II-VI INC, 10-K405, 2000-09-27

II-VI INC
10-K405, 2000-09-27
OPTICAL INSTRUMENTS & LENSES

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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, 2000

[ ] 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 16056
Saxonburg, PA Zip code)
(Address of principal executive offices)

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, 2000, was
approximately $247,500,000 based on the closing sale price reported on
Nasdaq National Market for September 15, 2000. 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, 2000, was 6,859,569.

All other share and per share information included in this Form 10-K
reflects the two-for-one stock split effected on September 20, 2000, unless
otherwise noted.

Documents Incorporated by Reference

Portions of the Annual Report to Shareholders for the fiscal year ended
June 30, 2000 are incorporated by reference into Parts I, II and IV
hereof.

Portions of the Proxy Statement for the 2000 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. Our executive offices are located at 375
Saxonburg Boulevard, Saxonburg, Pennsylvania 16056. Our 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., II-VI International Pte., Ltd., II-VI U.K. Limited, and II-VI
Acquisition Corp. 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 develops, manufacturers and markets high technology
materials and derivative products for precision use in industrial,
medical, telecommunications and military/aerospace applications. We
use advanced material growth technologies coupled with proprietary high
precision fabrication, micro-assembly, and thin-film coating production
processes. The resulting optical and optoelectronic devices are
supplied to manufacturers and users of a wide variety of laser,
detection and telecommunication components and systems. A key strategy
is to develop and manufacture complex materials from elements of
chemistry's periodic table. We focus on providing critical products to
the heart of our customer's assembly lines for products such as high
power laser material processing systems, fiber-optic telecommunication
transmitters and receivers, and advanced medical x-ray systems. We
believe we are a market leader for high power carbon dioxide (CO2) and
Yttrium Aluminum Garnet (YAG) laser optical elements, and x-ray and
gamma ray detectors for the nuclear radiation industry. The majority
of our revenues are attributable to the sale of optical components for
the industrial laser processing industry.

On August 14, 2000, the Company increased its ownership in Laser
Power Corporation from approximately 13% to approximately 88%, giving
the Company a controlling interest. This approximately 75% additional
ownership was acquired for a total consideration of approximately $22.3
million in cash and the issuance of 739,000 shares of the Company's
common stock. We intend to complete the acquisition of Laser Power
Corporation via a second-step merger in October 2000.

On August 23, 2000, the Company announced that its Board of
Directors had declared a two-for-one stock split of the Company's
common stock in the form of a 100% common stock dividend. The record
date was September 5, 2000 and the distribution date was September 20,
2000. All share and per share amounts included in this Form 10-K have
been restated to reflect the stock split for all periods presented,
unless otherwise noted.

Information Regarding Market Segments and Foreign Operations

Our business comprises two segments: (i) the design, manufacture
and marketing of optical and electro-optical components, devices and
materials for infrared, near-infrared and visible-light instrumentation
and (ii) the manufacture and marketing of x-ray and gamma-ray
instrumentation.

Financial data regarding our revenues, results of operations,
industry segments and international sales for our last three fiscal
years is set forth in, and incorporated herein by reference to, our
Consolidated Statements of Earnings on page 19 of the II-VI
Incorporated 2000 Annual Report (the "Annual Report") and Note H to the
Company's Consolidated Financial Statements on pages 30 and 31 of the
Annual Report.

General Description of Business

We develop, manufacture and market high technology materials and
derivative products for precision use in industrial, medical,
telecommunications and military/aerospace applications. We use advanced
material growth technologies coupled with proprietary high precision
fabrication, micro-assembly, and thin-film coating production
processes. The resulting optical and optoelectronic devices are
supplied to manufacturers and users of a wide variety of laser,
detection and telecommunication components and systems. A key strategy
is to develop and manufacture complex materials from elements of
chemistry's periodic table. We focus on providing critical products to
the heart of our customer's assembly lines for products such as high
power laser material processing systems, fiber-optic telecommunication
transmitters and receivers, and advanced medical x-ray systems. We
believe we are a market leader for high power carbon dioxide and YAG
laser optical elements, and x-ray and gamma ray detectors for the
nuclear radiation industry.

Our United States manufacturing operations are located in
Pennsylvania and Florida, and our international production operations
are based in Singapore and China. In additional to sales offices at
each of our manufacturing sites, as well as Iowa and California, we
have sales and marketing subsidiaries in Japan and the United Kingdom.
Approximately one-half of our revenues are for product sales outside of
the United States.

Our products are key optical and optoelectronic components used in
the laser, nuclear radiation detection and telecommunication
industries.

Our laser-related products include laser gain materials for
solid state lasers and many of the high precision optical
elements used to focus and direct laser beams to target or work
surfaces. The majority of our laser products require advanced
optical materials that are internally produced. Our vertical
integration from material growth, through fabrication and thin-
film coating provides us with a significant competitive
advantage.

Nuclear radiation detector products are based on the
semiconductor material Cadmium Zinc Telluride (CdZnTe). These
detectors are attractive due to the increased performance,
reduced size, improved ruggedness and lower voltage requirements
as compared to traditional technologies.

