past and will continue to assert and vigorously protect our intellectual property rights.  We have confidentiality and non-competitionnoncompetition agreements with certain personnel. We require that our U.S. employees sign a confidentiality and noncompetition agreement upon their commencement of their employment with us.

The design, processes, and specialized equipment utilized in our engineered materials, advanced components, and subsystems are innovative, complex, and difficult to duplicate. However, there can be no assurance that others will not develop or patent similar technology, or that all aspects of our proprietary technology will be protected. Others have obtained patents covering a variety of materials, devices, equipment, configurations, and processes, and others could obtain patents covering technology similar to our technology.ours. We may be required to obtain licenses under such patents, and there can be no assurance that we would be able to obtain such licenses, if required, on commercially reasonable terms, or that claims regarding rights to technology will not be asserted whichthat may adversely affect our results of operations. In addition, our research and development contracts with agencies of the U.S. Governmentgovernment present a risk that project-specific technology could be disclosed to competitors as contract reporting requirements are fulfilled.

Executive Officers of the Registrant

The executive officers of the Company and their respective ages and positions as of June 30, 20172019, are set forth below. Each executive officer listed has been appointed by the Board of Directors to serve until removed or until such person’s successor is appointed and qualified.

Vincent D. Mattera, Jr. Dr. Mattera initially served as a member of the II-VI Board of Directors from 2000-2002.2000 to 2002. Dr. Mattera joined the companyCompany as a Vice President in 2004 and served as Executive Vice President from January of 2010 to November of 2013, when he became the Chief Operating Officer. In November of 2014, Dr. Mattera became the President and Chief Operating Officer and was reappointed to the Board of Directors. In November of 2015, he became the President of II-VI. In September of 2016, Dr. Mattera became the Company’s third President and Chief Executive Officer in 45 years. During his career at II-VI, he has assumed successively broader management roles, including as a lead architect of the Company’s diversification strategy. He has provided vision, energy, and dispatch to the Company’s growth initiatives, including overseeing the acquisition-related integration activities in the US,United States, Europe, and Asia-especiallyAsia—especially in China-therebyChina—thereby establishing additional platforms. These have contributed to a new positioning of the Company into large and transformative global growth markets while increasing considerably the global reach of the Company, deepening the technology and IP portfolio, broadening the product roadmap and customer base, and increasing the potential of II-VI.

Prior to joining II-VI as an executive, Dr. Mattera had a continuous 20 year20-year career in the Optoelectronic Device Division of AT&T Bell Laboratories, Lucent Technologies, and Agere Systems, during which he led the development and manufacturing of semiconductor laser basedlaser-based materials and devices for optical and data communications networks. Dr. Mattera has 34 years of leadership experience in the compound semiconductor materials, and device technology, operations, and markets that are core to II-VI’s business and strategy. Dr. Mattera holds a B.S. degree in chemistry from the University of Rhode Island (1979), and a Ph.D. degree in chemistry from Brown University (1984). He completed the Stanford University Executive Program (1996). His 14 year tenure at II-VI underpins a valuable historical knowledge about the Company’s operational and strategic issues. We believe that Dr. Mattera’s expertise and experience qualifies him to provide the board with continuity and a unique perspective about on the Company.

Mary Jane Raymond has been Chief Financial Officer and Treasurer of the Company since March 2014. Previously, Ms. Raymond was Executive Vice President and Chief Financial Officer of Hudson Global Inc. (NASDAQ: (Nasdaq:HSON) from 2005 to 2013. Ms. Raymond was the Chief Risk Officer and Vice President and Corporate Controller at Dun and Bradstreet Inc., from 2002 to 2005. Additionally, she was the Vice President, Merger Integration, at Lucent Technologies Inc., from 1997 to 2002 and held several management positions at Cummins Engine Company from 1988 to 1997. Ms. Raymond holds a B.A. degree in Public Management from St. Joseph’s University, and an MBA from Stanford University.

Gary A. Kapusta joined II-VI in February 2016 and has served as the Company’s Chief Operating Officer. Prior to his employment with the Company, Mr. Kapusta served in various roles at Coca-Cola, including as President & Chief Executive Officer, Coca-Cola Bottlers’ Sales & Services L.L.C., President, Customer Business Solutions and Vice President, Procurement Transformation, Coca-Cola Refreshments. He joined Coca-Cola following a 19 year career at Agere Systems, Lucent Technologies, and AT&T. Mr. Kapusta graduated from The University of Pittsburgh with B.S. and M.S. degrees in Industrial Engineering, and holds an M.B.A from Lehigh University.  

Giovanni Barbarossa joined II-VI in 2012 and has been the President, II-VI Laser Solutions, Segment, since 2014 and served as the Chief Technology Officer since 2012.from 2012 through June 30, 2019. Dr. Barbarossa was employed at Avanex Corporation from 2000 through 2009, serving in various executive positions in product development and general management, and ultimately serving as President and Chief Executive Officer. When Avanex merged with Bookham Technology, forming Oclaro, Dr. Barbarossa became a member of the Board of Directors of Oclaro and served as such from 2009 to 2011. Previously, he had management responsibilities at British Telecom, AT&T Bell Labs, Lucent Technologies, and Hewlett-Packard. Dr. Barbarossa graduated from the University of Bari, Italy, with a B.S. degree in Electrical Engineering and holds a Ph.D. in Photonics from the University of Glasgow, U.K.

Gary A. Kapusta joined II-VI in February 2016 and served from then through June 30, 2019 as the Company’s Chief Operating Officer. Prior to his employment with the Company, Mr. Kapusta served in various roles at Coca-Cola, including as President and Chief Executive Officer, Coca-Cola Bottlers’ Sales & Services LLC; President, Customer Business Solutions; and Vice President, Procurement Transformation, Coca-Cola Refreshments. He joined Coca-Cola following a 19-year career at Agere Systems, Lucent Technologies, and AT&T. Mr. Kapusta graduated from the University of Pittsburgh with B.S. and M.S. degrees in Industrial Engineering and holds an MBA from Lehigh University.

Jo Anne Schwendinger has served as the Company’s Chief Legal and Compliance Officer and Secretary since March 2017. Ms. Schwendinger also served as the Company’s General Counsel and Secretary from when she joined the Company in March 2017 until November 2017. Prior to her employment with the Company, Ms. Schwendinger practiced law with the firm Blank Rome LLP from August 2016 until February 2017. Previously, Ms. Schwendinger served in various legal roles at Deere & Company from February 2000 until August 2016, including Regional General Counsel–Asia-Pacific and Sub-Saharan Africa and Assistant General Counsel. Ms. Schwendinger holds a bachelor’s degree from the Université d'Avignon et des Pays de Vaucluse, a master’s degree from the Université de Strasbourg, and a Juris Doctor degree from the University of Pittsburgh Law School.

David G. Wagner has been employed by the Company since 2008 and has been the Vice President, Human Resources, since 2011. Prior to his employment with the Company, Mr. Wagner was employed with Owens Corning (NYSE:OC) from 1985 through 2008, serving in various human resource management positions, ultimately becoming the Vice President, Human Resources, for Owen Corning’s global sales force. Mr. Wagner graduated with a B.S. degree in Human Resources Management from Juniata College in 1985. Mr. Wagner has announced his intention to retire from the Company, to be effective in 2019, at a date to be determined.

Appointment of Walter R. Bashaw II as President Effective July 1, 2019

Jo Anne Schwendinger joined II-VI in March 2017 and servesOn June 27, 2019, the Board of Directors of the Company appointed Walter R. Bashaw II as the Company’s President, effective July 1, 2019. Dr. Mattera remains the Company’s Chief Executive Officer and a member of the Company’s Board of Directors.

