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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] Annual Report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
for the fiscal year ended June 30, 1996
[ ] Transition report pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934 for the transition
period from _____________________ to ________________.
Commission File Number: 0-16195
II-VI INCORPORATED
(Exact name of registrant as specified in its charter)
PENNSYLVANIA 25-1214948
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
375 Saxonburg Boulevard
Saxonburg, Pennsylvania 16056
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code:
412-352-4455
Securities registered pursuant to Section 12(b) of the Act:
None.
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, no par value.
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 X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained herein and will not
be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part
III of this Form 10-K or any amendment to this Form 10-K. [X]
Aggregate market value of outstanding Common Stock, no par value,
held by non-affiliates of the Registrant at September 10, 1996,
was approximately $88,598,398, based on the closing sale price
reported on NASDAQ/NMS for September 10, 1996. For purposes of
this calculation only, directors and executive officers of the
Registrant and their spouses are deemed to be affiliates of the
Registrant.
Number of outstanding shares of Common Stock, no par value, at
September 10, 1996, was 6,331,738.
Documents Incorporated by Reference
Portions of the Annual Report to Shareholders for the fiscal year
ended June 30, 1996 are incorporated by reference into Parts I, II
and IV hereof.
Portions of the Proxy Statement for the 1996 Annual Meeting of
Shareholders are incorporated by reference into Part III hereof.
PART I
ITEM 1. BUSINESS
Introduction
II-VI Incorporated ("II-VI" or the "Company") was incorporated in
Pennsylvania in 1971. The Company's executive offices and
manufacturing facilities are located at 375 Saxonburg Boulevard,
Saxonburg, Pennsylvania 16056. Its telephone number is 412-352-4455.
Reference to the "Company" or "II-VI" in this Form 10-K, unless the
context requires otherwise, refers to II-VI Incorporated, its wholly-
owned subsidiaries, II-VI Worldwide, Incorporated, II-VI Delaware,
Inc., II-VI Japan Incorporated, II-VI Singapore Pte., Ltd., II-VI
Virgo Incorporated, II-VI Lightning Optical Incorporated, II-VI
Optics (Suzhou) Co. Ltd., and II-VI U.K. Limited, as a consolidated
operation. eV PRODUCTS operates as a division of II-VI Incorporated.
The Company's name is pronounced "Two-Six Incorporated."
II-VI Incorporated designs, manufactures and markets optical and
electro-optical components, devices and materials for precision use
in infrared, near-infrared, visible-light and x-ray/gamma-ray
instruments and applications. The Company's infrared products are
used in high-power CO2 (carbon dioxide) lasers for industrial
processing and for commercial and military sensing systems. The
Company's near-infrared and visible-light products are used in
industrial, scientific and medical instruments and solid-state YAG
(yttrium aluminum garnet) lasers. Frequency-doubling and single-
crystal substrate materials produced by the Company are utilized as
building blocks in the emerging blue-light laser market segment.
II-VI also is developing and marketing solid-state x-ray and gamma-
ray products for the nuclear radiation detection industry. The
majority of the Company's revenues are attributable to the sale of
optical parts and components for the laser processing industry.
Information Regarding Market Segments and Foreign Operations
The Company's business comprises one segment, the design,
manufacturer and marketing of optical and electro-optical
components, devices and materials for precision use in infrared,
near-infrared, visible-light and x-ray/gamma-ray instruments and
applications.
Financial data regarding the Company's revenues, results of operation
and export sales for the Company's last three fiscal years is set forth
in, and incorporated herein by reference to, the Company's Consolidated
Statements of Earnings on page 17 of the II-VI Incorporated 1996 Annual
Report (the "Annual Report") and Note J to the Company's Consolidated
Financial Statements on page 25 of the Annual Report.
Industrial Processing Background
Applications for laser processing are increasing worldwide as
manufacturers seek solutions to increasing demands for quality,
precision, speed, throughput, flexibility, automation and cost control.
High-power CO2 and YAG lasers provide these benefits in a wide variety
of cutting, welding, drilling, ablation, balancing, cladding, heat-
treating and marking applications. For example, automobile
manufacturers use lasers to facilitate rapid product changeovers,
process simplification, efficient sequencing and computer control on
high-throughput production lines. Manufacturers of recreational
vehicles, lawn mowers and garden tractors cut, trim and weld metal parts
with lasers to achieve flexible, high-consistency, reduced post-
processing, lower-cost operations. For office furniture producers,
lasers provide easily reconfigurable, low-distortion, low-cost
prototyping and production capability that facilitates semi-custom
manufacturing of customer-specified designs. On high-speed consumer
product processing lines, laser marking provides automated date coding
for food packaging and computer driven container identification for
pharmaceuticals.
Precision optics such as total reflectors, partial mirrors,
beamsplitters and lenses are critical to the operation of lasers and
laser systems. Many CO2 and YAG laser systems contain up to 15 optical
elements either as part of the laser resonator or associated with
routing of the laser beam to the work piece. To the extent that optics
wear or become contaminated during operation, optics are consumables in
laser processing. Thus, an aftermarket demand is generated by an
estimated current worldwide installed base of 47,000 to 52,000
industrial YAG and CO2 lasers, based on recent industry trade reports.
The average lifetime for industrial laser optical elements is estimated
to be 1,000 to 4,000 hours.
Products
The Company's products include infrared, near infrared, visible and x-
ray materials, optics and electro-optic components used in high power
industrial lasers, medical, scientific and military lasers, and sensors.
The Company believes that its leading edge quality, delivery and
customer service enhance its reputation as the supplier of choice for
high power and technically advanced laser optics and components. The
majority of the Company's revenues are attributable to the sale of
optical devices and components for the laser processing industry.
Infrared Optics and Materials
Reliable operation of high power (1 to 20 kW) CO2 infrared lasers
requires high quality, low absorption optical elements. The CO2 laser
emits infrared energy at a wavelength of 10.6 micrometers, a wavelength
which is optimal for many industrial processes such as the cutting,
welding, drilling and heat treating of various materials such as steel
and other metals or alloys, plastics, wood, paper, cardboard, ceramics
and numerous composites. This wavelength is also desirable for certain
types of medical surgery and for various surveillance and sensing
systems that must penetrate adverse atmospheric conditions.
The Company is a broad line supplier of virtually all of the optics and
optical elements used in CO2 lasers and laser systems. The Company
supplies a family of standard and custom transmissive, reflective and
precision diamond turned optical elements to high power CO2 resonator
manufacturers, CO2 laser system manufacturers and to the aftermarket as
replacement parts. Transmissive optical elements manufactured by the
Company are predominately made from Zinc Selenide produced in-house.
The Company is one of the two dominant manufacturers in the world of
this optical material. The Company's Zinc Selenide capability and its
low absorbing, thin film coating technology have earned II-VI a
reputation as the quality leader worldwide in this marketplace. The
majority of II-VI's business is derived from the CO2 laser optics
market.
The Company provides replacement optics and refurbishing services to
users of industrial CO2 lasers. The Company sells its infrared
replacement optics with a 24-hour shipment guarantee under the trade
name of INFRAREADY optics. Consumable items such as focusing lenses
and output couplers are cost effectively refurbished for the Company's
aftermarket customers. The aftermarket portion of the Company's
business is growing rapidly as industrial laser applications proliferate
worldwide.