New products have been recently introduced for the
telecommunications industry. These products, which are building
blocks for next generation optical networks, demand the high
precision and rigid metrology core competencies that have been
developed for our laser product lines.

We are at the forefront of advanced material growth research,
development and high volume production. Over the past three years we
have expanded our material growth development to include single crystal
Silicon Carbide (SiC) for use in blue and green Light Emitting Diodes
(LEDs), diode lasers and high performance electronics. Significant
progress has been made in this relatively short development period and
at the present time we are working closely with potential customers to
qualify and further develop our products.

Our Market Segments

Our business is comprised of four segments:

1) Design, manufacture and marketing of optical and electro-
optical components, devices and materials for infrared, near
infrared and visible light lasers and instrumentation.

2) Manufacture and marketing of x-ray and gamma-ray detectors and
components for medical, industrial, environmental and
scientific instruments.

3) Production of micro-fabricated and micro-assembled devices for
telecommunications.

4) Development of single crystal growth and fabrication of
Silicon Carbide (SiC) substrates for use in the manufacture of
high temperature electronics and blue and green high
brightness LEDs.

Our reportable segments, in accordance with Statement of Financial
Accounting Standards No. 131, ''Disclosures About Segments of an
Enterprise and Related Information,'' currently are optical components
(which is a combination of segments 1, 3 and 4 above) and radiation
detectors (which is segment 2 above).

Laser Components Market

In recent years, dramatic increases in laser component consumption
have been driven by continued worldwide proliferation of laser
processing applications. Manufacturers are seeking solutions to
increasingly complex 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
prototyping, production simplification, efficient sequencing, and
computer control on high throughput production lines. Tailored Blank
Welding is used to reduce the weight, increase the corrosion resistance
and strengthen certain chassis and body parts of automobiles. The
potential to weld the all aluminum car is being developed by automobile
manufacturers worldwide. Manufacturers of recreation vehicles,
motorcycles, lawn mowers and garden tractors cut, trim and weld metal
parts with lasers to achieve flexibility, high consistency, reduced
post processing and lower costs. Furniture manufacturers utilize lasers
to provide easily reconfigurable, low-distortion, low-cost prototyping
and production capabilities that facilitate the manufacturing of
customer specified designs. On high-speed processing lines, laser
marking provides automated date coding for food packaging and computer
driven container identification for pharmaceuticals.

We provide optical elements and components for both CO2 and YAG
laser systems. In addition to use by original equipment manufacturers
(OEMs), a replacement part aftermarket exists in support of an
estimated current worldwide installed base of 90,000 industrial YAG and
CO2 lasers.

Solid-State Radiation Detection Market

Solid-state radiation detectors and components are sold primarily
to companies engaged in the manufacture of medical diagnostic, medical
imaging or industrial gauging equipment. In an increasing number of
applications, the use of gamma- or x-ray radiation enables more rapid
and accurate measurement of medical conditions or industrial quality
than can be observed by other methods. Solid-state detectors based on
CdZnTe, a material that recently entered the marketplace, are making
inroads against older, more established technologies such as
cryogenically cooled germanium detectors or sodium iodide scintillators
coupled to photomultiplier tubes. CdZnTe detectors have already been
substituted for the older technologies in applications where increased
accuracy, simpler operation, portability and/or lower cost are
required. Currently, CdZnTe is beginning to enable new medical and
industrial applications not feasible with the older technologies and is
now used routinely in cancer probes, bone densitometry systems and
process control instruments.

According to our best estimates, the market for solid-state
radiation detectors is currently $250 million and growing at 10% per
year. Digital radiography (the recording of digital x-ray images)
represents the largest market segment followed in order by nuclear
medicine (the detection or imaging of radioactively tagged materials in
the body), industrial gauging, radiation monitoring and nuclear
safeguards/non-proliferation. When CdZnTe entered the market in the
mid-1990s, it could address less than 10% of the applications.
Presently, we believe that the CdZnTe addressable market has grown to
$50 million.

During the next decade, the performance of CdZnTe and other solid-
state detectors will be improved through additional research and
development, creating the potential for digital imaging to replace x-
ray film in a myriad of traditional radiography applications.

We believe that the market for CdZnTe detectors and imagers will
grow faster than the overall market rate of 10% because of several
factors, including:

the strong migration toward ''film-less'' detection methods that
enable the direct recording of digital images or videos which
can be stored, recalled and transmitted via the Internet;

the desire for lower radiation dosage;

the desire for simpler, safer operation at room temperature;

the increasing requirement that equipment be ''intrinsically
safe'' in environments where a spark might start a fire;

the general trend towards equipment miniaturization; and

the need to inspect, document and control quality at additional
points within the manufacturing process in a wide range of
industries; for example, the measurement and control of film
thickness during the painting of automobile bodies.

