(Former name, former address and former fiscal year, if changed since last report)

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 every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:

At ~~May~~February 6, ~~2019, 63,522,201~~2020, 91,059,636 shares of Common Stock, no par value, of the registrant were outstanding.

	March 31,			June 30,			December 31,			June 30,
	2019			2018			2019			2019
Assets
Current Assets
Cash and cash equivalents	$	221,210		$	247,038		$	376,840		$	204,872
Accounts receivable - less allowance for doubtful accounts of $1,437 at March 31, 2019 and $837 at June 30, 2018		252,361			215,032
Accounts receivable - less allowance for doubtful accounts of $1,868 at December 31, 2019 and $1,292 at June 30, 2019								488,902			269,642
Inventories		301,861			248,268			662,982			296,282
Prepaid and refundable income taxes		9,208			7,845			8,449			11,778
Prepaid and other current assets		32,231			43,654			52,016			30,337
Total Current Assets		816,871			761,837			1,589,189			812,911
Property, plant & equipment, net		569,529			524,890			1,347,147			582,790
Goodwill		319,935			270,678			1,096,691			319,778
Other intangible assets, net		144,792			125,069			929,773			139,324
Investments		76,452			69,215			77,795			76,208
Deferred income taxes		5,021			2,046			17,487			8,524
Other assets		9,377			7,926			150,127			14,238
Total Assets	$	1,941,977		$	1,761,661		$	5,208,209		$	1,953,773

Liabilities and Shareholders' Equity
Current Liabilities
Current portion of long-term debt	$	23,834		$	20,000		$	69,250		$	23,834
Accounts payable		101,243			89,774			229,042			104,462
Accrued compensation and benefits		58,150			66,322			95,019			71,847
Operating lease current liabilities								29,245			-
Accrued income taxes payable		12,177			17,392			21,121			20,476
Other accrued liabilities		44,371			42,979			127,922			49,944
Total Current Liabilities		239,775			236,467			571,599			270,563
Long-term debt		484,814			419,013			2,228,207			443,163
Deferred income taxes		29,594			27,241			98,448			23,913
Operating lease liabilities								93,347			-
Other liabilities		74,236			54,629			150,911			82,925
Total Liabilities		828,419			737,350			3,142,512			820,564
Shareholders' Equity
Preferred stock, no par value; authorized - 5,000,000 shares; none issued		-			-
Common stock, no par value; authorized - 300,000,000 shares; issued - 76,227,982 shares at March 31, 2019; 75,692,683 shares at June 30, 2018		375,195			351,761
Preferred stock, no par value; authorized - 5,000,000 shares; NaN issued								-			-
Common stock, no par value; authorized - 300,000,000 shares; issued - 104,043,057 shares at December 31, 2019; 76,315,337 shares at June 30, 2019								1,441,180			382,423
Accumulated other comprehensive income (loss)		(10,209	)		(3,780	)		(9,208	)		(24,221	)
Retained earnings		915,553			836,064			819,370			943,581
		1,280,539			1,184,045			2,251,342			1,301,783
Treasury stock, at cost - 12,560,332 shares at March 31, 2019 and 12,395,791 shares at June 30, 2018		(166,981	)		(159,734	)
Treasury stock, at cost - 13,080,375 shares at December 31, 2019 and 12,603,781 shares at June 30, 2019								(185,645	)		(168,574	)
Total Shareholders' Equity		1,113,558			1,024,311			2,065,697			1,133,209
Total Liabilities and Shareholders' Equity	$	1,941,977		$	1,761,661		$	5,208,209		$	1,953,773

- See notes to condensed consolidated financial statements.

	Three Months Ended						Three Months Ended
	March 31,						December 31,
	2019			2018			2019			2018
Revenues	$	342,496		$	294,746		$	666,331		$	342,839

Costs, Expenses, and Other Expense (Income)
Cost of goods sold		215,212			176,361			517,991			211,333
Internal research and development		36,026			30,560			107,700			33,764
Selling, general and administrative		60,128			53,346			119,218			58,136
Interest expense		5,647			5,014			28,390			5,580
Other expense (income), net		(1,532	)		(1,755	)		487			(701	)
Total Costs, Expenses, & Other Expense (Income)		315,481			263,526			773,786			308,112

Earnings Before Income Taxes		27,015			31,220
Earnings (Loss) Before Income Taxes								(107,455	)		34,727

Income Taxes		2,377			1,122			(9,242	)		6,025

Net Earnings	$	24,638		$	30,098
Net Earnings (Loss)							$	(98,213	)	$	28,702

Basic Earnings Per Share	$	0.39		$	0.48
Basic Earnings (Loss) Per Share							$	(1.08	)	$	0.45

Diluted Earnings Per Share	$	0.38		$	0.45
Diluted Earnings (Loss) Per Share							$	(1.08	)	$	0.44

II-VI Incorporated and Subsidiaries
Condensed Consolidated Statements of Earnings (Loss) (Unaudited)
($000 except per share data)

	Six Months Ended
	December 31,
	2019			2018
Revenues	$	1,006,740		$	657,272

Costs, Expenses, and Other Expense (Income)
Cost of goods sold		735,260			401,859
Internal research and development		143,820			66,935
Selling, general and administrative		224,713			111,659
Interest expense		35,358			11,164
Other expense (income), net		5,566			(1,414	)
Total Costs, Expenses, & Other Expense (Income)		1,144,717			590,203

Earnings (Loss) Before Income Taxes		(137,977	)		67,069

Income Taxes		(13,766	)		12,218

Net Earnings (Loss)	$	(124,211	)	$	54,851

Basic Earnings (Loss) Per Share	$	(1.58	)	$	0.86

Diluted Earnings (Loss) Per Share	$	(1.58	)	$	0.83



- See notes to condensed consolidated financial statements.

Condensed Consolidated Statements of ~~Earnings~~Comprehensive Income (Loss) (Unaudited)

Nine Months Ended

March 31,

2019

2018

Revenues

$
999,768

$
837,719

Costs, Expenses, and Other Expense (Income)

Cost of goods sold

617,071

503,926

Internal research and development

102,961

83,898

Selling, general and administrative

171,787

153,156

Interest expense

16,811

13,303

Other expense (income), net

(2,946
)

(4,551
)
Total Costs, Expenses, & Other Expense (Income)

905,684

749,732

Earnings Before Income Taxes

94,084

87,987

Income Taxes

14,595

27,152

Net Earnings

$
79,489

$
60,835

Basic Earnings Per Share

$
1.25

$
0.97

Diluted Earnings Per Share

$
1.21

$
0.93

	Three Months Ended						Six Months Ended
	December 31,						December 31,
	2019			2018			2019			2018
Net earnings (loss)	$	(98,213	)	$	28,702		$	(124,211	)	$	54,851
Other comprehensive income (loss):
Foreign currency translation adjustments	$	24,590		$	(4,454	)	$	11,571		$	(15,105	)
Change in fair value of interest rate swap, net of taxes of $989 for both the three and six months ended December 31, 2019	$	3,609		$	-		$	3,609		$	-
Pension adjustment, net of taxes of ($92) and ($69) for the three and six months ended December 31, 2019, respectively, and ($24) and ($9) for the three and six months ended December 31, 2018, respectively	$	(251	)	$	(85	)	$	(167	)	$	(33	)
Comprehensive income (loss)	$	(70,265	)	$	24,163		$	(109,198	)	$	39,713

Condensed Consolidated Statements of ~~Comprehensive Income~~Cash Flows (Unaudited)

Three Months Ended

Nine Months Ended

March 31,

March 31,

2019

2018

2019

2018

Net earnings

$
24,638

$
30,098

$
79,489

$
60,835

Other comprehensive income (loss):

Foreign currency translation adjustments

8,680

15,703

(6,425
)

30,885

Pension adjustment, net of taxes of $8 and ($1) for the three and nine months ended March 31, 2019, respectively, and ($32) and $- for the three and nine months ended March 31, 2018, respectively

29

(118
)

(4
)

-

Comprehensive income

$
33,347

$
45,683

$
73,060

$
91,720

	Six Months Ended
	December 31,
	2019			2018
Cash Flows from Operating Activities
Net earnings (loss)	$	(124,211	)	$	54,851
Adjustments to reconcile net earnings (loss) to net cash provided by operating activities:
Depreciation		69,386			36,679
Amortization		39,714			7,820
Share-based compensation expense		34,380			9,277
Amortization of discount on convertible debt and debt issuance costs		9,639			6,255
Debt extinguishment costs		3,960			-
Losses on foreign currency remeasurements and transactions		4,575			1,726
Earnings from equity investments		(918	)		(2,767	)
Deferred income taxes		(42,076	)		(3,506	)
Increase (decrease) in cash from changes in (net of effect of acquisitions):
Accounts receivable		31,237			(8,610	)
Inventories		78,065			(39,588	)
Accounts payable		(1,963	)		22,777
Income taxes		8,930			(856	)
Accrued compensation and benefits		(9,642	)		(10,436	)
Other operating net assets (liabilities)		(44,816	)		14,584
Net cash provided by operating activities		56,260			88,206
Cash Flows from Investing Activities
Additions to property, plant & equipment		(80,288	)		(74,368	)
Purchases of businesses, net of cash acquired		(1,036,609	)		(54,229	)
Purchases of equity investments		-			(4,480	)
Other investing activities		(1,102	)		116
Net cash used in investing activities		(1,117,999	)		(132,961	)
Cash Flows from Financing Activities
Proceeds from borrowings of Term A Facility		1,241,000			-
Proceeds from borrowings of Term B Facility		720,000			-
Proceeds from borrowings of Revolving Credit Facility		160,000			-
Proceeds from borrowings under prior Credit Facility		10,000			120,000
Payments on Finisar Notes		(560,112	)		-
Payments on borrowings under prior Term Loan, Credit Facility and other loans		(176,596	)		(85,000	)
Payments on borrowings under Term A Facility		(15,513	)		-
Payments on borrowings under Term B Facility		(1,800	)		-
Payments on borrowings under Revolving Credit Facility		(66,000	)		-
Debt issuance costs		(63,510	)		-
Proceeds from exercises of stock options		3,077			6,222
Payments on earnout arrangements		-			(3,540	)
Common stock repurchase		(1,626	)		-
Payments in satisfaction of employees' minimum tax obligations		(15,031	)		(6,350	)
Other financing activities		(1,839	)		-
Net cash provided by financing activities		1,232,050			31,332
Effect of exchange rate changes on cash and cash equivalents		1,657			(3,359	)
Net increase (decrease) in cash and cash equivalents		171,968			(16,782	)
Cash and Cash Equivalents at Beginning of Period		204,872			247,038
Cash and Cash Equivalents at End of Period	$	376,840		$	230,256
Cash paid for interest	$	24,745		$	4,293
Cash paid for income taxes	$	25,087		$	14,527
Additions to property, plant & equipment included in accounts payable	$	12,502		$	10,347

Nine Months Ended

March 31,

2019

2018

Cash Flows from Operating Activities

Net earnings

$
79,489

$
60,835

Adjustments to reconcile net earnings to net cash provided by operating activities:

Depreciation

55,616

47,157

Amortization

12,011

10,992

Share-based compensation expense

15,780

11,562

Losses on foreign currency remeasurements and transactions

820

789

Earnings from equity investments

(2,778
)

(2,607
)
Deferred income taxes

(5,895
)

(1,612
)
Increase (decrease) in cash from changes in (net of effect of acquisitions):

Accounts receivable

(30,936
)

5,644

Inventories

(50,100
)

(33,446
)
Accounts payable

14,706

12,205

Income taxes

(972
)

9,558

Accrued compensation and benefits

(7,802
)

(6,039
)
Other operating net assets

34,453

(1,093
)
Net cash provided by operating activities

114,392

113,945

Cash Flows from Investing Activities

Additions to property, plant & equipment

(108,170
)

(116,477
)
Purchases of businesses

(83,867
)

(80,503
)
Purchases of equity investments

(4,480
)

(51,655
)
Other investing activities

118

429

Net cash used in investing activities

(196,399
)

(248,206
)
Cash Flows from Financing Activities

Proceeds from issuance of 0.25% convertible senior notes due 2022

-

345,000

Proceeds from borrowings under Credit Facility

150,000

100,000

Payments on borrowings under Credit Facility

(90,000
)

(277,000
)
Proceeds from exercises of stock options

7,507

8,836

Payments on earnout arrangements

(3,540
)

-

Payments in satisfaction of employees' minimum tax obligations

(7,100
)

(4,040
)
Purchases of treasury stock

-

(49,875
)
Debt issuance costs

-

(10,061
)
Net cash provided by financing activities

56,867

112,860

Effect of exchange rate changes on cash and cash equivalents

(688
)

12,757

Net decrease in cash and cash equivalents

(25,828
)

(8,644
)
Cash and Cash Equivalents at Beginning of Period

247,038

271,888

Cash and Cash Equivalents at End of Period

$
221,210

$
263,244

Cash paid for interest

$
6,708

$
4,680

Cash paid for income taxes

$
20,340

$
16,588

Non-cash transactions:

Additions to property, plant & equipment included in accounts payable

$
4,552

$
3,388

Accumulated

Other

Common Stock

Comprehensive

Retained

Treasury Stock

Nine months ended March 31, 2019

Shares

Amount

Income (Loss)

Earnings

Shares

Amount

Total

Balance - June 30, 2018

75,693

$
351,761

$
(3,780
)

$
836,064

(12,396
)

$
(159,734
)

$
1,024,311

Share-based and deferred compensation activities

535

23,434

-

-

(165
)

(7,247
)

16,187

Net earnings

-

-

-

79,489

-

-

79,489

Foreign currency translation adjustments

-

-

(6,425
)

-

-

-

(6,425
)
Pension adjustment, net of taxes of $(1)

-

-

(4
)

-

-

-

(4
)
Balance - March 31, 2019

76,228

$
375,195

$
(10,209
)

$
915,553

(12,561
)

$
(166,981
)

$
1,113,558

					Accumulated
					Other
	Common Stock				Comprehensive			Retained			Treasury Stock
Three Months Ended December 31, 2019	Shares		Amount		Income (Loss)			Earnings			Shares			Amount			Total
Balance - September 30, 2019		103,736	$	1,429,173	$	(37,156	)	$	917,583			(12,855	)	$	(178,406	)	$	2,131,194
Share-based and deferred compensation activities		307		12,007		-			-			(175	)		(5,614	)		6,393
Common stock repurchase		-		-		-			-			(50	)		(1,625	)		(1,625	)
Net loss		-		-		-			(98,213	)		-			-			(98,213	)
Foreign currency translation adjustments		-		-		24,590			-			-			-			24,590
Change in fair value of interest rate swap, net of taxes of $989		-		-		3,609			-			-			-			3,609
Pension adjustment, net of taxes of ($92)		-		-		(251	)		-			-			-			(251	)
Balance - December 31, 2019		104,043	$	1,441,180	$	(9,208	)	$	819,370			(13,080	)	$	(185,645	)	$	2,065,697

Accumulated

Other

Common Stock

Comprehensive

Retained

Treasury Stock

Nine months ended March 31, 2018

Shares

Amount

Income (Loss)

Earnings

Shares

Amount

Total

Balance - June 30, 2017

74,081

$
269,638

$
(13,778
)

$
748,062

(10,940
)

$
(103,359
)

$
900,563

Share-based and deferred compensation activities

845

20,456

-

-

(1,519
)

(53,973
)

(33,517
)
Net earnings

-

-

-

60,835

-

-

60,835

Foreign currency translation adjustments

-

-

30,885

-

-

-

30,885

Equity portion of convertible debt, net of issuance costs of $1,694

-

56,406

-

-

-

-

56,406

Balance - March 31, 2018

74,926

$
346,500

$
17,107

$
808,897

(12,459
)

$
(157,332
)

$
1,015,172

					Accumulated
					Other
	Common Stock				Comprehensive			Retained		Treasury Stock
Three Months Ended December 31, 2018	Shares		Amount		Income (Loss)			Earnings		Shares			Amount			Total
Balance - September 30, 2018		76,075	$	360,276	$	(14,379	)	$	862,213		(12,497	)	$	(164,522	)	$	1,043,588
Share-based and deferred compensation activities		49		6,919		-			-		(41	)		(1,497	)		5,422
Net earnings		-		-		-			28,702		-			-			28,702
Foreign currency translation adjustments		-		-		(4,454	)		-		-			-			(4,454	)
Pension adjustment, net of taxes of ($24)		-		-		(85	)		-		-			-			(85	)
Balance - December 31, 2018		76,124	$	367,195	$	(18,918	)	$	890,915		(12,538	)	$	(166,019	)	$	1,073,173

Accumulated

Other

Common Stock

Comprehensive

Retained

Treasury Stock

Three months ended March 31, 2019

Shares

Amount

Income (Loss)

Earnings

Shares

Amount

Total

Balance - December 31, 2018

76,124

$
367,195

$
(18,918
)

$
890,915

(12,538
)

$
(166,019
)

$
1,073,173

Share-based and deferred compensation activities

104

8,000

-

-

(23
)

(962
)

7,038

Net earnings

-

-

-

24,638

-

-

24,638

Foreign currency translation adjustments

-

-

8,680

-

-

-

8,680

Pension adjustment, net of taxes of $8

-

-

29

-

-

-

29

Balance - March 31, 2019

76,228

$
375,195

$
(10,209
)

$
915,553

(12,561
)

$
(166,981
)

$
1,113,558

					Accumulated
					Other
	Common Stock				Comprehensive			Retained			Treasury Stock
Six Months Ended December 31, 2019	Shares		Amount		Income (Loss)			Earnings			Shares			Amount			Total
Balance - June 30, 2019		76,315	$	382,423	$	(24,221	)	$	943,581			(12,604	)	$	(168,574	)	$	1,133,209
Share-based and deferred compensation activities		1,015		71,050		-			-			(426	)		(15,446	)		55,604
Common stock repurchase		-		-		-			-			(50	)		(1,625	)		(1,625	)
Shares issued related to Finisar acquisition		26,713		987,707		-			-			-			-			987,707
Net loss		-		-		-			(124,211	)		-			-			(124,211	)
Foreign currency translation adjustments		-		-		11,571			-			-			-			11,571
Change in fair value of interest rate swap, net of taxes of $989		-		-		3,609			-			-			-			3,609
Pension adjustment, net of taxes of ($69)		-		-		(167	)		-			-			-			(167	)
Balance - December 31, 2019		104,043	$	1,441,180	$	(9,208	)	$	819,370			(13,080	)	$	(185,645	)	$	2,065,697

Accumulated

Other

Common Stock

Comprehensive

Retained

Treasury Stock

Three months ended March 31, 2018

Shares

Amount

Income (Loss)

Earnings

Shares

Amount

Total

Balance - December 31, 2017

74,817

$
340,548

$
1,522

$
778,799

(12,454
)

$
(156,968
)

$
963,901

Share-based and deferred compensation activities

109

5,952

-

-

(5
)

(364
)

5,588

Net earnings

-

-

-

30,098

-

-

30,098

Foreign currency translation adjustments

-

-

15,703

-

-

-

15,703

Pension adjustment, net of taxes of $32

-

-

(118
)

-

-

-

(118
)
Balance - March 31, 2018

74,926

$
346,500

$
17,107

$
808,897

(12,459
)

$
(157,332
)

$
1,015,172

					Accumulated
					Other
	Common Stock				Comprehensive			Retained		Treasury Stock
Six Months Ended December 31, 2018	Shares		Amount		Income (Loss)			Earnings		Shares			Amount			Total
Balance - June 30, 2018		75,693	$	351,761	$	(3,780	)	$	836,064		(12,396	)	$	(159,734	)	$	1,024,311
Share-based and deferred compensation activities		431		15,434		-			-		(142	)		(6,285	)		9,149
Net earnings		-		-		-			54,851		-			-			54,851
Foreign currency translation adjustments		-		-		(15,105	)		-		-			-			(15,105	)
Pension adjustment, net of taxes of $(9)		-		-		(33	)		-		-			-			(33	)
Balance - December 31, 2018	$	76,124	$	367,195	$	(18,918	)	$	890,915	$	(12,538	)	$	(166,019	)	$	1,073,173

The condensed consolidated financial statements of II-VI Incorporated (“II-VI”, the “Company”, “we”, “us” or “our”) for the three and ~~nine~~six months ended ~~March~~December 31, 2019 and 2018 are unaudited. In the opinion of management, all adjustments considered necessary for a fair presentation for the periods presented have been included. All adjustments are of a normal recurring nature unless disclosed otherwise. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) have been condensed or omitted. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s ~~Current~~Annual Report on Form ~~8-K~~10-K dated ~~December 27, 2018.~~August 16, 2019. The consolidated results of operations for the three and ~~nine~~six months ended ~~March~~December 31, 2019 are not necessarily indicative of the results to be expected for the full fiscal year. The Condensed Consolidated Balance Sheet information as of June 30, ~~2018~~2019 was derived from the Company’s audited consolidated financial statements.