The Company supplies Cadmium Zinc Telluride substrates primarily to U.S.
military and NATO defense suppliers under the trade name EPIReady.
These substrates are subsequently processed by the Company's customers
into infrared detectors using epitaxial crystal growth and device
fabrication techniques. The Company supplies Zinc Sulfide in the form
of domes and windows to military suppliers for Forward Looking Infrared
systems worldwide.
A portion of the Company's infrared imaging business involves
development programs funded by DARPA/DOD and other governmental
agencies.
YAG Laser Components
The power levels available from YAG lasers (1 to 3 kW) are increasing
while the costs of such lasers are decreasing. These trends are making
YAG laser processing more attractive in such high-power YAG applications
as the welding of airbag sensors and inflators. Low-power YAG
applications include the high speed micro-welding of multi-blade shaving
razor assemblies, the welding of heart pacemakers, the precision
trimming of component values in electronic assemblies, and marking or
labeling of integrated circuits. The capability to deliver the 1.06
micrometer YAG laser wavelength over flexible, low loss optical fibers
has enhanced YAG laser deployment in many applications where complex
shapes require versatile beam delivery geometries. A YAG laser requires
the same type of optical elements as the CO2 laser except that they are
made of different materials to operate at the YAG laser near infrared
wavelength of 1.06 micrometers.
The Company supplies a family of standard and custom laser gain
materials and optics for industrial, medical, scientific and research
YAG lasers. The YAG laser gain materials are produced to stringent
industry specifications and precisely fabricated into rods or slabs.
Included in the Company's products are refurbished YAG rods sold to the
Company's aftermarket customers. The Company offers waveplates,
polarizers, lenses, prisms, and mirrors for visible and near infrared
applications. These products control and alter the visible and near
infrared energy and its polarization. The Company offers cavities for
use in flash lamp pumped lasers. These cavities are made of a samarium
doped glass which improves the laser performance.
Nuclear Radiation Detectors
The nuclear detection market has important applications in the
industrial gauging, environmental monitoring, power generation, nuclear
safeguards, weapons research and disarmament, nuclear non-proliferation,
health physics and medical imaging fields. Solid-state Cadmium Zinc
Telluride nuclear radiation detectors are attractive because of their
reduced size, longer life and lower voltage requirements as compared to
the historically used scintillator/photomultiplier devices. The
Company's eV PRODUCTS division designs and manufactures Cadmium Zinc
Telluride, room temperature, nuclear radiation detectors combined with
custom designed low noise front-end electronics. The Company believes
it has become the leader in room temperature, direct conversion nuclear
radiation detectors.
Frequency Doubling and Blue Emitter Materials
For over a decade, researchers in university, government and industry
laboratories have been seeking routes to the fabrication of reliable,
solid-state blue light emitters and lasers. Blue light sources are
expected to be used in such applications as optical data storage,
telecommunications, graphic displays and high density printers. The
Company supplies frequency doubling materials which are being used in
emerging laser based systems for blue light generation. The Company
produces Potassium Niobate based microlaser assemblies which are used by
customers to frequency double other light sources, thus producing up to
30 mW of blue light or 50 mW of green light. The Company also produces
single crystal Zinc Selenide, a high quality substrate which is being
used by customers in the development of blue light lasers.
Fluoride Materials
Nd:YLF (neodymium doped yttrium lithium fluoride) displays exceptional
qualities as a laser material for solid state lasers. The crystal
offers high power laser operation at 1.047 micrometers and 1.053
micrometers with low beam divergence leading to good Q-switched and
single mode laser operation. Nd:YLF is used in both flashlamp pumped
and diode pumped solid state lasers. Due to high lasing efficiency,
Nd:YLF lasers are suitable for use on the manufacturing floor for
scribing, trimming and cutting of semiconductor materials.
Nd:YLF also lases at 1.313 micrometers. That, along with the 1.047
micrometer wavelength have attractive applications for use in cable
television and other telecommunication applications which require
devises with high data rates.
Customers and Markets
Industrial
The Company's customers include leading industrial OEMs and system
manufacturers worldwide in the CO2 and YAG laser machine tool industry.
The Company has focused its marketing efforts on the growing high power
segments of the laser components marketplace.
High power CO2 resonators manufactured by the Company's customers are
installed on systems that are used for cutting, drilling and marking of
materials and for welding and heat treating of metals. The Company also
sells optics and components to laser end users which require replacement
optics, such as focusing lenses and beam steering mirrors. Users of
industrial lasers include a broad range of industries and applications,
such as automotive, electrical equipment, packaging, building products,
office furniture, garment, airframe or aerospace, consumer electronics,
tooling and machinery.
Low power, sealed CO2 lasers are utilized for small parts manufacturing,
engraving and serialization of products. These small, lightweight, low-
cost systems are flexible and provide rapid response for a number of
light manufacturing applications. Manufacturers of these laser sources
are high volume optics customers of the Company.
The Company's YAG component customers' systems are used for marking,
scribing, microwelding and precision trimming. A broad range of
industries use YAG systems, including medical devices, consumer
products, automotive and semiconductors. The Company offers YAG
customers both the YAG rod supply capability and the necessary optics
for a complete laser system.
The Company's customers are developing products incorporating fluoride
materials for use in telecommunications, material processing, and
environmental monitoring.
The Company is using its close working relationships with its industrial
CO2 customers worldwide to increase its YAG component supply market
share, since both products are needed by many of the same customers.
Scientific and Military
The scientific, research and new product development areas of the
electro-optics device market are creating many opportunities for the
visible, near-infrared and infrared optics and materials produced by the
Company. The Company provides high end, high specification components
to this group of customers which include products such as aspheric
optics, prisms, parabolic reflectors and focusing element assemblies.
The Company provides specialty optics and components to instrument
manufacturers. II-VI's products are integrated into spectrophotometers,
interferometers and distance measuring instruments; scanning mirrors for
high resolution color printing; and focusing assemblies for infrared
cameras. Quick response, short lead times and high quality engineering
support are cornerstones of the Company's pursuit of these markets.
U.S. and NATO allies are pursuing defense strategies based upon
stringent budgets to improve the effectiveness of military systems
through electronics upgrades, including infrared imaging systems. The
Company supplies materials and optics to manufacturers of infrared
sensing systems.
Sales and Distribution
The Company markets its products in the United States through its direct
sales force; in Japan through its subsidiary, II-VI Japan Incorporated;
in certain Southeast Asian markets through its subsidiary, II-VI
Singapore Pte. Ltd.; and in the United Kingdom through its subsidiary,
II-VI U.K. Limited. For the remainder of Europe, sales are effected
through distributors, and sales throughout the rest of the world are
made through manufacturers' representatives. The Company's products are
sold to over 3,000 customers throughout the world. The Company's
principal international markets are Germany and Japan.