Equipment manufacturers increasingly desire to procure fully
tested, packaged components rather than devices that must be qualified
and assembled. We believe that this trend will require leading
suppliers to provide products containing ever-higher levels of signal
processing and, as a result, the market will place high value on
suppliers having strong applications engineering capabilities and a
focus on customer relationships.

Telecommunications Components

In recent years dramatic increases in demand for multimedia
information, entertainment, and voice and data communications have
resulted in a corresponding increase for greater bandwidth. This has
resulted in a significant increase in fiber-optic network deployment,
which subsequently has created substantially increased demand for
precision telecommunication optical components.

Optical and opto-electronic materials are fabricated into
telecommunication elements such as:

Mirror Blocks
Air Gap Etalons
Waveplates
Filter Taps
Polarization Rotators
Prisms

In telecommunication systems certain optical components help lock
the laser output wavelength to the proper channel on the
telecommunication system's grid. Other optical components function as
an isolator, which is a device that ensures that laser light in a fiber
optic is not directed back into the source of transmission. Another
component such as a prism functions as an optical multiplexer.

To meet the insatiable bandwidth demands of the Internet world,
system manufacturers are looking to merchant optical component and
opto-electronic material suppliers for solutions. Current global
industry capacity to produce materials, devices and components is
insufficient.

Silicon Carbide Electronic Materials Market

Silicon carbide is a wide band gap semiconductor material that
offers high-temperature, high-power and high-frequency capabilities in
applications that are rapidly emerging at the high-performance end of
the optoelectronic, telecommunication, power distribution and
transportation markets. Silicon carbide has certain inherent physical
and electronic advantages over competing materials such as silicon and
gallium arsenide, including the ability to operate at up to 400 degrees
Centigrade (750 degrees Fahrenheit) and the capability to conduct heat
away from operating devices up to twice as fast. Typically, either
silicon carbide or gallium nitride layers are deposited on a silicon
carbide or alternative substrate and desired optoelectronic or
electronic devices are fabricated in the resulting material structure.
Silicon carbide based structures are being developed and deployed for
the manufacture of a wide variety of microwave and power switching
devices while gallium nitride based structures are already standard in
the manufacture of blue and green light emitting diodes and blue laser
diodes.

We believe that wide band gap semiconductor devices incorporating
silicon carbide materials technology will penetrate a wide range of
applications in the optoelectronic, telecommunication, power
distribution and transportation markets during the next decade. For
instance, blue and green LEDs built on silicon carbide substrates offer
the promise of higher output power than devices currently built on less
expensive but thermally insulating sapphire substrates. The realization
of this promise will establish silicon carbide substrates as an
important building block in high brightness computer driven signs or
displays, in high brightness automotive lighting and in the replacement
of incandescent and eventually fluorescent lighting by high power, high
efficiency solid-state lamps. High power, high frequency silicon
carbide microwave devices promise to rival gallium arsenide devices in
telecommunication base station transmitters and silicon devices in both
commercial and military air traffic radar applications. Silicon carbide
high power, high-speed switching devices promise to improve the
performance and reliability of motor controls in a wide variety of
applications and could play a key role in the evolution of the electric
car.

Our Strategy

Our strategy is to build businesses with world-class, high
technology materials capabilities at their core. Each of our current
business activities follow this model: CO2 and infrared optics based
on Zinc Selenide (ZnSe) and Zinc Sulfide (ZnS), near infrared and
visible laser components based on YAG and Yttrium Lithium Fluoride
(YLF), and solid-state radiation detectors based on CdZnTe. Consistent
with this strategy, our initiative to enter the optoelectronic and
electronic substrates business is predicated on the establishment of
Silicon Carbide (SiC) capabilities. In every case, we subsequently
manufacture precision parts and components from these materials using
established but evolving expertise in low damage surfacing and micro
fabrication, thin-film coating, and exacting metrology. A substantial
portion of our business is based on long-term contracts with market
leaders, which enables substantial forward planning and production
efficiencies. In addition, industry leading product quality and
delivery performance allows us to achieve comparatively high operating
margins in major segments of our business. We intend to capitalize on
the execution of this proven model and continually gain market share
for laser optics and components, telecommunication devices, solid-state
radiation detectors, and optoelectronic/electronic materials and
substrates.

Continue Investment to Gain CO2 and YAG Market Share Worldwide.
We continually invest in our manufacturing operations worldwide
to increase production capacity. All U.S. and international
manufacturing operations are being expanded. Additional
materials growth capability is being added for CdZnTe, ZnSe,
ZnS, YAG and YLF. A piezo-electric material is under development
at our Advanced Materials Development Center in Pennsylvania. A
proprietary material for telecommunication applications is under
development in Florida.

Enhance Our Reputation as a Worldwide Quality and Customer
Service Leader. We are committed to understanding our
customers' needs and exceeding their expectations. We have
established ourselves as a consistent high quality supplier of
components into our customers' assembly lines. In many cases we
deliver on a just in time (JIT) basis. We believe our on-time
delivery record and product return rates are the best in the
industries we serve via our quality mission statement, ''We
pledge to exceed our internal and external customer requirements
through employee dedication to continuous improvement.''

