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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, 1999
[ ] 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, PA 16056
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: 724-352-4455
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 15, 1999, was
approximately $57,885,385, based on the closing sale price reported
on NASDAQ/NMS for September 15, 1999. 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 15, 1999, was 6,348,826.
Documents Incorporated by Reference
-----------------------------------
Portions of the Annual Report to Shareholders for the fiscal year
ended June 30, 1999 are incorporated by reference into Parts I, II
and IV hereof.
Portions of the Proxy Statement for the 1999 Annual Meeting of
Shareholders are incorporated by reference into Part III hereof.
1
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 are
located at 375 Saxonburg Boulevard, Saxonburg, Pennsylvania 16056.
Its telephone number is 724-352-4455. Reference to the "Company" or
"II-VI" in this Form 10-K, unless the context requires otherwise,
refers to II-VI Incorporated and its wholly-owned subsidiaries,
II-VI Worldwide, Incorporated, II-VI Delaware, Incorporated, II-VI
Japan Incorporated, II-VI Singapore Pte., Ltd., VLOC 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 infrared,
near-infrared, visible-light, x-ray and gamma-ray instrumentation.
The Company's infrared products are used primarily in high-power CO2
(carbon dioxide) lasers. These lasers are used for industrial
processing throughout the world. The Company's VLOC subsidiary
manufactures near-infrared and visible light products for
industrial, scientific and medical applications and solid-state
(such as YAG and YLF) lasers. The Company's eV PRODUCTS division
manufactures and markets solid-state x-ray and gamma-ray detector
products for the nuclear radiation detection industry. The majority
of the Company's revenues are attributable to the sale of optical
components for the industrial laser processing industry.
Information Regarding Market Segments and Foreign Operations
The Company's business comprises two segments, the design,
manufacture and marketing of optical and electro-optical components,
devices and materials for infrared, near-infrared and visible-light
instrumentation and the manufacture and marketing of x-ray and
gamma-ray instrumentation.
Financial data regarding the Company's revenues, results of
operations, industry segments and international 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 1999 Annual Report
(the "Annual Report") and Note H to the Company's Consolidated
Financial Statements on pages 27 and 28 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
approximately 90,000 industrial YAG and CO2 lasers.
Products
The Company's products include optical and electro-optical
components, devices and materials for infrared, near-infrared,
visible light, x-ray and gamma-ray instrumentation. The Company's
infrared products are used in high power CO2 (carbon dioxide)
lasers. These lasers are used for industrial processing throughout
the world. The Company's VLOC
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subsidiary manufactures near-infrared and visible light products
for industrial, scientific and medical applications and solid-state
(such as YAG and YLF) lasers. The Company's eV PRODUCTS division
manufactures and markets solid-state x-ray and gamma-ray detector
products for the nuclear detection industry. The majority of the
Company's revenues are attributable to the sale of optical components
for the industrial laser processing industry.
Infrared Optics and Materials
Reliable operation of CO2 lasers requires high quality, low
absorption optical components. The CO2 laser emits infrared energy
at a wavelength of 10.6 micrometers. This wavelength is optimal for
many industrial processes including cutting, welding, drilling and
heat treating materials such as steel alloys, non-ferrous metals,
plastics, wood, paper, fiberboard, ceramics and composites. The CO2
laser is also used for cosmetic and invasive medical procedures
because of its efficient absorption in human tissue. The Company's
infrared optics and materials are incorporated into surveillance and
imaging systems because of the effectiveness of the 10.6 micrometer
wavelength to penetrate atmospheric conditions.
The Company is a broad line supplier of the optical elements
used in CO2 lasers and laser systems. Conventionally polished and
precision diamond turned transmissive and reflective optics are
supplied to laser manufacturers, laser system builders and end users
for replacement parts. Transmissive optics manufactured by the
Company are predominately made from Zinc Selenide. The Company is
the largest manufacturer in the world for this optical material. The
Company's Zinc Selenide production capability and its proprietary,
thin film coating technology have earned the Company a reputation as
the quality leader in the world market.