Manufacturing Processes
Infrared and Visible Optics
The manufacturing processes for optics include a number of low-cost,
automated, high-precision processes that have been developed and
documented at the Company's manufacturing sites in Pennsylvania, Florida
and Singapore. Manufacturing steps for the majority of the Company's
optical products include:
Grinding and Polishing. The Company rigorously tests starting materials
in the optics fabrication process to assure conformity to specifications
for absorption, clarity, stress and purity. The manufacturing sequence
typically involves grinding a part to the desired curvature and
precision polishing the optic to the desired high-quality surface shape
and finish. The Company has developed specialized processes for
fabricating visible, YAG, near-infrared and infrared optics. The
Company has state-of-the-art, numerically controlled generating and
grinding equipment and automated Synchrospeed optical polishing
apparatus.
Diamond Turning. The Company's diamond turning of metal mirrors
involves state-of-the-art equipment for fly cutting of flat metal
reflectors and turning of contoured spherical or aspherical shapes. The
ability to produce spherical and aspherical diffraction-free surfaces,
due to a proprietary real-time feedback test system, provides the
highest-quality high-power-handling copper reflecting mirrors available
in the industry. The Company is currently investing in expansion of
this manufacturing unit's capacity as the demand for these products has
grown rapidly during the last few years.
Thin-Film Coating. Multilayer, thin-film, visible-light and infrared
coatings are produced by evaporating precisely controlled thicknesses of
various substances from microprocessor-controlled thermal or electron-
beam sources onto optical surfaces in custom-built vacuum chambers. The
know-how to control such process variables as time, pressure, gas flow
and temperature are critical to achieving low-absorption, high-adhesion
and properly transmitting thin films. Production of zero-defect
coatings is a part of the proprietary knowledge of II-VI.
Materials
II-VI is a materials-based company. Processes used to produce these
materials require long development periods, are capital intensive and
involve precision process control. Yields are raised from minimal to
acceptable as know-how and process-consistency techniques are developed.
The Company's infrared components and materials primarily are made from
compounds composed of elements from Groups II and VI of the Periodic
Table of the Elements ("II-VI Compounds"). II-VI Compounds, a class of
non-hygroscopic (do not absorb water) materials, are leading infrared
transmitting materials. Their high infrared transmission efficiency,
the key property needed for high-power infrared laser optics, is a
result of low infrared absorption. Infrared absorption is low due to
the type of bonding that exists within a II-VI crystalline structure and
due to the relatively high molecular weights of the most useful II-VI
Compounds. The Group II elements used by the Company are Zinc, Cadmium
and Mercury, and the Group VI elements used are Sulfur, Selenium and
Tellurium.
Materials manufactured by the Company include:
Zinc Selenide. The Company manufactures fine-grained polycrystalline
Zinc Selenide by a proprietary chemical vapor deposition process. II-VI
is one of two dominant manufacturers of this material in the world and
has earned the reputation for producing the lowest-absorbing laser-grade
Zinc Selenide. The process involves high-temperature disassociation of
Hydrogen Selenide gas and a gas phase reaction with zinc vapor. Solid
Zinc Selenide is deposited on graphite mandrels at high temperatures,
forming sheets of the material. Zinc Selenide is the principal material
used in the Company's CO2 laser optics. All material is polished,
inspected and laser-tested for defects.
Zinc Sulfide. The chemical vapor deposition process is also utilized to
manufacture fine-grained polycrystalline Zinc Sulfide. Some Zinc
Sulfide is further processed to form Multispectral Zinc Sulfide. The
Multispectral Zinc Sulfide is highly transmissive from the ultraviolet
to the middle infrared wave lengths, making it the material of choice
for tank windows, for example, through which humans, laser range-finders
and guidance systems identify targets.
Cadmium Zinc Telluride Substrates. II-VI utilizes vertical and
horizontal Bridgman processes to grow its Cadmium Zinc Telluride single-
crystal substrate materials. The Bridgman processes involve direct
solidification from a liquid melt with closely controlled unidirectional
freezing in either a vertical or horizontal configuration. The
substrates are mined from thoroughly tested Cadmium Zinc Telluride
ingots utilizing precision crystal-orientation techniques followed by a
sequence of surface lapping and semiautomated diamond sawing. Wafers
are precision sized, then surfaced through a series of critical
polishing and chemical etching steps.
Cadmium Zinc Telluride for Nuclear Radiation Detectors. The high-
pressure vertical Bridgman process is used to grow Cadmium Zinc
Telluride for nuclear radiation detectors. This proprietary process
produces critical materials which, when mated to hybrid front-end
electronics built by the Company, are sold to industrial gauging and
other equipment manufacturers. The high-pressure Bridgman process
yields products that are cost-competitive with
scintillator/photomultiplier devices.
YAG Materials. Neodymium-doped YAG, solid-state laser gain materials
are manufactured at the Company's Florida operations. The Company's
precision process control and know-how result in consistent YAG rod
products which are in high demand. The Company expects to have
additional capacity for this material on-line within the next several
months.
YLF and LiSAF Materials. Neodymium-doped YLF and chromium-doped LiSAF
solid-state laser gain materials are manufactured at the Company's
Florida operations. The Company utilizes a top-seeded Czochralski
technique with precision computer-aided diameter control techniques to
produce the high-quality YLF and LiSAF crystals required for the high-
demand laser rod products. The Company is the industry leader in the
LiSAF market and competes in the YLF rod and slab business on price,
quality and delivery.
Potassium Niobate and Single Crystal Zinc Selenide. The Company's
material science expertise has developed frequency-doubling Potassium
Niobate in conjunction with an international laboratory. This
frequency-doubling material, when coupled with a laser gain material and
a laser pump, can be used to generate blue, green or red light. Using
this material, the Company offers monolithic laser assemblies to OEMs
that are pursuing blue and green laser markets. Through another
proprietary process the Company is producing single-crystal Zinc
Selenide, which is used as a substrate in the production of blue-light
emitters and lasers.
Sources of Supply
The major raw materials used by the Company are Zinc, Selenium, Hydrogen
Selenide, Hydrogen Sulfide, Cadmium, Tellurium, Yttrium Oxide, Aluminum
Oxide and Iridium. The Company produces all of its Zinc Selenide and
Zinc Sulfide requirements internally, although small quantities of Zinc
Selenide and Zinc Sulfide may be purchased from outside vendors from
time to time. The Company also purchases Gallium Arsenide, Copper,
Silicon, Germanium, Quartz, optical glass and small quantities of other
materials for use as base materials for laser optics. The Company
purchases Thorium Fluoride and other materials for use in optical
fabrication and coating processes. There are more than two suppliers
for all of the above materials except for Zinc Selenide and Hydrogen
Selenide (excluding the Company) and Thorium Fluoride, for each of which
there is only one proven source of merchant supply. For most materials,
the Company has entered into annual purchase arrangements whereby
suppliers provide discounts for annual volume purchases in excess of
specified amounts.
The continued high quality of these raw materials is critical to the
stability of the Company's manufacturing yields. The Company conducts
testing of materials at the onset of the production process to meet
evolving customer requirements. Additional research may be needed to
better define future starting material specifications. The Company has
not experienced significant production delays due to shortages of
materials. However, the Company does occasionally experience problems
associated with vendor-supplied materials that do not meet contract
specifications for quality or purity. A significant failure of the
Company's suppliers to deliver sufficient quantities of necessary high-
quality materials on a timely basis could have a materially adverse
effect on the Company's results of operations.