Pursue Strategic Acquisitions and Alliances. Some of the
markets we participate in remain fragmented and we expect
consolidation to occur over the next several years. We will
pursue strategic acquisitions and alliances with companies whose
products or technologies compliment our current products, expand
our market coverage, increase our addressed market or create
synergies with our current capabilities. We intend to identify
acquisition opportunities that accelerate our access to emerging
high growth segments of the markets we serve.

Continue Extension of Technology Leadership in the Gamma and X-
ray Detector Field. We believe our eV PRODUCTS division is the
leader in the manufacture of solid-state gamma and x-ray
detector devices and components. Cadmium Zinc Telluride (CdZnTe)
handheld probes in the medical field allow the introduction of
new cancer location techniques. CdZnTe based imaging arrays are
being introduced in nuclear medicine. CdZnTe is being developed
for direct read digital radiography, which will allow a
physician to view relevant parts of the body in real time using
a fraction of the x-ray dose required with film. Our eV PRODUCTS
division is working on these medical applications with market
leaders worldwide. The high pressure Bridgman growth process for
producing CdZnTe is a materials expertise unique to II-VI.

Utilize Proven Materials Growth Expertise to Perfect Silicon
Carbide (SiC). We are a proven provider of hard to grow
materials and opto-electronic crystals. We intend to leverage
our skills and experiences in commercially producing ZnSe, ZnS,
CdZnTe, YAG and YLF to move rapidly forward with our SiC
development program. We intend to gain market share and become
the reliable second source of SiC substrates to the worldwide
marketplace in the next three years. We will utilize our low
damage fabrication experience and exacting metrology in
achieving this position.

Extend Proven Fabrication, Thin-Film Coating, Assembly and
Exacting Metrology Capabilities to Telecommunications
Components. We are a respected supplier of waveplates,
etalons, frequency doublers and other highly precise components
to the YAG laser and related markets. We have recently extended
our high accuracy fabrication, thin-film coating, assembly and
exacting metrology expertise to the manufacture of the passive
components such as: micro-waveplates, miniature air-gap etalons
and micro-prisms that are critical to the performance of the
receivers, transmitters and add-drop modules being deployed in
the rapid expansion of fiber optic networks. We have established
a stand-alone facility in Florida for the production of
telecommunications products and will rapidly expand our capacity
in response to market place demand.

Our Products

Our products include optical, optoelectronic and electronic
materials, devices and components for use in laser, detection,
telecommunication and advanced electronic and optoelectronic
applications. These products are sold to laser system manufacturers and
end-users, manufacturers of nuclear radiation detection systems and
component suppliers to the telecommunications, optoelectronic and
electronic industries.

Laser Components

We supply a broad line of precision optical components such as
lenses, waveplates, and mirrors to the CO2 laser market. CO2 lasers are
used in a wide variety of industrial processes including cutting,
welding, drilling, marking and heat treating of materials such as steel
alloys, non-ferrous metals, plastics, wood, paper, fiberboard, ceramics
and composites. CO2 lasers are also used in cosmetic and invasive
medical surgery. Our precision optical components are used to regulate
the amount of laser energy, enhance the properties of the laser beam,
and focus and direct laser beams to a target work surface. The optical
components include both reflective and transmissive optics and are made
from materials such as ZnSe, Copper, Silicon and Germanium.
Transmissive optics used with CO2 lasers are predominately made from
ZnSe. We are the largest manufacturer in the world of ZnSe and that
provides us a significant cost advantage. We believe our ZnSe
production capability, high precision fabrication operations and
proprietary thin-film coating technology has earned us a reputation as
the quality leader in this world market.

Additionally, we supply replacement optics (under the trade name
of INFRAREADY) and refurbishing services to end users of CO2 lasers.
Over time optics may become contaminated and must be replaced to
maintain efficient laser operations. This aftermarket portion of our
business continues to grow as laser applications proliferate worldwide.

Key materials and precision optical components for YAG and other
solid-state laser systems are part of our product offering. The
increasing power levels and reduced operating costs of evolving YAG
laser systems are enabling this technology to address new applications.
YAG lasers are now used in high power application such as cutting,
welding, marking and date coding. Additionally, YAG laser energy can be
delivered through optical fibers, which provides high flexibility beam
delivery systems.

We supply a family of standard and custom laser gain materials and
optics for industrial, medical, scientific and research YAG lasers. Our
YAG laser gain materials are produced to stringent industry
specifications and precisely fabricated into rods or slabs. We also
refurbish YAG rods for YAG laser end users. Additionally, we offer
waveplates, polarizers, lenses, prisms and mirrors for visible and
near-infrared applications which are used to control or alter visible
or near-infrared energy and its polarization.

Solid State Radiation Detectors

We design, manufacture and market CdZnTe room temperature, solid
state radiation detectors combined with custom designed low noise
front-end electronics. New and expanding applications in industry,
medicine and research are fueling increased demand for our products.
Our solid-state CdZnTe nuclear radiation detectors are attractive
because of their reduced size, improved ruggedness, and lower voltage
requirements as compared to traditional detectors based on
scintillator/photomultiplier or cooled germanium technologies.