The Company supplies replacement optics and refurbishing
services to end users of industrial CO2 lasers. The Company sells
its infrared replacement optics under the trade name of
INFRAREADY(r) optics. Consumable items such as focusing lenses and
output couplers can be cost effectively refurbished for the
Company's aftermarket customers. The aftermarket portion of the
Company's business continues to grow as industrial laser
applications proliferate worldwide.
The Company produces and supplies Zinc Sulfide in the form of
domes and windows to military suppliers for Forward Looking InfraRed
(FLIR) systems.
YAG Laser Components
The power levels available from Nd:YAG lasers (neodymium
doped:Yttrium Aluminum Garnet) 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
razor assemblies, the welding of heart pacemakers, the precision
trimming of resistors 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. YAG
lasers require the same 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 flashlamp pumped lasers. These cavities
are primarily made of samarium doped glass which improves the laser
performance.
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. YLF is used in both
flashlamp and diode pumped solid-state lasers. Due to high lasing
efficiency, YLF lasers are suitable for scribing, trimming and
cutting of semiconductor materials.
YLF also lases at 1.313 micrometers. This wavelength, along
with the 1.047 micrometer wavelength, has attractive applications
for use in cable television and other telecommunication applications
which require devices with high data rates.
3
Nuclear Radiation Detectors
New and expanding applications for nuclear radiation in industry,
medicine and research is fueling increased demand for nuclear
radiation detectors. Solid-state CdZnTe nuclear radiation detectors
are attractive because of their reduced size, improved tolerance of
environmental conditions and lower voltage/current requirements
compared to the more traditional scintillator/photomultiplier or
cryogenically cooled Germanium devices. The market is composed of
industrial process control, nuclear medicine, x-ray imaging,
environmental monitoring, nuclear safeguards and nonproliferation,
and health physics segments.
The use of CdZnTe hand-held probes in the medical field allows
the introduction of new cancer location techniques, based on the
injection of a radio-labeled antibody that binds to the cancer
cells. This allows the surgeon to accurately identify and remove
cancerous tissue.
CdZnTe-based imaging arrays can be used in both the nuclear
medical (internal gamma-ray emission) and radiographic (external
x-ray source) fields. In nuclear medicine, CdZnTe allows the
manufacture of a new generation of gamma cameras, offering much
improved position sensitivity and the ability to produce images
using lower doses of injected radioactivity. In the radiographic
field, higher density CdZnTe provides much improved sensitivity to
the higher energy x-rays used in some of the newer diagnostic
techniques. It also allows the possibility of direct-readout digital
radiography, which allows the physician to see the relevant part of
the body in real time, thus reducing the time delay between x-ray
imaging and diagnosis.
The Company designs and manufactures CdZnTe 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 radiation detectors.
Customers and Markets
Industrial
The Company's customers include leading original equipment
manufacturers (OEMs) and system integrators worldwide in the CO2 and
YAG laser machine tool industry. The Company has targeted both the
high power and low power segments of the laser optics market.
High power CO2 lasers manufactured by the Company's customers
are used for cutting, drilling, welding and heat treating. The
Company also sells directly to laser end users who require
replacement optics such as focusing lenses and beam steering
mirrors. Industrial lasers are used in a wide variety of industries
and applications including automotive, electrical equipment,
packaging, building products, office furniture, garment, airframe or
aerospace, consumer electronics, tooling and machinery.
Low power CO2 lasers are utilized for both medical and
industrial applications. Engraving and marking are two of the more
popular markets for low power CO2 lasers. Manufacturers of low power
CO2 laser systems are high volume consumers of optics.
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 laser manufacturers both the YAG laser rod 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 and research and development markets are
creating many opportunities for the Company's visible, near-infrared
and infrared optics and materials. The Company supplies components
with demanding specifications to these market
4
segments. Examples of such products include aspheric optics, prisms,
parabolic reflectors and multi-focusing element optical assemblies.