Environmental, Health and Safety Matters
II-VI uses or generates certain hazardous substances in its research and
manufacturing facilities. The Company believes that its handling of
such substances is in material compliance with applicable local, state
and federal environmental, safety and health regulations at each
operating location. The Company invests substantially in proper
protective equipment, process controls and specialized training to
minimize risks to employees, surrounding communities and the environment
due to the presence and handling of such hazardous substances. The
Company annually conducts employee physical examinations and workplace
air monitoring regarding such substances. When exposure problems or
potential exposure problems have been indicated, corrective actions have
been implemented and re-occurrence has been minimal or non-existent.
The Company does not carry environmental impairment insurance.
Relative to its generation and use of the extremely hazardous substance
Hydrogen Selenide, the Company has in place a government-approved
emergency response plan. Special attention has been paid to all
procedures pertaining to this gaseous material to minimize the chances
of its accidental release to the atmosphere.
With respect to the use, storage and disposal of the low-level
radioactive material Thorium Fluoride, the Company's facilities and
procedures have been recently inspected and approved by the Nuclear
Regulatory Commission. This material is utilized in the Company's thin-
film coatings. All Thorium Fluoride bearing by-products are collected
and shipped as solid waste to a government-approved low-level
radioactive waste disposal site in Barnwell, South Carolina.
The generation, use, collection, storage and disposal of all other
hazardous by-products, such as suspended solids containing heavy metals
or airborne particulates, are believed by the Company to be in material
compliance with regulations. Management believes that all of the
permits and licenses required for operation of the Company's business
are in place. Although the Company is not aware of any material
environmental, safety or health problems in its properties or processes,
there can be no assurance that problems will not develop in the future
which would have a materially adverse effect on the Company.
Research and Development
The Company's research and development policy calls for the pursuit of a
balanced program of internally funded and contract research and
development totaling between 5 and 8 percent of product sales. From
time to time the ratio of contract to internally funded activity varies
significantly due to the unevenness and uncertainty associated with most
government research programs. The Company is committed to accepting
only funded research that ties closely to its growth plans.
Company research and development activities focus on developing new
proprietary products or on understanding, improving and automating
crystal growth, low-damage fabrication or optical thin-film coating
technologies. The Company performs commercial prototype and engineering
work for customers and, in addition, participates in various government
and university research and development consortia. The Company
maintains an engineering, research and development staff of seventy.
Forty-five of the Company's employees are engineers or scientists. In
addition, manufacturing personnel support or participate in research and
development on an ongoing basis. Interaction between the development
and manufacturing functions enhances the direction of projects, reduces
costs and accelerates technology transfers.
The Company is primarily engaged in ongoing research and development in
the following areas: Zinc Selenide optical material production;
vertical and horizontal Bridgman Cadmium Zinc Telluride crystal growth
and substrate manufacturing; Zinc Selenide single-crystal growth and
substrate production; high-pressure Bridgman Cadmium Zinc Telluride
crystal growth and radiation detector manufacturing; YAG crystal
production; YLF and other fluorides production; Potassium Niobate
crystal growth; automated, deterministic optical fabrication methods;
optical thin-film processes and products; and microlaser assemblies
based on various combinations of YAG or yttrium vanadate gain materials
with frequency-doubling materials.
Company-funded research and development and contract research
expenditures totaled approximately $1.3 million, $1.4 million and $1.7
million during fiscal 1994, 1995 and 1996, respectively. Contract
research revenues during those respective years totaled approximately
$1.6 million, $1.2 million and $1.7 million. The Company has been
active in various research and development programs, including the
Pennsylvania Ben Franklin Partnership program, the Federal Small
Business Innovation Research programs of primarily the Department of
Defense agencies and a DARPA-sponsored industry team program focused on
infrared materials producibility.
Competition
The Company believes that it is a leading producer of products and
services in its addressed markets. In the area of high-power CO2 laser
optics and materials, II-VI believes it supplies over half of the world
market. The Company is a leading supplier of Cadmium Zinc Telluride
substrates used for infrared imaging arrays, and believes that it is the
only supplier of Cadmium Telluride electro-optic modulators to U.S. and
NATO defense contractors. The Company is a significant supplier of YAG
rods and YAG laser optics to the worldwide markets of scientific,
research, medical and industrial laser manufacturers.
The Company competes on the basis of product quality, quick delivery,
strong technical support and pricing. Management believes that the
Company competes favorably with respect to these factors and that its
vertical integration, manufacturing facilities and equipment,
experienced technical and manufacturing employees, and worldwide
marketing and distribution provide competitive advantages.
II-VI has a number of present and potential competitors, many of which
have greater financial, selling, marketing or technical resources. The
significant competitor of the Company in the production of Zinc Selenide
is Morton International's Advanced Materials Division. The competitors
producing infrared and CO2 laser optics include Laser Power Optics and
Coherent in the United States and Sumitomo in Japan. Competing
producers of YAG materials and optics include the Litton Airtron
Division of Litton Industries and the Crystal Products Group of Union
Carbide. The Company is not aware of any currently significant
competitors for its Cadmium Zinc Telluride radiation detector product
line.
In addition to competitors who manufacture products similar to those of
the Company, there are other technologies or materials that may compete
with the Company's products. The markets for the nuclear radiation
detector and the frequency doubling and blue emitter materials are in
their infancy and could be affected by competing technologies.
Order Backlog
Order backlog increased 87% to $12.9 million at June 30, 1996 from $6.9
million at June 30, 1995. Manufacturing orders comprise 82% of the
backlog at June 30, 1996, compared to 96% of backlog at June 30, 1995.
All of the manufacturing order backlog at June 30, 1996 is expected to
be shipped in fiscal 1997. The increase in contract research and
development backlog is a result of a $2.3 million, two-year DARPA
contract award.
Employees
As of June 30, 1996, the Company employed 415 persons worldwide. Of
these employees, 70 are engaged in research, development and
engineering, 253 in direct production and the balance in sales and
marketing, administration, finance and support services. The Company's
production staff includes highly skilled optical craftsmen. None of the
Company's employees is covered by a collective bargaining agreement, and
the Company has never experienced any work stoppages. The Company has a
long standing policy of encouraging active employee participation in
selected areas of operations management. The Company believes its
relations with its employees to be good. The Company rewards its
employees with incentive compensation based on achievement of
performance goals.
Patents, Trade Secrets And Trademarks
II-VI relies on its trade secrets and proprietary know-how to develop
and maintain its competitive position. The Company has not pursued
process patents due to the disclosures required in the patent process
and the relative difficulties in successfully litigating process-type
patents. The Company has confidentiality and noncompetition agreements
with its executive officers and certain other personnel.
The processes and specialized equipment utilized in crystal growth,
infrared materials fabrication and infrared optical coatings as
developed at the Company are complex and difficult to duplicate.
However, there can be no assurance that others will not develop or
patent similar technology or that all aspects of the Company's
proprietary technology will be protected. Others have obtained patents
covering a variety of infrared optical configurations and processes, and
others could obtain patents covering technology similar to the
Company's. The Company may be required to obtain licenses under such
patents, and there can be no assurance that the Company would be able to
obtain such licenses, if required, on commercially reasonable terms, or
that claims regarding rights to technology will not be asserted which
may adversely affect the Company. In addition, Company research and
development contracts with agencies of the United States Government
present a risk that project-specific technology could be disclosed to
competitors as contract reporting requirements are fulfilled.