Mr. Bashaw, 54, has served as the Company’s Senior Vice President, Corporate Strategy and Development, Administration since October 2018 and previously served as the Company’s Interim General Counsel and Secretary. Prior to her employment withSecretary from December 2015 until March 2017. Mr. Bashaw also previously was the Company, Ms. Schwendinger practiced law withManaging Shareholder and a Director of the law firm Blank Rome, LLPof Sherrard, German & Kelly, P.C. (“SGK”) in Pittsburgh, Pennsylvania, until October 2018 and has been Of Counsel at SGK since October 2018. Mr. Bashaw graduated from August 2016 until February 2017. Previously, Ms. Schwendinger servedThe Pennsylvania State University with a B.S. degree in various legal roles at Deere & Company from February 2000 until August 2016, including Regional General CounselLogistics and Assistant General Counsel. Ms. Schwendingeralso holds a Bachelor’s degree from the Université d'Avignon et des Pays de Vaucluse, a Master’s degree from the Université de Strasbourg, Maitrise and a Juris DoctorJ.D. degree from the University of Pittsburgh Law School.School of Law.

Changes in Management Roles Effective July 1, 2019

The Company’s Board of Directors also determined on June 27, 2019 that Dr. Barbarossa would be reassigned to the position of Chief Strategy Officer and President of the Compound Semiconductor segment, effective July 1, 2019. The Company’s Board of Directors appointed Christopher Koeppen, who most recently served as the Company’s Vice President, Laser Systems Group, as the Company’s Chief Technology Officer, effective July 1, 2019.  Mr. Kapusta, who most recently served as the Company’s Chief Operating Officer, was reassigned by the Company’s Board of Directors to the position of Chief Procurement Officer, effective July 1, 2019.

Availability of Information

Our Internetinternet address is www.ii-vi.com. Information contained on our website is not part of, and should not be construed as being incorporated by reference into, this Annual Report on Form 10-K. We post the following reports on our website as soon as reasonably practical after they are electronically filed with or furnished to the Securities and Exchange Commission (the “SEC”(“SEC”): our Annual Reports on Form 10-K, our Quarterly Reports on Form 10-Q, our Current Reports on Form 8-K, and any amendments to those reports or statements filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act. In addition, we post our proxy statements on Schedule 14A related to our annual shareholders’ meetings as well as reports filed by our directors, officers, and ten-percent10% beneficial owners pursuant to Section 16 of the Exchange Act. In addition, all filings are available via the SEC’s website (www.sec.gov). We also make our corporate governance documents available on our website, including the Company’s Code of Business Conduct and Ethics, governance guidelines, and the charters for various boardour Board committees. All such documents are located on the Investors page of our website and are available free of charge.

We caution our investors that our performance is subject to risks and uncertainties. The following material risk factors may cause our future results to differ materially from those projected in any forward-looking statement. You should carefully consider these factors, as well as the other information contained in this Annual Report on Form 10-K when evaluating an investment in our securities.

Investments in Future Marketsfuture markets of Potential Significant Growth May Not Resultpotential significant growth may not result in Expected Returnsthe expected return.  

We previously announced an investment programcontinue to make investments in programs with the goal of gaining a greater share of end markets using semiconductor lasers especiallyand other components including those used for 3D sensing.sensing and emerging 5G technology. We cannot guarantee that our investments in capital and capabilities will be sufficient. The potential market,end markets, as well as our ability to gain market share in such market,markets, may not materialize on the timeline anticipated or at all. We cannot be sure of the end market price, specification or yield for products incorporating our technologies. Our technologies could fail to fulfill, completelypartially or at all,completely, our target customers’ finalized specifications. We cannot guarantee the end market customers’ acceptance of our technologies. 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 consequential damages, loss of market share and loss of reputation.

Our Competitive Position Dependscompetitive position depends on Our Abilityour ability to Develop New Productsdevelop new products and Processesprocesses.

To meet our strategic objectives, we must develop, manufacture and market new products and continue to update our existing products and processes to keep pace with market developments to address increasingly sophisticated customer requirements. 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, and high-quality and successful product performance in the market.

The introduction by our competitors of products or processes using new developments better or faster than ours could render our products or processes obsolete or unmarketable. We intend to continue to make significant investments in research and developmentRD&E to achieve our goals. There can be no assurance that we will be able to develop and introduce new products or enhancements to our existing products and processes in a manner which satisfies customer needs or achieves market acceptance. The failure to do so could have a material adverse effect on our ability to grow our business and maintain our competitive position and on our results of operations and/or financial condition.

Our Competitive Position May Require Significant Investments in Strategic Acquisitions, With Associated Integration Risks, Which May Not Be Successful

We continuously monitor the marketplace for strategic opportunities, andGlobal economic downturns may adversely affect our business, strategy includes expanding our product lines and markets through both internal product development and acquisitions.  Consequently, we expect to continue to consider strategic acquisition of businesses, products or technologies complementary to our business.  This may require significant investments of management timeoperating results and financial resources.  If market demand is outside our organic capabilities, if a strategic acquisition is requiredcondition.

Current and we cannot identify one or execute on it, and/or if financial investments that we undertake distract management, do not resultfuture conditions in the expected returnglobal economy have an inherent degree of uncertainty. As a result, it is difficult to estimate the level of growth or contraction of the global economy as a whole. It is even more difficult to estimate growth or contraction in various parts, sectors and regions of the economy, including the industrial, aerospace and defense, optical communications, telecommunications, semiconductor, and medical and life science markets in which we participate. All aspects of our company forecast depend on investment, expose usestimates of growth or contraction in the markets we serve. Thus, prevailing global economic uncertainties render estimates of future income and expenditures very difficult to unforeseen liabilitiesmake.

Global economic downturns may affect industries in which our customers operate. These changes could include decreases in the rate of consumption or jeopardizeuse of our abilitycustomers’ products. Such conditions could have a material adverse effect on demand for our customers’ products, and in turn, on demand for our products.

Adverse changes may occur in the future as a result of declining or flat global or regional economic conditions, fluctuations in currency and commodity prices, wavering confidence, capital expenditure reductions, unemployment, decline in stock markets, contraction of credit availability or other factors affecting economic conditions. For example, factors that may affect our operating results include disruption in the credit and financial markets in the United States, Europe and elsewhere, adverse effects of slowdowns in the U.S., European or Chinese economies, reductions or limited growth in consumer spending or consumer credit, global trade tariffs, and other adverse economic conditions that may be specific to complythe Internet, e-commerce and payments industries.

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

These changes may negatively affect sales of products and increase exposure to losses from bad debt and commodity prices, the cost and availability of financing, and costs associated with our credit facility covenants due to any inability to integrate the business, retain staff,manufacturing and distributing products. Any economic downturn, or work with the customers or otherwise wesurge, could sufferhave a material adverse effect on our business, results of operations or financial condition.

Some systems that use our products are complex in design, and our products may contain defects that are not detected until deployed, which could increase our costs, reduce our revenues, cause us to lose key customers and may expose us to litigation arising from lawsuits related to our products.

Some systems that use our products are inherently complex in design and require ongoing maintenance. Our Future Success Depends on Continued International Sales

Sales to customers may discover defects in countries other thanour products after the United States accounted for approximately 69%, 63%products have been fully deployed and 63% of revenues during the years ended June 30, 2017, 2016 and 2015, respectively. We anticipate that international sales will continue to account for a significant portionoperated under peak stress conditions. In addition, some of our revenues forproducts are combined with products from other vendors which may contain defects. Should problems occur, it may be difficult to identify the foreseeable future.source of the problem. If we do not maintain our current volume of international sales,are unable to correct defects or other problems, we could sufferexperience, 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.

The occurrence of any one or more of the foregoing factors could have a material adverse effect on our business, results of operations and/or financial condition.

Foreign Currency Risk May Negatively Affectcurrency risk may negatively affect our Revenues, Costrevenues, cost of Salessales and Operating Marginsoperating margins and Could Resultcould result in Foreign Exchange Losses

foreign exchange losses.