The Company's products are also integrated into spectrophotometers,
interferometers and distance measuring instruments; scanning mirrors
for marking and engraving applications; and focusing assemblies for
infrared cameras. Timely response, high quality products and
dedicated engineering support are the cornerstones of the Company's
pursuit of these markets.
The Company supplies materials and optics to manufacturers of
infrared imaging systems used in military systems. The U.S. military
and their allies are developing advanced infrared imaging systems
for state-of-the-art weapon 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 Southeast Asia and China through its subsidiaries,
II-VI Singapore Pte., Ltd. and II-VI Optics (Suzhou) Co. Ltd.; and
in the United Kingdom through its subsidiary, II-VI U.K. Limited.
Europe and other major markets are addressed through distributors
and agents. The Company's products are sold to more than 4,000
customers worldwide.
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, Singapore and China. 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, near-infrared, and
infrared optics. The Company has state-of-the-art, numerically
controlled generating and grinding equipment and automated
synchrospeed optical polishing apparatuses.
Diamond Turning. The Company's diamond turning of metal
mirrors involves state-of-the-art equipment for 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.
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
The Company 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 are made from
compounds composed primarily 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 Compound 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.
5
Materials manufactured by the Company include:
Zinc Selenide. The Company manufactures fine-grained
polycrystalline Zinc Selenide by a proprietary chemical vapor
deposition process. The Company 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. The Company 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
has recently expanded its production capacity for this material.
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.
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 virtually
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, Hydrogen Selenide and
Thorium Fluoride (excluding the Company), 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 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 not
meeting 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.
6
Environmental, Health and Safety Matters
The Company 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 given
to all procedures pertaining to this gaseous material to minimize
the chances of its accidental release to the atmosphere.
With respect to the production, use, storage and disposal of
the low-level radioactive material Thorium Fluoride, the Company's
facilities and procedures have been inspected and approved by the
Nuclear Regulatory Commission. This material is utilized in the
Company's thin-film coatings. 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 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 one hundred eight. Seventy-eight
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; YAG crystal production; YLF and other fluorides
production; automated, deterministic optical fabrication methods;
and optical thin-film processes and products.
Company-funded research and development and contract research
expenditures together totaled approximately $3.0 million, $3.3
million and $3.4 million during fiscal 1997, 1998 and 1999,
respectively. Contract research revenues during those respective
years totaled approximately $2.7 million, $2.2 million and $1.4
million. The Company has been active in various research and
development programs at the federal and state levels.
Competition
The Company believes that it is a leading producer of products
and services in its addressed markets. In the area of commercial
infrared laser optics and materials, the Company believes it is an
industry leader. 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.
7
The Company competes on the basis of product quality, delivery
time, 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.
The Company 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 a division of Rohm and Haas Co.
The competitors producing infrared and CO2 laser optics include
Laser Power Corporation and Coherent in the United States and
Sumitomo in Japan, as well as several companies producing limited
quantities of infrared and CO2 laser optics. Competing producers
of YAG materials and optics include the Litton Airtron Division of
Litton Industries and a division of Saint-Gobain. The Company is
not currently aware of any 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 market for the nuclear
radiation detector materials is in its infancy and could be affected
by competing technologies.
Order Backlog
Order backlog decreased 9% to $18.0 million at June 30, 1999
from $19.8 million at June 30, 1998. Manufacturing orders comprise
97% of the backlog at June 30, 1999, compared to 93% of backlog at
June 30, 1998. All of the manufacturing order backlog at June 30,
1999 is expected to be shipped in fiscal 2000.