Effective July 1, ~~2018,~~2019, the Company has realigned its organizational structure into two reporting segments for the ~~composition~~purpose of ~~its operating segments. The Company moved Laser Systems Group from II-VI Laser Solutions to II-VI Photonics~~making operational decisions and ~~moved Integrated Photonics, Inc. (“IPI”) from II-VI Photonics to II-VI Performance Products. All applicable segment information has been restated to reflect this change. Additionally,~~assessing financial performance: (i) Compound Semiconductors and (ii) Photonic Solutions.

On September 24, 2019, the Company ~~renamed Laser Systems Group~~completed the acquisition of Finisar Corporation (“Finisar”). The Company’s condensed consolidated financial statements include the operating results of Finisar from the date of acquisition. Refer to ~~II-VI Industrial Laser.~~Note 3 for further discussion of the acquisition.

In ~~May 2014,~~February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers (Topic 606). The standard requires an entity to recognize revenue in a manner that depicts the transfer of goods or services to customers at an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The Company adopted this standard on July 1, 2018 using the modified retrospective method of adoption. Adoption of the ASU did not require an adjustment to the opening balance of equity. The Company does not expect the standard to have a significant effect on its results of operations, liquidity or financial position in fiscal year 2019. The Company implemented processes and controls to ensure new contracts are reviewed for the appropriate accounting treatment and to generate the disclosures required under the new standard. For the disclosures required by this ASU, see Note 5. Revenue from Contracts with Customers.

In March 2017, the FASB issued ASU 2017-07, Compensation (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. This update affects employers’ presentation of defined benefit retirement plan costs. With the adoption of this standard, the Company restated the prior periods ending June 30, 2018, 2017, and 2016. These restatements did not have a material effect on the Company’s Consolidated Financial Statements.

In January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business. This update changes the definition of a business to assist entities with evaluating when a set of transferred assets and activities is a business. The adoption of this standard did not have a material effect on the Company’s Consolidated Financial Statements.

In October 2016, the FASB issued ASU 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory. This update requires that when intra-entity asset transfers occur, the entity must recognize tax effects in the period in which the transfer occurs. The adoption of this standard did not have a material effect on the Company’s Consolidated Financial Statements.

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. The guidance clarifies how entities should classify certain cash receipts and cash payments on the statement of cash flows. The guidance also clarifies how the predominance principle should be applied when cash receipts and cash payments have aspects of more than one class of cash flow. The adoption of this standard did not have a material effect on the Company’s Consolidated Financial Statements.

In January 2016, the FASB issued ASU 2016-01, Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. This update requires entities to measure equity investments at fair value and recognize any changes in fair value in net income. The adoption of this standard did not have a material effect on the Company’s Consolidated Financial Statements.

~~In February 2016, the FASB issued~~ ASU 2016-02, Leases (Topic 842). This ~~update~~ASU modifies lease accounting for lessees to increase transparency and comparability by recording lease assets and liabilities for operating leases and disclosing key information about leasing arrangements. The ~~new~~Company adopted this standard ~~will become effective for the Company’s fiscal year 2020, which begins~~ on July 1, 2019. In July 2018, the FASB issued targeted improvements to this ASU in ASU 2018-11. This update provides entities with an optional transition method, which permits an entity to initially apply the new leases standard at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption.

The Company has elected to utilize the optional transition method. ~~We have reviewed~~See Note 5.

In August 2017, the ~~requirements~~FASB issued ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities (“ASU 2017-12”), which more closely aligns an entity’s risk management activities and financial reporting for hedging relationships through changes to both the designation and measurement guidance for qualifying hedging relationships and the presentation of hedge results. The Company adopted this standard on July 1, 2019. The adoption of this standard ~~and are executing our plan for implementation. We~~did not have ~~evaluated our leasing arrangements and selected~~ a ~~software repository to track all of our lease agreements to assist in~~material effect on the ~~reporting and disclosures required by the standard. We will continue to assess and disclose the impact that this new guidance will have on our~~ consolidated financial statements, disclosures and related controls, when known. We expect that the adoption will result in an increase to our long-term assets and long-term liabilities as a result of substantially all operating leases existing as of the adoption date being capitalized along with the associated obligations.statements.

In July 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which among other things, requires the measurement of all expected credit losses of financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Financial institutions and other organizations will now use forward looking information to better inform their credit loss estimates. In addition, the ASU amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. ASU 2016-13 is effective for annual periods beginning after December 15, 2019, and interim periods within those fiscal years. The Company is in the process of evaluating the impact of the pronouncement.

In October 2018, the FASB issued ASU 2018-16, Derivatives and Hedging (Topic 815): Inclusion of the Secured Overnight Financing Rate (SOFR) Overnight Index Swap (OIS) Rate as a Benchmark Interest Rate for Hedge Accounting Purposes (“ASU 2018-16”), which permits the use of the OIS rate based on SOFR as a U.S. benchmark interest rate eligible for hedge accounting purposes. For public business entities that already have adopted the amendments in ASU 2017-12, the amendments in ASU 2018-16 are effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. Early adoption is permitted in any interim period upon issuance of this update if an entity already has adopted ASU 2017-12. The Company is in the process of evaluating the impact of the pronouncement.

~~II-VI~~On September 24, 2019 (the “Closing Date”), the Company completed its acquisition of Finisar, a global technology leader for subsystems and ~~Finisar Corporation (“Finisar”) have entered into an~~components for fiber optic communications.

Pursuant to the terms of the Agreement and Plan of Merger, dated as of November 8, 2018 (the “Merger Agreement”)~~. Pursuant to the terms of the Merger Agreement,~~, Mutation Merger Sub Inc., a ~~Delaware corporation and~~ wholly owned subsidiary of ~~II-VI, will be~~the Company (“Merger Sub”), 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, with Finisar surviving the ~~Merger is consummated, Finisar stockholders will be entitled~~Merger. Each issued and outstanding share of Finisar’s common stock was automatically cancelled and converted into the right to receive ~~at their election,~~the following consideration per share of common stock of Finisar (the “Finisar Common Stock”) consisting of (i) $26.00 in cash, without interest (the “Cash Election Consideration”), (ii) 0.5546 shares of II-VI common stock (the shares, the “II-VI Common Stock,” and the consideration, the “Stock Election Consideration”), or (iii) a combination of $15.60 in cash, without interest, and 0.2218 shares of II-VI Common Stock (the “Mixed Election Consideration,” and, together with the Cash Election Consideration and the Stock Election Consideration,(collectively the “Merger Consideration”). , at the election of the holder of the share of Finisar’s common stock:

The per share Cash ~~Election~~ Consideration and ~~the~~ Stock ~~Election~~ Consideration ~~are~~were subject to ~~proration~~ adjustment pursuant to the terms of the Merger Agreement such that the aggregate Merger Consideration ~~will consist~~consisted of approximately ~~60%~~60.0% cash and approximately ~~40% II-VI Common Stock.~~

~~At the effective time~~40.0% shares 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,~~Company’s common stock (assuming a ~~“Finisar Stock Option”), or portion thereof, that is outstanding and unexercised as~~per share price 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 Election Consideration that would be payable to a holder of such number of shares of Finisar Common StockCompany’s common stock equal to the ~~quotient~~closing price as of ~~(i) the product of (a) the excess, if any, of $26.00 over the exercise price~~November 8, 2018, which was $46.88 per ~~share of such Finisar Stock Option~~ ~~multiplied by~~ ~~(b) the number of~~share) across all shares of ~~Finisar~~Finisar’s common stock (the “Proration Adjustment”). Following the Proration Adjustment, the resulting consideration for Cash Consideration was adjusted to $15.94 in cash and 0.2146 shares of the Company’s Common Stock. NaN adjustment was made to the Stock ~~subject to such Finisar Stock Option,~~ ~~divided by~~ ~~(ii) $26.00.~~Consideration and Mixed Consideration.

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 theThe preliminary total fair value of ~~Finisar Common Stock will, to the extent such Finisar Restricted Stock Unit vests in accordance with its terms~~consideration paid in connection with the Merger (the “Participating RSUs”), be cancelled and extinguished and converted into the right to receive the Cash Election Consideration, the Stock Election Consideration or the Mixed Election Consideration at the electionacquisition of Finisar consisted of the ~~holder of such Participating RSUs, subject to proration adjustment.~~ following (in $000):

~~At the Effective Time, each Finisar Restricted Stock Unit (or portion thereof) that is outstanding~~The Company recorded $8.0 million 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$40.2 million 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~~acquisition related ~~Finisar Restricted Stock Unit immediately prior to the Effective Time, including the vesting schedule (and the applicable performance-vesting conditions~~costs in the ~~case~~three and six months ended December 31, 2019, respectively, representing professional and other direct acquisition costs. These costs are recorded within selling, general, and administrative expense in our Condensed Consolidated Statement 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)Earnings (Loss).

II-VI filed with the Securities and Exchange Commission 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.

On ~~November 8, 2018, in connection with its entry into~~ the ~~Merger Agreement, II-VI~~Closing Date, the Company entered into ~~a commitment letter (together with a related fee letter) with Bank of America, N.A., which was subsequently amended~~an 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~~Restated Credit Agreement, dated as of ~~March 4,~~September 24, 2019 (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~~lender parties thereto. ~~Pursuant~~Refer to ~~the terms and subject to the conditions therein, the New Credit Agreement provides~~Note 10 for senior secured financing of $1.625 billion in the aggregate, consisting of (i) a five-year senior secured first-lien term A loan facility in an aggregate principal amount of $1.175 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 $800.0 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 drawadditional information on the ~~Revolving Credit Facility in order to fund the cash portion of the merger consideration payable in connection with the Merger.~~new credit facility.

From the Closing Date, Finisar contributed $306.6 million and $328.7 million of our consolidated revenue for the three and six months ended December 31, 2019, respectively. Including severance related costs, Finisar’s contribution to ~~reflect syndication~~our net loss was a loss of $7.3 million and $22.7 million during the ~~Term B Facility~~three 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 10) 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 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.six months ended December 31, 2019, respectively.

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. Subject to the satisfaction or waiver of each of the closing conditions, II-VI and Finisar expect that the Merger will be completed approximately the middle of 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.

~~In September 2018, the~~ Company acquired CoAdna Holdings, Inc. (“CoAdna”), a previously publicly traded company on the Taiwan Stock Exchange with headquarters in Sunnyvale, CA, in a cash transaction valued at approximately $85.0 million, inclusive of cash acquired of approximately $42.2 million at closing.

CoAdna is a global leader in wavelength selective switches based on its patented liquid crystal platform. CoAdna operates within the Company’s II-VI Photonics operating segment. Due to the timing of the acquisition, the Company is still in the process of measuringallocated the fair value of the purchase price consideration to the tangible assets, ~~acquired and~~ liabilities, ~~assumed, including tangible~~ and intangible assets acquired, generally based on estimated fair values. The excess purchase price over those fair values is recorded as goodwill. Our valuation assumptions of acquired assets and ~~related deferred income taxes.~~

~~The following table presents the~~assumed liabilities require significant estimates, especially with respect to intangible assets. Our preliminary allocation of the purchase price of Finisar, based on the estimated fair value of the assets acquired and liabilities assumed atas of the ~~date of acquisition,~~Closing Date, is as ~~the Company intends to finalize its accounting for the acquisition of CoAdna within one year from the date of acquisition ($000)~~follows (in $000):

The goodwill of $24.8 million is included in the II-VI Photonics segment and is attributed to the expected synergies and the assembled workforce of CoAdna. None of the goodwill is deductible for income tax purposes. The fair value of accounts receivable acquired was $5.7 million, with the gross contractual amount being $5.7 million. The Company expensed transaction costs during the nine months ended March 31, 2019 of $1.9 million.

The amount of revenues of CoAdna included in the Company’s Condensed Consolidated Statements of Earnings for the three and nine months ended March 31, 2019, was $2.3 million and $12.4 million, respectively. The amount of net loss of CoAdna included in the Company’s Condensed Consolidated Statement of Earnings for the three and nine months ended March 31, 2019 was immaterial.

In November 2018, the Company acquired certain assets of a product line in a cash transaction valued at approximately $10.0 million. In conjunction with the acquisition of the product line, the Company acquired inventory of $0.2 million, equipment of $2.3 million, acquired technology of $6.3 million, and recorded goodwill of $1.2 million. The goodwill is deductible for income tax purposes. The goodwill is recorded in the II-VI Photonics segment and is attributed to the workforce acquired as part of the transaction. Transaction expenses for this acquisition were insignificant for the three and nine months ended March 31, 2019.

~~In March 2019, the Company acquired Redstone Aerospace Corporation (“Redstone”~~), an aerospace and defense company located in Colorado. Redstone has unique capabilities to continue our growth in the emerging high-energy market. The consideration consisted of initial cash paid at the acquisition date of $28.0 million, net of cash acquired. In addition, the acquisition agreement provides up to a maximum of $2.0 million of additional cash earn out opportunities based on achievement of certain agreed-upon financial objectives.

~~The following table presents the preliminary purchase price at the date of acquisition ($000):~~

Due to the timing of the acquisition, the Company is still in the process of measuring the fair value of assets acquired and liabilities assumed, including tangible and intangible assets and related deferred income taxes. The following table presents a preliminary allocation of the purchase price of the assets acquired and liabilities assumed at the date of acquisition ($000):

The purchase price allocation set forth herein is preliminary and will be revised as additional information becomes available during the measurement period, which could be up to 12 months from the Closing Date. Any such revisions or changes may be material. The Company utilized market available benchmarking analysis to perform the preliminary allocation above.

As of December 31, 2019, the goodwill ~~is recorded in~~and intangibles have been allocated to the ~~II-VI Performance Products segment~~Photonic Solutions and Compound Semiconductors segments. The preliminary goodwill of $774.1 million arising from the acquisition is attributed to the ~~technology~~expected synergies, including future cost savings, and ~~workforce acquired as part of the transaction. The goodwill is non-deductible for income tax purposes. At the time of the acquisition, the Company~~other benefits expected to ~~collect~~be generated by combining II-VI and Finisar. Substantially all of the ~~accounts receivable. Transaction expenses~~goodwill recognized is not expected to be deductible for ~~this~~tax purposes. See Note 9 for additional information on goodwill and intangibles.

The supplemental pro forma financial information presented below is for illustrative purposes only and is not necessarily indicative of the financial position or results of operations that would have been realized if the acquisition ~~were insignificant~~had been completed on the date indicated, does not reflect synergies that might have been achieved, nor is it indicative of future operating results or financial position. The pro forma adjustments are based upon currently available information and certain assumptions that we believe are reasonable under the circumstances.

The following supplemental pro forma information presents the combined results of operations for the three and ~~nine~~six months ended ~~March~~December 31, ~~2019.~~2018 and 2019, as if Finisar had been acquired as of July 1, 2018. The supplemental pro forma information includes adjustments to amortization and depreciation for acquired intangible assets, property, plant and equipment, adjustments to share-based compensation expense, fair value adjustments on the inventories acquired, transaction costs, and interest expense and amortization of debt issuance costs related to the New Senior Credit Facilities as defined in Note 10.

The ~~amount of revenues and net earnings from the acquisition included in the Company’s Condensed Consolidated Statements of Earnings~~unaudited supplemental pro forma financial information for the ~~three and nine months ended March 31, 2019 were insignificant.~~period presented is as follows (in $000):

As discussed in Note 2, the Company adopted ASU 2014-09, Revenue from Contracts with Customers (Topic 606), on July 1, 2018 using the modified retrospective method of adoption. Adoption of the ASU did not require an adjustment to the opening balance of equity and did not materially change the Company's amount and timing of recognition of revenues. The Company applied the ASU only to contracts that were not completed as of July 1, 2018. The Company has elected to exclude all taxes from the measurement of the transaction price.

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

For contracts with commercial customers, which comprise the majority of the Company’s performance obligations, ownership of the goods and associated revenue are transferred to customers at a point in time, generally upon shipment of a product (“Direct Ship Parts”) to the customer or receipt of the product by the customer and without significant judgments. The majority of contracts typically require payment within 30 to 60 days after transfer of ownership to the customer.

Contracts with the United States (“U.S.”) government through its prime contractors are typically for products or services with no alternative future use to the Company with an enforceable right to payment for performance completed to date, whereas commercial contracts typically have alternative use. Customized products with no alternative future use to the Company with an enforceable right to payment for performance completed to date are recorded over time utilizing the output method of units delivered. The Company considers this to be a faithful depiction of the transfer to the customer of revenue over time due to short cycle time and immaterial work-in-process balances. The majority of contracts typically require payment within 30 to 60 days after transfer of ownership to the customer.

Service revenue includes repairs, non-recurring engineering, tolling arrangements and installation. Repairs, tolling and installation activities are usually completed in a short period of time (normally less than one month) and therefore recorded at a point in time when the services are completed. Non-recurring engineering arrangements are typically recognized over time under the time and material practical expedient, as the entity has a right to consideration from a customer, in an amount that corresponds directly with the value to the customer of the entity’s performance completed to date. The majority of contracts typically require payment within 60 days.

The Company has elected not to disclose the aggregate amount of the transaction price allocated to unsatisfied performance obligations, as our contracts have an original expected duration of less than one year.

Because the Company’s performance obligations have been satisfied and an unconditional right to consideration exists as of the balance sheet date, the Company has recognized amounts due from contracts with customers of $252.4 million as accounts receivable, as of March 31, 2019, net of allowance for doubtful accounts within the Condensed Consolidated Balance Sheet.