We conduct our business and incur costs in the local currency of most countries in which we operate. Our net sales outside the United States represented a majority of our total sales in each of the last three fiscal years. We incur currency transaction risk whenever one of our operating subsidiaries enters into either a purchase or a sales transaction using a different currency from the currency in which it operates or holds assets or liabilities in a currency different than its functional currency. Changes in exchange rates can also affect our results of operations when the value of sales and expenses of foreign subsidiaries are translated to U.S. dollars. We cannot accurately predict the impact of future exchange rate fluctuations on our results of operations. Further, given the volatility of exchange rates, we may not be able to effectively manage our currency risks, and any volatility in currency exchange rates may increase the price of our products in local currency to our foreign customers or increase the manufacturing cost of our products, either of which may have an adverse effect on our financial condition, cash flows and profitability.

Our competitive position may still require significant investments.

We continuously monitor the marketplace for strategic opportunities, and our business strategy includes expanding our product lines and markets through both internal product development and acquisitions. Consequently, we expect to continue to consider strategic acquisition of businesses, products or technologies complementary to our business. This may require significant investments of management time and financial resources. 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 customers, we could suffer a material adverse effect on our business, results of operations or financial condition.

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:  

In connection with acquisitions, we may:  

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 Inabilityfailure to Access Financial Markets from Timesuccessfully integrate acquired businesses may disrupt our business and adversely impact our business, financial condition and results of operations.

Our future success depends on continued international sales, and our global operations are complex, and present multiple challenges to Timemanage.

Sales to Raise Capital, Finance Working Capital Requirements customers in countries other than the United States accounted for approximately 70%, 68% and 69% of revenues during the years ended June 30, 2019, 2018 and 2017, respectively. We anticipate that international sales will continue to account for a significant portion of our revenues for the foreseeable future. If we do not maintain our current volume of international sales, we could suffer a material adverse effect on our business, results of operations and/or Our Acquisition Strategies, or Otherwise to Support our Liquidity Needs Could Negatively Impact our Ability to Finance our Operations, Meet Certain Obligations or Implement our Growth Strategy.financial condition.

We occasionallymanufacture products in the United States, China, Singapore, Vietnam, the Philippines, Germany, Switzerland, and the United 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, Italy, South Korea, and Taiwan. Our operations vary by location and are influenced on a location-by-location basis by local customs, languages and work practices, as well as different local weather conditions, management styles and education systems. In addition, multiple complex issues may arise concurrently in different countries, potentially hampering our management’s ability to respond in an effective and timely manner. Any inability to respond in an effective and timely manner to issues in our global operations could have a material adverse effect on our business, results of operations or financial condition.

We are subject to complex and rapidly changing import and export regulations.              

We are subject to the passage of and changes in the interpretation of regulation by U.S. government entities at the federal, state and local levels and non-U.S. agencies, including, but not limited to, the following:          

Changes in U.S. trade policies could impact the Company’s international operations and the cost of goods imported into the 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.

In March 2018, President Trump announced new steel and aluminum tariffs, in April 2018, the U.S. Department of Commerce issued a denial order against two companies in the telecommunications market, and in May 2019, the U.S. Department of Commerce placed Huawei and its affiliates on the U.S. Entity List. Other international trade actions and initiatives also have been implemented, notably the imposition by the U.S. of additional tariffs on products of Chinese origin, and China’s imposition of additional tariffs on U.S.-origin goods. If we cannot obtain relief from, or if we cannot take other action to mitigate the impact of, these additional restrictions and duties, our business and profits may be materially and adversely affected. Further changes in the trade policy of the United States or of other countries with which we do cross-border business, or additional sanctions, could result in retaliatory actions by other countries that could materially and negatively impact the volume of economic activity in the United States or globally, which, in turn, may decrease our access to customers and markets, reduce our revenues, and increase our operating costs.

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. Compliance with regulations of the United States and other governments also subjects us to additional fees and costs. The absence of comparable restrictions on competitors in other countries may adversely affect our competitive position.  We have previously been the subject of inquiries from the Department of State and the Department of Justice regarding compliance with ITAR. Although these inquiries were closed with no action being taken, we expended significant time and resources to resolve them, and future inquiries of this type could also be costly to resolve.

Any inability to access financial markets from time to time to raise required capital, finance our working capital requirements or our acquisition strategies, or otherwise to support our liquidity needs could negatively impact our ability to finance our operations, meet certain obligations or implement our growth strategy.

We borrow under our existing credit facilities to fund operations, including working capital investments, and to finance our acquisition strategies. In the past, market disruptions experienced in the United States and abroad have materially impacted liquidity in the credit and debt markets, making financing terms for borrowers less attractive, and, in certain cases, have resulted in the unavailability of certain types of financing. Uncertainty in the financial markets may negatively impact our ability to access additional financing or to refinance our existing credit facilities or existing debt arrangements on favorable terms or at all, which could negatively affect our ability to fund current and future expansion as well as future acquisitions and development. These disruptions may include turmoil in the financial services industry, volatility in the markets where our outstanding securities trade, and changes in general economic downturnsconditions in the areas where we do business. If we are unable to access funds at competitive rates, or if our short-term or long-term borrowing costs increase, our ability to finance our operations, meet our short-term obligations and implement our operating strategies could be adversely affected.

In the future we may be required to raise additional capital through public or private financing or other arrangements. Such financing may not be available on acceptable terms, or at all, and our failure to raise capital when needed could harm our business and prospects. 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 operational activities that we otherwise would find to be desirable. Further, debt service obligations associated with any such debt financing could reduce our profitability. If we cannot raise funds on acceptable terms, we may not be able to grow our business or respond to competitive pressures.

We May Failmay not be able to Accurately Estimatesettle conversions of our convertible senior notes in cash or repurchase the notes in accordance with 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 interest. In addition, upon conversion of the notes, unless we elect to deliver solely shares of our common stock to settle such conversions (other than paying cash in lieu of delivering any fractional share), we will be required to make cash payments in respect of the notes being converted. However, we may not have enough available cash or be able to obtain financing at the time we are required to make repurchases of surrendered notes, or pay cash with respect to notes being converted.

In addition, our ability to repurchase or to pay cash upon conversion of the notes may be limited by law, regulatory authority or agreements governing our future indebtedness. Our Customers’ Demandsfailure to repurchase notes at a time when the repurchase is required by the governing indenture, or to pay any cash upon conversion of the notes as required would constitute a default under the indenture. A default under the indenture or the fundamental change itself also could lead to a default under agreements governing our credit facility and any of our future indebtedness. If the payment of the related indebtedness were to be accelerated after any applicable notice or grace periods, we may not have sufficient funds to repay the indebtedness and repurchase the notes or to pay cash upon conversion of the notes.

We may fail to accurately estimate the size and growth of our markets and our customers’ demands.  

We make significant decisions based on our estimates of customer requirements. We use our estimates to determine the levels of business we seek and accept, production schedules, personnel needs and other resource requirements.

Customers may require rapid increases in production on short notice. We may not be able to purchase sufficient supplies or allocate sufficient manufacturing capacity to meet such increases in demand. Rapid customer ramp-up and significant increases in demand may strain our resources or negatively affect our margins. Inability to satisfy customer demand in a timely manner may harm our reputation, reduce our other opportunities, damage our relationships with customers, reduce revenue growth, and/or incur contractual penalties.

Alternatively, downturns in the industries in which we compete may cause our customers to significantly reduce their demand. 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 reflect declining market demands. Unexpected declinedeclines in customer demands can result in excess or obsolete inventory and result in additional charges. Because certain of our sales, research and development, and internal manufacturing overhead expenses are relatively fixed, a reduction in customer demand likely would decrease our gross margins and operating income.

We May Encounter Substantial Competitionmay encounter increased competition.

We may encounter substantial competition from other companies in the same market, including established companies with significant resources. Some of our competitors may have financial, technical, marketing or other capabilities that are more extensive than ours. They may be able to respond more quickly than we can to new or emerging technologies and other competitive pressures. We may not be able to compete successfully against our present or future competitors. Our failure to compete effectively compete could have a material adverse effect on our business, results of operations or financial condition.

There Are Limitationsare limitations on the Protectionprotection of Our Intellectual Propertyour intellectual property and we may from time to time be involved in costly intellectual property litigation or indemnification.