Employees
As of June 30, 1999, the Company employed 625 persons
worldwide. Of these employees, 108 were engaged in research,
development and engineering, 391 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 are 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
The Company 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 (registered) name; INFRAREADY OPTICS (registered)( for
replacement optics for industrial CO2 lasers; EPIREADY (registered)
for low surface damage substrates for Mercury Cadmium Telluride
epitaxy; and eV PRODUCTS (registered) 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.
8
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
produces and uses waste containing Thorium Fluoride, a low-level
radioactive material, and generates 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 materials. The
failure to properly handle such materials, however, could lead to
harmful exposure to employees or the discharge of certain hazardous
waste materials, and, since the Company does not carry environmental
impairment insurance, this could have 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 external
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. The
Company may also face competition from competitors who manufacture
products similar to those of the Company, and whose technologies or
materials may compete with the Company's products. 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%, 45% and 47% of revenues during
fiscal 1997, 1998 and 1999, respectively. 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 and China, and maintains
direct sales offices in Japan and the United Kingdom. Sales and
operations outside of the
9
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 local currency
and, accordingly, are affected by fluctuations in exchange rates.
The Company generally reduces its exposure in Japan to such
fluctuations through foreign currency forward exchange contracts.
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.
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 of 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 was 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 a material adverse effect on the business,
results of operations or financial condition of the Company.
10
Recent Events
On September 21, 1999, the Company purchased 1,250,000
shares of Laser Power Corporation common stock for a total purchase
price of approximately $2.8 million. Based on information available
to the Company, this purchase represents approximately 14.7% of the
outstanding common stock of Laser Power Corporation. Laser Power
Corporation is a competitor of the Company which produces infrared
and CO2 laser optics.
ITEM 2. PROPERTIES
Facilities
The Company's headquarters are located in Saxonburg,
Pennsylvania, 25 miles north of Pittsburgh, in a 90,000-square-foot
facility, on approximately 64 acres of land. In fiscal 1998, the
Company completed construction of a 30,000-square-foot facility in
Saxonburg which is occupied by the eV PRODUCTS division
manufacturing operation and a 45,000 square-foot facility in Florida
which is occupied by the Company's VLOC subsidiary. In addition,
the Company has leases for its manufacturing and office space in
Florida, Singapore, China, U.K., and Japan totaling 39,000 square
feet, and owns two facilities, one of which is currently being held
for sale, totaling 35,000 square feet in Florida.
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 57 Chairman, Chief Executive
Officer and Director
Francis J. Kramer 50 President, Chief Operating
Officer and Director
Herman E. Reedy 56 Vice President and
General Manager of
Quality and Engineering
James Martinelli 41 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. From 1964 to 1966, Dr. Johnson worked at
Bell Telephone Laboratories as a member of the technical staff.
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. Dr. Johnson serves as
a director of Xymox Technology, Inc., Armstrong Laser Technology, Inc.
and Applied Electro-Optics Corporation.
11
Francis J. Kramer has served as a Director of the Company since
1989. Mr. Kramer has been employed by the Company since 1983 and
has been its President and Chief Operating Officer since 1985.
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 Corp.
Mr. Kramer graduated from the University of Pittsburgh in 1971 with
a B.S. degree in Industrial Engineering and from Purdue University
in 1975 with an M.S. degree 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 the Company 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., 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 in 1980 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 1999
First Quarter $14 1/4 $7 1/4
Second Quarter $9 $5 7/8
Third Quarter $10 3/16 $7 1/4
Fourth Quarter $7 1/4 $9 1/2
Fiscal 1998
First Quarter $28 $21 3/8
Second Quarter $28 1/2 $21
Third Quarter $23 3/4 $17 15/16
Fourth Quarter $20 1/2 $12 5/8
On September 15, 1999, the last reported sale price for the
Common Stock on the NASDAQ National Market was $12 5/8 per share.
As of such date, there were approximately 750 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 1999 Annual Report to
Shareholders.