The use of CdZnTe hand-held probes in the medical field has
enabled the introduction of new cancer location techniques, based on
the injection of a radiolabeled antibody that attaches to cancer cells.
This technology provides the surgeon the tools to accurately identify
and remove cancerous tissue.

CdZnTe-based imaging arrays can be used in both nuclear medicine
(internally emitted gamma rays) and radiography (x-rays from an
external source). In nuclear medicine, CdZnTe makes feasible a new
generation of gamma cameras, offering much improved position
sensitivity and the ability to produce images using lower doses of
injected radioactivity. In radiography, higher density CdZnTe can
provide much improved sensitivity to the higher x-ray energies used in
some of the newer diagnostic techniques. Direct-read digital
radiography cameras are being developed which, if successful, will
allow the physician to view the relevant part of the body in real time,
reducing the time required for diagnosis.

Research, Development and Engineering

Our 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. We are committed to accepting only
funded research that ties closely to our growth plans.

We devote significant resources to research, development and
engineering programs directed at the continuous improvement of existing
products and processes and to the timely development of new
technologies, materials and products. We believe that our research,
development and engineering activities are essential to our ability to
establish and maintain a leadership position in each of the markets
that we serve. As of June 30, 2000 we employed 134 people in research,
development and engineering functions. 96 of our 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.

During the past year, we have made focused investments in:

Telecommunication Device Development: Where we have developed
microfabrication, thin-film coating and metrology techniques to
enable the manufacture of several new devices of high interest
to telecommunication customers. Product introductions of air-gap
etalons, waveplates and polarization rotators are in progress.
Initial production orders have been received and we plan to
increase capacity to produce the required supply to key
customers.

Silicon Carbide Substrate Technology: We presently have
several crystal growth furnaces producing 6H and 4H ingots and
one additional furnace under construction to support the
development of a new proprietary Axial Gradient Transport Growth
Process (patent applied for in March 2000). In addition, ingot
slicing and substrate polishing facilities are in place and
qualification products are being supplied to key customers.

High Performance CdZnTe Materials: Where the marketplace
success of eV PRODUCTS depends on our capability and capacity to
produce radiation detectors with ever-higher sensitivity,
resolution and efficiency at lower cost. Key advancements have
been achieved and will continue to be sought in the production
of larger single crystal ingots as well as in the fabrication
techniques for the manufacture of monolithic arrays of closely
spaced detectors. As improved performance is indicated, new
applications and market potential are opened to CdZnTe products.

Large Diameter YAG Manufacturing: Where our research and
development activities are focused on producing materials that
will accelerate the evolution of kilowatt-class YAG lasers.
Achievements in process control and reliability are rapidly
transferred into production at our New Port Richey, Florida
manufacturing facility, largely due to effective teamwork and
crossover between our development and manufacturing personnel.

Our New Advanced Materials Development Center: Where existing
research, such as on Large Diameter YAG, is proceeding and new
programs, such as research on the single crystal growth of
PMN-PT, an advanced piezo-electric material, has been initiated.
This 6,000 square foot facility is dedicated to enhancing our
leadership in the development of advanced materials for the
telecommunications, electronics, optoelectronics, radiation
detection, electro-optics and laser markets.

The development of our products and processes is largely based on
proprietary technical know-how and expertise. We rely on a combination
of contract provisions and trade secret laws to protect our proprietary
rights. We intend, however, to protect our rights when they are, in our
view, infringed.

Research, development and engineering expenditures were
$3,258,000, $3,358,000 and $4,040,000 for the fiscal years ended June
30, 1998, 1999 and 2000, respectively. For these same periods, the
customer and/or government funded portions of these expenditures were
$2,206,000, $1,436,000 and $1,651,000.

Marketing and Sales

We market our products through a direct sales force in North
America, Japan, South East Asia and the UK, and through representatives
and distributors elsewhere in Europe, Asia, and South America. Our
market strategy is focused on building market awareness and acceptance
of our products. New products are constantly being produced and sold to
our established customers in the laser component market places.

Each of our product lines is responsible for their own worldwide
marketing and sales functions, as follows:

1) The laser component businesses share many common customers and
sell through our subsidiaries II-VI Japan and II-VI UK as well
as through a common distributor in most of Europe.

2) The eV PRODUCTS marketing and sales initiative is handled
through a direct sales force in the US coupled with
manufacturers' representatives. An array of distributors and
representatives are used throughout the rest of the world.

3) The telecommunications business unit shares its marketing with
our VLOC subsidiary.

4) The management and technical staff work closely with potential
customers providing samples and deliverable products from our
wide band gap wafer materials activities in SiC.