We rely on a combination of trade secret, patent, copyright and trademark laws, combined with employee confidentiality, noncompetition and nondisclosure agreements to protect our intellectual property rights. There can be no assurance that the steps taken by uswe take will be adequate to prevent misappropriation of our technology or intellectual property. Furthermore, there can be no assurance that third-partiesthird parties will not assert infringement claims against us in the future.

Asserting our intellectual property rights or defending against third-party claims could involve substantial expense. In the event a third-party were successful in a claim that one of our processes infringed its proprietary rights, we could be required to pay substantial damages or royalties, or spend substantial amounts in order to obtain a license or modify processes so that they no longer infringe such proprietary rights. Any such eventsevent could have a material adverse effect on our business, results of operations or financial condition.

A Significant Portionsignificant portion of Our Businessour business is Dependentdependent on Cyclical Industriescyclical industries.        

Our business is significantly dependent on the demand for products produced by end-users of industrial lasers, and optical communication products.products, components for semiconductor capital equipment, and components for 3D sensing. Many of these end-users are in industries that have historically experienced a highly cyclical demand for their products. As a result, demand for our products is subject to these cyclical fluctuations. Fluctuations in demand could have a material adverse effect on our business, results of operations or financial condition.

Our global operations are subject to complex legal and regulatory requirements.      

We manufacture products in the United States, China, Singapore, Vietnam, the Philippines, Germany, Switzerland, and the United 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, Italy, South Korea and Taiwan. Operations inside and outside of the United States are subject to many legal and regulatory requirements, some of which are not aligned with others. These include tariffs, quotas, taxes and other market barriers, restrictions on the export or import of technology, potentially limited intellectual property protection,  import and export requirements and restrictions, anti-corruption and anti-bribery laws, foreign exchange controls and cash repatriation restrictions, foreign investment rules and regulations, data privacy requirements, competition laws, employment and labor laws, pensions and social insurance, and environmental health and safety laws and regulations.

Compliance with these laws and regulations can be onerous and expensive, and requirements differ among jurisdictions. New laws, changes in existing laws, and abrogation of local regulations by national laws may result in significant uncertainties in how they will be interpreted and enforced. Failure to comply with any of these foreign laws and regulations could have a material adverse effect on our business, results of operations or financial condition.

Changes in laws and regulations governing data privacy and data protection could have a material adverse impact on our business.

We are subject to many data privacy, data protection, and data breach notification laws, including the European Union General Data Breach IncidentsProtection Regulation (“GDPR”), which became effective in May of 2018. While we have taken measures to assess the requirements of, and Breakdownto comply with, the GDPR, as well as new and existing data-related laws and regulations of Informationother jurisdictions, these measures may be challenged, including by authorities that regulate data-related compliance. We could incur significant expense in facilitating and Communication Technologies Could Disruptresponding to investigations, and if the measures we have taken prove to be inadequate, we could face fines, penalties or damages, and incur reputational harm, which could have a material adverse impact on our Operationsbusiness.

Data breach incidents and Impact Our Financial Resultsbreakdown of information and communication technologies could disrupt our operations and impact our financial results.

In the course of our business, we collect and store sensitive data, including intellectual property (both our own and that of our customers), as well as proprietary business information. We could be subject to service outages or breaches of security systems which may result in disruption, unauthorized access, misappropriation, or corruption of this information. 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, orand unauthorized disclosure of confidential information. Although we have not experienced an incident, ifIf we are unable to prevent or contain such security or privacy breaches, our operations wouldcould be disrupted or we could suffer legal claims, loss of reputation, financial loss, property damage, or regulatory penalties because of lost or misappropriated information.

Global Economic Downturns May Adversely Affect Our Business, Operating Results and Financial Condition

Current and future conditions in the global economy have an inherent degree of uncertainty. As a result, it is difficult to estimate the level of growth or contraction for the global economy as a whole. It is even more difficult to estimate growth or contraction in various parts, sectors and regions of the economy, including industrial, military, optical communications, telecommunications, semiconductor, and medical and life science markets in which we participate. All aspects of our company forecast depend on estimates of growth or contraction in the markets we serve.  Thus, prevailing global economic uncertainties render estimates of future income and expenditures very difficult to make.

Global economic downturns may affect industries in which our customers operate. These changes could include decreases in the rate of consumption or use of our customers’ products. Such conditions could have a material adverse effect on demand for our customers’ products, and in turn, on demand for our products.

Adverse changes may occur in the future as a result of declining or flat global or regional economic conditions, fluctuations in currency and commodity prices, wavering confidence, capital expenditure reductions, unemployment, decline in stock markets, contraction of credit availability or other factors affecting economic conditions. For example, factors that may affect our operating results include disruption in the credit and financial markets in the United States, Europe and elsewhere, adverse effects of ongoing stagnation in the European economy, slowdown in the Chinese economy, reductions or limited growth in consumer spending or consumer credit, and other adverse economic conditions that may be specific to the Internet, e-commerce and payments industries.

These changes may negatively affect sales of products and increase exposure to losses from bad debt and commodity prices, the cost and availability of financing, and costs associated with manufacturing and distributing products. Any economic downturn could have a material adverse effect on our business, results of operations or financial condition.penalties.

We Are Subjecthave entered into supply agreements which commit us to Governmental Import and Export Regulations

We are subject to the passage of and changes in the interpretation of regulation by U.S. government entities at the federal, state and local levels and non-U.S. agencies, including, but not limited to, the following:

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.

Our Global Operations are Complex to Manage

We manufacture products in the United States, China, Singapore, Vietnam, the Philippines, Germany, and Switzerland, and through contract manufacturers in Thailand and China.  We also maintain direct sales offices in Hong Kong, Japan, Germany, Switzerland, the United Kingdom, Belgium, China, Singapore, Italy, South Korea, and Taiwan.  Our operations vary by location and are influenced on a location-by-location basis by local customs, languages and work practices, as well as different local weather conditions, management styles and education systems. In addition, multiple complex issues may arise concurrently in different countries, potentially hampering our management’s ability to respond in an effective and timely manner. Any inability to respond in an effective and timely manner to issues in our global operations could have a material adverse effect on our business, results of operations or financial condition.

We Have Entered into Supply Agreements which Commit Us to Supply Products on Specified Termsspecified terms.

We have supply agreements with some customers which require us to supply products and to allocate sufficient capacity to make these products. We have also agreed to pricing schedules and methodologies which could result in penalties if we fail to meet development, supply, capacity and quality commitments. Failure to do so may cause us to be unable to generate the amount of revenue or the level of profitability we expect from these arrangements. Our ability to realize a profit under some of these agreements will be subject to the level of customer demand, the cost of maintaining facilities and manufacturing capacity, and supply chain capability.

If we fail to fulfill our commitments under these supply agreements, our business, after using all remedies available, financial conditions and results of operations may suffer a material adverse effect.

We Dependdepend on Highly Complex Manufacturing Processes That Require Productshighly complex manufacturing processes that require feeder materials, components and products from Limited Sourceslimited sources of Supplysupply.    

Our operations are dependent upon a supply chain of difficult-to-make or difficult-to-refine products and materials. Some of our product inflow is subject to yield reductions from growth or fabrication losses, and thus the quantities we may receive are not consistently predictable. Customers may also change the specification for a product that our suppliers cannot meet.

We also make products for which the Company is one of the world’s largest suppliers. We use high-quality, optical grade ZnSe in the production of many of our IR optical products. We are a leading producer of ZnSezinc selenide (“ZnSe”) for our internal use and for external sale. The production of ZnSe is a complex process requiring a highly controlled environment. A number of factors, including defective or contaminated materials, could adversely affect our ability to achieve acceptable manufacturing yields of high quality ZnSe. Lack of adequate availability of high quality ZnSe could have a material adverse effect upon our business. There can be no assurance that we will not experience manufacturing yield inefficiencies which could have a material adverse effect on our business, results of operations or financial condition.