12
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The information required by this item is incorporated by
reference from pages 9 through 12 of the Company's 1999 Annual
Report to Shareholders.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information required by this item is incorporated by
reference from pages 2 through 8 of the Company's 1999 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 29 of the Company's 1999 Annual
Report to Shareholders.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
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 1999
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 1999 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
1999 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
The information required by this item is incorporated herein by
reference to the information set forth under the caption "Board of
Directors and Board Committees" in the Company's definitive proxy
statement for the 1999 Annual Meeting of Shareholders filed pursuant
to Regulation 14A of the Securities Exchange Act of 1934, as
amended.
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.
13
(a) (1) The consolidated balance sheets as of June 30, 1999 and
1998, the consolidated statements of earnings,
shareholders' equity, and cash flows for each of the
three years in the period ended June 30, 1999, and the
notes to consolidated financial statements, presented in
the Company's 1999 Annual Report to Shareholders, are
incorporated herein by reference.
The report of Deloitte & Touche LLP, dated August 6,
1999 on the 1999, 1998 and 1997 financial statements
presented in the Company's 1999 Annual Report to
Shareholders, is incorporated herein by reference.
(2) Financial Statement Schedule:
The financial statement schedule shown below should be
read in conjunction with the financial statements
contained in the 1999 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.
The report of Deloitte & Touche LLP on Schedule II for
each of the three years ended June 30, 1999, is included
herein.
Schedule II - Valuation and Qualifying Accounts for
each of the three years in the period ended June 30,
1999.
(3) Exhibits.
EXHIBIT NO. REFERENCE
3.01 Amended and Restated Incorporated herein by
Articles of Incorporation reference is Exhibit 3.02 to
of II-VI Incorporated Registration Statement
No. 33-16389 on Form S-1.
3.02 Amended and Restated By-Laws Incorporated herein by
of II-VI 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 Employees' Incorporated herein by
Stock Purchase Plan reference is Exhibit 10.03 to
Registration Statement
No. 33-16389 on Form S-1.
10.02 II-VI Incorporated Amended Incorporated herein by
and Restated Employees' reference is Exhibit 10.04 to
Stock Purchase Plan Registration Statement
No. 33-16389 on Form S-1.
10.03 First Amendment II-VI Incorporated herein by
Incorporated Amended and reference is Exhibit 10.01 to
Restated Employees' Stock to the Company's Form 10-Q
Purchase Plan for the Quarter Ended
March 31, 1996.
10.04 II-VI Incorporated Amended Incorporated herein by
and Restated Employees' reference is Exhibit 10.05 to
Profit-Sharing Plan and Registration Statement
Trust Agreement, as amended No. 33-16389 on Form S-1.
10.05 Form of Representative Incorporated herein by
Agreement between the reference is Exhibit 10.15 to
Company and its foreign Registration Statement
representatives No. 33-16389 on Form S-1.
10.06 Form of Employment Agreement* Incorporated herein by
reference is Exhibit 10.16 to
Registration Statement
No. 33-16389 on Form S-1.
14
10.07 Description of Management- Incorporated herein by
By-Objective Plan* reference is Exhibit 10.09 to
the Company's Annual Report on
Form 10-K for the fiscal year
ended June 30, 1993.
10.08 II-VI Incorporated 1994 Incorporated herein by
Nonemployee Directors Stock reference is Exhibit A to the
Option Plan* Company's Proxy Statement
dated September 30, 1994.
10.09 II-VI Incorporated Deferred Incorporated herein by
Compensation Plan* reference is Exhibit 10.12 to
Company's Annual Report on
Form 10-K for the fiscal year
ended June 30, 1996.
10.10 Trust Under the II-VI Incorporated herein by
Incorporated Deferred reference is Exhibit 10.13 to
Compensation Plan* the Company's Annual Report on
Form 10-K for the fiscal year
ended June 30, 1996.
10.11 Description of Bonus Incorporated herein by
Incentive Plan* reference is Exhibit 10.14 to
the Company's Annual Report on
Form 10-K for the fiscal year
ended June 30, 1996.