Under ASC 606, the Company expenses sales commissions when incurred because the amortization period would have been one year or less. These costs are recorded within selling, general and administration expenses. The Company has elected to recognize the costs for freight and shipping when control over products has transferred to the customer as an expense in cost of sales.

The Company monitors and tracks the amount of product returns and reduces revenue at the time of shipment for the estimated amount of future returns, based on historical experience. The Company makes estimates evaluating its allowance for doubtful accounts. The Company continuously monitors collections and payments from its customers and maintains a provision for estimated credit losses based upon its historical experience and any specific customer collection issues that it has identified.

The Company offers an assurance-type limited warranty that products will be free from defects in materials and workmanship. The warranty is typically one year or the industry standard in length and is limited to either (1) the replacement or repair of the product or (2) a credit against future purchases. The products are not sold with a right of return.

The following tables summarize disaggregated revenue by revenue market, and product for the three and ~~nine~~six months ended ~~March~~December 31, 2019 and 2018 ($000):

	Three Months Ended December 31, 2019

	Compound		Photonic		Unallocated
	Semiconductors		Solutions		& Other			Total
Commercial							`
Direct Ship Parts	$	157,848	$	459,253	$	-		$	617,101
Services		3,297		1,140		-			4,437

U.S. Government
Direct Ship Parts		40,165		-		-			40,165
Services		4,628		-		-			4,628

Total Revenues	$	205,938	$	460,393	$	-		$	666,331

	Three Months Ended December 31, 2018

	Compound		Photonic		Unallocated
	Semiconductors		Solutions		& Other			Total
Commercial							`
Direct Ship Parts	$	140,698	$	157,965	$	-		$	298,663
Services		2,889		1,729		-			4,618

U.S. Government
Direct Ship Parts		33,507		-		-			33,507
Services		6,051		-		-			6,051

Total Revenues	$	183,145	$	159,694	$	-		$	342,839

	Six Months Ended December 31, 2019

	Compound		Photonic		Unallocated
	Semiconductors		Solutions		& Other		Total
Commercial
Direct Ship Parts	$	288,036	$	599,598	$	22,051	$	909,685
Services		8,989		2,151		-		11,140

U.S. Government
Direct Ship Parts		77,247		-		-		77,247
Services		8,668		-		-		8,668

Total Revenues	$	382,940	$	601,749	$	22,051	$	1,006,740

	Six Months Ended December 31, 2018

	Compound		Photonic		Unallocated
	Semiconductors		Solutions		& Other		Total
Commercial
Direct Ship Parts	$	285,565	$	291,330	$	-	$	576,895
Services		6,884		3,520		-		10,404

U.S. Government
Direct Ship Parts		60,687		-		-		60,687
Services		9,286		-		-		9,286

Total Revenues	$	362,422	$	294,850	$	-	$	657,272

Payments received from customers are based on invoices or billing schedules as established in contracts with customers. Contract liabilities relate to billings in advance of performance under the contract. Contract liabilities are recognized as revenue when the performance obligation has been performed. During the three and six months ended December 31, 2019, the Company recognized revenue of $21.2 million and $50.2 million, respectively, related to customer payments that were included as contract liabilities in the Condensed Consolidated Balance Sheet as of July 1, 2019. The Company had $37.7 million and $19.4 million of contract liabilities recorded in the Condensed Consolidated Balance Sheets as of December 31, 2019 and June 30, 2019, respectively.

On July 1, 2019, the Company adopted Topic 842, Leases, using the modified retrospective transition approach. The reported results for the three and six months ended December 31, 2019 reflect the application of Topic 842, while prior period amounts have not been adjusted and continue to be reported in accordance with our historical accounting under Topic 840.

The Company elected the practical expedient package permitted under the transition approach. As such, the Company did not reassess whether any expired or existing contracts are or contain leases, did not reassess historical lease classification, and did not reassess initial direct costs for any leases that existed prior to July 1, 2019.

As of the date of adoption, the Company recognized operating lease assets and liabilities of approximately $80.1 million on the Condensed Consolidated Balance Sheet. In addition, we acquired approximately $45 million and $48 million of operating lease assets and liabilities, respectively, through the acquisition of Finisar, which remains preliminary as discussed in Note 3.

All existing leases that were classified as capital leases under Topic 840 are classified as finance leases under Topic 842. As of the date of adoption, the Company recognized finance lease assets of $25 million in property, plant and equipment, net, with corresponding finance lease liabilities of $24 million on the Condensed Consolidated Balance Sheet.

We determine if an arrangement is a lease at inception and classify it as either finance or operating.

Finance leases are generally those that allow us to substantially utilize or pay for the entire asset over its estimated useful life. Finance leases are recorded in property, plant and equipment, net, and finance lease liabilities within other current and other non-current liabilities on our Condensed Consolidated Balance Sheet. Finance lease assets are amortized in operating expenses on a straight-line basis over the shorter of the estimated useful lives of the assets or the lease term, with the interest component for lease liabilities included in interest expense and recognized using the effective interest method over the lease term.

Operating leases are recorded in other assets and operating lease liabilities, current and non-current on the Company’s Condensed Consolidated Balance Sheet. Operating lease assets are amortized on a straight-line basis in operating expenses over the lease term.

The Company’s lease liabilities are recognized based on the present value of the remaining fixed lease payments, over the lease term, using a discount rate of similarly secured borrowings available to the Company. For the purpose of lease liability measurement, we consider only payments that are fixed and determinable at the time of commencement. Any variable payments that depend on an index or rate are expensed as incurred. We account for non-lease components, such as common area maintenance, as a component of the lease, and include it in the initial measurement of our lease assets and corresponding liabilities. The Company’s lease terms and

conditions may include options to extend or terminate. An option is recognized when it is reasonably certain that we will exercise that option.

The Company’s lease assets also include any lease payments made and exclude any lease incentives received prior to commencement. Our lease assets are tested for impairment in the same manner as long-lived assets used in operations.

The following table presents lease costs, which include short-term leases, lease term, and discount rates ($000):

	Three Months				Six Months
	Ended				Ended
	December 31, 2019				December 31, 2019
Finance Lease Cost
Amortization of right-of-use Assets	$	417			$	833
Interest on Lease Liabilities		334				671
Total Finance Lease Cost		751				1,505
Operating Lease Cost		11,073				17,180
Total Lease Cost	$	11,824			$	18,685


Cash Paid for Amounts Included in the Measurement of Lease Liabilities
Operating Cash Flows from Finance Leases		334				671
Operating Cash Flows from Operating Leases		10,731				16,671
Financing Cash Flows from Finance Leases		247				490

Weighted-Average Remaining Lease Term (in Years)
Finance Leases			12.0
Operating Leases			6.2

Weighted-Average Discount Rate
Finance Leases			5.6	%
Operating Leases			6.0	%

The following table presents future minimum lease payments, which include short-term leases ($000):

Three Months Ended March 31, 2019

II-VI

II-VI

Laser

II-VI

Performance

Solutions

Photonics

Products

Total

Commercial

Direct Ship Parts

$

94,907

$

164,074

$

49,094

$

308,075

Services

267

2,399

2,348

5,014

U.S. Government

Direct Ship Parts

$

2,286

$

-

$

24,858

$

27,144

Services

14

-

2,249

2,263

Total Revenues

$

97,474

$

166,473

$

78,549

$

342,496

	Payments Due By Period
			Less Than		1-3		3-5
	Total		1 Year		Years		Years		Thereafter
Operating leases	$	159,620	$	35,107	$	49,305	$	29,818	$	45,390
Less interest		37,028
Operating lease liability	$	122,592

Finance leases	$	33,393	$	2,387	$	4,972	$	5,249	$	20,785
Less interest		9,409
Finance lease liability	$	23,984

Nine Months Ended March 31, 2019

II-VI

II-VI

Laser

II-VI

Performance

Solutions

Photonics

Products

Total

Commercial

Direct Ship Parts

$

298,671

$

455,404

$

130,895

$

884,970

Services

2,520

5,919

6,979

15,418

U.S. Government

Direct Ship Parts

$

8,021

$

-

$

79,810

$

87,831

Services

14

-

11,535

11,549

Total Revenues

$

309,226

$

461,323

$

229,219

$

999,768

~~In November 2017, the Company acquired~~ holds a 93.8% equity investment in a privately-held company (“Equity Investment”), which it acquired for ~~$51.5~~$51.7 million. ~~In addition, the Company paid $0.2 million for a working capital adjustment to that purchase price.~~ The Company’s pro-rata share of earnings/(loss) from this investment for the three and ~~nine~~six months ended ~~March~~December 31, 2019 was ~~$(0.2) million and $1.8 million, respectively.~~insignificant. The Company’s pro rata share of earnings from this investment for the three and ~~nine~~six months ended ~~March~~December 31, 2018 was ~~$0.8~~$0.9 million and $2.0 million, ~~respectively,~~ and was recorded in other expense (income), net in the Condensed Consolidated ~~Statements~~Statement of ~~Earnings.~~Earnings (Loss).

This investment is accounted for under the equity method of accounting. The following table summarizes the Company's equity in this nonconsolidated investment:

Interest

Ownership % as of

Equity as of

Interest

Ownership % as of

Equity as of

Location

Type

March 31, 2019

March 31, 2019 ($000)

Type

December 31, 2019

December 31, 2019 ($000)

USA

Equity Investment

93.8%

58,174

Equity Investment

93.8%

57,658

The Equity Investment has been determined to be a variable interest entity because the Company has an overall 93.8% economic position in the investee, comprising a significant portion of its capitalization, but has only a 25% voting interest. The Company’s right to receive rewards and obligation to absorb expected losses is disproportionate to its voting interest. The Company is not the primary beneficiary because it does not have the power to direct the activities of the equity investment that most significantly ~~impact~~impacts its economic performance. Certain business decisions, including decisions with respect to operating budgets, material capital expenditures, indebtedness, significant acquisitions or dispositions, and strategic decisions, require the approval of owners holding a majority percentage in the Equity Investment. ~~Beginning on the date it was acquired, the~~The Company ~~accounted~~accounts for its interest as an equity method investment as the Company has the ability to exercise significant influence over operating and financial policies of the Equity Investment.

As of ~~March~~December 31, 2019 and June 30, ~~2018,~~2019, the Company’s maximum financial statement exposure related to this Equity Investment was approximately ~~$58.2~~$57.7 million and ~~$56.3~~$57.6 million, respectively, which is included in Investments on the Condensed Consolidated Balance ~~Sheet as of March 31, 2019.~~Sheets.

The Company has the right to purchase all of the outstanding interest of each of the minority equity holders, and the minority equity holders have the right to cause the Company to purchase all of their outstanding interests, at any time on or after the third anniversary of the investment, or earlier upon certain events. The purchase price is equal to the greater of: (a) (i) the product of the aggregate trailing 12-month revenues of the equity investment preceding the date of purchase, multiplied by (ii) a factor of 2.9 multiplied by (iii) a factor of 0.723, multiplied by (iv) the percentage interest owned by each minority equity holder and (b) $966,666. The Company performed a Monte Carlo simulation to estimate the fair value of the net put option at the investment date and recorded a liability of $2.2 million in Other long-term liabilities in the Condensed Consolidated Balance Sheet in accordance with ASC 815-10, Derivatives and Hedging. The fair value of the net put option is adjusted as necessary on a quarterly basis, with any changes in the fair value recorded through earnings. The change in fair value of the net purchase option from the investment date to March 31, 2019 was not material.

The Company has an equity investment of 20.2% in Guangdong Fuxin Electronic Technology, based in Guangdong Province, China, which is accounted for under the equity method of accounting. The total carrying value of the investment recorded at March 31, 2019 and June 30, 2018 was $13.8 million and $12.9 million, respectively. During the three and nine months ended March 31, 2019, the Company’s pro-rata share of earnings from this investment was $0.2 million and $0.9 million, respectively. During the three and nine months ended March 31, 2018, the Company’s pro-rata share of earnings from this investment was $0.2 million and $0.5 million, respectively. Equity earnings were recorded in other expense (income), net in the Condensed Consolidated Statements of Earnings.

During the quarter ended September 30, 2018, the Company acquired a 10% equity investment in a privately-held company for $4.5 million. The Company has determined that the equity interest does not give it the ability to exercise significant influence or joint control. Therefore, the Company will not account for this investment under the equity method of accounting. Under ASU 2016-01, Financial Instruments, the Company has elected the measurement alternative, as the investment does not have a readily determinable fair value. Under the alternative, the Company measures the investment at cost, less any impairment, plus or minus changes resulting from observable price changes in orderly transactions for identical or similar investment of the Company for which there were none during the quarter ended March 31, 2019.

	March 31,		June 30,		December 31,		June 30,
	2019		2018		2019		2019
Raw materials	$	122,416	$	97,502	$	208,364	$	119,917
Work in progress		101,320		83,002		307,303		101,091
Finished goods		78,125		67,764		147,315		75,274
	$	301,861	$	248,268	$	662,982	$	296,282

	March 31,			June 30,			December 31,			June 30,
	2019			2018			2019			2019
Land and improvements	$	8,992		$	9,072		$	17,552		$	9,001
Buildings and improvements		230,024			216,507			310,398			249,238
Machinery and equipment		718,020			633,934			1,411,511			739,330
Construction in progress		85,153			88,350			136,514			71,425
Finance lease right-of-use asset								25,000			-
		1,042,189			947,863			1,900,975			1,068,994
Less accumulated depreciation		(472,660	)		(422,973	)		(553,828	)		(486,204	)
	$	569,529		$	524,890		$	1,347,147		$	582,790

Included in the table above is a building acquired under a finance lease. As of December 31, 2019 and June 30, 2019, the accumulated depreciation of the finance lease right-of-use asset was $5.0 million and $4.2 million, respectively.

Effective July 1, ~~2018,~~2019, the Company realigned its organizational structure into two reporting segments for the ~~composition~~purpose of ~~its operating segments. The Company moved Laser Systems Group from II-VI Laser Solutions to II-VI Photonics~~making operational decisions and ~~moved IPI from II-VI Photonics to II-VI Performance Products.~~assessing financial performance: (i) Compound Semiconductors and (ii) Photonic Solutions. All applicable information has been restated to reflect this change. ~~The Company used the relative fair value method to reallocate goodwill to the associated reporting units in connection with the realignment.~~

	Nine Months Ended March 31, 2019											Six Months Ended December 31, 2019
	II-VI Laser			II-VI			II-VI Performance					Compound		Photonic
	Solutions			Photonics			Products		Total			Semiconductors		Solutions		Total
Balance-beginning of period	$	98,737		$	109,670		$	62,271	$	270,678		$	185,721	$	134,057	$	319,778
Goodwill acquired		-			26,015			23,349		49,364			61,085		713,045		774,130
Foreign currency translation		(85	)		(22	)		-		(107	)		2,482		301		2,783
Balance-end of period	$	98,652		$	135,663		$	85,620	$	319,935		$	249,288	$	847,403	$	1,096,691

The gross carrying amount and accumulated amortization of the Company’s intangible assets other than goodwill as of ~~March~~December 31, 2019 and June 30, ~~2018~~2019 were as follows ($000):

	March 31, 2019							June 30, 2018							December 31, 2019							June 30, 2019
	Gross					Net		Gross					Net		Gross					Net		Gross					Net
	Carrying		Accumulated			Book		Carrying		Accumulated			Book		Carrying		Accumulated			Book		Carrying		Accumulated			Book
	Amount		Amortization			Value		Amount		Amortization			Value		Amount		Amortization			Value		Amount		Amortization			Value
Technology and Patents	$	91,832	$	(37,688	)	$	54,144	$	66,812	$	(32,979	)	$	33,833	$	92,513	$	(43,397	)	$	49,116	$	91,637	$	(39,679	)	$	51,958
Trademarks		15,825		(1,569	)		14,256		15,882		(1,471	)		14,411
Trade Names																15,714		(1,667	)		14,047		15,759		(1,601	)		14,158
Customer Lists		134,189		(57,797	)		76,392		127,603		(50,792	)		76,811		133,656		(64,355	)		69,301		132,872		(59,664	)		73,208
Other		1,570		(1,570	)		-		1,573		(1,559	)		14		830,199		(32,890	)		797,309		1,572		(1,572	)		-
Total	$	243,416	$	(98,624	)	$	144,792	$	211,870	$	(86,801	)	$	125,069	$	1,072,082	$	(142,309	)	$	929,773	$	241,840	$	(102,516	)	$	139,324

Other intangible assets primarily include $828.6 million related to the preliminary purchase price allocation of Finisar. This includes preliminary amounts for technology of $615.8 million, customer lists of $125.4 million, in process research and development of $76.0 million, and trade names of $11.4 million. These items will be included in other intangible assets until the purchase price allocation is finalized.

As a result of the July 1, ~~2018~~2019 segment realignment, the Company reviewed the recoverability of the carrying value of goodwill at its reporting units. The Company performed a quantitative test to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount, including goodwill and other intangible assets. The Company did ~~not~~0t record any impairment of goodwill or long-lived assets, as the quantitative assessment did not indicate deterioration in the fair value of its reporting units.

In conjunction with the acquisition of CoAdna, the Company recorded $9.8 million attributed to the value of technology and patents and $6.3 million of customer lists. The intangibles were recorded based on the Company’s preliminary purchase price allocation utilizing either a discounted cash flow or relief from royalty method to derive the fair value. The valuation is expected to be finalized within one year from the date of acquisition.

In conjunction with the acquisition of the product line, the Company recorded $6.3 million of acquired technology. The acquired technology was recorded based on the Company’s preliminary purchase price allocation utilizing a relief from royalty method to derive the fair value. The valuation is expected to be finalized within one year of the date of acquisition.

In conjunction with the acquisition of Redstone, the Company recorded $9.1 million of acquired technology. The acquired technology was recorded based on the Company’s preliminary purchase price allocation utilizing a relief from royalty method to derive the fair value. The valuation is expected to be finalized within one year of the date of acquisition.

Technology and patents are being amortized over a range of 60 to 240 months, with a weighted average remaining life of approximately 86 months. Customer lists are being amortized over a range of approximately 120 to 240 months, with a weighted average remaining life of approximately 131 months. The gross carrying amount of trademarks includes $14.0 million of acquired trade names with indefinite lives that are not amortized but tested annually for impairment or more frequently if a triggering event occurs. Included in the gross carrying amount and accumulated amortization of the Company’s intangible assets is the effect of foreign currency translation on that portion of the intangible assets relating to the Company’s foreign subsidiaries.

~~At March 31, 2019, the estimated amortization expense for the existing intangible assets for each of the five succeeding fiscal years is as follows ($000):~~

On September 24, 2019, in connection with the Finisar acquisition, the Company entered the New Senior Credit Facilities with Bank of America, N.A., as Administrative Agent, Swing Line Lender and an L/C Issuer, and the other lenders party thereto.

The New Credit Agreement provides for senior secured financing of $2.425 billion in the aggregate, consisting of

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.

The Company is obligated to repay the outstanding principal amount of the Term A Facility in quarterly installments equal to 1.25% of the initial aggregate principal amount of the Term A Facility, with the remaining outstanding balance due and payable on the fifth anniversary of the Closing Date. Similarly, the Company is obligated to repay the outstanding principal amount of the Term B Facility in quarterly installments equal to 0.25% of the initial aggregate principal amount of the Term B Facility, with the remaining outstanding balance due and payable on the seventh anniversary of the Closing Date. The Company is obligated to repay the aggregate principal amount of all outstanding revolving loans made under the Revolving Credit Facility on the fifth anniversary of the Closing Date.