We produce hydrogen selenide gas which is used in our production of ZnSe. There are risks inherent in the production and handling of such material. Our lack of proper handling of hydrogen selenide could require us to curtail our production of hydrogen selenide. Our potential inability to internally produce hydrogen selenide could have a material adverse effect on our business, results of operations or financial condition.

In addition, we produce and use other high purity and relatively uncommon materials and compounds to manufacture our products including, but not limited to, ZnS, GaAs,zinc sulfide (“ZnS”), gallium arsenide (“GaAs”), Yttrium Aluminum Garnet (“YAG”), Yttrium Lithium Fluoride (“YLF”), Calcium Fluoride, Germanium, Selenium, Telluride, Bismuth Telluride (“Bi₂Te₃”) and SiC.silicon carbide (“SiC”). A significant failure of our internal production processes or our suppliers to deliver sufficient quantities of these necessary materials on a timely basis could have a material adverse effect on our business, results of operations or financial condition.

Our Global Operations Are Subject to Complex Legal

Increases in commodity prices may adversely affect our results of operations and Regulatory Requirementsfinancial condition.  

We manufacture productsare exposed to a variety of market risks, including the effects of increases in the United States, China, Singapore, Vietnam, the Philippines, Germany,commodity prices. Our businesses purchase, produce and Switzerland, and through contract manufacturers in Thailand and China.  We also maintain direct sales offices in Hong Kong, Japan, Germany, Switzerland, the United Kingdom, Belgium, China, Singapore, Italy, South Korea and Taiwan.  Operations outside of the United States are subject to many legal and regulatory requirements, some of which are not aligned with others.  These include tariffs, quotas, taxessell high-purity selenium and other raw materials based upon quoted market barriers, restrictions on the export or import of technology, potentially limited intellectual property protection, customs 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.

Compliance with these laws and regulations canprices from minor metal exchanges. The negative impact from increases in commodity prices might not be onerous and expensive, and requirements differ among jurisdictions.  New laws, changes in existing laws and abrogation of local regulations by national laws result in significant uncertainties in how they will be interpreted and enforced. Failure to comply with any of these foreign laws and regulationsrecovered through our product sales which could have a material adverse effect on our business, results of operations ornet earnings and financial condition.

We Useuse and Generate Hazardous Substancesgenerate potentially hazardous substances that Are Subjectare subject to Stringent Environmental Regulationsstringent environmental regulations.

Hazardous substances used or generated in some of our research and manufacturing facilities are subject to stringent environmental regulation. We believe that our handling of such substances is in material compliance with applicable local, state and federal environmental, safety and health regulations at each operating location. We invest substantially in proper personal protective equipment, process controls, including monitoring and specialized training to minimize risks to employees, surrounding communities and the environment that could result from the presence and handling of such hazardous substances. We regularly conduct employee physical examinations and workplace monitoring regarding such substances. When exposure problems or potential exposure problems have been uncovered, corrective actions have been implemented and re-occurrence has been minimal or non-existent.

We have in place an emergency response plan with respect to our generation and use of the hazardous substancesubstances Hydrogen Selenide.Selenide, Hydrogen Sulfide, Arsine and Phosphine. Special attention has been given to all procedures pertaining to thisthese gaseous materialmaterials to minimize the chances of its accidental release into the atmosphere.

With respect to the manufacturing, use, storage and disposal of the low-level radioactive material Thorium Fluoride, our facilities and procedures have been inspected and licensed by the Nuclear Regulatory Commission. Thorium-bearing by-products are collected and shipped as solid waste to a government-approved low-level radioactive waste disposal site in Clive, Utah.

The generation, use, collection, storage and disposal of all other hazardous by-products, such as suspended solids containing heavy metals or airborne particulates, are believed by us to be in material compliance with regulations. We believe that we have obtained all of the permits and licenses required for operation of our business.

We do not carry environmental impairment insurance. Although we do not know of any material environmental, safety or health problems in our properties or processes or products, there can be no assurance that problems will not develop in the future which could have a material adverse effect on our business, results of operations or financial condition.

Unfavorable changes in tax rates, tax liabilities or tax accounting rules could negatively affect future results.

As a global company, we are subject to taxation in the United States and various other countries and jurisdictions. As such, we must exercise a level of judgment in determining our worldwide tax liabilities. Our future tax rates could be affected by changes in the composition of earnings in countries with differing tax rates or changes in tax laws. Changes in tax laws or tax rulings may have a significantly adverse impact on our effective tax rate.

The enactment of the Tax Cuts and Jobs Act (the “Tax Act”) in December 2017 significantly affected U.S. tax law by changing how the U.S. imposes tax on multinational corporations. The U.S. Department of Treasury has broad authority under the Tax Act to issue regulations and interpretive guidance. We have applied available guidance to estimate our tax obligations, but new guidance issued by the U.S. Treasury Department may cause us to make adjustments to our tax estimates in future periods.

In addition, we are subject to regular examination of our income tax returns by the Internal Revenue Service and other tax authorities. We regularly assess the likelihood of favorable or unfavorable outcomes resulting from these examinations to determine the adequacy of our provision for income taxes. Although we believe our tax estimates are reasonable, there can be no assurance that any final determination will not be materially different than the treatment reflected in our historical income tax provision and accruals, which could materially and adversely affect our business, results of operation or financial condition.

Natural disasters or other global or regional catastrophic events could disrupt our operations, give rise to substantial environmental hazards and adversely affect our results.                      

We May Be Adversely Affectedmay be exposed to business interruptions due to catastrophe, natural disaster, pandemic, terrorism or acts of war that are beyond our control. Disruptions to our facilities or systems, or to those of our key suppliers, could also interrupt operational processes and adversely impact our ability to manufacture our products and provide services and support to our customers. As a result, our business, results of operations or financial condition could be materially adversely affected.

Our success depends on our ability to attract, retain and develop key personnel and requires continued good relations with our employees.

We are highly dependent upon the experience and continuing services of certain scientists, engineers, production and management personnel. Competition for the services of these personnel is intense. There can be no assurance that we will be able to retain or attract the personnel necessary for our success. The loss of the services of our key personnel could have a material adverse effect on our business, results of operations or financial condition.

Our stock price has been volatile in the past and may be volatile in the future.

The market price for our common stock on The Nasdaq Global Select Market varied between a high of $50.75 and a low of $29.31 in the fiscal year ended June 30, 2019. We expect that this volatility will continue. Factors that could cause fluctuation in our stock price include, among other things, general economic and market conditions, actual or anticipated variations in operating results, changes in financial estimates by Climate Change Regulationssecurities analysts, our inability to meet or exceed securities analysts’ estimates or expectations, conditions or trends in the industries in which our products are purchased, announcements by us or our competitors of significant acquisitions, strategic partnerships, divestitures, joint ventures or other strategic initiatives, capital commitments, additions or departures of key personnel, sales of our common stock or equity-linked securities and issuance of shares of our common stock in connection with conversions of our outstanding convertible senior notes.

Many of these factors are beyond our control. However, these factors could cause the market price of our common stock to decline, regardless of our actual operating performance. In addition, in recent years, the stock market in general, and The Nasdaq Stock Market and the securities of technology companies in particular, have experienced extreme price and volume fluctuations. These fluctuations have often been unrelated or disproportionate to the operating performance of individual companies. These broad market fluctuations have in the past, and may in the future, materially and adversely affect our stock price, regardless of our operating results. This volatility may affect the price at which our shareholders can sell our common stock.

Some anti-takeover provisions contained in our articles of incorporation and by-laws, as well as provisions of Pennsylvania law, could impair a takeover attempt, which could also reduce the market price of our common stock.