The Company holds four registered trademarks: the II-VI INCORPORATED(
name; INFRAREADY OPTICS( for replacement optics for industrial CO2
lasers; EPIREADY( for low surface damage substrates for Mercury Cadmium
Telluride epitaxy; and eV PRODUCTS( for products manufactured by the
Company's eV PRODUCTS division. The trademarks are registered with the
United States Patent and Trademark Office, but not with any states. The
Company is not aware of any interference or opposition to these
trademarks in any jurisdiction.
Risk Factors
Environmental Concerns
The Company is subject to a variety of federal, state and local
governmental regulations related to the storage, use and disposal of
environmentally hazardous materials. Both the governmental regulations
and the costs associated with complying with such regulations are
subject to change in the future. There can be no assurance that any
such change will not have a material adverse effect on the Company. The
Company manufactures and utilizes Hydrogen Selenide gas, an extremely
hazardous material, in the production of Zinc Selenide. In its
processes, the Company also generates waste containing Thorium Fluoride,
a low-level radioactive material, and other hazardous by-products such
as suspended solids containing heavy metals and airborne particulates.
The Company has made and continues to make substantial investments in
protective equipment, process controls, manufacturing procedures and
training in order to minimize the risks to employees, surrounding
communities and the environment due to the presence and handling of such
extremely hazardous and hazardous materials. The failure to properly
handle such materials, however, could lead to harmful exposure to
employees or to discharge of certain hazardous waste materials, and,
since the Company does not carry environmental impairment insurance, to
a material adverse effect on the financial condition or results of
operations of the Company. Although the Company has not encountered
material environmental problems in its properties or processes to date,
there can be no assurance that problems will not develop in the future
which would have a material adverse effect on the business, results of
operations or financial condition of the Company.
Manufacturing and Sources of Supply
The Company utilizes high quality, optical grade Zinc Selenide in the
production of a majority of its products. The Company is a leading
producer of Zinc Selenide for its internal use and for external sale.
The production of Zinc Selenide is a complex process requiring
production in a highly controlled environment. A number of factors,
including defective or contaminated materials, could adversely affect
the Company's ability to achieve acceptable manufacturing yields of high
quality Zinc Selenide. Zinc Selenide is available from only one outside
source and quantity and qualities may be limited. The unavailability of
necessary amounts of high quality Zinc Selenide would have a material
adverse effect upon the Company. In addition, in fiscal 1992 and 1993,
the Company experienced fluctuations in its manufacturing yields which
affected the Company's results of operations. There can be no assurance
that the Company will not experience manufacturing yield inefficiencies
which could have a material adverse effect on the business, results of
operations or financial condition of the Company.
The Company produces the Hydrogen Selenide gas used in its production of
Zinc Selenide. There are risks inherent in the production and handling
of such material. The inability of the Company to effectively handle
Hydrogen Selenide could result in the Company being required to curtail
its production of Hydrogen Selenide. Hydrogen Selenide can be obtained
from one source, and the Company has previously purchased and, to
supplement its internal production, currently purchases such material
from this source. The cost of purchasing such material is significantly
greater than the cost of internal production. As a result, if the
Company purchased a substantial portion of such material from its
outside source, it would significantly increase the Company's production
costs of Zinc Selenide. Therefore, the Company's inability to
internally produce Hydrogen Selenide could have a material adverse
effect on the business, results of operations or financial condition of
the Company.
In addition, the Company requires other high purity, relatively uncommon
materials and compounds to manufacture its products. Failure of the
Company's suppliers to deliver sufficient quantities of these necessary
materials on a timely basis could have a material adverse effect on the
business, results of operations or financial condition of the Company.
Competition
The Company has a number of present and potential competitors, many of
which have greater financial resources than the Company. The markets
for many of the Company's products can be subject to competitive pricing
in order to gain or retain market share. Such competitive pressures
could affect the Company's pricing and adversely affect the business,
results of operations or financial condition of the Company.
International Sales and Operations
Sales to customers in countries other than the United States accounted
for approximately 43% to 47% of revenues in each of the last three
fiscal years. The Company anticipates that international sales will
continue to account for a significant portion of revenues for the
foreseeable future. In addition, the Company manufactures products in
Singapore, anticipates the start-up of manufacturing operations in China
in fiscal 1997 and maintains direct sales offices in Japan and the
United Kingdom. Sales and operations outside of the United States are
subject to certain inherent risks, including fluctuations in the value
of the U.S. dollar relative to foreign currencies, tariffs, quotas,
taxes and other market barriers, political and economic instability,
restrictions on the export or import of technology, potentially limited
intellectual property protection, difficulties in staffing and managing
international operations and potentially adverse tax consequences.
There can be no assurance that any of these factors will not have a
material adverse effect on the Company's business, financial condition
or results of operations. In particular, although the Company's
international sales, other than in Japan and the United Kingdom, are
denominated in U.S. dollars, currency exchange fluctuations in countries
where the Company does business could have a material adverse affect on
the Company's business, financial condition or results of operations, by
rendering the Company less price-competitive than foreign manufacturers.
The Company's sales in Japan and the United Kingdom are denominated in
the foreign currency and, accordingly, area affected by fluctuations in
exchange rates. The Company generally reduces its exposure to such
fluctuations through forward exchange agreements. The Company does not
engage in the speculative trading of financial derivatives. There can
be no assurance, however, that the Company's practices will eliminate
the risk of fluctuation in the currency exchange rates.
Acquisitions
The Company's business strategy includes expanding its product lines and
markets through internal product development and acquisitions. Any
acquisition may result in potentially dilutive issuances of equity
securities, the incurrence of debt and contingent liabilities, and
amortization expense related to intangible assets acquired, any of which
could have material adverse affect on the Company's business, financial
condition or results of operations. In addition, acquired businesses
may be experiencing operating losses. Any acquisition will involve
numerous risks, including difficulties in the assimilation of the
acquired company's operations and products, uncertainties associated
with operating in new markets and working with new customers, and the
potential loss of the acquired company's key employees.
Sustaining and Managing Growth
The Company is currently undergoing a period of growth and there can be
no assurance that such growth can be sustained or managed successfully.
This expansion has resulted in a higher fixed cost structure which will
require increased revenue in order to maintain historical gross margin
and operating margins. There can be no assurance that the Company will
obtain the increased orders necessary to generate increased revenue
sufficient to cover this higher cost structure. Failure by the Company
to manage growth successfully or have the systems and capacities
necessary to sustain its growth could have a material adverse affect on
the Company's business, results of operations or financial condition.
In addition, in connection with any future acquisitions, the Company
expects that it will hire additional senior management with experience
in the new markets acquired by the Company. There can be no assurance
that the Company will be able effectively to achieve growth, including
in such new markets, integrate such new personnel or manage any such
growth, and failure to do so could have a material adverse effect on the
business, results of operations or financial condition of the Company.