Our sales force develops close relationships with our OEM
customers worldwide. All divisions actively market their products
through targeted mailings, telemarketing, select advertising and
attendance at trade shows. Our sales force includes a highly trained
team of application engineers to assist customers in designing, testing
and qualifying our parts as key components of our customers' systems.
As of June 30, 2000, we employed 56 individuals in sales, marketing and
support and maintained regional sales operations in Japan, Singapore,
China and the UK.

Manufacturing Technology and Processes

A majority of the products we produce depend on our ability to
manufacture difficult optical, opto-electronic or electronic materials.
The table below shows these key materials and the processes used to
produce them.

Materials Growth Process
Product Line Produced Utilized
------------ --------- ---------------
Laser Components ZnSe and ZnS Chemical Vapor Deposition
Laser Components YAG and YLF Czochralski
Solid State Detectors CdZnTe High Pressure Bridgman and
Conventional Bridgman
SiC Substrates SiC Physical Vapor Transport

The ability to produce these difficult materials and to control
the quality and yields is an expertise of II-VI. Processing of these
materials into finished products is difficult to accomplish; yet the
quality and reproducibility of these products are critical to the
performance of our customer's instruments and systems. In the markets
we serve there are a limited number of suppliers of many of the
components we manufacture.

The network of our worldwide manufacturing sites allows products
to be produced in the most cost-effective area of the world. We believe
our cost to produce our infrared and near infrared components are the
lowest among all competitors. We employ numerous advanced manufacturing
technologies and systems in all product-manufacturing facilities. These
include automated CNC optical fabrication, high throughput thin-film
coaters, micro precision metrology and custom-engineered automated
furnace controls for the crystal growth processes. Producing products
for use across the electromagnetic spectrum requires the capabilities
to repeatedly produce products with high yields to tolerances in the
nanometer range. We embody a technology and quality mindset that gives
our customers the confidence to utilize our products in a just in time
basis straight into the heart of their production lines.

Sources of Supply

The major raw materials we use are Zinc, Selenium, Hydrogen
Selenide, Hydrogen Sulfide, Cadmium, Tellurium, Yttrium Oxide, Aluminum
Oxide and Iridium. We produce virtually all of our 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. We also purchase Gallium Arsenide, Copper, Silicon,
Germanium, Quartz, optical glass and small quantities of other
materials for use as base materials for laser optics. We purchase
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 us), for each of which there is only one proven
source of merchant supply. For most materials, we have 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 our manufacturing yields. We conduct 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. We have not experienced significant
production delays due to shortages of materials. However, we do
occasionally experience problems associated with vendor supplied
materials not meeting contract specifications for quality or purity. A
significant failure of our suppliers to deliver sufficient quantities
of necessary high-quality materials on a timely basis could have a
materially adverse effect on our results of operations.

Customers

Our customer base for our laser component products consists of
over 4,000 customers worldwide.

The three main groups of customers for our laser component
products are as follows:

Leading original equipment manufactures and system integrators
of high power industrial, medical and military laser systems,

Laser end users who require replacement optics for their
existing laser systems, and

Scientific and military customers, including the U.S. military
and its allies, for use in advanced infrared imaging systems for
state-of-the-art weapon systems.

For our telecommunications component products, our customers are
telecommunication companies who utilize our products as discrete
optical elements for active and passive components for frequency
stabilization, DWDM (dense wavelength division multiplexing)
applications and optical networking. We are currently dependent on a
limited number of key customers for this product line.

For our solid state radiation detector products, our customers are
manufacturers of equipment and devices for industrial process control,
nuclear medicine, x-ray imaging, environmental monitoring, nuclear
safeguards and nonproliferation, and health physics. We are currently
dependent on a limited number of key customers for this product line.

Our silicon carbide electronic materials product sales to date
have been limited and we do not have an established customer base for
this product line.

Competition

We believe that we are a leading producer of products and services
in our addressed markets. In the area of commercial infrared laser
optics and materials, we believe we are an industry leader. We are a
leading supplier of CdZnTe substrates used for infrared imaging arrays,
and we are a leading supplier of Cadmium Telluride electro-optic
modulators to U.S. and NATO defense contractors. We are a significant
supplier of YAG rods and YAG laser optics to the worldwide markets of
scientific, research, medical and industrial laser manufacturers.

We compete on the basis of product quality, delivery time, strong
technical support and pricing. Management believes that we compete
favorably with respect to these factors and that our vertical
integration, manufacturing facilities and equipment, experienced
technical and manufacturing employees, and worldwide marketing and
distribution provide competitive advantages.

We have a number of present and potential competitors, many of
which have greater financial, selling, marketing or technical
resources. The significant competitor of our production of ZnSe is a
division of Rohm and Haas Co. The competitors producing infrared and
CO2 laser optics include 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. Competing producers of CdZnTe and CdZnTe
detectors include Acrorad in Japan and Inarad in Israel.

In addition to competitors who manufacture products similar to
those we produce, there are other technologies or materials that may
compete with our products. The market for the nuclear radiation
detector materials is in its infancy and could be affected by competing
technologies.