Our articles of incorporation and by-laws contain provisions that could make us a less attractive target for a hostile takeover and could make more difficult or discourage a merger proposal, a tender offer or a proxy contest. Such provisions include:

In addition, the Pennsylvania Business Corporation Law (the “BCL”) contains provisions that may have the effect of delaying or preventing a change in control of us or changes in our management. Many of these provisions are triggered if any person or group acquires, or discloses the intent to acquire, 20% or more of a corporation’s voting power, subject to certain exceptions. These provisions:

Regardless of the amount of a person’s holdings, if a shareholder or shareholder group (including affiliated persons) would be a party to certain proposed transactions with us or would be treated differently from other shareholders of ours in certain proposed transactions, the BCL requires approval by a majority of votes entitled to be cast by all shareholders other than the interested shareholder or affiliate group, unless the transaction is approved by independent directors or other criteria are satisfied. Furthermore, under the BCL, a “short-form” merger of II-VI cannot be implemented without the consent of our board of directors.

In addition, as permitted by Pennsylvania law, an amendment to our articles of incorporation or other corporate action that is approved by shareholders may provide mandatory special treatment for specified groups of non-consenting shareholders of the same class. For example, an amendment to our articles of incorporation or other corporate action may provide that shares of common stock held by designated shareholders of record must be cashed out at a price determined by the corporation, subject to applicable dissenters’ rights.

Furthermore, the BCL provides that directors may, in discharging their duties, consider, to the extent they deem appropriate, the effects of any action upon shareholders, employees, suppliers, customers and the communities in which its offices are located. Directors are not required to consider the interests of shareholders to a greater degree than other constituencies’ interests. The BCL expressly provides that directors do not violate their fiduciary duties solely by relying on “poison pills” or the anti-takeover provisions of the BCL. We do not currently have a “poison pill.”

All of these provisions may limit the price that investors may be willing to pay for shares of our common stock.

Because we do not currently intend to pay dividends, holders of our common stock will benefit from an investment in our common stock only if it appreciates in value, and by the intended anti-dilution actions of our share-buyback program.

We have never declared or paid dividends on our common stock, and do not expect to pay cash dividends in the foreseeable future. We currently anticipate that we will retain any future earnings to support operations and to finance the development of our business. As a result, the success of an investment in our common stock will depend entirely upon future appreciation in its value. There is no guarantee that our common stock will maintain its value or appreciate in value.

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.  

Large end-user service providers and product companies comprise a significant portion of our customer base. These customers generally have greater purchasing power than smaller entities and, accordingly, often request and receive more favorable terms from suppliers, including us. As we seek to expand our sales to existing customers and acquire new customers, we may be required to agree to terms and conditions that are favorable to our customers and that may affect the timing of our ability to recognize revenue, increase our costs and have an adverse effect on our business, financial condition, and results of operations. Furthermore, large customers have increased buying power and ability to require onerous terms in our contracts with them, including pricing, warranties, and indemnification terms. If we are unable to satisfy the terms of these contracts, it could result in liabilities of a material nature, including litigation, damages, additional costs, loss of market share and loss of reputation. Additionally, the terms these large customers require, such as most-favored customer or exclusivity provisions, may impact our ability to do business with other customers and generate revenues from such customers.  

We may be adversely affected by climate change regulations.

In many of the countries in which we operate, government bodies are increasingly enacting legislation and regulations in response to potential impacts of climate change. These laws and regulations may be mandatory. They have the potential to impact our operations directly or indirectly as a result of required compliance by our customers or our supply chain. Inconsistency of regulations may also affect the costs of compliance with such laws and regulations. Assessments of the potential impact of future climate change legislation, regulation and international treaties and accords are uncertain, given the wide scope of potential regulatory change in countries in which we operate.

We may incur increased capital expenditures resulting from required compliance with revised or new legislation or regulations, added costs to purchase or lower profits from sales of our products, allowances or credits under a “cap and trade” system, increased insurance premiums and deductibles as new actuarial tables are developed to reshape coverage, a change in competitive position relative to industry peers, and changes to profit or loss arising from increased or decreased demand for goods produced by us and indirectly, from changes in costs of goods sold.

Some Systems That Use

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 Products Are Complex in Design and May Contain Defects that Are Not Detected Until Deployed Which Could Increase Our Costs and Reduce Our Revenuesbusiness.                            

Some systems that use our products are inherently complex in design and require ongoing maintenance. Our customers may discover defects in our products after the products have been fully deployed and operated under peak stress conditions. In addition, some of our products are combined with products from other vendors which may contain defects. Should problems occur, it may be difficult to identify the source of the problem. If we are unable to correct defects or other problems, we could experience, among other things lossA small number 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.

The occurrence of any one or more of the foregoing factors could have consistently accounted for a material adverse effect on our business, results of operations or financial condition.

Significant Defense Spending Cuts and/or Reductions in Defense Programs Could Adversely Impact Our Business

Specific to the military business within our II-VI Laser Solutions and II-VI Performance Products segments, sales to customers in the defense industry totaled approximately 11%significant portion of our revenues, although none individually greater than 10% of total revenues. Our success will depend on our continued ability to develop and manage relationships with our major customers. Although we are attempting to expand our customer base, we expect that significant customer concentration will continue for the fiscal year ended June 30, 2017. These customers generally contract with a governmental entity, typically a U.S. governmental agency. Future reductions in defense spending could result from the current or future economic or political environment.  For example, the ongoing sequestration of the defense budget could result in reductions in demand for defense-related products that we produce. Further, changes to existing defense procurement laws and regulations could adversely affect our results of operations.  Most governmental programs are subject to funding approval and can be modified or terminated with no warning upon the determination of a legislative or administrative body. The loss of or failure to obtain certain contracts or the loss of a major government customer could have a material adverse effect on our business, results of operations or financial condition.

Changes in Tax Rates, Tax Liabilities or Tax Accounting Rules Could Affect Future Results

As a global company, we are subject to taxation in the United States and various other countries and jurisdictions. As such, we must exercise a level of judgment in determining our worldwide tax liabilities. Our future tax rates could be affected by changes in the composition of earnings in countries with differing tax rates or changes in tax laws. Changes in tax laws or tax rulings may have a significantly adverse impact on our effective tax rate. For example, proposals for fundamental U.S. international tax reform, if enacted, could have a significant adverse impact on our effective tax rate. In addition, we are subject to regular examination of our income tax returns by the Internal Revenue Service and other tax authorities.foreseeable future. We regularly assess the likelihood of favorable or unfavorable outcomes resulting from these examinations to determine the adequacy of our provision for income taxes. Although we believe our tax estimates are reasonable, there can be no assurance that any final determination will not be materially different than the treatment reflected in our historical income tax provision and accruals, which could materially and adversely affect our business, results of operation or financial condition.

Increases in Commodity Prices May Adversely Affect Our Results of Operations and Financial Condition

We are exposed to a variety of market risks, including the effects of increases in commodity prices. Our businesses purchase, produce and sell high-purity selenium and other raw materials based upon quoted market prices from minor metal exchanges. The negative impact from increases in commodity prices may not be recovered throughable to offset any decline in revenues from our product sales which could have a material adverse effect onexisting major customers with revenues from new customers, and our net earnings and financial condition.

Natural Disasters or Other Global or Regional Catastrophic Events Could Disrupt Our Operations and Adversely Affect Our Results

Wequarterly results may be exposed to business interruptions due to catastrophe, natural disaster, pandemic, terrorismvolatile because we are dependent on large orders from these customers that may be reduced, delayed, or actscancelled.  The markets in which we have historically sold our optical subsystems and components products are dominated by a relatively small number of war that are beyondsystems manufacturers, thereby limiting the number of our control. Disruptionspotential customers.

Our dependence on large orders from a relatively small number of customers makes our relationship with each customer critically important to our facilities or systems, or to those of our key suppliers, could also interrupt operational processes and adversely impact our ability to manufacture our products and provide services and support to our customers. As a result, our business, results of operations or financial condition could be materially adversely affected.