The Company’s obligations under the New Senior Credit Facilities are guaranteed by each of the Company’s existing or future direct and indirect domestic subsidiaries, including Finisar and its domestic subsidiaries (collectively, the “Guarantors”). Borrowings under the New Senior Credit Facilities are collateralized by a first priority lien in substantially all of the assets of the Company and the Guarantors, except that no real property is collateral under the New Senior Credit Facilities.

All amounts outstanding under the New Senior Credit Facilities will become due and payable 120 days prior to the maturity of the Company’s currently outstanding 0.25% Convertible Senior Notes due 2022 (the “II-VI Notes”) if (i) the II-VI Notes remain outstanding, and (ii) the Company has insufficient cash and borrowing availability to repay the principal amount of the II-VI Notes.

The Company voluntarily may prepay, at any time or from time to time, any amounts outstanding under the New Senior Credit Facilities in whole or in part without premium or penalty; except for the Term B Facility, pursuant to which in the event of (a) a repayment made before September 24, 2020, (b) the occurrence of a repricing event, or (c) a change to the lenders, the Company will be subject to a prepayment premium in an amount equal to one percent of: (i) the principal amount of the Term B Facility that is prepaid under an optional or mandatory prepayment due to a repricing event, (ii) the aggregate outstanding principal amount of the Term B Facility resulting from an amendment to the New Credit Agreement, and (iii) the principal amount of the Term B Facility that is mandatorily assigned. The Company may be subject to mandatory prepayment of amounts outstanding under the New Senior Credit Facilities under certain circumstances, including in connection with certain asset sales or other dispositions of property and debt issuances.

The Company also may be required to prepay amounts under the Term B Facility based on the Company’s excess cash flow (as calculated in accordance with the terms of the New Credit Agreement) for the Company’s prior fiscal year beginning with its fiscal year ending June 30, 2020 and the Company’s consolidated secured net leverage ratio (as calculated in accordance with the terms of the New Credit Agreement) as of the end of such fiscal year.

Amounts outstanding under the New Senior Credit Facilities will bear interest at a rate per annum equal to an applicable margin over a eurocurrency rate or an applicable margin over a base rate determined by reference to the highest of (a) the federal funds rate plus 0.50%, (b) Bank of America, N.A.’s prime rate and (c) a eurocurrency rate plus 1.00%, in each case as calculated in accordance with the terms of the New Credit Agreement. The applicable interest rate would increase under certain circumstances relating to events of default. The Company has entered into an interest rate swap contract to hedge its exposure to interest rate risk on its variable rate borrowings under the New Senior Credit Facilities. Refer to Note 15 for further information regarding this interest rate swap.

The New Credit Agreement contains customary affirmative and negative covenants with respect to the New Senior Credit Facilities, including limitations with respect to liens, investments, indebtedness, dividends, mergers and acquisitions, dispositions of assets and transactions with affiliates. The Company will be obligated to maintain a consolidated interest coverage ratio (as calculated in accordance with the terms of the new Credit Agreement) as of the end of each fiscal quarter of not less than 3.00:1.00. The Company will be obligated to maintain a consolidated total net leverage ratio (as calculated in accordance with the terms of the New Credit Agreement) of not greater than (i) 5.00 to 1.00 for the first four fiscal quarters after the Closing Date, commencing with the first full fiscal quarter after the Closing Date, (ii) 4.50 to 1.00 for the fifth fiscal quarter through and including the eighth fiscal quarter after the Closing Date, and (iii) 4.00 to 1.00 for each subsequent fiscal quarter. As of December 31, 2019, the Company was in compliance with all financial covenants under the New Credit Agreement.

The Company incurred $69.8 million of debt issuance costs in connection with the New Senior Credit Facilities. The Company evaluated these costs to determine appropriate recognition of expense under ASC 470, to account for debt modification and extinguishment. As a result of the Company’s assessment, $65.8 million have been capitalized in the Condensed Consolidated Balance Sheet. Debt extinguishment costs of $4.0 million were expensed in other expense (income), net in the Condensed Consolidated Statement of Earnings (Loss) during the six months ended December 31, 2019. The Company expensed $2.9 millionof capitalized debt issuance costs during the three and six months ended December 31, 2019 in interest expense in the Condensed Consolidated Statement of Earnings (Loss). The capitalized costs are being amortized to interest expense using the effective interest rate method from the issuance date of September 24, 2019, through the end of each facility. The unamortized discount amounted to $62.8 million as of December 31, 2019 and is being amortized over five and seven years, for the Term A Facility and Revolving Credit Facility, and the Term B Facility, respectively.

Finisar’s outstanding 0.50% Convertible Senior Notes due 2036 (the “Finisar Notes”) may be redeemed at any time on or after December 22, 2021 in whole or in part at the option of the Company at a redemption price equal to one hundred percent (100%) of the principal amount of such Finisar Notes plus accrued and unpaid interest. Each holder of Finisar Notes also may require Finisar to repurchase all or any portion of such holder’s outstanding Finisar Notes for cash on December 15, 2021, December 15, 2026 and December 15, 2031 at a repurchase price equal to one hundred percent (100%) of the principal amount of such Finisar Notes plus accrued and unpaid interest. The Finisar Notes will mature on December 15, 2036. Interest on the Finisar Notes accrues at 0.50% per annum, paid semi-annually, in arrears, on June 15 and December 15 of each year.

In connection with the acquisition of Finisar, the Company, Finisar and the trustee entered into a First Supplemental Indenture, dated as of September 24, 2019 (the “First Supplemental Indenture”). The First Supplemental Indenture supplements the base indenture (as supplemented, the “Finisar Indenture”), which governs the Finisar Notes. Pursuant to the terms of the First Supplemental Indenture, the Company has fully and unconditionally guaranteed, on a senior unsecured basis, the due and punctual payment and performance of all obligations of Finisar to the holders of the Finisar Notes. The First Supplemental Indenture also provides that the right of holders of

Finisar Notes to convert Finisar Notes into cash and/or shares of Finisar’s common stock, is changed to a right to convert Finisar Notes into cash and/or shares of the Company’s common stock, subject to the terms of the Finisar Indenture.

Under the terms of the Finisar Indenture, the consummation and effectiveness of the Merger on the Closing Date constituted a Fundamental Change (as defined in the Finisar Indenture) and a Make-Whole Fundamental Change (as defined in the Finisar Indenture). Accordingly, in accordance with the terms of the Finisar Indenture, each holder of Finisar Notes had the right to (i) convert its Finisar Notes into cash and/or shares of Company Common Stock, at Finisar’s option, or (ii) require that Finisar repurchase such holder’s Finisar Notes for an amount in cash equal to one hundred percent (100%) of the principal amount of such Finisar Notes plus accrued and unpaid interest.

Holders of approximately $560.1 million in aggregate principal amount of Finisar Notes exercised the repurchase right. The Company repurchased those Finisar Notes on October 23, 2019 for an aggregate consideration of approximately $561.1 million in cash, including accrued interest. No holders of Finisar Notes exercised the related conversion right. The Company borrowed $561.0 million under a delayed draw on its Term Loan A to fund the payment to the holders of Finisar Notes that exercised the repurchase right. As of December 31, 2019, approximately $14.9 million in aggregate principal amount of Finisar Notes remain outstanding.

OnIn August ~~24,~~ 2017, the Company entered into a purchase agreement with Merrill Lynch, Pierce, Fenner & Smith Incorporated, as representative of the several initial purchasers named therein (collectively, the “Initial Purchasers”), to issueissued and ~~sell $300~~sold $345 million aggregate principal amount of ~~our 0.25% convertible senior notes due 2022 (the "Notes")~~the II-VI Notes in a private placement to qualified institutional buyers within the meaning of Rule 144A under the Securities Act of 1933, as amended. ~~In addition, we granted the Initial Purchasers a 30-day option to purchase up to an additional $45 million aggregate principal amount of the Notes (the “Over-Allotment Option”).~~

As a result of our cash conversion option, the Company separately accounted for the value of the embedded conversion option as a debt discount. The value of the embedded conversion option was determined based on the estimated fair value of the debt without the conversion feature, which was determined using an expected present value technique (income approach) to estimate the fair value of similar nonconvertible debt; the debt discount is being amortized as additional non-cash interest expense over the term of the II-VI Notes using the effective interest method.

The equity component ~~which amounts to $56.4 million, net of issuance costs of $1.7 million,~~ is not remeasured as long as it continues to meet the conditions for equity classification. The initial conversion rate is 21.25 shares of common stock per $1,000 principal amount of II-VI Notes, which is equivalent to an initial conversion price of $47.06 per share of common stock. Throughout the term of the II-VI Notes, the conversion rate may be adjusted upon the occurrence of certain events. The if-converted value of the II-VI Notes amounted to ~~$273.0~~$246.8 million as of ~~March~~December 31, 2019 and ~~$318.5~~$268.0 million as of June 30, ~~2018~~2019 (based on the Company’s closing stock price on the last trading day of the fiscal periods then ended). As of ~~March~~December 31, 2019, the II-VI Notes are not yet convertible based upon the II-VI Notes’ conversion features. Holders of the II-VI Notes will not receive any cash payment representing accrued and unpaid interest upon conversion of a ~~note.~~II-VI Note. Accrued but unpaid interest will be deemed to be paid in full upon conversion rather than cancelled, extinguished or forfeited.

The following tables set forth total interest expense recognized related to the II-VI Notes for the three and ~~nine~~six months ended ~~March~~December 31, 2019 and 2018:

	Three Months Ended March 31, 2019		Nine Months Ended March 31, 2019		Three Months Ended December 31, 2019		Six Months Ended December 31, 2019
0.25% contractual coupon	$	216	$	656	$	221	$	441
Amortization of debt discount and debt issuance costs including initial purchaser discount		3,112		9,367		3,291		6,546
Interest expense	$	3,328	$	10,023	$	3,512	$	6,987

	Three Months Ended March 31, 2018		Nine Months Ended March 31, 2018		Three Months Ended December 31, 2018		Six Months Ended December 31, 2018
0.25% contractual coupon	$	216	$	513	$	221	$	441
Amortization of debt discount and debt issuance costs including initial purchaser discount		2,974		7,017		3,145		6,255
Interest expense	$	3,190	$	7,530	$	3,366	$	6,696

The effective interest rate on the liability component for both periods presented was 4.5%. The unamortized discount amounted to ~~$41.1~~$32.6 million as of ~~March~~December 31, 2019 and $38.3 million as of June 30, 2019 and is being amortized over 4three years.

On July 28, 2016, the Company amended and restated its existing credit agreement. The Third Amended and Restated Credit Agreement (the “Amended Credit Facility”) provides for a revolving credit facility of $325 million, as well as a $100 million term loan. The term loan is being repaid in consecutive quarterly principal payments on the first business day of each January, April, July and October, with the first payment having commenced on October 1, 2016, as follows: (i) twenty consecutive quarterly installments of $5 million and (ii) a final installment of all remaining principal due and payable on the maturity date of July 27, 2021. Amounts borrowed under the revolving credit facility are due and payable on the maturity date. The Amended Credit Facility is unsecured, but is guaranteed by each existing and subsequently acquired or organized wholly-owned domestic subsidiary of the Company. The Company has the option to request an increase to the size of the revolving credit facility in an aggregate additional amount not to exceed $100 million. The Amended Credit Facility has a five-year term through July 27, 2021 and has an interest rate of either a Base Rate Option or a Euro-Rate Option, plus an Applicable Margin, as defined in the agreement governing the Amended Credit Facility. If the Base Rate option is selected for a borrowing, the Applicable Margin is 0.00% to 1.25% and if the Euro-Rate Option is selected for a borrowing, the Applicable Margin is 1.00% to 2.25%. The Applicable Margin is based on the ratio of the Company’s consolidated indebtedness to consolidated EBITDA. Additionally, the Credit Facility is subject to certain covenants, including those relating to minimum interest coverage and maximum leverage ratios. As of March 31, 2019, the Company was in compliance with all financial covenants under its Amended Credit Facility.

The Company’s Yen denominated line of credit is a 500 million Yen (approximately $4.6 million) facility. The Yen line of credit matures in August 2020. The interest rate is equal to LIBOR, as defined in the loan agreement, plus 0.625% to 1.75%. At March 31, 2019 and June 30, 2018, the Company had 300 million Yen borrowed. Additionally, the facility is subject to certain covenants, including those relating to minimum interest coverage and maximum leverage ratios. As of March 31, 2019, the Company was in compliance with all financial covenants under its Yen facility.

In conjunction with the acquisition of IPI, the Company assumed a non-interest bearing note payable owed to a major customer of IPI. The agreement, if not terminated early by either party, is payable in full in January 2020.

The Company had aggregate availability of ~~$171.8 million and $246.4~~$356.0 million under its ~~lines~~line of credit as of ~~March~~December 31, 2019 and June 30, 2018, respectively. The amounts available under the Company’s lines of credit are reduced by outstanding letters of credit. The total outstanding letters of credit supported by these credit facilities were insignificant as of March 31, 2019 and $0.4 million as of June 30, 2018.2019.

The weighted average interest rate of total borrowings was ~~1.6%~~3.8% and ~~1.4%~~1.7% for the ~~nine~~six months ended ~~March~~December 31, 2019 and 2018, respectively.

~~Remaining annual principal payments under the Company’s existing credit obligations from March 31, 2019 were as follows:~~

U.S.

Dollar

Term

Yen Line

Line of

Note

Convertible

Period

Loan

of Credit

Credit

Payable

Notes

Total

Year 1

$
20,000

$
-

$
-

$
3,834

$
-

$
23,834

Year 2

20,000

2,708

-

-

-

22,708

Year 3

10,000

-

155,000

-

-

165,000

Year 4

-

-

-

-

345,000

345,000

Year 5

-

-

-

-

-

-

Total

$
50,000

$
2,708

$
155,000

$
3,834

$
345,000

$
556,542

The Company’s year-to-date effective income tax rate at ~~March~~December 31, 2019 ~~and 2018~~ was ~~15.5% and 30.9%, respectively.~~an income tax benefit of 10.0% compared to an income tax expense of 18.2% for the same period in fiscal 2018. The variations between the Company’s effective tax rate and the U.S. statutory rate of 21% were primarily due to the impact of the U.S. enacted tax legislation partially offset by research and earnings generated from the Company’s foreign operations, which are subject to income taxes at lower statutory rates. The Company’s year-to-date effective income tax rate was also impacted by one-time charges related to the Tax Cuts and Jobs Act (“Tax Act”) during the nine months ended March 31, 2018.development incentives in certain jurisdictions.

U.S. GAAP prescribes the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements which includes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. As of ~~March~~December 31, 2019 and June 30, ~~2018,~~2019, the Company’s gross unrecognized income tax benefit, excluding interest and penalties, was ~~$9.8~~$74.0 million and ~~$9.9~~$11.5 million, respectively. In conjunction with the acquisition of Finisar, the Company assumed $64.0 million of uncertain tax positions. The Company has classified the uncertain tax positions as noncurrent income tax liabilities, as the amounts are not expected to be paid within one year. If recognized, ~~$2.4~~$70.3 million of the gross unrecognized tax benefits at ~~March~~December 31, 2019 would impact the effective tax rate. The Company recognizes interest and penalties related to uncertain tax positions in the income tax provision onin the Condensed Consolidated Statements of ~~Earnings.~~Earnings (Loss). The amount of accrued interest and penalties included in the gross unrecognized income tax benefit was ~~$0.2~~$15.6 million and ~~$0.6~~$1.2 million, at ~~March~~December 31, 2019 and June 30, ~~2018,~~2019, respectively. Fiscal years 2017 to ~~2019~~2020 remain open to examination by the U.S. Internal Revenue Service, fiscal years ~~2014~~2015 to ~~2019~~2020 remain open to examination by certain state jurisdictions, and fiscal years 2009 to ~~2019~~2020 remain open to examination by certain foreign taxing jurisdictions. ~~During the quarter ended March 31, 2019 the~~The Company ~~completed the examination of its U.S. Federal~~

~~income tax return for the year ended June 30, 2016. Certain subsidiary companies are~~is currently under examination for certain subsidiary companies in Florida for the years 2016 through 2018; Philippines for the year ~~ended June 30,~~ 2017; Germany for the years ~~ended June~~ 2012 through ~~June~~ 2015; ~~and New Jersey~~Vietnam for the years ~~ended 2014~~2018 through ~~June 30, 2017.~~2019; Australia for the years 2011 through 2014; and India for the year 2016. The Company believes its income tax reserves for these tax matters are adequate.

On December 22, 2017, the Tax Act was signed into law. The Tax Act includes changes to the U.S. statutory federal tax rate and puts into effect the migration from a worldwide system of taxation to a territorial system, among other things. As of December 31, 2018, the Company completed its analysis of the impact of the Tax Act in accordance with U.S. Securities and Exchange Commission Staff Accounting Bulletin No. 118 (“SAB 118”) and the amounts are no longer considered provisional. The Company’s transition tax increased due to finalization of calculations and consideration of Notices and regulations issued by the U.S. Department of Treasury and the Internal Revenue Service; however, the increase is offset by available net operating loss and credit carryforwards which currently have a valuation allowance. Consequently, the tax expense reported is reduced by the release of the valuation allowance on the U.S. deferred tax assets, and as result, there was no material financial statement impact due to finalization of the provisional estimates recorded in the year ended June 30, 2018.

Furthermore, the Tax Act includes certain changes such as introducing a new category of income, referred to as global intangible low tax income, related to earnings taxed at a low rate of foreign entities without a significant fixed asset base, and imposes additional limitations on the deductibility of interest and officer compensation. These changes are included in the Company’s 2019 fiscal year income tax expense.