10.12 Amended and Restated II-VI Incorporated herein by
Incorporated Deferred reference is Exhibit 10.01
Compensation Plan* to the Company's Form 10-Q
for the Quarter Ended
December 31, 1996.
10.13 Amended and Restated II-VI Incorporated herein by
Incorporated 1997 Stock reference is Exhibit 10.04
Option Plan* to the Company's Annual Report
on Form 10-K for the fiscal
year ended June 30, 1998.
10.14 Agreement by and between Incorporated herein by
PNC Bank, National reference is Exhibit 10.01
Association and to the Company's Form 10-Q
II-VI Incorporated for for the Quarter Ended
Amended and Restated March 31, 1999.
Letter Agreement for
Committed Line of Credit
and Japanese Yen Term Loan
13.01 Annual Report to Shareholders Portions of the 1999 Annual
Report are filed herewith.
21.01 List of Subsidiaries of Filed herewith.
II-VI Incorporated
23.01 Consent of Deloitte Filed herewith.
& Touche LLP
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) No reports on Form 8-K have been filed during the fourth
quarter of fiscal year 1999.
15
(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 a financial statement schedule
to this Form 10-K the financial statement schedule set forth
in Item 14(a)(2) hereof.
With the exception of the information incorporated by
reference to the Company's 1999 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 1999 Annual Report
to Shareholders is not deemed filed as a part of this Report.
16
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 27, 1999 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 27, 1999 By: /s/ Carl J. Johnson
Carl J. Johnson
Chairman and Chief Executive Officer
and Director
September 27, 1999 By: /s/ Francis J. Kramer
Francis J. Kramer
President and Chief
Operating Officer and Director
Principal Financial and
Accounting Officer:
September 27, 1999 By: /s/ James Martinelli
James Martinelli
Treasurer and Chief Financial Officer
September 27, 1999 By: /s/ Richard W. Bohlen
Richard W. Bohlen
Director
September 27, 1999 By: /s/ Thomas E. Mistler
Thomas E. Mistler
Director
September 27, 1999 By: /s/ Duncan A. J. Morrison
Duncan A. J. Morrison
Director
September 27, 1999 By: /s/ Peter W. Sognefest
Peter W. Sognefest
Director
17
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of
II-VI Incorporated and subsidiaries:
We have audited the consolidated balance sheets of II-VI
Incorporated and subsidiaries as of June 30, 1999 and 1998 and the
related consolidated statements of earnings, shareholders' equity,
comprehensive income and cash flows for the three years ended, and
have issued our report thereon dated August 6, 1999; such
consolidated financial statements and report are included in your
1999 Annual Report to Shareholders and are incorporated herein by
reference. Our audits also included the consolidated financial
statement Schedule II, Valuation and Qualifying Accounts, of II-VI
Incorporated and subsidiaries for each of the three years in the
period ended June 30, 1999. The consolidated 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, such financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a
whole, presents fairly in all material respects the information set
forth therein.
/s/ Deloitte & Touche LLP
Pittsburgh, Pennsylvania
August 6, 1999
18
SCHEDULE II
II-VI INCORPORATED AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED JUNE 30, 1997, 1998, AND 1999
(IN THOUSANDS OF DOLLARS)
Additions
---------------------
Balance at Charged Charged Deduction Balance
Beginning to to Other from At End
of Year Expense Accounts(1) Reserves(2) of Year
------------------------------------------------------------------
YEAR ENDED JUNE 30, 1997:
Allowance for doubtful accounts
& warranty returns $ 246 $ 45 $ 35 $ 20 $ 306
YEAR ENDED JUNE 30, 1998:
Allowance for doubtful accounts
& warranty returns $ 306 $ 185 $ (8) $ 55 $ 428
YEAR ENDED JUNE 30, 1999:
Allowance for doubtful accounts
& warranty returns $ 428 $ 245 $ 3 $ 219 $ 457
- --------
(1) Amounts primarily relate to businesses acquired, warranty
returns and the effects of foreign currency translation.