Our Success Depends on Our Ability to Retain Key Personnel

business. We are highly dependent upon the experience and continuing services of certain scientists, engineers, production and management personnel. Competition for the services of these personnel is intense.  There can be no assurancecannot ensure that we will be able to retain our major customers, attract additional customers, or attractthat our customers will be successful in selling their products that incorporate our products. We have in the personnel necessary forpast experienced delays and reductions in orders from some of our success.major customers. In addition, our customers have in the past sought price concessions from us, and we expect that they will continue to do so in the future. Expense reduction measures that we have implemented over the past several years, and additional action we are taking to reduce costs, may adversely affect our ability to introduce new and improved products which may, in turn, adversely affect our relationships with some of our key customers. Further, some of our customers may in the future shift their purchases of products from us to our competitors or to joint ventures between these customers and our competitors, or may in certain circumstances produce competitive products themselves. The loss of the servicesone or more of our major customers, any reduction or delay in sales to these customers, our inability to successfully develop relationships with additional customers, or future price concessions that we may make could significantly harm our business.

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

We manufacture some of the components that we provide to our contract manufacturer, along with our own finished goods. For some of the components and finished goods we are the sole manufacturer. Our manufacturing processes are highly complex, and issues are often difficult to detect and correct. From time to time we have experienced problems achieving acceptable yields in our manufacturing facilities, resulting in delays in the availability of our products. In addition, if we experience problems with our manufacturing facilities, it would be costly and require a long period of time to move the manufacture of these components and finished good products to a different facility or contract manufacturer, which could result in interruptions in supply, and would likely materially impact our financial condition and results of operations.  In addition, for a variety of reasons, including changes in circumstances at our contract manufacturers or our own business strategies, we may be required to, or voluntarily may, transfer the manufacturing of certain products to other manufacturing sites.

Changes in manufacturing processes are often required due to changes in product specifications, changing customer needs and the introduction of new products. These changes may reduce manufacturing yields at our contract manufacturers and at our own manufacturing facilities, resulting in reduced margins on those products. In addition, many of our products are sourced from suppliers based outside of the United States, primarily in Asia. Uncertainty with respect to tax and trade policies, tariffs and government regulations affecting trade between the United States and other countries has recently increased. Major developments in tax policy or trade relations, such as the imposition of tariffs on imported products, could increase our product and product-related costs or require us to seek alternative suppliers, either of which could result in decreased sales or increases product and product-related costs.

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

We base many of our operating decisions, and enter into purchase commitments, on the basis of anticipated revenue trends which are highly unpredictable. Some of our purchase commitments are not cancelable, and in some cases we are required to recognize a charge representing the amount of material or capital equipment purchased or ordered, which exceeds our actual requirements. Should revenues in future periods fall substantially below our expectations, or should we fail to accurately forecast changes in demand mix, we could be required to record substantial 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.

As a public company, we are subject to the reporting requirements of the Securities Exchange Act of 1934, as amended, or the Exchange Act, the Sarbanes-Oxley Act of 2002, as amended, or the Sarbanes-Oxley Act, and Nasdaq listing requirements. The Sarbanes-Oxley Act requires, among other things, that we maintain effective disclosure controls and procedures and internal control over financial reporting. In order to maintain and improve the effectiveness of our disclosure controls and procedures and internal control over financial reporting, we have expended, and anticipate that we will continue to expend, significant resources, including accounting-related costs and significant management oversight.  

Any failure to develop or maintain effective controls, or any difficulties encountered in their implementation or improvement, could cause us to delay reporting of our financial results, be subject to one or more investigations or enforcement actions by state or federal regulatory agencies, stockholder lawsuits or other adverse actions requiring us to incur defense costs, pay fines, settlements or judgments. Any such failures could also cause investors to lose confidence in our reported financial and other information, which would likely have a negative effect on the trading price of our common stock. In addition, if we are unable to continue to meet these requirements, we may not be able to remain listed on the Nasdaq stock market.

Risks Relating to the Merger

Although II-VI expects that its acquisition of Finisar will result in cost savings, synergies and other benefits, the combined company may not realize those benefits because of integration difficulties and other challenges.

The success of II-VI’s acquisition of Finisar will depend in large part on the success of the management of the combined company in integrating the operations, strategies, technologies and personnel of the two companies following the completion of the Merger. The combined company may fail to realize some or all of the anticipated benefits of the Merger if the integration process takes longer than expected or is more costly than expected. The failure of the combined company to meet the challenges involved in successfully integrating the operations of the two companies or to otherwise realize any of the anticipated benefits of the Merger, including additional cost savings and synergies, could impair the operations of the combined company. In addition, II-VI anticipates that the overall integration of Finisar will be a time-consuming and expensive process that, without proper planning and effective and timely implementation, could significantly disrupt the combined company’s business.

Potential difficulties the combined company may encounter in the integration process include the following:

The anticipated cost savings, synergies and other benefits of the Merger assume a successful integration of the companies and are based on projections and other assumptions, which are inherently uncertain. Even if integration is successful, anticipated cost savings, synergies and other benefits may not be achieved.

II-VI and Finisar will incur significant transaction-related costs in connection with the Merger.

II-VI and Finisar expect to incur a number of non-recurring transaction-related costs associated with completing the Merger, combining the operations of the two companies and achieving desired synergies. These fees and costs will be significant. Non-recurring transaction costs include, but are not limited to, fees paid to legal, financial and accounting advisors, filing fees and printing costs. II-VI will incur significant costs with respect to the financing for the cash consideration to be paid in connection with the Merger. Additional unanticipated costs may be incurred in the integration of the businesses of II-VI and Finisar. There can be no assurance that the elimination of certain duplicative costs, as well as the realization of other efficiencies related to the integration of the two businesses, will offset the incremental transaction-related costs over time. Thus, any net benefit may not be achieved in the near term, the long term or at all.

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 the Merger could have material and adverse effects on us.

The completion of the Merger is subject to a materialnumber of conditions, which make the completion and timing of the completion of the Merger uncertain. Also, either Finisar or II-VI may terminate the Merger Agreement if the Merger has not been completed by November 8, 2019, although this termination right is not available if failure to comply with the Merger Agreement is a principal cause of or results in the failure of the Merger to occur before November 8, 2019.

If the Merger is not completed on a timely basis, or at all, II-VI’s and Finisar’s respective ongoing businesses may be adversely affected and, without realizing any of the benefits of having completed the Merger, II-VI and Finisar will be subject to a number of risks, including the following:

In addition, if the Merger is not completed, II-VI may experience negative reactions from the financial markets and from its customers and employees. II-VI could also be subject to litigation related to any failure to complete the Merger or to enforcement proceedings commenced against II-VI to perform its obligations under the Merger Agreement. If the Merger is not completed, II-VI cannot assure its shareholders that the risks described above will not materialize and will not adversely affect the business, financial results and stock prices of II-VI.

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

Under the terms of the Merger Agreement, Finisar and II-VI are subject to certain restrictions on the conduct of their respective business prior to completing the Merger, which may adversely affect each party’s ability to execute certain of its business strategies. Such limitations could negatively affect each party’s businesses and operations prior to the completion of the Merger. Furthermore, the process of planning to integrate two businesses and organizations for the post-Merger period can divert management attention and resources and could ultimately have an adverse effect on oureach of Finisar and II-VI.

In connection with the Merger, parties with which Finisar or II-VI does business results of operationsmay experience uncertainty associated with the Merger, including with respect to current or financial condition.

We Have Agreementsfuture business relationships with Government Entities That Are Subject to Significant Compliance Requirements and Changes in Government Spending

Our agreements relating toFinisar, II-VI or the sale of products to government entities may be subject to termination, reduction or modification in the event of changes in government requirements, reductions in federal spendingcombined business. It is possible that some customers, suppliers and other factors. We are also subjectpersons with whom Finisar or II-VI has a business relationship may delay or defer certain business decisions or might decide to investigationseek to terminate, change or renegotiate their relationships with Finisar or II-VI, as applicable, as a result of the Merger, which could negatively affect Finisar’s or II-VI’s revenues, earnings and audit for compliance withcash flows, as well as the requirementsmarket price of government contracts, including procurement integrity, export control, employment practices,shares of II-VI Common Stock, regardless of whether the accuracy of records and the recording of costs.  Failure to comply with these requirements might result in suspension of these contracts and suspension or debarment from government contracting or subcontracting.

Our Stock Price Has Been Highly Volatile in the Past and May Be Extremely Volatile in the FutureMerger is completed.