The following table sets forth the computation of earnings per share for the periods indicated. Basic net income per share has been computed using the weighted average number of shares of Common Stock outstanding during the period. Diluted net income per share has been computed using the weighted average number of common shares outstanding during the period plus dilutive potential shares of Common Stock from (1) stock options, performance and restricted shares (under the treasury stock method) and (2) convertible debt (under the If Converted method) outstanding during the period. The Company’s convertible debt calculated under the if-converted method was anti-dilutive for ~~both~~ the three and ~~nine~~six months ended ~~March~~December 31, 2019 and 2018, and was excluded from the calculation of earnings per share ~~($000~~(000 except per share data):

Three Months Ended

Nine Months Ended

March 31,

March 31,

2019

2018

2019

2018

Numerator:

Net earnings

$
24,638

$
30,098

$
79,489

$
60,835

Numerator for basic income per share

$
24,638

$
30,098

$
79,489

$
60,835

Effect of dilutive securities:

Interest expense, net of tax, on 0.25% Convertible Senior Notes due 2022

-

2,520

-

-

Numerator for diluted income per share

$
24,638

$
32,618

$
79,489

$
60,835

Denominator:

Denominator for basic income per share - weighted average shares

63,612

62,427

63,539

62,491

Effect of dilutive securities:

Dilutive effect of common stock equivalents

2,089

2,624

2,305

2,633

0.25% Convertible Senior Notes due 2022

-

7,331

-

-

Dilutive potential common shares

2,089

9,955

2,305

2,633

Denominator for diluted income per share

65,701

72,382

65,844

65,124

Net earnings per share:

Basic earnings per common share

$
0.39

$
0.48

$
1.25

$
0.97

Diluted earnings per common share

$
0.38

$
0.45

$
1.21

$
0.93

	Three Months Ended					Six Months Ended
	December 31,					December 31,
	2019			2018		2019			2018
Basic Earnings per Share
Net earnings (loss)	$	(98,213	)	$	28,702	$	(124,211	)	$	54,851
Divided by:
Weighted average shares		90,886			63,588		78,428			63,504

Basic earnings (loss) per common share	$	(1.08	)	$	0.45	$	(1.58	)	$	0.86
Diluted Earnings per Share
Net earnings (loss)	$	(98,213	)	$	28,702	$	(124,211	)	$	54,851
Divided by:
Weighted average shares		90,886			63,588		78,428			63,504
Dilutive effect of common stock equivalents		-			2,085		-			2,412
Diluted weighted average common shares		90,886			65,673		78,428			65,916

Diluted earnings (loss) per common share	$	(1.08	)	$	0.44	$	(1.58	)	$	0.83

The following table presents potential shares of Common Stock excluded from the calculation of diluted net income per share as their effect would have been anti-dilutive ~~($000)~~(000):

	Three Months Ended				Nine Months Ended				Three Months Ended				Six Months Ended
	March 31,				March 31,				December 31,				December 31,
	2019		2018		2019		2018		2019		2018		2019		2018
Common stock equivalents		109		199		119		140		3,392		138		2,714		125
0.25% Convertible Senior Notes due 2022		7,331		-		7,331		7,331		7,331		7,331		7,331	��	7,331
0.50% Finisar Convertible Notes										391		-		502		-
Total anti-dilutive shares		7,440		199		7,450		7,471		11,114		7,469		10,547		7,456

The Company reports its business segments using the “management approach” model for segment reporting. This means that the Company determines its reportable business segments based on the way the chief operating decision maker organizes business segments within the Company for making operating decisions and assessing financial performance.

The Company reports its financial results in the following ~~three~~2 segments: (i) ~~II-VI Laser~~Compound Semiconductors, and (ii) Photonic Solutions, ~~(ii) II-VI Photonics, and (iii) II-VI Performance Products,~~ and the Company’s chief operating decision maker receives and reviews financial information based on these segments. The Company evaluates business segment performance based upon segment operating income, which is defined as earnings before income taxes, interest and other income or expense. The segments are managed separately due to the market, production requirements and facilities unique to each segment.

As discussed in Note 1, the Company realigned the composition of its operating segments. The Company moved Laser Systems Group from II-VI Laser Solutions to II-VI Photonics and moved IPI from II-VI Photonics to II-VI Performance Products. All applicable segment information has been restated to reflect this change.

InOn September ~~2018, November 2018, and March~~24, 2019, the Company completed its ~~acquisitions~~acquisition of ~~CoAdna, an additional product line, and Redstone, respectively.~~Finisar. See Note ~~4, Acquisitions. The~~3, Finisar Acquisition. Through September 30, 2019, the operating results of ~~these acquisitions~~the Finisar acquisition are reflected in Unallocated and Other. Finisar results have been ~~reflected~~included in the ~~selected financial information of~~Photonic Solutions and Compound Semiconductors segments during the ~~Company’s II-VI Photonics segment, with the exclusion of Redstone that is reflected in the II-VI Performance Products Segment, since the date of the acquisitions.~~three months ended December 31, 2019.

The accounting policies are consistent across each ~~of the segments.~~segment. To the extent possible, the Company’s corporate expenses and assets are allocated to the segments. ~~The Company evaluates segment performance based upon reported segment operating income, which is defined as earnings before income taxes, interest and other income or expense. Eliminations~~Unallocated and Other ~~include~~includes eliminating inter-segment sales and transfers, ~~as well as~~the results of Finisar since the acquisition date through September 30, 2019, and transaction costs related to the Finisar transaction. See Note 3 for additional information.

The following tables summarize selected financial information of the Company’s operations by segment ($000):

													Three Months Ended December 31, 2019
													Photonic			Compound			Unallocated
													Solutions			Semiconductors			& Other			Total
Revenues													$	460,393		$	205,938		$	-		$	666,331
Inter-segment revenues														22,190			66,123			(88,313	)		-
Operating loss														(60,937	)		(8,835	)		(8,808	)		(78,580	)
Interest expense														-			-			-			(28,390	)
Other income (expense), net														-			-			-			(487	)
Income taxes														-			-			-			9,242
Net loss														-			-			-			(98,213	)
Depreciation and amortization														55,174			26,978			-			82,152
Expenditures for property, plant & equipment														21,313			33,339			-			54,652
Segment assets														3,194,032			2,014,177			-			5,208,209
Goodwill														847,403			249,288			-			1,096,691

	Three Months Ended March 31, 2019
	II-VI				II-VI								Three Months Ended December 31, 2018
	Laser		II-VI		Performance		Eliminations &						Photonic			Compound			Unallocated
	Solutions		Photonics		Products		Other			Total			Solutions			Semiconductors			& Other			Total
Revenues	$	97,474	$	166,473	$	78,549	$	-		$	342,496		$	159,694		$	183,145		$	-		$	342,839
Inter-segment revenues		15,301		3,115		5,392		(23,808	)		-			2,504			17,538			(20,041	)		-
Operating income (expense)		5,937		20,723		8,377		(3,907	)		31,130
Operating income (loss)														23,087			23,622			(7,103	)		39,606
Interest expense														-			-			-			(5,580	)
Other income, net														-			-			-			701
Income taxes														-			-			-			(6,025	)
Net earnings														-			-			-			28,702
Depreciation and amortization														6,462			15,867			-			22,329
Expenditures for property, plant & equipment														11,223			27,246			-			38,468


													Six Months Ended December 31, 2019
													Photonic			Compound			Unallocated
													Solutions			Semiconductors			& Other			Total
Revenues													$	601,749		$	382,940		$	22,051		$	1,006,740
Inter-segment revenues														24,840			80,056			(104,896	)		-
Operating income (loss)														(47,913	)		17,686			(66,827	)		(97,054	)
Interest expense		-		-		-		-			(5,647	)		-			-			-			(35,358	)
Other income (expense), net		-		-		-		-			1,532			-			-			-			(5,566	)
Income taxes		-		-		-		-			(2,377	)		-			-			-			13,766
Net loss														-			-			-			(124,211	)
Depreciation and amortization														61,990			43,367			3,743			109,100
Expenditures for property, plant & equipment														30,702			46,822			2,764			80,288


													Six Months Ended December 31, 2018
													Photonic			Compound			Unallocated
													Solutions			Semiconductors			& Other			Total
Revenues													$	294,850		$	362,422		$	-		$	657,272
Inter-segment revenues														7,726			34,708			(42,434	)		-
Operating income (loss)														38,999			44,923			(7,103	)		76,819
Interest expense														-			-			-			(11,164	)
Other income, net														-			-			-			1,414
Income taxes														-			-			-			(12,218	)
Net earnings		-		-		-		-			24,638			-			-			-			54,851
Depreciation and amortization		11,189		6,795		5,177		-			23,161			12,661			31,838			-			44,499
Segment assets		721,234		685,141		535,602		-			1,941,977
Expenditures for property, plant & equipment		17,566		11,177		6,040		-			34,783			23,274			50,113			-			73,386
Investments		-		-		76,452		-			76,452

Three Months Ended March 31, 2018

II-VI

II-VI

Laser

II-VI

Performance

Eliminations &

Solutions

Photonics

Products

Other

Total

Revenues

$
104,537

$
122,037

$
68,172

$
-

$
294,746

Inter-segment revenues

8,268

(175
)

6,870

(14,963
)

-

Operating income

11,602

14,024

8,853

-

34,479

Interest expense

-

-

-

-

(5,014
)
Other income (expense), net

-

-

-

-

1,755

Income taxes

-

-

-

-

(1,122
)
Net earnings

-

-

-

-

30,098

Depreciation and amortization

10,112

5,843

3,969

-

19,924

Expenditures for property, plant & equipment

16,542

14,754

7,319

-

38,614

Nine Months Ended March 31, 2019

II-VI

II-VI

Laser

II-VI

Performance

Eliminations &

Solutions

Photonics

Products

Other

Total

Revenues

$
309,226

$
461,323

$
229,219

$
-

$
999,768

Inter-segment revenues

42,486

8,451

17,113

(68,050
)

-

Operating income (expense)

30,469

59,722

28,768

(11,010
)

107,949

Interest expense

-

-

-

-

(16,811
)
Other income (expense), net

-

-

-

-

2,946

Income taxes

-

-

-

-

(14,595
)
Net earnings

-

-

-

-

79,489

Depreciation and amortization

32,629

19,456

15,542

-

67,627

Expenditures for property, plant & equipment

44,460

34,451

29,259

-

108,170

Nine Months Ended March 31, 2018

II-VI

II-VI

Laser

II-VI

Performance

Eliminations &

Solutions

Photonics

Products

Other

Total

Revenues

$
297,506

$
353,281

$
186,932

$
-

$
837,719

Inter-segment revenues

22,335

8,185

19,180

(49,700
)

-

Operating income

23,695

49,687

23,357

-

96,739

Interest expense

-

-

-

-

(13,303
)
Other income (expense), net

-

-

-

-

4,551

Income taxes

-

-

-

-

(27,152
)
Net earnings

-

-

-

-

60,835

Depreciation and amortization

27,165

17,019

13,965

-

58,149

Expenditures for property, plant & equipment

52,724

32,429

30,284

-

115,437

The Company’s Board of Directors adopted the II-VI Incorporated 2018 Omnibus Incentive Plan (the “Plan”), which was approved by the Company’s shareholders. The Plan provides for the grant of performance-based cash incentive awards, non-qualified stock options, stock appreciation rights, restricted share awards, restricted share units, deferred share awards, performance share awards and performance share units to employees, officers and directors of the Company. The maximum number of shares of the Company’s Common Stock authorized for issuance under the Plan is limited to 3,550,000 shares of Common Stock, not including any remaining shares forfeited under the predecessor plans that may be rolled into the Plan. The Company records share-based compensation expense for these awards in accordance with U.S. GAAP, which requires the recognition of grant-date fair value of share-based compensation in net earnings (loss) and over the requisite service period of the individual grantees, which generally equals the vesting period. The Company accounts for cash-based stock appreciation rights, cash-based restricted share unit awards and cash-based performance share unit awards as liability awards, in accordance with applicable accounting standards.

~~Share-based compensation expense is allocated approximately 20% to cost of goods sold and 80% to selling, general and administrative expense, based on the employee classification~~Upon consummation of the ~~grantees.~~ acquisition, the Company assumed approximately 6.6 million restricted stock units previously granted by Finisar under the Amended and Restated Finisar Corporation 2005 Stock Incentive Plan (each an “Assumed RSU”). Each Assumed RSU is subject to substantially the same terms and conditions as applied to the Assumed RSU immediately prior to the consummation of the acquisition, except that the number of shares of the Company’s common stock subject to each Assumed RSU has been adjusted in accordance with the terms of the Merger Agreement. Other than the Assumed RSUs, the Company did not assume any other awards outstanding under the Amended and Restated Finisar Corporation 2005 Stock Incentive Plan (the “Finisar 2005 Plan”). As of the Closing Date, the Company also assumed the unused capacity under the Finisar 2005 Plan.

Share-based compensation expense for the periods indicated was as follows ($000):

	Three Months Ended				Nine Months Ended				Three Months Ended				Six Months Ended
March 31,		2019		2018		2019		2018
December 31,										2019		2018		2019		2018
Stock Options and Cash-Based Stock Appreciation Rights	$	2,311	$	737	$	5,093	$	5,262	$	2,989	$	454	$	4,659	$	2,782
Restricted Share Awards and Cash-Based Restricted Share Unit Awards		2,336		1,381		7,135		6,125		12,871		2,007		25,602		4,799
Performance Share Awards and Cash-Based Performance Share Unit Awards		3,285		1,468		5,999		3,908		3,400		2,497		5,159		2,714
	$	7,932	$	3,586	$	18,227	$	15,295	$	19,260	$	4,958	$	35,420	$	10,295

The FASB defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous markets for the asset and liability in an orderly transaction between market participants at the measurement date. The Company estimates fair value of its financial instruments utilizing an established three-level hierarchy in accordance with U.S. GAAP. The hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date as follows:

The classification of fair value measurements within the hierarchy is based upon the lowest level of input that is significant to the measurement.

~~At March 31,~~The Company entered into an interest rate swap with notional amount of $1,075 million to limit the exposure to its variable interest rate debt by effectively converting it to a fixed interest rate. The Company receives payments based on the one-month LIBOR and makes payments based on a fixed rate of 1.52%. The Company receives payments with a floor of 0.00%. The interest rate swap agreement has an effective date of November 24, 2019, with an expiration date of September 24, 2024. The initial notional amount of the interest rate swap is scheduled to decrease to $825 million in July 2022 and will remain at that amount through the expiration date. The Company ~~had foreign currency forward contracts recorded~~designated this instrument as a cash flow hedge and deemed the hedge relationship effective at inception of the contract. The interest rate swap is recognized in the Consolidated Balance Sheet within other assets at fair value. Changes in fair value are recorded within other comprehensive income (loss) on the consolidated balance sheet and reclassified into the Consolidated Statement of Earnings (Loss) as interest expense in the period in which the underlying transaction affects earnings. The fair ~~values~~value of ~~these instruments were measured~~the interest rate swap is determined using ~~valuations based upon~~widely accepted valuation techniques and reflects the contractual terms of the interest rate swap including the period to maturity, and while there are no quoted prices ~~for similar assets and liabilities~~ in active markets, ~~(Level 2) and are valued by reference to similar financial instruments, adjusted for credit risk, restrictions and other terms specific to the contracts.~~it uses observable market-based inputs,

The Company has entered into earnout arrangements in conjunction specified acquisitions, as discussed in Note 4, that provide additional cash earnout opportunities based upon achievement of certain agreed upon financial and operational targets.including interest rate curves. The fair ~~values of the contingent earnout arrangements and the net put option were measured using valuations based upon other unobservable inputs that are significant~~value analysis also considers a credit valuation adjustment to reflect nonperformance risk. The interest rate swap is classified as a Level 2 item within the fair value ~~measurement (Level 3).~~hierarchy.

The Company estimated the fair value of the ~~0.25% convertible notes~~II-VI Notes and Finisar Notes based on quoted market prices as of the last trading day prior to ~~March~~December 31, 2019; however, the ~~convertible notes~~II-VI Notes and Finisar Notes have only a limited trading volume and as such this fair value estimate is not necessarily the value at which the ~~convertible notes~~II-VI Notes and Finisar Notes could be retired or transferred. The Company concluded that this fair value measurement should be categorized within Level 2. The carrying value of the ~~convertible notes~~II-VI Notes and Finisar Notes is net of unamortized discount and issuance costs. See Note 10. Debt for details on the Company’s debt facilities. The fair value and carrying value of the ~~convertible notes~~II-VI Notes and Finisar Notes were as follows at ~~March~~December 31, 2019 ($000):

~~The following table provides a summary by level of the fair value of financial instruments that are measured on a recurring basis or for which fair value is disclosed for the periods presented ($000):~~

The Company’s policy is to report transfers into and out of Levels 1 and 2 of the fair value hierarchy at fair values as of the beginning of the period in which the transfers occur. There were no transfers in and out of Levels 1 and 2 of the fair value hierarchy during the three months ended March 31, 2019.

The following table presents a reconciliation of the beginning and ending fair value measurements of the Company’s Level 3 contingent earnout arrangements related to the Company’s acquisitions and the net put option relating to the equity investment acquired in November 2017 ($000):

The fair values of cash and cash equivalents are considered Level 1 among the fair value hierarchy and approximate fair value because of the short-term maturity of those instruments. The Company’s borrowings including its ~~capital~~ lease ~~obligation,~~obligations, excluding the 0.25% Convertible Notes and the 0.50% Finisar convertible notes are considered Level 2 among the fair value hierarchy and their principal amounts approximate fair value.

~~The Company has a pension plan (the “Swiss Plan”) covering employees of the Zurich, Switzerland subsidiary. Net periodic pension costs associated with the Swiss Plan included the following ($000):~~

The Company contributed $0.8 million and $2.4 million to the Swiss Plan during the three and nine months ended March 31, 2019, and $0.9 million and $2.8 million during the three and nine months ended March 31, 2018. The Company currently anticipates contributing an additional estimated amount of approximately $0.8 million to the Swiss Plan during the remainder of fiscal year 2019.

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. ~~The~~During the three and six months ended December 31, 2019, the Company ~~did not repurchase share pursuant to~~purchased 50,000 shares of its common stock for $1.6 million under this ~~Program during the quarter ended March 31, 2019.~~program. Through ~~March~~December 31, 2019, the Company has cumulatively purchased ~~1,316,587~~1,416,587 shares of its Common Stock pursuant to the Program for approximately ~~$19.0~~$22.3 million.

The changes in accumulated other comprehensive income (“AOCI”) by component, net of tax, for the ~~nine~~six months ended ~~March~~December 31, 2019 were as follows ($000):

	Foreign						Total			Foreign									Total
	Currency			Defined			Accumulated Other			Currency			Interest			Defined			Accumulated Other
	Translation			Benefit			Comprehensive			Translation			Rate			Benefit			Comprehensive
	Adjustment			Pension Plan			Income (Loss)			Adjustment			Swap			Pension Plan			Income (Loss)
AOCI - June 30, 2018	$	(1,308	)	$	(2,472	)	$	(3,780	)
AOCI - June 30, 2019										$	(15,627	)	$	-		$	(8,594	)	$	(24,221	)
Other comprehensive income before reclassifications		(6,425	)		-			(6,425	)		11,571			3,774			(167	)		15,178
Amounts reclassified from AOCI		-			(4	)		(4	)		-			(165	)		-			(165	)
Net current-period other comprehensive income		(6,425	)		(4	)		(6,429	)		11,571			3,609			(167	)		15,013
AOCI - March 31, 2019	$	(7,733	)	$	(2,476	)	$	(10,209	)
AOCI - December 31, 2019										$	(4,056	)	$	3,609		$	(8,761	)	$	(9,208	)

The Company’s OptoElectronic Devices subsidiary entered into a capital lease related to a building in Warren, New Jersey. The following table shows the future minimum lease payments due under the non-cancelable capital lease ($000):

The current and long-term portion of the capital lease obligation was recorded in Other accrued liabilities and Other liabilities, respectively, in the Company’s Condensed Consolidated Balance Sheet as of March 31, 2019 and June 30, 2018. The present value of the minimum capital lease payments at inception was $25 million recorded in Property, Plant & Equipment, net, in the Company’s Condensed Consolidated Balance Sheet as of March 31, 2019, with associated depreciation being recorded over the 15-year life of the lease. During the three and nine months ended March 31, 2019, the Company recorded $0.4 million and $1.2 million of depreciation expense associated with the capital leased asset.