Dependence on New Products and Processes
In order to meet its strategic objectives, the Company must continue to
develop, manufacture and market new products, develop new processes and
improve existing processes. As a result, the Company expects to
continue to make significant investments in research and development and
to continue to consider from time to time the strategic acquisition of
businesses, products, or technologies complementary to the Company's
business. The success of the Company in developing, introducing and
selling new and enhanced products depends upon a variety of factors
including product selection, timely and efficient completion of product
design and development, timely and efficient implementation of
manufacturing and assembly processes, effective sales and marketing, and
product performance in the field. There can be no assurance that the
Company will be able to develop and introduce new products or
enhancements to its existing products and processes in a manner which
satisfies customer needs or achieves market acceptance. The failure to
do so could have a material adverse affect on the Company's ability to
grow its business.
Dependence on Key Personnel
The Company is highly dependent upon the experience and continuing
services of certain scientists, engineers and production and management
personnel. Competition for the services of these personnel is intense,
and there can be no assurance that the Company will be able to retain or
attract the personnel necessary for the Company's success. The loss of
the services of the Company's key personnel could have a material
adverse affect on the business, results operations or financial
condition of the Company.
Proprietary Technology Claims
The Company does not currently hold any material patents applicable to
its processes and relies on a combination of trade secret, copyright and
trademark laws and employee non-compete and nondisclosure agreements to
protect its intellectual property rights. There can be no assurance
that the steps taken by the Company to protect its rights will be
adequate to prevent misappropriation of the Company's technology.
Furthermore, there can be no assurance that, in the future, third
parties will not assert infringement claims against the Company.
Asserting the Company's rights or defending against third-party claims
could involve substantial expense, thus materially and adversely
affecting the business, results of operations or financial condition of
the Company. In the event a third party were successful in a claim that
one of the Company's processes infringed its proprietary rights, the
Company may have to pay substantial damages or royalties, or expend
substantial amounts in order to obtain a license or modify the process
so that it no longer infringes such proprietary rights, any of which
could have an adverse effect on the business, results of operations or
financial condition of the Company.
ITEM 2. PROPERTIES
Facilities
The Company's headquarters are located in Saxonburg, Pennsylvania, 25
miles north of Pittsburgh, in a 77,000-square-foot facility, on 41 acres
of land, which was purchased in 1976. In addition, the Company has
leases for its manufacturing and office space in Florida, Singapore and
Japan totaling 55,000 square feet, and owns a 13,000-square-foot
facility in Florida.
In fiscal 1997, the Company plans to start construction of a
manufacturing facility in Florida that will combine the operations of
Virgo Optics and Lightning Optical.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any litigation which could have a
materially adverse effect on the Company or its business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the
fourth quarter of the fiscal year covered by this Form 10-K.
Executive Officers of the Registrant
The executive officers of the Company and their respective ages and
positions are as follows:
Name Age Position
Carl J. Johnson 54 Chairman,
Chief Executive Officer and
Director
Francis J. Kramer 47 President,
Chief Operating Officer and Director
Herman E. Reedy 53 Vice President and General Manager of
Quality and Engineering
James Martinelli 38 Treasurer and Chief Financial Officer
Carl J. Johnson, a co-founder of the Company in 1971, serves as
Chairman, Chief Executive Officer and a Director of the Company. He
served as President of the Company from 1971 until 1985 and has been a
Director since its founding and Chairman since 1985. From 1966 to 1971,
Dr. Johnson was Director of Research & Development for Essex
International, Inc., an automotive electrical and power distribution
products manufacturer, now a subsidiary of United Technologies
Corporation. From 1964 to 1966, Dr. Johnson worked at Bell Telephone
Laboratories as a member of the technical staff. In August 1996, he was
selected as a director of Xymox Technology, Inc. Dr. Johnson completed
his Ph.D. in Electrical Engineering at the University of Illinois in
1969. He holds B.S. and M.S. degrees in Electrical Engineering from
Purdue University and Massachusetts Institute of Technology (MIT),
respectively.
Francis J. Kramer has been employed by the Company since 1983, has been
its President and Chief Operating Officer since 1985 and was elected to
the Board of Directors in 1989. Mr. Kramer joined the Company as Vice
President and General Manager of Manufacturing and was named Executive
Vice President and General Manager of Manufacturing in 1984. Prior to
his employment by the Company, Mr. Kramer was the Director of
Operations for the Utility Communications Systems Group of Rockwell
International Corporation. Mr. Kramer graduated from the University of
Pittsburgh in 1971 with a B.S. in Industrial Engineering and from Purdue
University in 1975 with an M.S. in Industrial Administration.
Herman E. Reedy has been with the Company since 1977 and is Vice
President and General Manager of Quality and Engineering. Previously,
Mr. Reedy held positions at II-VI as General Manager of Quality and
Engineering, Manager of Quality and Manager of Components. From 1973
until joining the Company, Mr. Reedy was employed by Essex
International, Inc., now a subsidiary of United Technologies
Corporation, serving last as Manager, MOS Wafer Process Engineering.
Prior to 1973, he was employed by Carnegie Mellon University and
previously held positions with Semi-Elements, Inc. and Westinghouse
Electric Corporation. Mr. Reedy is a 1975 graduate of the University of
Pittsburgh with a B.S. degree in Electrical Engineering.
James Martinelli has been employed by the Company since 1986 and has
served as Treasurer and Chief Financial Officer and Assistant Secretary
since May of 1994. Mr. Martinelli joined the Company as Accounting
Manager and was named Controller in 1990. Prior to his employment by
the Company, Mr. Martinelli was Accounting Manager at Tippins
Incorporated and Pennsylvania Engineering Corporation from 1980 to 1985.
Mr. Martinelli graduated from Indiana University of Pennsylvania with a
B.S. degree in Accounting and is a member of the Pennsylvania Institute
of Certified Public Accountants.
PART II.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's Common Stock is traded on the National Association of
Securities Dealers, Inc. Automated Quotations ("NASDAQ") National
Market under the symbol "IIVI." The following table sets forth the range
of high and low closing sale prices per share of the Company's Common
Stock for the fiscal periods indicated, as reported by the NASDAQ
National Market.
High Low
Fiscal 1996
First Quarter $23 $12 7/8
Second Quarter $18 $ 9 1/2
Third Quarter $12 5/8 $ 9 3/4
Fourth Quarter $16 7/8 $11 5/8
Fiscal 1995
First Quarter $ 3 1/4 $ 1 13/16
Second Quarter $ 4 3/8 $ 3 7/16
Third Quarter $ 7 5/16 $ 3 9/16
Fourth Quarter $13 7/8 $ 6 5/16
On September 10, 1996, the last reported sale price for the Common Stock
on the NASDAQ National Market was $19.125 per share. As of such date,
there were approximately 700 holders of record of the Common Stock. The
Company has not historically paid cash dividends and does not anticipate
paying cash dividends in the foreseeable future.