The market price for our common stock on The NASDAQ Global Select Market varied between a high of $41.10 and a low of $17.76II-VI Common Stock may decline in the fiscal year ended June 30, 2017. We expect that this volatility will continue. Factors that could cause fluctuation in our stock price include, among other things, general economic and market conditions, actual or anticipated variations in operating results, changes in financial estimates by securities analysts, our inability to meet or exceed securities analysts’ estimates or expectations, conditions or trends infuture as a result of the industries in which our products are purchased, announcements by us or our competitors of significant acquisitions, strategic partnerships, divestitures, joint ventures or other strategic initiatives, capital commitments, additions or departures of key personnel and sales of our common stock or equity-linked securities.Merger.  

Many of these factors are beyond our control. However, these factors could cause theThe market price of our common stock toII-VI Common Stock may decline regardless of our actual operating performance. In addition, in recent years, the stock market in general, and The NASDAQ Stock Market and the securities of technology companies in particular, have experienced extreme price and volume fluctuations. These fluctuations have often been unrelated or disproportionate to the operating performance of individual companies. These broad market fluctuations have in the past, and may in the future materially and adversely affect our stock price, regardlessas a result of our operating results. This volatility may affect the price at which our shareholders can sell our common stock.

Some Anti-takeover Provisions Contained in Our Articles of Incorporation and By-laws, as Well as Provisions of Pennsylvania Law, Could Impair a Takeover Attempt, Which Could Also Reduce the Market Price of Our Common Stock

Our articles of incorporation and by-laws contain provisions that could make us a less attractive targetMerger for a hostile takeover and could make more difficult or discourage a merger proposal, a tender offer or a proxy contest. Such provisions include:number of reasons, including:

In addition,achieve the Pennsylvania Business Corporation Law (the “BCL”) contains provisions that may have the effect of delaying or preventing a change in control of us or changes in our management. Many of these provisions are triggered if any person or group acquires, or discloses intent to acquire, 20% or more of a corporation’s voting power, subject to certain exceptions. These provisions:

Regardless of the amount of a person’s holdings, if a shareholder or shareholder group (including affiliated persons) would be a party to certain proposed transactions with us or would be treated differently from other shareholders of ours in certain proposed transactions, the BCL requires approval by a majority of votes entitled to be cast by all shareholders other than the interested shareholder or affiliate group, unless the transaction is approved by independent directors or other criteria are satisfied. Furthermore, under the BCL, a “short-form” merger of II-VI cannot be implemented without the consent of our board of directors.

In addition, as permitted by Pennsylvania law, an amendment to our articles of incorporation or other corporate action that is approved by shareholders may provide mandatory special treatment for specified groups of nonconsenting shareholders of the same class. For example, an amendment to our articles of incorporation or other corporate action may provide that shares of common stock held by designated shareholders of record must be cashed out at a price determined by the corporation, subject to applicable dissenters’ rights.

Furthermore, the BCL provides that directors may, in discharging their duties, consider, to the extent they deem appropriate,anticipated by financial or industry analysts.

These factors are, to some extent, beyond the effectscontrol of any action upon shareholders, employees, suppliers, customers and the communities in which its offices are located. Directors are not required to consider the interests of shareholders to a greater degree than other constituencies’ interests. The BCL expressly provides that directors do not violate their fiduciary duties solely by relying on “poison pills” or the anti-takeover provisions of the BCL. We do not currently have a “poison pill.”  

All of these provisions may limit the price that investors may be willing to pay for shares of our common stock.

Because We Do Not Currently Intend to Pay Dividends, Holders of Our Common Stock Will Benefit from an Investment in Our Common Stock Only If It Appreciates in Value

We have never declared or paid any dividends on our common stock, and do not expect to pay cash dividends in the foreseeable future.  We currently anticipate that we will retain any future earnings to support operations and to finance the development of our business.II-VI. As a result,consequence, II-VI shareholders could lose the successvalue of antheir investment in our common stock will depend entirely upon future appreciation in its value. There is no guarantee that our common stock will maintain its value or appreciate in value.  II-VI Common Stock.

None.

Information regarding our principal U.S. properties at June 30, 20172019 is set forth below:

We also maintain some additional small research and development, distribution, and administrative facilities in leased space in the United States.

Information regarding our principal foreign properties at June 30, 20172019 is set forth below:

We also maintain some additional small distribution facilities in leased space in Belgium, Italy, Japan, South Korea, Taiwan, and the United Kingdom.

The square footage listed for each of the above properties represents facility square footage, except in the case of the Philippines location, which includes land.

The Company and its subsidiaries are involved in various claims and lawsuits incidental to its business. The resolution of each of these matters is subject to various uncertainties, and it is possible that these matters may be resolved unfavorably to the Company. Management believes, after consulting with legal counsel, that the ultimate liabilities, if any, resulting from such legal proceedings will not materially affect the Company’s financial condition, liquidity or results of operation.operations.

Not applicable.

PART II

PART II

The Company’s Common Stockcommon stock is traded on the NASDAQNasdaq Global Select Market (“NASDAQ”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.  

On August 14, 2017, the last reported sale price for the Company’s Common Stock was $36.60 per share. As of such date,August 12, 2019, there were approximately 771824 holders of record of our Common Stock.common stock. The Company historically has not paid cash dividends and does not presently anticipate paying cash dividends in the future.

ISSUER PURCHASES OF EQUITY SECURITIES

In August 2014,2017, 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 $50.0$50 million of its Common Stock.common stock with a portion of the net proceeds received from the offering and sale of the convertible notes. The shares that were purchased by the Company pursuant to this authorization were retained as treasury stock and are available for general corporate purposes. The Company purchased 1,414,900 shares of its common stock for approximately $49.9 million pursuant to this authorization.

In August 2014, the Company’s Board of Directors authorized the Company to purchase up to $50 million of its common stock through a share repurchase program (the “Program”) that calls for shares to be purchased in the open market or in private transactions from time to time. The Program has no expiration and may be suspended or discontinued at any time. Shares purchased by the Company are retained as treasury stock and available for general corporate purposes. During the fiscal year ended June 30, 2017,2019, 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. As of June 30, 2019, the Company has cumulatively purchased 1,366,587 shares of its Common Stockcommon stock pursuant to the repurchase program. Since inception of the repurchase program, the Company has repurchased 1,316,587 shares of its Common StockProgram for approximately $19.0$20.7 million. The dollar value of shares as of June 30, 2019 that may yet be purchased under the Program is approximately $29.3 million in the aggregate.

The following table provides information with respect to purchases of the Company’s equity securities during the quarter ended June 30, 2017.2019.

The information incorporated by reference in Item 12 of this Annual Report on Form 10-K, from our 20172019 Proxy Statement under the heading “Equity Compensation Plan Information”Information,” is hereby also incorporated by reference into this Item 5.

PERFORMANCE GRAPH

The following graph compares cumulative total shareholder return on the Company’s Common Stockcommon 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, 2012,2014, through June 30, 2017.2019. The Company’s current fiscal year peer group includes Cabot Microelectronics Corporation, Franklin Electric Co., Inc., MKS Instruments, Inc., Silicon Laboratories Inc., Lumentum Holdings Inc., Finisar Corp,Corporation, Coherent, Inc. and Corning Inc. The Company’s prior fiscal year peer group reflected below consisted of Cabot Microelectronics Corporation, Franklin Electric Co., Inc., MKS Instruments, Inc., and Silicon Laboratories. The prior year peer group does not include Rofin-Sinar Technologies, Inc., which previously had been included in the Company’s peer group, as this company was acquired during fiscal year 2017 and ceased to be publicly traded.Incorporated.

Five-Year Financial Summary

The following selected financial data for the five fiscal years presented are derived from the Company’s audited Consolidated Financial Statements. All periods presented have been adjusted to present this product line on a discontinued operations basis. The data should be read in conjunction with the Consolidated Financial Statements and the related notes thereto included elsewhere in this Annual Report on Form 10-K.