This Quarterly Report on Form 10-Q, including Management’s Discussion and Analysis of Financial Condition and Results of Operations (“Management’s Discussion and Analysis”), contains forward-looking statements as defined by Section 21E of the Securities Exchange Act of 1934, as amended, including statements regarding projected growth rates, markets, product development, financial position, capital expenditures and foreign currency exposure. Forward-looking statements are also identified by words such as “expects,” “anticipates,” “intends,” “plans,” “projects” or similar expressions.

Although our management considers these expectations and assumptions to have a reasonable basis, there can be no assurance that management’s expectations, beliefs or projections as expressed in the forward-looking statements will actually occur or prove to be ~~reasonable,~~correct. In addition to general industry and global economic conditions, factors that could cause actual results ~~could~~to differ materially from ~~any such~~those discussed in the forward-looking statements ~~included~~ in this Quarterly Report on Form 10-Q include, but are not limited to: (i) the failure of any one or ~~otherwise made by our management due~~more of the assumptions stated above to prove to be correct; (ii) the ~~following factors, among others: dependency~~risks relating to forward-looking statements and other “Risk Factors” discussed in the Company’s Annual Report on ~~international sales~~Form 10-K for the fiscal year ended June 30, 2019; (iii) the purchasing patterns of customers and ~~successful management of global operations; the development and use of new technology;~~end-users; (iv) the timely release of new products, and acceptance of such new products by the market; ~~our~~(v) the introduction of new products by competitors and other competitive responses; (vi) the Company’s ability to assimilate recently acquired businesses, and risks, costs and uncertainties associated with such acquisitions; and/or (vii) the Company’s ability to devise and execute strategies to respond to market ~~conditions; our ability~~conditions. The Company disclaims any obligation to ~~achieve the anticipated benefits~~update information contained in these forward-looking statements whether as a result of capital investments that we make; the impact of acquisitions on our business and our ability to assimilate recently acquired businesses; our ability to complete our proposed acquisition of Finisar Corporation (“Finisar”) on the anticipated terms and timingnew information, future events or ~~at all; the impact of impairment in goodwill and indefinite-lived intangible assets in one~~developments, or more of our segments; adverse changes in economic or industry conditions generally (including capital markets) or in the markets served by the Company; our ability to protect our intellectual property; domestic and foreign governmental regulation, including that related to the environment; the impact of a data breach incident on our operations; supply chain issues; the actions of competitors; the purchasing patterns of customers and end-users; the occurrence of natural disasters and other catastrophic events outside of our control; changes in local market laws and practices and risks related to the recent U.S. tax legislation and the Company’s continuing analysis of its impact on the Company and the adoption of increased duties and other trade restrictions. There are additional risk factors that could materially affect the Company’s business, results of operations or financial condition set forth in Part I, Item 1A of the Company’s Current Report on Form 8-K as filed with the Securities and Exchange Commission (the “SEC”) on December 27, 2018 and in the section entitled “Risk Factors” in the joint proxy statement/prospectus filed the Company with the SEC pursuant to Rule 424(b) under the Securities Act of 1933, as amended, on February 8, 2019 in connection with our pending acquisition of Finisar.otherwise.

In addition, we operate in a highly competitive and rapidly changing environment; new risk factors can arise, and it is not possible for management to anticipate all such risk factors, nor to assess the impact of all such risk factors on our business or the extent to which any individual risk factor, or combination of risk factors, may cause results to differ materially from those contained in any forward-looking statement. The forward-looking statements included in this Quarterly Report on Form 10-Q are based only on information currently available to us and speak only as of the date of this Report. We do not assume any obligation, and do not intend to, update any forward-looking statements, whether as a result of new information, future developments or otherwise, except as may be required by the securities laws. Investors should, however, consult any further disclosures of a forward-looking nature that the Company may make in its subsequent Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, or other disclosures filed with or furnished to the SEC.

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

II-VI Incorporated (“II-VI,” the “Company,” “we,” “us” or “our”), a worldwide leader in engineered materials and opto-electronic components, is a vertically integrated manufacturing company that develops innovative products ~~for diversified applications in the~~ industrial materials processing, ~~optical~~ communications, ~~military,~~aerospace-and-defense, consumer electronics, semiconductor capital equipment, life ~~science~~sciences and automotive ~~applications~~end markets. The Company produces a wide variety of application-specific photonic and electronic materials and components, and deploys them in various forms, including integration with advanced software.

The Company generates revenues, earnings and cash flows from developing, manufacturing and marketing ~~engineered materials and opto-electronic components~~a broad portfolio of products for ~~industrial, optical communications, military, semiconductor, medical and consumer applications.~~our end markets. We also generate revenue, earnings and cash flows from government-funded research and development contracts relating to the development and manufacture of new technologies, materials and products.

Our customer base includes original equipment manufacturers, laser end users, system integrators of high-power lasers, manufacturers of equipment and devices for industrial, optical communications, consumer electronics, security and monitoring applications, U.S. government prime contractors, and various U.S. government ~~agencies and thermoelectric solutions suppliers.~~agencies.

InOn September ~~2018, November 2018, and March~~24, 2019 (the “Closing Date”), the Company completed its ~~acquisitions~~acquisition of CoAdna Holdings, Inc. (“CoAdna”), an additional product line, and Redstone Aerospace Corporation (“Redstone”), respectively. See Note 4, Acquisitions. The operating results of these acquisitions have been reflected in the selected financial information of the Company’s II-VI Photonics segment, with the exclusion of Redstone that is reflected in the II-VI Performance Products Segment, since the dates of the acquisitions.

~~II-VI and~~ Finisar Corporation (“Finisar”), a global technology leader for subsystems and components for fiber optic communications. Additional information regarding the Company’s acquisition of Finisar is set forth below and in Note 3. Finisar Acquisition to our unaudited condensed consolidated financial statements in Part 1, Item 1 of this Quarterly Report on Form 10-Q. Due to timing of the acquisition, the results of Finisar for the three months ended September 30, 2019, have ~~entered into~~not been allocated to an ~~Agreement~~Operating Segment, and ~~Plan~~are presented in the Unallocated and Other. Within this quarterly report on Form 10-Q for the three months ended December 31, 2019, the results of ~~Merger, dated as of November 8, 2018 (the “Merger Agreement”). Pursuant~~Finisar have been allocated to the ~~terms of the Merger Agreement, Mutation Merger Sub Inc., a Delaware corporation~~Photonic Solutions 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 Election Consideration”), (ii) 0.5546 shares of II-VI common stock (the shares, the “II-VI Common Stock,” and the consideration, the “Stock Election Consideration”), or (iii) a combination of $15.60 in cash, without interest, and 0.2218 shares of II-VI Common Stock (the “Mixed Election Consideration,” and, together with the Cash Election Consideration and the Stock Election Consideration, the “Merger Consideration”). The Cash Election Consideration and the Stock Election 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.

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 Election 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 Election Consideration, the Stock Election Consideration or the Mixed Election 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).

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 (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. Pursuant to the terms and subject to the conditions therein, the New Credit Agreement provides for senior secured financing of $1.625 billion in the aggregate, consisting of (i) a five-year senior secured first-lien term A loan facility in an aggregate principal amount of $1.175 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 $800.0 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 pay related fees and expenses in connection with the Merger. 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 Closing Date 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 10) 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 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 their terms.

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

The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America and the Company’s discussion and analysis of its financial condition and results of operations require the Company’s management to make judgments, assumptions and estimates that affect the amounts reported in its condensed consolidated financial statements and accompanying notes. Note 1 of the Notes to Consolidated Financial Statements in the Company’s ~~Current~~Annual Report on Form ~~8-K~~10-K dated ~~December 27, 2018~~August 16, 2019 describes the significant accounting policies and methods used in the preparation of the Company’s consolidated financial statements. The Company adopted ASU ~~2014-09, Revenues from Contracts with Customers~~2016-02, Leases (Topic ~~606)~~842), on July 1, ~~2018~~2019 using the modified retrospective method of adoption. There have been no other changes in significant accounting policies as of ~~March~~December 31, 2019.

See Note 2. Recent Accounting Pronouncements to our unaudited condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for a description of recent accounting pronouncements, including the expected dates of adoption and estimated effects, if any, on our consolidated financial statements.

The following tables set forth select items from our Condensed Consolidated Statements of Earnings (Loss) for the three and ~~nine~~six months ended ~~March~~December 31, 2019 and 2018:

	Three Months Ended					Three Months Ended					Three Months Ended						Three Months Ended
	March 31, 2019					March 31, 2018					December 31, 2019						December 31, 2018
			% of					% of						% of					% of
			Revenues					Revenues						Revenues					Revenues
Total revenues	$	342.4		100.0	%	$	294.7		100.0	%	$	666.3			100.0	%	$	342.9		100.0	%
Cost of goods sold		215.2		62.9			176.4		59.9			518.0			77.7			211.3		61.6
Gross margin		127.2		37.2			118.3		40.2			148.3			22.3			131.6		38.4
Operating expenses:
Internal research and development		36.0		10.5			30.6		10.4			107.7			16.2			33.8		9.9
Selling, general and administrative		60.1		17.6			53.3		18.1			119.2			17.9			58.1		16.9
Interest and other, net		4.1		1.2			3.3		1.1			28.9			4.3			5.0		1.5
Earnings before income tax		27.0		7.9			31.1		10.6
Earnings (loss) before income tax												(107.5	)		(16.1	)		34.7		10.1
Income taxes		2.4		0.7			1.2		0.4			(9.2	)		(1.4	)		6.0		1.7
Net earnings	$	24.6		7.2	%	$	30.1		10.2	%
Net earnings (loss)											$	(98.2	)		(14.7	%)	$	28.7		8.4	%

Diluted earnings per share	$	0.38				$	0.45
Diluted earnings (loss) per share											$	(1.08	)				$	0.44


											Six Months Ended						Six Months Ended
											December 31, 2019						December 31, 2018
														% of					% of
														Revenues					Revenues
Total revenues											$	1,006.7			100.0	%	$	657.3		100.0	%
Cost of goods sold												735.3			73.0			401.9		61.1
Gross margin												271.4			27.0			255.4		38.9
Operating expenses:
Internal research and development												143.8			14.3			66.9		10.2
Selling, general and administrative												224.7			22.3			111.7		17.0
Interest and other, net												40.9			4.1			9.7		1.5
Earnings (loss) before income tax												(138.0	)		(13.7	)		67.1		10.2
Income taxes												(13.8	)		(1.4	)		12.2		1.9
Net earnings (loss)											$	(124.2	)		(12.3	%)	$	54.9		8.4	%

Diluted earnings (loss) per share											$	(1.58	)				$	0.83

Nine Months Ended

Nine Months Ended

March 31, 2019

March 31, 2018

% of

% of

Revenues

Revenues

Total revenues

$
999.7

100.0
%

$
837.7

100.0
%
Cost of goods sold

617.1

61.7

503.9

60.2

Gross margin

382.6

38.3

333.8

39.8

Operating expenses:

Internal research and development

103.0

10.3

83.9

10.0

Selling, general and administrative

171.8

17.2

153.2

18.3

Interest and other, net

13.9

1.4

8.8

1.1

Earnings before income tax

94.0

9.4

87.9

10.5

Income taxes

14.6

1.5

27.2

3.2

Net earnings

$
79.5

8.0
%

$
60.8

7.3
%

Diluted earnings per share

$
1.21

$
0.93

Net ~~earnings~~loss for the three months ended ~~March~~December 31, 2019 ~~were $24.6~~was $(98.2) million ($~~0.38~~(1.08) per share diluted), compared to ~~$30.1~~net earnings of $28.7 million ($~~0.45~~0.44 per share diluted) for the same period last fiscal year. Net ~~earnings~~loss for the ~~nine~~six months ended ~~March~~December 31, 2019 ~~were $79.5~~was ($124.2) million ($~~1.21~~(1.58) per share diluted), compared to ~~$60.8~~net earnings of $54.9 million or ($~~0.93~~0.83 per share diluted) ~~for the same period last fiscal year.~~.

Net ~~earnings~~loss was impacted by expenses of $119.9 million and $185.6 million incurred in relation to the September 24, 2019 acquisition of Finisar Corporation during the current ~~fiscal~~three and six months ended December 31, 2019, respectively. These expenses include transaction expenses such as legal and professional fees as well as expenses related to the fair value adjustments of acquired inventory and intangible assets.

During the three months ended ~~March~~December 31, 2019, ~~were negatively impacted by under-absorption~~these expenses included $0.6 million of manufacturing costs for the Company’s 3D Sensing product line, due to continued delays in the program, as well as production challenges in the II-VI Performance Product Segment. In addition, the Company incurred increased internal researchseverance and ~~development expense to address new product development in 5G and other developing technologies. The Company incurred increased selling, general, and administrative (“SG&A”) expense~~ related ~~to transaction~~compensation expenses, ~~for the pending acquisition~~$80.6 million of ~~Finisar, as well as to support overall revenue growth.~~

During the current nine months ended March 31, 2019, net earnings were favorably impacted by incremental margin recognized due to increased revenue from customers in the optical communications, radio frequency (“RF”) and power generation and military markets. Offsetting the favorable impact from revenues for the current nine months ended March 31, 2019, the Company incurred increased internal research and development for its next generation product portfolio, increased selling, general and administration expenses as a result of the overall increase in business volume, and incurred additional merger related expenses associated with fair value adjustments of acquired inventory, $29.1 million of amortization expense associated with fair value adjustments of acquired intangible assets and $9.6 million of other transaction expenses.

During the ~~announcement~~six months ended December 31, 2019, these expenses included $25.3 million of ~~the Finisar merger.~~

investment banker fees, $18.9 million of severance and related compensation expenses, $87.7 million of expenses associated with fair value adjustments of acquired inventory, $31.3 million of amortization expense associated with fair value adjustments of acquired intangible assets, $5.6 million of expenses relating to incremental interest expenses and debt extinguishment and $16.8 million of other transaction expenses.

Revenues. Revenues for the three months ended ~~March~~December 31, 2019 increased ~~16%~~94% to ~~$342.4~~$666.3 million, compared to ~~$294.7~~$342.9 million for the same period last fiscal year. Revenues for the ~~nine~~six months ended ~~March~~December 31, 2019 increased ~~19%~~53% to ~~$999.7~~$1,006.7 million, compared to ~~$837.7~~$657.3 million for the same period last fiscal year. ~~The~~Finisar contributed $306.6 million and $328.7 million of revenues during the three and six months December 31, 2019. In addition to the revenues contributed by Finisar, the increase in revenues ~~during the current three and nine month periods compared to the same periods last fiscal year~~ was driven by increased demand from the Company’s ROADM product line for the optical ~~communication customers in~~communications market as well as increased revenues related to the ~~United States and China for~~Company’s VCSEL products used in the ~~China broadband expansion~~3D Sensing market and ~~U.S. metro communication upgrade cycles. In addition,~~increased demand from customers in the ~~growing demand for silicon carbide addressing RF electronics~~aerospace and ~~high-power switching and power conversion systems and optical components and assemblies used in military related applications contributed to the revenue increases.~~defense markets.

Gross margin. Gross margin for the three months ended ~~March~~December 31, 2019 was ~~$127.2~~$148.3 million, or ~~37.2%~~22.3% of total revenues, compared to ~~$118.3~~$131.6 million, or ~~40.2%~~38.4% of total revenues, for the same period last fiscal year. Gross margin for the ~~nine~~six months ended ~~March~~December 31, 2019 was ~~$382.6~~$271.4 million, or ~~38.3%~~27.0% of total revenues, compared to ~~$333.8~~$255.4 million, or ~~39.8%~~38.9% of total revenues, for the same period last fiscal year. ~~The increase in gross~~Gross margin ~~dollars~~was negatively impacted by approximately $80.6 million and $87.7 million of additional cost of goods sold related to the preliminary fair value adjustment of the acquired Finisar inventory for ~~both~~ the three and ~~nine month periods~~six months ended ~~March~~December 31, 2019, ~~compared to~~respectively. Absent the ~~same periods last fiscal year was due to the incremental margins realized on the revenue increases described above. Gross~~above amount, gross margin as a percentage of revenues decreased despite the revenue growth primarily ~~driven by~~as a ~~shift in~~result of product mix relating to the Transceiver product line which has a lower gross margin ~~products in~~profile than the Company’s Photonics segment. Further, gross margin as a percentage of revenues were negatively impacted by under-absorption of manufacturing costs for the Company’s 3D Sensing product line, due to continued delays in the program, as well as production challenges in the II-VI Performance Product Segment.historical margins.

Internal research and development. Internal research and development (“IR&D”) expenses for the three months ended ~~March~~December 31, 2019 were ~~$36.0~~$107.7 million, or ~~10.5%~~16.2% of revenues, compared to ~~$30.6~~$33.8 million, or ~~10.4%~~9.9% of revenues, for the same period last fiscal year.IR&D expenses for the ~~nine~~six months ended ~~March~~December 31, 2019 were ~~$103.0~~$143.8 million, or ~~10.3%~~14.3% of revenues, compared to ~~$83.9~~$66.9 million, or ~~10.0%~~10.2% of revenues, for the same period last fiscal year. The increase in IR&D expenses during the current three and ~~nine~~six month ~~periods compared to the same periods last fiscal year~~period was primarily due to the ~~Company’s ongoing investments~~acquisition of Finisar in the development of new technology and product introductions addressing growing demand from consumer electronics and new 5G technologies in the optical communications markets. The Company expects IR&D to approximate 10% to 13% of revenues during the remainderfirst quarter of fiscal ~~year 2019 to address these growing~~2020, as well as the Company’s continued investment in new products and technologies focused on 5G and other emerging market ~~opportunities.~~trends.

Selling, general and administrative. Selling, general and administrative (“SG&A”) expenses for the three months ended ~~March~~December 31, 2019 were ~~$60.1~~$119.2 million, or ~~17.6%~~17.9% of revenues, compared to ~~$53.3~~$58.1 million, or ~~18.1%~~16.9% of revenues, for the same period last fiscal year. SG&A expenses for the ~~nine~~six months ended ~~March~~December 31, 2019 were ~~$171.8~~$224.7 million, or ~~17.2%~~22.3% of revenues, compared to ~~$153.2~~$111.7 million, or ~~18.3%~~17.0% of revenues, for the same period last fiscal year. The increase in SG&A for ~~both~~ the current three and ~~nine month periods in absolute dollars~~six months was primarily the result of ~~incurring $3.9 million and $11.0 million, respectively, of merger related expenses associated with~~transaction costs incurred relating to the ~~planned~~ acquisition of ~~Finisar. In addition,~~Finisar as well as the ~~Company’s higher revenue base required incremental~~acquired SG&A ~~to support~~from the ~~Company’s growth trajectory. The~~Finisar acquisition. During the six months ended December 31, 2019, the Company ~~also~~ incurred ~~approximately $1.9~~$40.2 million of transaction expenses relating to its acquisition of CoAdna for the nine month period ended March 31, 2019. The Company’s improvement in its SG&A leverage during the current periods was due to ongoing cost control initiatives across the Company.related expenses.