ITEM 6. SELECTED FINANCIAL DATA
The information required by this item is incorporated by reference from
page 13 of the Company's 1996 Annual Report to Shareholders.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION
The information required by this item is incorporated by reference from
pages 9 through 12 of the Company's 1996 Annual Report to Shareholders.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this item is incorporated by reference from
pages 14 through 26 of the Company's 1996 Annual Report to Shareholders.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information set forth above in Part I under the caption "Executive
Officers of the Registrant" is incorporated herein by reference. The
other information required by this item is incorporated herein by
reference to the information set forth under the captions "Election of
Directors" and "Board of Directors and Board Committees", and the
information set forth under the caption "Other Matters - Section 16(a)
Beneficial Ownership Reporting Compliance" in the Company's definitive
proxy statement for the 1996 Annual Meeting of Shareholders filed
pursuant to Regulation 14A of the Securities Exchange Act of 1934, as
amended.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated herein by
reference to the information set forth in the second paragraph under the
caption "Board of Directors and Board Committees" and the information
set forth under the caption "Executive Compensation and Other
Information" in the Company's definitive proxy statement for the 1996
Annual Meeting of Shareholders filed pursuant to Regulation 14A of the
Securities Exchange Act of 1934, as amended.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated herein by
reference to the information set forth under the caption "Principal
Shareholders" in the Company's definitive proxy statement for the 1996
Annual Meeting of Shareholders filed pursuant to Regulation 14A of the
Securities Exchange Act of 1934, as amended.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Not applicable.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
Financial statements, financial statement schedules and exhibits not
listed have been omitted where the required information is included in
the consolidated financial statements or notes thereto, or is not
applicable or required.
(a) (1) The consolidated balance sheets as of June 30, 1996 and 1995,
the consolidated statements of income, shareholders' equity,
and cash flows for each of the three years in the period ended
June 30, 1996, and the notes to consolidated financial
statements, together with the report thereon of Alpern,
Rosenthal & Company dated August 12, 1996 presented in the
Company's 1996 Annual Report to Shareholders, are incorporated
herein by reference.
(2) Financial Statement Schedules:
The financial statement schedules shown below should be read
in conjunction with the financial statements contained in the
1996 Annual Report to Shareholders. Other schedules are
omitted because they are not applicable or the required
information is shown in the financial statements or notes
thereto.
Report of Independent Public Accountants
Schedule II - Valuation and Qualifying Accounts for the Three
Years Ended June 30, 1996
(3) Exhibits.
EXHIBIT NO. REFERENCE
2.01 Asset Purchase and Sale Agreement Incorporated herein
among II-VI Incorporated, II-VI Optics by reference is
Incorporated and Sandoz Chemicals Exhibit 2.01 to the
Corporation USA, dated as of Company's Report
December 29, 1994. on Form 8-K for the
event dated
December 29, 1994
2.02 Merger Agreement and Plan of Incorporated herein by
Reorganization by and among reference is
II-VI Incorporated, II-VI Lightning Exhibit 2.01 to the
Optical Incorporated and Lightning Company's Report
Optical Corporation, dated as of on Form 8-K for the
February 22, 1996 event dated
February 22, 1996.
2.03 Registration Rights Agreement dated Incorporated herein by
February 22, 1996 by and among certain reference is
former shareholders of Lightning Optical Exhibit 2.02 to the
Corporation and II-VI Incorporated Company's Report
on Form 8-K for the
event dated
February 22, 1996.
2.04 Escrow Agreement dated Incorporated herein by
February 22, 1996 by and among certain reference is
former shareholders of Lightning Optical Exhibit 2.03 to the
Corporation and II-VI Incorporated Company's Report
on Form 8-K for the
event dated
February 22, 1996.
3.01 Amended and Restated Articles of Incorporated herein by
Incorporation of II-VI Incorporated reference is
Exhibit 3.02 to
Registration Statement
No. 33-16389 on Form
S-1.
3.02 Amended and Restated By-Laws of II-VI Incorporated herein by
Incorporated reference is
Exhibit 3.02 to the
Company's Annual
Report on Form 10-K for
the fiscal year ended
June 30, 1991 (file
number 0-16195 and
docketed on
September 30, 1991).
10.01 II-VI Incorporated 1982 Incentive Incorporated herein by
Stock Option Plan* reference is
Exhibit 10.01 to
Registration
Statement No. 33-16389
on Form S-1.
10.02 II-VI Incorporated Stock Option Plan Incorporated herein by
of 1987* reference is
Exhibit 10.02 to
Registration Statement
No. 33-16389 on Form
S-1.
10.03 II-VI Incorporated Stock Option Plan Incorporated herein by
of 1990* reference is Exhibit
10.02 to the Company's
Annual Report on
Form 10-K for the fiscal
year ended
June 30, 1991(file
number 0-16195 and
docketed on
September 30, 1991).
10.04 II-VI Incorporated Employees' Stock Incorporated herein by
Purchase Plan reference is
Exhibit 10.03 to
Registration Statement
No. 33-16389 on Form
S-1.
10.05 II-VI Incorporated Amended Incorporated herein by
and Restated Employees' reference is
Stock Purchase Plan Exhibit 10.04 to
Registration Statement
No. 33-16389 on Form
S-1.
10.06 First Amendment II-VI Incorporated Incorporated herein by
Amended and Restated Employees' reference is
Stock Purchase Plan Exhibit 10.01 to the
Company's Form 10-Q for
the Quarter Ended
March 31, 1996.
10.07 II-VI Incorporated Amended and Incorporated herein by
Restated Employees' Profit-Sharing reference is
Plan and Trust Agreement, as amended Exhibit 10.05 to
Registration
Statement No. 33-16389
on Form S-1.
10.08 Form of Representative Agreement Incorporated herein by
between the Company and its foreign reference is
representatives Exhibit 10.15 to
Registration
Statement No. 33-16389
on Form S-1.
10.09 Form of Employment Agreement* Incorporated herein by
reference is
Exhibit 10.16 to
Registration
Statement No. 33-16389
on Form S-1.
10.10 Description of Management-By-Objective Incorporated herein by
Plan* reference is
Exhibit 10.09 to the
Company's Annual
Report on Form 10-K for
the fiscal year ended
June 30, 1993.
10.11 II-VI Incorporated 1994 Nonemployee Incorporated herein by
Directors Stock Option Plan reference is
Exhibit A to the
Company's Proxy
Statement dated
September 30, 1994.
10.12 II-VI Incorporated Deferred Filed herewith.
Compensation Plan*
10.13 Trust Under the II-VI Incorporated Filed herewith.
Deferred Compensation Plan*
10.14 Description of Bonus Incentive Plan* Filed herewith.
13.01 Annual Report to Shareholders Portions of the 1996
Annual Report are
filed herewith.
21.01 List of Subsidiaries of II-VI Filed herewith.
Incorporated
23.01 Consent of Alpern, Rosenthal & Filed herewith.
Company
27.01 Financial Data Schedule Filed herewith.
_______
* Denotes management contract or compensatory plan, contract or
arrangement.
The Registrant will furnish to the Commission upon request copies of any
instruments not filed herewith which authorize the issuance of long-term
obligations of Registrant not in excess of 10% of the Registrant's total
assets on a consolidated basis.
(b) On May 7, 1996, the Registrant filed a report on Form 8-K/A for
the event dated February 22, 1996, covering Items 2
and 7 thereof.
(c) The Company hereby files as exhibits to this Form 10-K the exhibits
set forth in Items 14(a)(3) hereof which are not incorporated by
reference.
(d) The Company hereby files as financial statement schedule to this
Form 10-K the financial statement schedules set forth in Item
14(a)(2) hereof.