Bookings and Backlog

We define our bookings during a fiscal period as incoming orders
believed to be deliverable to customers in the next twelve months net
of any order cancellations. Certain long-term research and development
contracts exceeding twelve-month may be booked in their entirety, but
in no event would exceed twenty-four months. For the year ended June
30, 2000, our bookings were $83.0 million compared to bookings of $60.0
million for the year ended June 30, 1999. We believe that the increase
in bookings reflects continued acceptance of our products over
competing technologies and vendors and shows that our customers desire
our high quality products delivered in a timely manner.

We define our backlog as customer orders available for shipment in
the next twelve months and certain long-term research and development
contracts not exceeding twenty-four months as of the end of the fiscal
period. As of June 30, 2000, our backlog was $27.2 million compared to
$18.0 million at June 30, 1999. The increase in backlog is primarily
reflective of higher bookings during fiscal year 2000.

Employees

As of June 30, 2000, we employed 812 persons worldwide. Of these
employees, 134 were engaged in research, development and engineering,
488 in direct production and the balance in sales and marketing,
administration, finance and support services. Our production staff
includes highly skilled optical craftsmen. None of our employees are
covered by a collective bargaining agreement, and we have never
experienced any work stoppages. We have a long-standing policy of
encouraging active employee participation in selected areas of
operations management. We believe our relations with our employees to
be good. We reward our employees with incentive compensation based on
achievement of performance goals.

Patents, Trade Secrets and Trademarks

We rely on our trade secrets and proprietary know-how to develop
and maintain our competitive position. We have not pursued process
patents due to the disclosures required in the patent process and the
relative difficulties in successfully litigating process-type patents.
We have confidentiality and noncompetition agreements with our
executive officers and certain other personnel.

The processes and specialized equipment utilized in crystal
growth, infrared materials fabrication and infrared optical coatings as
developed by us 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 our 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 our technology. We may be required to
obtain licenses under such patents, and there can be no assurance that
we would be able to obtain such licenses, if required, on commercially
reasonable terms, or that claims regarding rights to technology will
not be asserted which may adversely affect our results of operations.
In addition, our 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.

We hold 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 our eV PRODUCTS
division. The trademarks are registered with the United States Patent
and Trademark Office, but not with any states. We are not aware of any
interference or opposition to these trademarks in any jurisdiction.

RISK FACTORS

We Depend on Highly Complex Manufacturing Processes Which Require
Products from Limited Sources of Supply

We utilize high quality, optical grade ZnSe in the production of a
majority of our products. We are a leading producer of ZnSe for our
internal use and for external sale. The production of ZnSe is a complex
process requiring production in a highly controlled environment. A
number of factors, including defective or contaminated materials, could
adversely affect our ability to achieve acceptable manufacturing yields
of high quality ZnSe. ZnSe is available from only one outside source
where quantity and qualities may be limited. The unavailability of
necessary amounts of high quality Zinc Selenide would have a material
adverse effect upon us. In addition, in fiscal 1992 and 1993, we
experienced fluctuations in our manufacturing yields which affected our
results of operations. There can be no assurance that we will not
experience manufacturing yield inefficiencies which could have a
material adverse effect on our business, results of operations or
financial condition.

We produce Hydrogen Selenide gas which is used in our production
of Zinc Selenide. There are risks inherent in the production and
handling of such material. Our inability to effectively handle Hydrogen
Selenide could require us to curtail our production of Hydrogen
Selenide. Hydrogen Selenide can be obtained from one outside source.
The cost of purchasing such material is significantly greater than the
cost of internal production. As a result, purchasing a substantial
portion of such material from the outside source would significantly
increase our production costs of Zinc Selenide. Therefore, our
inability to internally produce Hydrogen Selenide could have a material
adverse effect on our business, results of operations or financial
condition.

In addition, we utilize other high purity, relatively uncommon
materials and compounds to manufacture our products. Failure of our
suppliers to deliver sufficient quantities of these necessary materials
on a timely basis could have a material adverse effect on our business,
results of operations or financial condition.

Our Business is Dependent on Other Cyclical Industries

Our business is significantly dependent on the demand for products
produced by end users of industrial lasers. Many of these end users are
in industries that historically have experienced a highly cyclical
demand for their products. Therefore, as a result, demand for our
products and our results of operations are subject to cyclical
fluctuations.

Our Revenues are Subject to Potential Seasonal Fluctuations

Due to our customers' buying patterns, particularly in Europe,
revenues for our first fiscal quarter ending in September could be
below those in the preceding quarter. Our first fiscal quarter results
often are dependent upon the sales made in the last month of the
quarter.

We May Encounter Substantial Competition

We may encounter substantial competition from other companies in
the same market, including established companies with substantial
resources. Some of our competitors may have financial, technical,
marketing or other capabilities more extensive than ours and may be
able to respond more quickly than we can to new or emerging
technologies and other competitive pressures. We may not be able to
compete successfully against our present or future competitors, and
competition may adversely affect our business, financial condition or
operating results.