(2) Uncollectible accounts written off, net of recoveries.
19
EXHIBIT INDEX
EXHIBIT NO. REFERENCE
3.01 Amended and Restated Incorporated herein by
Articles of Incorporation reference is Exhibit 3.02 to
of II-VI Incorporated Registration Statement
No. 33-16389 on Form S-1.
3.02 Amended and Restated By-Laws Incorporated herein by
of II-VI 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 Employees' Incorporated herein by
Stock Purchase Plan reference is Exhibit 10.03 to
Registration Statement
No. 33-16389 on Form S-1.
10.02 II-VI Incorporated Amended Incorporated herein by
and Restated Employees' reference is Exhibit 10.04 to
Stock Purchase Plan Registration Statement
No. 33-16389 on Form S-1.
10.03 First Amendment II-VI Incorporated herein by
Incorporated Amended and reference is Exhibit 10.01 to
Restated Employees' Stock to the Company's Form 10-Q
Purchase Plan for the Quarter Ended
March 31, 1996.
10.04 II-VI Incorporated Amended Incorporated herein by
and Restated Employees' reference is Exhibit 10.05 to
Profit-Sharing Plan and Registration Statement
Trust Agreement, as amended No. 33-16389 on Form S-1.
10.05 Form of Representative Incorporated herein by
Agreement between the reference is Exhibit 10.15 to
Company and its foreign Registration Statement
representatives No. 33-16389 on Form S-1.
10.06 Form of Employment Agreement* Incorporated herein by
reference is Exhibit 10.16 to
Registration Statement
No. 33-16389 on Form S-1.
10.07 Description of Management- Incorporated herein by
By-Objective Plan* reference is Exhibit 10.09 to
the Company's Annual Report on
Form 10-K for the fiscal year
ended June 30, 1993.
10.08 II-VI Incorporated 1994 Incorporated herein by
Nonemployee Directors Stock reference is Exhibit A to the
Option Plan* Company's Proxy Statement
dated September 30, 1994.
10.09 II-VI Incorporated Deferred Incorporated herein by
Compensation Plan* reference is Exhibit 10.12 to
Company's Annual Report on
Form 10-K for the fiscal year
ended June 30, 1996.
10.10 Trust Under the II-VI Incorporated herein by
Incorporated Deferred reference is Exhibit 10.13 to
Compensation Plan* the Company's Annual Report on
Form 10-K for the fiscal year
ended June 30, 1996.
20
10.11 Description of Bonus Incorporated herein by
Incentive Plan* reference is Exhibit 10.14 to
the Company's Annual Report on
Form 10-K for the fiscal year
ended June 30, 1996.
10.12 Amended and Restated II-VI Incorporated herein by
Incorporated Deferred reference is Exhibit 10.01
Compensation Plan* to the Company's Form 10-Q
for the Quarter Ended
December 31, 1996.
10.13 Amended and Restated II-VI Incorporated herein by
Incorporated 1997 Stock reference is Exhibit 10.04
Option Plan* to the Company's Annual Report
on Form 10-K for the fiscal
year ended June 30, 1998.
10.14 Agreement by and between Incorporated herein by
PNC Bank, National reference is Exhibit 10.01
Association and to the Company's Form 10-Q
II-VI Incorporated for for the Quarter Ended
Amended and Restated March 31, 1999.
Letter Agreement for
Committed Line of Credit
and Japanese Yen Term Loan
13.01 Annual Report to Shareholders Portions of the 1999 Annual
Report are filed herewith.
21.01 List of Subsidiaries of Filed herewith.
II-VI Incorporated
23.01 Consent of Deloitte Filed herewith.
& Touche LLP
27.01 Financial Data Schedule Filed herewith.
- -----------
* Denotes management contract or compensatory plan, contract or
arrangement.
21