Interest and other, net. Interest and other, net for the three months ended ~~March~~December 31, 2019 was expense of ~~$4.1~~$28.9 million, compared to expense of ~~$3.3~~$5.0 million for the same period last fiscal year. Interest and other, net for the ~~nine~~six months ended ~~March~~December 31, 2019 ~~were~~was expense of ~~$13.9~~$40.9 million, compared to expense of ~~$8.8~~$9.7 million for the same period last fiscal year. Included in interest and other, net were interest expense on borrowings, equity earnings from its unconsolidated investments, foreign currency gains and losses, and interest income on excess cash balances. ~~For~~Interest expense increased $22.8 million and $24.2 million for both the ~~three and nine months periods ending March 31, 2019, interest expense increased~~current

~~$0.6 million~~three and ~~$3.5 million,~~six month periods, respectively, due to the higher levels of outstanding debt ~~as well as rising interest rates on~~incurred in conjunction with the ~~Company’s variable rate borrowings.~~ acquisition of Finisar. In addition, the Company expensed $4.0 million of debt extinguishment costs in the six months ended December 31, 2019.

Income taxes. The Company’s year-to-date effective income tax rate at ~~March~~December 31, 2019 was ~~15.5%~~10.0%, compared to an effective tax rate of ~~30.9%~~18.2% for the same period last fiscal year. The ~~prior fiscal year to date~~variations between the Company’s effective tax rate ~~was negatively impacted by~~and the U.S. statutory rate of 21% were primarily due to the impact of the U.S. enacted tax legislation partially offset by research and ~~the recording of the provision for the transition tax under the new tax law. The current year’s effective income tax rate benefited from the reversal of~~development incentives in certain ~~U.S. valuation allowances as the result of the acquisition deferred tax liabilities of CoAdna and Redstone.~~jurisdictions.

Revenues and operating income for the Company’s reportable segments are discussed below. Operating income differs from net earnings (loss) in that operating income excludes certain operational expenses included in other expense (income) – net as reported. Management believes operating income to be a useful measure for investors, as it reflects the results of segment performance over which management has direct control and is used by management in its evaluation of segment performance. See Note 13. Segment Reporting, to our unaudited condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for further information on the Company’s reportable segments and for the reconciliation of the Company’s operating income to net earnings (loss), which is incorporated herein by reference.

Effective July 1, ~~2018,~~2019, the Company realigned its composition of its operating segments. The Company ~~moved Laser Systems Group, from II-VI Laser~~realigned its operating segments into two segments, Photonic Solutions ~~to II-VI Photonics~~ and ~~moved Integrated Photonics, Inc. from II-VI Photonics to II-VI Performance Products.~~Compound Semiconductors for the purpose of making operational decisions and assessing financial performance. All applicable segment information has been restated to reflect this change. ~~Additionally, the Company renamed Laser Systems Group to II-VI Industrial Laser.~~


	Three Months Ended				%	Nine Months Ended				%	Three Months Ended					% Increase	Six Months Ended				% Increase
	March 31,				Decrease	March 31,				Increase	December 31,					(Decrease)	December 31,				(Decrease)
	2019		2018			2019		2018			2019			2018			2019		2018
Revenues	$	97.4	$	104.5	(7%)	$	309.2	$	297.5	4%	$	205.9		$	183.2	12%	$	382.9	$	362.5	6%
Operating income	$	6.0	$	11.6	(48%)	$	30.5	$	23.7	29%
Operating income (loss)											$	(8.8	)	$	23.6	(137%)	$	17.7	$	44.9	(61%)

Revenues for the three months ended ~~March~~December 31, 2019 for ~~II-VI Laser Solutions decreased 7%~~Compound Semiconductors increased 12% to ~~$97.4~~$205.9 million, compared to revenues of ~~$104.5~~$183.2 million for the same period last fiscal year. Revenues for the ~~nine~~six months ended ~~March~~December 31, 2019 for ~~II-VI Laser Solutions~~Compound Semiconductors increased 4%6% to ~~$309.2~~$382.9 million, compared to revenues of ~~$297.5~~$362.5 million for the same period last fiscal year. The ~~decrease~~increase in revenues during the three ~~month~~and six months ended ~~March~~December 31, 2019 primarily related to ~~softness in demand for capital equipment within semiconductor and industrial markets within Asia, as well as a decrease of sales into~~increased VCSEL product shipments addressing the ~~datacom market due~~3D sensing commercial market. In addition, the segment also experienced increased revenues to ~~recent softening. The increase in revenues for the current nine months compared to the same period last year was driven by increased shipments~~customers in the ~~first half of fiscal year 2019 of the VCSEL product line addressing demand from the consumer electronic~~aerospace and ~~datacom markets.~~defense market.

Operating ~~income~~loss for the three months ended ~~March~~December 31, 2019 ~~for II-VI Laser Solutions~~ decreased ~~48%~~137% to ~~$6.0~~$(8.8) million, compared to ~~$11.6~~operating income of $23.6 million for the same period last fiscal year. Operating income for the ~~nine~~six months ended ~~March~~December 31, 2019 ~~for II-VI Laser Solutions increased 29%~~decreased 61% to ~~$30.5~~$17.7 million, compared to ~~$23.7~~$44.9 million for the same period last fiscal year. The decrease in operating income during the current three ~~months was due to continued delays in the 3D sensing market, which resulted in unfavorable absorption of manufacturing costs. The improvement in operating income for the current nine~~and six month ~~period~~periods compared to the same ~~period~~periods last fiscal year was driven ~~through improved cost containment efforts and product mix realized~~by unabsorbed operating costs incurred at the segment’s Sherman, Texas wafer fabrication facility. The Company anticipates this facility to begin shipping to customers in the ~~first~~second half of fiscal ~~2019, as well as~~year 2020. In addition, the ~~incremental margin on~~segment incurred approximately $12.4 million and $14.4 million of acquisition related expenses associated with amortization of acquired intangible assets, expensing of the ~~4% revenue growth.~~fair value inventory write-up and other related acquisition expenses during the current three and six month periods, respectively.

	Three Months Ended				%	Nine Months Ended				%	Three Months Ended					% Increase	Six Months Ended					% Increase
	March 31,				Increase	March 31,				Increase	December 31,					(Decrease)	December 31,					(Decrease)
	2019		2018			2019		2018			2019			2018			2019			2018
Revenues	$	166.5	$	122.0	36%	$	461.3	$	353.3	31%	$	460.4		$	159.7	188%	$	601.8		$	294.8	104%
Operating income	$	20.7	$	14.0	48%	$	59.7	$	49.7	20%
Operating income (loss)											$	(60.9	)	$	23.1	(364%)	$	(47.9	)	$	39.0	(223%)

The above operating results for the three and nine months ended March 31, 2019 include the Company’s acquisitions of CoAdna in September 2018 and the product line which was acquired in November 2018.

Revenues for the three months ended ~~March~~December 31, 2019 for ~~II-VI Photonics~~Photonic Solutions increased ~~36%~~188% to ~~$166.5~~$460.4 million, compared to ~~$122.0~~$159.7 million for the same period last fiscal year. Revenues for the ~~nine~~six months ended ~~March~~December 31, 2019 for ~~II-VI Photonics~~Photonic Solutions increased ~~31%~~104% to ~~$461.3~~$601.8 million, compared to $353.3 million for the same period last fiscal year. The acquisition of CoAdna contributed $2.3 million and $12.4 million, respectively, for the three and nine months ended March 31, 2019. Exclusive of CoAdna, the increase in revenues for both the three and nine month periods ended March 31, 2019 were driven by the continued strength of the optical communications market. In particular, the segment saw increased demand in reconfigurable optical add-drop multiplexer (“ROADM”) and 5G products, driven by accelerated global deployments of 5G optical networks.

Operating income for the three months ended March 31, 2019 for II-VI Photonics increased 48% to $20.7 million, compared to $14.0 million for the same period last fiscal year. Operating income for the nine months ended March 31, 2019 for II-VI Photonics increased 20% to $59.7 million, compared to $49.7 million for the same period last fiscal year. Included in the operating income for the current nine months ended March 31, 2019 was approximately $3.4 million of one-time transaction related expenses for the acquisition of CoAdna. The operating income for the periods were driven by incremental margin on increased shipments and continued implementation of a cost control program, reducing and/or delaying planned manpower additions and IR&D spending on certain programs.

Revenues for the three months ended March 31, 2019 for II-VI Performance Products increased 15% to $78.5 million, compared to $68.2 million for the same period last fiscal year. Revenues for the nine months ended March 31, 2019 for II-VI Performance Products increased 23% to $229.2 million, compared to $186.9$294.8 million for the same period last fiscal year. The increase in revenues for ~~both~~ the three and ~~nine month periods~~six months ended ~~March~~December 31, 2019 compared to the same periods last fiscal year was ~~driven by~~primarily due to the acquisition of Finisar and the strengthening of demand of our transceiver product line. The segment also has experienced increased demand from customers in the optical communication market for silicon carbide substrates addressing RF electronics and high-power switching and power conversion systems for automotive and communications applications. In addition, the segment’s military business has continued to experience an increase in demand for its infrared components and sub-systems resulting from increased U.S. Government budget spending.ROADM components.

Operating ~~income~~loss for the three months ended ~~March~~December 31, 2019 ~~for II-VI Performance Products~~ decreased 6%364% to ~~$8.4~~a loss of $(60.9) million, compared to ~~$8.9~~operating income of $23.1 million for the same period last fiscal year.Operating ~~income~~loss for the ~~nine~~six months ended ~~March~~December 31, 2019 ~~for II-VI Performance Products increased 24%~~decreased 223% to ~~$28.8~~a loss of $(47.9) million, compared to ~~$23.3~~operating income of $39.0 million for the same period last fiscal year.The decrease in operating income ~~for~~during the current three and six month ~~period ended March 31, 2019~~periods compared to the same period last fiscal year was primarily driven by increased production costs related to yield and quality issues. The increase in operating income for the nine month period ended March 31, 2019 compared to the same periodperiods last fiscal year was driven by ~~a combination~~acquisition related expenses of ~~incremental margin~~$103.4 million and $105.5 million related to amortization expense on acquired intangible assets and the ~~increased sales volume, favorable product mix towards higher margin products and cost management initiatives across the segment’s operations.~~expensing of inventory fair market value step-up.

Historically, our primary sources of cash have been from operations, long-term borrowing, and advance funding from customers. Other sources of cash include proceeds received from the exercises of stock options and sale of equity investments and businesses. Our historic uses of cash have been for capital expenditures, investment in research and development, business acquisitions, payments of principal and interest on outstanding debt obligations and payments in satisfaction of employees’ minimum tax obligations. Supplemental information pertaining to our sources and uses of cash for the periods indicated is presented as follows:

	Nine Months Ended						Six Months Ended
	March 31,						December 31,
	2019			2018			2019			2018
Net cash provided by operating activities	$	114.4		$	113.9		$	56.3		$	88.2
Net proceeds on long-term borrowings		60.0			168.0
Proceeds on long-term borrowings								2,131.0			35.0
Proceeds from exercises of stock options		7.5			8.8			3.1			6.2
Purchases of businesses		(83.9	)		(80.5	)		(1,036.6	)		(54.2	)
Payments on Finisar Notes								(560.1	)		-
Debt issuance costs								(63.5	)		-
Additions to property, plant & equipment		(108.2	)		(116.5	)		(80.3	)		(74.4	)
Purchases of equity investments		(4.5	)		(51.7	)
Payments under prior term loan								(176.6	)		-
Payments under new credit facility								(83.3	)		-
Common stock repurchase								(1.6	)		-
Payments in satisfaction of employees' minimum tax obligations								(15.0	)		(6.4	)
Payments on earnout arrangements		(3.5	)		-			-			(3.5	)
Payments in satisfaction of employees' minimum tax obligations		(7.1	)		(4.0	)
Purchases of treasury shares		-			(49.9	)
Debt issuance costs		-			(10.1	)
Purchases of equity and other investments								-			(4.5	)
Effect of exchange rate changes on cash and cash equivalents and other items		(0.5	)		13.4			(1.4	)		(3.2	)

Net cash provided by operating activities was ~~$114.4~~$56.3 million ~~for~~during the ~~nine months ended March 31, 2019~~current six month period compared to ~~net~~$88.2 million of cash provided by operating activities ~~of $113.9 million for~~during the same period last fiscal year. The ~~increase in~~lower levels of cash ~~provided by operating activities~~flow from operations during the current ~~nine~~six months ~~was primarily driven by improved working capital management focusing on accounts payable oversight as well overall increased levels~~ended December 31, 2019 were the result of lower earnings ~~and non-cash items including depreciation, amortization and share-based compensation expenses~~generated during the current fiscal ~~year.~~year related to acquisition related expenses incurred for the acquisition of Finisar.

Net cash used in investing activities was ~~$196.4~~$1,118.0 million for the ~~nine~~six months ended ~~March~~December 31, 2019, compared to net cash used of ~~$248.2~~$133.0 million for the same period last fiscal year. Net cash used in investing activities during the current ~~nine months ended March 31, 2019~~period primarily included ~~$83.9~~

$1,036.6 million for ~~acquisitions~~cash paid for the acquisition of ~~businesses, $108.2~~Finisar, and $80.3 million of cash paid for property, plant and equipment ~~used~~ to ~~build~~increase capacity to meet the growing demand for the Company’s product ~~portfolio, and $4.5 million for a 10% equity investment in a privately held company.~~portfolio.

Net cash provided by financing activities was ~~$56.9~~$1,232.1 million for the ~~nine~~six months ended ~~March~~December 31, 2019, compared to net cash provided by financing activities of ~~$112.9~~$31.3 million for the same period last fiscal year.Net cash provided by financing activities during the current fiscal year included net ~~borrowing~~borrowings on long-term debt of ~~$60.0~~$1,311.0 million primarily to fund ~~acquisitions, as well as $7.5~~the acquisition of Finisar, and $3.1 million of cash received from the ~~exercises~~exercise of stock options. Net cash provided by financing activities was offset by ~~payments~~$63.5 million of ~~$7.1~~debt issuance costs associated with the increased borrowings, $15.0 million of cash payments in satisfaction of employees’ minimum tax obligations from the vesting of equity awards, ~~as well as~~ a ~~$3.5~~$1.6 million ~~earnout~~payment to repurchase common stock through its share repurchase program and a $1.0 million earn-out payment relating to a prior year acquisition.

On ~~August~~September 24, ~~2017,~~2019, in connection with the Finisar acquisition, the Company entered into a purchase agreement with Merrill Lynch, Pierce, Fenner & Smith Incorporated, as representative of the several initial purchasers named therein (collectively, the “Initial Purchasers”), to issue and sell $300 million aggregate principal amount of our 0.25% convertible senior notes due 2022 (the "Notes") in a private placement to qualified institutional buyers within the meaning of Rule 144A under the Securities Act of 1933, as amended. In addition, we granted the Initial Purchasers a 30-day option to purchase up to an ~~additional $45 million aggregate principal amount of the Notes (the “Over-Allotment Option”).~~

The equity component, which amounts to $56.4 million, net of issuance costs of $1.7 million, is not remeasured as long as it continues to meet the conditions for equity classification. The initial conversion rate is 21.25 shares of common stock per $1,000 principal amount of Notes, which is equivalent to an initial conversion price of $47.06 per share of common stock. Throughout the term of the Notes, the conversion rate may be adjusted upon the occurrence of certain events. The if-converted value of the Notes amounted to $273.0 million as of March 31, 2019 and $318.5 million as of June 30, 2018 (based on the Company’s closing stock price on the last trading day of the fiscal periods then ended). As of March 31, 2019, the Notes are not yet convertible based upon the Notes’ conversion features. Holders of the Notes will not receive any cash payment representing accrued and unpaid interest upon conversion of a note. Accrued but unpaid interest will be deemed to be paid in full upon conversion rather than cancelled, extinguished or forfeited.

~~The following table sets forth total interest expense recognized related to the Notes for the three and nine months ended~~ ~~March 31, 2019~~:

~~The effective interest rate on the liability component for both periods presented was 4.5%. The unamortized discount amounted to $41.1 million as of March 31, 2019 and is being amortized over 4 years.~~

~~On July 28, 2016, the Company amended and restated its existing credit agreement. The Third~~ Amended and Restated Credit Agreement (the ~~“Amended~~“New Credit Agreement”) with Bank of America, N.A., and the other lenders.

The New Credit Agreement provides for senior secured financing of $2.425 billion in the aggregate, consisting of

The New Credit Agreement also provides for a ~~revolving~~letter of credit facility of $325 million, as well as a $100 million term loan. The term loan is being repaid in consecutive quarterly principal payments on the first business day of each January, April, July and October, with the first payment having commenced on October 1, 2016, as follows: (i) twenty consecutive quarterly installments of $5 million and (ii) a final installment of all remaining principal due and payable on the maturity date of July 27, 2021. Amounts borrowed under the revolving credit facility are due and payable on the maturity date. The Amended Credit Facility is unsecured, but is guaranteed by each existing and subsequently acquired or organized wholly-owned domestic subsidiary of the Company. The Company has the option to request an increase to the size of the revolving credit facility in an aggregate additional amountsub-facility not to exceed $100 million. The Amended Credit Facility has a five-year term through July 27, 2021 and has an interest rate of either a Base Rate Option or a Euro-Rate Option, plus an Applicable Margin, as defined in the agreement governing the Amended Credit Facility. If the Base Rate option is selected for a borrowing, the Applicable Margin is 0.00% to 1.25% and if the Euro-Rate Option is selected for a borrowing, the Applicable Margin is 1.00% to 2.25%. The Applicable Margin is based on the ratio of the Company’s consolidated indebtedness to consolidated EBITDA. Additionally, the Credit Facility is subject to certain covenants, including those relating to minimum interest coverage and maximum leverage ratios. As of March 31, 2019, the Company was in compliance with all financial covenants under its Amended Credit Facility.

~~The Company had aggregate availability of $171.8~~$25 million and ~~$246.4 million under its lines~~a swing loan sub-facility initially not to exceed $20 million.

Additional information regarding the New Senior Credit Facilities is set forth in Note 10. Debt to our unaudited condensed consolidated financial statements in Part 1, Item 1 of credit as of March 31, 2019 and June 30, 2018, respectively. The amounts available under the Company’s lines of credit are reduced by outstanding letters of credit. The total outstanding letters of credit supported by these credit facilities were insignificant as of March 31, 2019 and $0.4 million as of June 30, 2018.

~~The weighted average interest rate of total borrowings was 1.6% and 1.4% for the three months ended March 31, 2019 and 2018, respectively.~~

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. The Company did not repurchase shares pursuant to this Program during the nine months ended March 31, 2019. Through March 31, 2019, the Company has cumulatively purchased 1,316,587 shares of its Common Stock pursuant to the Program for approximately $19.0 million.

~~The Company’s cash position, borrowing capacity and debt obligations for the periods indicated were as follows (in millions):~~

The Company believes that cash flow from operations, existing cash reserves and available borrowing capacity will allow the Company to fund its working capital needs, capital expenditures, repayment of scheduled long-term borrowings and capital lease obligations, investments in internal research and development, completion of its planned merger with Finisar, share repurchases and growth objectives for the next twelve months.