With the exception of the information incorporated by reference to
the Company's 1996 Annual Report to Shareholders in Item 1 of Part
I, Items 6, 7 and 8 of Part II and Item 14 of Part IV of this Form
10-K, the Company's 1996 Annual Report to Shareholders is not
deemed filed as a part of this Report.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
II-VI INCORPORATED
September 23, 1996 By: /s/ Carl J. Johnson
Carl J. Johnson, Chairman and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
Principal Executive Officer:
September 23, 1996 By: /s/ Carl J. Johnson
Carl J. Johnson
Chairman and Chief Executive Officer
and Director
September 23, 1996 By: /s/ Francis J. Kramer
Francis J. Kramer
President and Chief
Operating Officer and Director
Principal Financial and Accounting Officer:
September 23, 1996 By: /s/ James Martinelli
James Martinelli
Treasurer and Chief Financial Officer
September 23, 1996 By: /s/ Richard B. Bohlen
Richard B. Bohlen
Director
September 23, 1996 By: /s/ Thomas E. Mistler
Thomas E. Mistler
Director
September 23, 1996 By: /s/ Duncan A. J. Morrison
Duncan A. J. Morrison
Director
September 23, 1996 By: /s/ Peter W. Sognefest
Peter W. Sognefest
Director
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of
II-VI Incorporated:
We have audited the consolidated financial statements of II-VI
Incorporated and subsidiaries as of June 30, 1996 and 1995, and for each
of the three years in the period ended June 30, 1996, and have issued
our report thereon dated August 12, 1996; such financial statements and
report are included in your 1996 Annual Report to Shareholders and are
incorporated herein by reference. Our audits also included a financial
statement schedule for 1996, 1995 and 1994 of II-VI Incorporated and
subsidiaries, listed in Item 14. This financial statement schedule is
the responsibility of the Company's management. Our responsibility is
to express an opinion based on our audits. In our opinion, the
financial statement schedule, when considered in relation to the basic
financial statements taken as a whole, presents fairly in all material
respects the information set forth therein.
/s/ Alpern, Rosenthal & Company
Pittsburgh, Pennsylvania
August 12, 1996
SCHEDULE II
II-VI INCORPORATED AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED JUNE 30, 1994, 1995, AND 1996
(IN THOUSANDS OF DOLLARS)
Additions
------------------------
Balance at Charged Deduction
Beginning Charged to to Other from Balance at
of Year Expense Accounts Reserves End of Year
--------- ---------- -------- ---------- -----------
YEAR ENDED JUNE 30, 1994:
Allowance for doubtful accounts $125 $44 $-- $44 $125
YEAR ENDED JUNE 30, 1995:
Allowance for doubtful accounts $125 $49 $79 $(8) $261
YEAR ENDED JUNE 30, 1996:
Allowance for doubtful accounts $261 $86 $16 $117 $246
_________
Uncollectible accounts written off (recovered).
EXHIBIT INDEX
EXHIBIT NO. REFERENCE
2.01 Asset Purchase and Sale Agreement Incorporated herein
among II-VI Incorporated, II-VI Optics by reference is
Incorporated and Sandoz Chemicals Exhibit 2.01 to the
Corporation USA, dated as of Company's Report
December 29, 1994. on Form 8-K for the
event dated
December 29, 1994
2.02 Merger Agreement and Plan of Incorporated herein by
Reorganization by and among reference is
II-VI Incorporated, II-VI Lightning Exhibit 2.01 to the
Optical Incorporated and Lightning Company's Report
Optical Corporation, dated as of on Form 8-K for the
February 22, 1996 event dated
February 22, 1996.
2.03 Registration Rights Agreement dated Incorporated herein by
February 22, 1996 by and among certain reference is
former shareholders of Lightning Optical Exhibit 2.02 to the
Corporation and II-VI Incorporated Company's Report
on Form 8-K for the
event dated
February 22, 1996.
2.04 Escrow Agreement dated Incorporated herein by
February 22, 1996 by and among certain reference is
former shareholders of Lightning Optical Exhibit 2.03 to the
Corporation and II-VI Incorporated Company's Report
on Form 8-K for the
event dated
February 22, 1996.
3.01 Amended and Restated Articles of Incorporated herein by
Incorporation of II-VI Incorporated reference is
Exhibit 3.02 to
Registration Statement
No. 33-16389 on Form
S-1.
3.02 Amended and Restated By-Laws of II-VI Incorporated herein by
Incorporated reference is
Exhibit 3.02 to the
Company's Annual
Report on Form 10-K for
the fiscal year ended
June 30, 1991 (file
number 0-16195 and
docketed on
September 30, 1991).
10.01 II-VI Incorporated 1982 Incentive Incorporated herein by
Stock Option Plan* reference is
Exhibit 10.01 to
Registration
Statement No. 33-16389
on Form S-1.
10.02 II-VI Incorporated Stock Option Plan Incorporated herein by
of 1987* reference is
Exhibit 10.02 to
Registration Statement
No. 33-16389 on Form
S-1.
10.03 II-VI Incorporated Stock Option Plan Incorporated herein by
of 1990* reference is Exhibit
10.02 to the Company's
Annual Report on
Form 10-K for the fiscal
year ended
June 30, 1991(file
number 0-16195 and
docketed on
September 30, 1991).
10.04 II-VI Incorporated Employees' Stock Incorporated herein by
Purchase Plan reference is
Exhibit 10.03 to
Registration Statement
No. 33-16389 on Form
S-1.
10.05 II-VI Incorporated Amended Incorporated herein by
and Restated Employees' reference is
Stock Purchase Plan Exhibit 10.04 to
Registration Statement
No. 33-16389 on Form
S-1.
10.06 First Amendment II-VI Incorporated Incorporated herein by
Amended and Restated Employees' reference is
Stock Purchase Plan Exhibit 10.01 to the
Company's Form 10-Q for
the Quarter Ended
March 31, 1996.
10.07 II-VI Incorporated Amended and Incorporated herein by
Restated Employees' Profit-Sharing reference is
Plan and Trust Agreement, as amended Exhibit 10.05 to
Registration
Statement No. 33-16389
on Form S-1.
10.08 Form of Representative Agreement Incorporated herein by
between the Company and its foreign reference is
representatives Exhibit 10.15 to
Registration
Statement No. 33-16389
on Form S-1.
10.09 Form of Employment Agreement* Incorporated herein by
reference is
Exhibit 10.16 to
Registration
Statement No. 33-16389
on Form S-1.
10.10 Description of Management-By-Objective Incorporated herein by
Plan* reference is
Exhibit 10.09 to the
Company's Annual
Report on Form 10-K for
the fiscal year ended
June 30, 1993.
10.11 II-VI Incorporated 1994 Nonemployee Incorporated herein by
Directors Stock Option Plan reference is
Exhibit A to the
Company's Proxy
Statement dated
September 30, 1994.
10.12 II-VI Incorporated Deferred Filed herewith.
Compensation Plan*
10.13 Trust Under the II-VI Incorporated Filed herewith.
Deferred Compensation Plan*
10.14 Description of Bonus Incentive Plan* Filed herewith.
13.01 Annual Report to Shareholders Portions of the 1996
Annual Report are
filed herewith.
21.01 List of Subsidiaries of II-VI Filed herewith.
Incorporated
23.01 Consent of Alpern, Rosenthal & Filed herewith.
Company
27.01 Financial Data Schedule Filed herewith.
_______
* Denotes management contract or compensatory plan, contract or
arrangement.