The Company’s cash and cash equivalent balances are generated and held in numerous locations throughout the world, including amounts held outside the United States. As of March 31, 2019 and June 30, 2018, the Company held approximately $189 million and $245 million, respectively, of cash and cash equivalents outside of the United States. Cash balances held outside the United States could be repatriated to the United States. The recently enacted Tax Act created significant changes to the taxation of undistributed foreign earnings and could change our future intentions regarding repatriation of earnings.Quarterly Report on Form 10-Q.

The following table presents information about the Company’s contractual obligations and commitments as of ~~March~~December 31, ~~2019.~~

	Payments Due By Period										Payments Due By Period
			Less Than 1		1-3		3-5		More Than 5				Less Than 1		1-3		3-5		More Than 5
Contractual Obligations	Total		Year		Years		Years		Years		Total		Year		Years		Years		Years
($000)
Long-term debt obligations	$	556,542	$	23,834	$	187,708	$	345,000	$	-	$	2,397,576	$	69,250	$	498,388		1,147,738	$	682,200
Interest payments⁽¹⁾		31,220		10,360		13,825		2,579		4,456		461,109		88,098		167,599		144,050		61,362
Capital lease obligations		24,599		991		2,360		2,924		18,324
Operating lease obligations⁽²⁾		118,600		21,200		30,800		20,400		46,200
Operating lease obligations, including imputed interest⁽²⁾												159,620		35,107		49,305		29,818		45,390
Finance lease obligations, including imputed interest												33,393		2,387		4,972		5,249		20,785
Purchase obligations^{(3) (4)}		40,570		35,049		5,521		-		-		148,942		145,148		3,794		-		-
Other long-term liabilities reflected on the Registrant's balance sheet under GAAP		-		-		-		-		-
Total	$	771,531	$	91,434	$	240,214	$	370,903	$	68,980	$	3,200,639	$	339,989	$	724,057	$	1,326,855	$	809,738

The Company’s gross unrecognized income tax benefit at ~~March~~December 31, 2019 has been excluded from the table above because the Company is not currently able to reasonably estimate the amount by which the liability will increase or decrease over time. ~~However, at this time, the Company does not expect a significant payment related to these obligations within the next year.~~

Pension obligations are not included in the table above. The Company expects the remaining defined benefit plan employer contributions for fiscal year 2019 to be $0.8 million. Estimated funding obligations are determined by asset performance, workforce and retiree demographics, tax and employment laws and other actuarial assumptions which may change the annual funding obligations.

The Company is exposed to market risks arising from adverse changes in foreign currency exchange rates and interest rates. In the normal course of business, the Company uses a variety of techniques and derivative financial instruments as part of its overall risk management strategy, which is primarily focused on its exposure in relation to the Japanese Yen, Chinese Renminbi, Swiss Franc, Euro, and the ~~Euro.~~Malaysian Ringgit. No significant changes have occurred in the techniques and instruments used other than those described below.

In the normal course of business, the Company enters into foreign currency forward exchange contracts with its financial institutions. The purpose of these contracts is to hedge ordinary business risks regarding foreign currencies on product sales. Foreign currency exchange contracts are used to limit transactional exposure to changes in currency rates.

The Company enters into foreign currency forward contracts that permit it to sell specified amounts of Japanese Yen expected to be received from its export sales for pre-established U.S. dollar amounts at specified dates. The forward contracts are denominated in the same foreign currencies in which export sales are denominated. These contracts provide the Company with an economic hedge in which settlement will occur in future periods, thereby limiting the Company’s exposure. These contracts had a total notional amount of ~~$14.5~~$12.0 million and ~~$12.0~~$17.0 million at ~~March~~December 31, 2019 and June 30, ~~2018,~~2019, respectively.

A 10% change in the Yen to U.S. dollar exchange rate would have changed revenues in the range from a decrease of ~~$2.5~~$3.9 million to an increase of ~~$3.0~~$4.7 million for the three months ended ~~March~~December 31, 2019 and a decrease of $6.5 million to an increase of $8.0 million for the six months ended December 31, 2019.

The Company enters into month-to-month forward contracts at varying amounts maturing monthly to limit exposure to the Chinese Renminbi. The Company recorded a loss of $0.8 million and $2.5 million in the Condensed Consolidated Statement of Earnings (Loss) related to these contracts for the ~~nine~~three and six months ended ~~March~~December 31, ~~2019.~~2019, respectively.

The Company enters into month-to-month forward contracts to limit exposure to the Swiss Franc. The Company recorded a gain of $0.3 million and a loss of $1.2 million in the Condensed Consolidated Statement of Earnings (Loss) related to these contracts for the three and six months ended December 31, 2019, respectively.

As of ~~March~~December 31, 2019, the Company’s total ~~outstanding~~ borrowings ~~of $556.5 million consisted of $207.7 million of~~include variable rate ~~debt~~ borrowings, from a line of credit of $2.7 million denominated in Japanese Yen, borrowings under a term loan of $50.0 million under the Company’s Amended Credit Facility denominated in U.S. dollars and a line of credit borrowing of $155.0 million under the Company’s Amended Credit Facility denominated in U.S. dollars. As such,exposing the Company ~~is exposed~~ to ~~market risks arising from~~ changes in interest rates. ~~An increase~~On November 24, 2019, the Company entered into an interest rate swap contract to limit the exposure of its variable interest rate debt by effectively converting it to fixed interest rate debt. If the Company had not effectively fixed its variable rate debt, a change in the interest rate of 100 basis points on these variable rate borrowings ~~of 1%~~ would have resulted in additional interest expense of ~~$1.3~~$19.7 million and ~~$3.9~~$22.1 million for the three and ~~nine~~six months ended ~~March~~December 31, 2019.

The Company’s management evaluated, with the participation of the Company’s ~~President~~ and Chief Executive Officer, and the Company’s Chief Financial Officer and Treasurer, the effectiveness of the Company’s disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this Quarterly Report on Form 10-Q. The Company’s disclosure controls were designed to provide reasonable assurance that information required to be disclosed in reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission. It should be noted that the design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote. However, the controls have been designed to provide reasonable assurance of achieving the controls’ stated goals. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of the end of the period covered by this Quarterly Report on Form 10-Q.

No changes in the Company’s internal control over financial reporting (as such term is defined in Rule 13a-15(f) under the Exchange Act) were implemented during the Company’s most recently completed fiscal quarter that have materially affected or are reasonably likely to materially affect the Company’s internal control over financial reporting.

On September 24, 2019, the Company completed its acquisition of Finisar. In conducting its assessment of the effectiveness of the Company’s internal control over financial reporting as of June 30, 2020, management intends to exclude Finisar from that assessment, as permitted under SEC rules. The Company is in the process of integrating the historical internal control over financial reporting of Finisar with the rest of the Company. Finisar’s operations are included in the Company’s unaudited condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for the period from September 24, 2019 to December 31, 2019 and represented 61.3% of the Company’s consolidated total assets as of December 31, 2019 and 46.0% and 32.7% of the Company’s consolidated total revenues for the three and six months ended December 31, 2019, respectively.

Other than the foregoing, no changes in the Company’s internal control over financial reporting (as such term is defined in Rule 13a-15(f) under the Exchange Act) were implemented during the Company’s most recently completed fiscal quarter that have materially affected or are reasonably likely to materially affect the Company’s internal control over financial reporting.

The Company and its subsidiaries are involved from time to time in various claims, lawsuits, and regulatory proceedings 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 these legal and regulatory proceedings will not materially affect the Company’s financial condition, liquidity or results of operations.

In addition to the other information set forth in this Quarterly Report on Form 10-Q, including the factors discussed below, carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our ~~Current~~Annual Report on Form ~~8-K dated December 27, 2018~~10-K for the year ended June 30, 2018, and in the section entitled “Risk Factors” in the joint proxy statement/prospectus filed the Company with the SEC pursuant to Rule 424(b) under the Securities Act of 1933, as amended, on February 8, 2019, ~~in connection with our pending acquisition of Finisar,~~ any of which could materially affect our business, financial condition or future results. Those risk factors are not the only risks facing the Company. Additional risks and uncertainties not currently known or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.

As a company with international operations, we are exposed to the risk of business and economic disruption related to worldwide health epidemics and other outbreaks, such as the Coronavirus. Government imposed travel restrictions and local statutory quarantines may result in direct operational and administrative disruptions to our foreign facilities and may also indirectly impact our domestic facilities. Additionally, our suppliers and customers may be adversely affected by these disruptions, which in turn could negatively impact our sales and operating results.

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. As of ~~March~~December 31, 2019, the Company has cumulatively purchased ~~1,316,587~~1,416,587 shares of its Common Stock pursuant to the Program for approximately ~~$19.0~~$22.3 million. The dollar value of shares that may yet be purchased under the Program is approximately ~~$31.0~~$27.7 million.

The following table sets forth repurchases of our Common Stock during the quarter ended ~~March~~December 31, 2019:

Total Number of

Dollar Value of

Shares Purchased

Shares That May

as Part of Publicly

Yet be Purchased

Total Number of

Average Price Paid

Announced Plans or

Under the Plan or

Period

Shares Purchased

Per Share

Programs

Program

January 1, 2019 to January 31, 2019

-

$
-

-

$
30,906,904

February 1, 2019 to February 28, 2019

24,922

₍₁₎
$
37.80

-

$
30,906,904

March 1, 2019 to March 31, 2019

785

₍₁₎
$
40.25

-

$
30,906,904

Total

25,707

$
37.87

-

						Total Number of		Dollar Value of
						Shares Purchased		Shares That May
						as Part of Publicly		Yet be Purchased
	Total Number of			Average Price Paid		Announced Plans or		Under the Plan or
Period	Shares Purchased			Per Share		Programs		Program
October 1, 2019 to October 31, 2019		128,212	₍₁₎	$	32.64		50,000	$	27,658,759
November 1, 2019 to November 30, 2019		3,349	₍₁₎	$	31.65		-	$	27,658,759
December 1, 2019 to December 31, 2019		43,718	₍₁₎	$	30.10		-	$	27,658,759
Total		175,279		$	31.99		50,000

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

PENNSYLVANIA		25-1214948
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

375 Saxonburg Boulevard
Saxonburg, PA		16056
(Address of principal executive offices)		(Zip Code)

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, no par value	IIVI	Nasdaq Global Select Market


~~Title of each class~~	~~Trading Symbol(s)~~	~~Name of each exchange on which registered~~
~~Common Stock, no par value~~	~~IIVI~~	~~Nasdaq Global Select Market~~

		Page No.

PART I - FINANCIAL INFORMATION

Item 1.	Financial Statements:

	Condensed Consolidated Balance Sheets – ~~March~~December 31, 2019 and June 30, ~~2018~~2019 (Unaudited)	3

	Condensed Consolidated Statements of Earnings (Loss) – Three and ~~nine~~six months ended ~~March~~December 31, 2019 and 2018 (Unaudited)	4

	Condensed Consolidated Statements of Comprehensive Income (Loss) – Three and ~~nine~~six months ended ~~March~~December 31, 2019 and 2018 (Unaudited)	6

	CondensedConsolidatedStatementsofCashFlows – ~~Nine~~Six months ended ~~March~~December 31, 2019 and2018 (Unaudited)	7

	Condensed Consolidated Statements of Shareholders’ Equity – Three and ~~nine~~six months ended ~~March~~December 31, 2019 and 2018 (Unaudited)	8

	Notes to Condensed Consolidated Financial Statements (Unaudited)	9

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2825

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	3831

Item 4.	Controls and Procedures	3932

PART II - OTHER INFORMATION

Item 1.	Legal Proceedings	4033

Item 1A.	Risk Factors	4033

Item 2.	Issuer Purchases of Equity Securities	4033

Item 6.	Exhibits	4134

	Shares			Per Share			Total Consideration
Cash paid for outstanding shares of Finisar common stock						$		1,879,086
II-VI common shares issued to Finisar stockholders		26,712,822	$		36.98			987,707
Replacement equity awards attributable to pre-combination service								41,710
						$		2,908,503


Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

~~Assets~~		Purchase Price Allocation (Preliminary)
Cash and cash equivalents	$		842,477
Current assets
~~Accounts receivable~~	$		~~5,684~~260,864
Inventories			~~6,189~~
~~Prepaid and other assets~~			~~2,866~~439,708
Property, plant & equipment			~~3,181~~748,858
Intangible assets		��	~~16,072~~828,630
~~Goodwill~~Other assets			~~24,844~~82,929
~~Total~~Deferred tax assets ~~acquired~~	$		~~58,836~~

~~Liabilities~~			12,267
Accounts payable	$		~~4,006~~(123,707	)
Other accrued liabilities			~~2,717~~(163,109
~~Accrued income taxes~~			~~5,791~~	)
Deferred tax liabilities			~~3,506~~(219,544	)
~~Total liabilities assumed~~Debt			~~16,020~~(575,000
~~Net assets acquired~~	$		~~42,816~~

~~Net cash paid at acquisition~~	$	~~27,959~~
~~Fair value of cash earn out arrangement~~		~~1,776~~
~~Purchase price~~	$	~~29,735~~

~~Assets~~
~~Accounts receivable~~	$	~~1,800~~
~~Property, plant & equipment~~		~~300~~
~~Intangible assets~~		~~9,100~~
Goodwill		~~19,700~~774,130
Total ~~assets acquired~~Purchase Price	$	~~30,900~~

~~Liabilities~~
~~Non-Interest bearing liabilities~~	$	~~1,165~~
~~Total liabilities assumed~~		~~1,165~~
~~Net assets acquired~~	$	~~29,735~~2,908,503

Fiscal Year Ending June 30,	Amount
Remaining 2019	$	4,500
2020		17,900
2021		16,600
2022		14,900
2023		14,500

					U.S.
					Dollar
	Term		Yen Line		Line of		Note		Convertible
Period	Loan		of Credit		Credit		Payable		Notes		Total
Year 1	$	20,000	$	-	$	-	$	3,834	$	-	$	23,834
Year 2		20,000		2,708		-		-		-		22,708
Year 3		10,000		-		155,000		-		-		165,000
Year 4		-		-		-		-		345,000		345,000
Year 5		-		-		-		-		-		-
Total	$	50,000	$	2,708	$	155,000	$	3,834	$	345,000	$	556,542

	Three Months Ended March 31, 2018
	II-VI					II-VI
	Laser		II-VI			Performance		Eliminations &
	Solutions		Photonics			Products		Other			Total
Revenues	$	104,537	$	122,037		$	68,172	$	-		$	294,746
Inter-segment revenues		8,268		(175	)		6,870		(14,963	)		-
Operating income		11,602		14,024			8,853		-			34,479
Interest expense		-		-			-		-			(5,014	)
Other income (expense), net		-		-			-		-			1,755
Income taxes		-		-			-		-			(1,122	)
Net earnings		-		-			-		-			30,098
Depreciation and amortization		10,112		5,843			3,969		-			19,924
Expenditures for property, plant & equipment		16,542		14,754			7,319		-			38,614

	Nine Months Ended March 31, 2018
	II-VI				II-VI
	Laser		II-VI		Performance		Eliminations &
	Solutions		Photonics		Products		Other			Total
Revenues	$	297,506	$	353,281	$	186,932	$	-		$	837,719
Inter-segment revenues		22,335		8,185		19,180		(49,700	)		-
Operating income		23,695		49,687		23,357		-			96,739
Interest expense		-		-		-		-			(13,303	)
Other income (expense), net		-		-		-		-			4,551
Income taxes		-		-		-		-			(27,152	)
Net earnings		-		-		-		-			60,835
Depreciation and amortization		27,165		17,019		13,965		-			58,149
Expenditures for property, plant & equipment		52,724		32,429		30,284		-			115,437

	Fair Value		Carrying Value
II-VI Notes	$	353,266	$	307,687
Finisar Notes		13,771		14,888

	Fair Value Measurements at March 31, 2019 Using:
			Quoted Prices in		Significant
			Active Markets		Other		Significant
			for Identical		Observable		Unobservable
			Assets		Inputs		Inputs
	March 31, 2019		(Level 1)		(Level 2)		(Level 3)
Assets:
Foreign currency forward contracts	$	43	$	-	$	43	$	-
Liabilities:
Contingent earnout arrangements	$	5,322	$	-	$	-	$	5,322
Net put option	$	2,024	$	-	$	-	$	2,024

	Fair Value Measurements at June 30, 2018 Using:
			Quoted Prices in		Significant
			Active Markets		Other		Significant
			for Identical		Observable		Unobservable
			Assets		Inputs		Inputs
	June 30, 2018		(Level 1)		(Level 2)		(Level 3)
Assets:
Foreign currency forward contracts	$	121	$	-	$	121	$	-
Liabilities:
Contingent earnout arrangements	$	5,405	$	-	$	-	$	5,405
Net put option	$	2,024	$	-	$	-	$	2,024

	Significant
	Unobservable Inputs
	(Level 3)
Balance at July 1, 2018	$	7,429
Contingent earnout arrangements:
Payments		(3,540	)
Changes in fair value recorded in other expense (income)		(940	)
Other earnout arrangements		4,397
Balance at March 31, 2019	$	7,346

Fiscal Year Ending June 30,	Amount
2019 (remaining)		581
2020		2,355
2021		2,419
2022		2,486
2023		2,554
Thereafter		24,740

Total minimum lease payments	$	35,135
Less amount representing interest		10,535

Present value of capitalized payments	$	24,600

Exhibit Number	Description of Exhibit	Reference


10.01	~~Credit~~Amended and Restated Employment Agreement, ~~dated March 4, 2019, by and among~~effective January 26, 2020, between II-VI Incorporated ~~Bank of America, N.A., as Administrative Agent, Swing Line Lender~~ and ~~an L/C Issuer, and the other lenders party thereto~~Vincent D. Mattera, Jr.	~~Filed herewith.~~Incorporated herein by reference to Exhibit 10.1 to II-VI’s Current Report on Form 8-K (File No. 000-16195) filed on January 30, 2020.

31.01	Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended, and Section 302 of the Sarbanes-Oxley Act of 2002	Filed herewith.

31.02	Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended, and Section 302 of the Sarbanes-Oxley Act of 2002	Filed herewith.

32.01	Certification of the Chief Executive Officer pursuant to Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended, and 18 U.S.C. § 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	Furnished herewith.

32.02	Certification of the Chief Financial Officer pursuant to Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended, and 18 U.S.C. § 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	Furnished herewith.

~~101~~101.INS	~~Interactive Data File~~Inline XBRL Instance Document - the instance document does not appear in the interactive data file because XBRL tags are embedded within the inline XBRL document	~~Filed herewith.~~

101.SCH	Inline XBRL Taxonomy Extension Schema Document

101.CAL	Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.LAB	Inline XBRL Taxonomy Extension Label Linkbase Document

101.DEF	Inline XBRL Taxonomy Extension Definition Linkbase Document

101.PRE	Inline XBRL Taxonomy Extension Presentation Linkbase Document

104	Cover Page Interactive Data File - the cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

	II-VI INCORPORATED
	(Registrant)

Date: ~~May 9, 2019~~February 10, 2020	By:	/s/ Vincent D. Mattera, Jr.
		Vincent D. Mattera, Jr
		~~President and~~ Chief Executive Officer

Date: ~~May 9, 2019~~February 10, 2020	By:	/s/ Mary Jane Raymond
		Mary Jane Raymond
		Chief Financial Officer and Treasurer