International Sales Account for a Significant Portion of Our Revenues

Sales to customers in countries other than the United States
accounted for approximately 45%, 47% and 49% of revenues during the
years ended June 30, 1998, 1999 and 2000, respectively. We anticipate
that international sales will continue to account for a significant
portion of our revenues for the foreseeable future. In addition, we
manufacture products in Singapore and China and maintain direct sales
offices in Japan and the UK. 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 our business, financial
condition or results of operations. In particular, although our
international sales, other than in Japan and the UK, are denominated in
U.S. dollars, currency exchange fluctuations in countries where we do
business could have a material adverse affect on our business,
financial condition or results of operations, by rendering us less
price-competitive than foreign manufacturers. Our sales in Japan are
denominated in yen and, accordingly, are affected by fluctuations in
the dollar/yen currency exchange rates. We generally reduce our
exposure to such fluctuations through forward exchange agreements. We
do not engage in the speculative trading of financial derivatives.
There can be no assurance, however, that our practices will reduce or
eliminate the risk of fluctuation in the dollar/yen currency exchange
rate.

Our Revenues May Suffer if General Economic Conditions Worsen

Our revenues and earnings may be affected by general economic
factors, such as excessive inflation, currency fluctuations and
employment levels, resulting in a temporary or longer-term overall
decline in demand for our products. Therefore, any significant downturn
or recession in the United States or other countries could have a
material adverse effect on our business, financial condition and
results of operations.

We May Expand Product Lines and Markets by Acquiring Other Businesses

Our business strategy includes expanding our 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 a material adverse affect on our 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. In December
1994 we acquired the Virgo Optics Division of Sandoz Chemicals
Corporation. In February 1996 we acquired Lightening Optical
Corporation. Subsequently, these acquisitions were combined to form our
VLOC subsidiary. To date, we have had little experience in integrating
businesses other than these acquisitions.

Our Success Depends on New Products and Processes

In order to meet our strategic objectives, we must continue to
develop, manufacture and market new products, develop new processes and
improve existing processes. As a result, we expect 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 our business. Our success 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 we will be able to develop and introduce
new products or enhancements to our existing products and processes in
a manner which satisfies customer needs or achieves market acceptance.
The failure to do so could have a material adverse affect on our
ability to grow our business.

Failure to Keep Pace with Industry Developments May Adversely Affect
Our Operations

We are engaged in industries which will be affected by future
developments. The introduction of products or processes utilizing new
developments could render existing products or processes obsolete or
unmarketable. Our continued success will depend upon our ability to
develop and introduce on a timely and cost-effective basis new
products, processes and applications that keep pace with developments
and address increasingly sophisticated customer requirements. There can
be no assurance that we will be successful in identifying, developing
and marketing new products, applications and processes and product or
process enhancements, that we will not experience difficulties that
could delay or prevent the successful development, introduction and
marketing of product or process enhancements or new products,
applications or processes, or that our products, applications or
processes will adequately meet the requirements of the marketplace and
achieve market acceptance. Our business, results of operations and
financial condition could be materially and adversely affected if we
were to incur delays in developing new products, applications or
processes or product or process enhancements or if we did not gain
market acceptance.

Our Success Depends on the Ability to Retain Key Personnel

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

There Are Limitations on the Protection of Our Intellectual Property

We do not currently hold any material patents applicable to our
processes and rely on a combination of trade secret, copyright and
trademark laws and employee non-competition and nondisclosure
agreements to protect our intellectual property rights. There can be no
assurance that the steps taken by us will be adequate to prevent
misappropriation of our technology. Furthermore, there can be no
assurance that, in the future, third parties will not assert
infringement claims against us. Asserting our rights or defending
against third-party claims could involve substantial expense, thus
materially and adversely affecting our business, results of operations
or financial condition. In the event a third party were successful in a
claim that one of our processes infringed its proprietary rights, we
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 our business, results of operations or financial
condition.

Our European Sales Rely On A Single Distributor

A significant portion of our European sales not made by our
subsidiary in the UK have been made through a European distributor.
This distributor also provides service and support to the end users of
our products. Thus, a reduction in the sales efforts of this
distributor could adversely affect our European sales and our ability
to support the end users of our products. There can be no assurance
that this distributor will continue to distribute, or to distribute
successfully, our products and, in such an event, our business, results
of operations and financial earnings could be materially and adversely
affected.

Our Stock Price May Fluctuate

Future announcements concerning us, our competitors or customers,
quarterly variations in operating results, announcements of
technological innovations, the introduction of new products or changes
in product pricing policies by us or our competitors, seasonal or other
variations in anticipated or actual results of operations, changes in
earnings estimates by analysts or reports regarding our industries in
the financial press or investment advisory publications, among other
factors, could cause the market price of our stock to fluctuate
substantially. In addition, stock prices may fluctuate widely for
reasons which may be unrelated to operating results. These
fluctuations, as well as general economic, political and market
conditions such as recessions, military conflicts or market or market-
sector declines, may materially and adversely affect the market price
of our common stock. In addition, any information concerning us,
including projections of future operating results, appearing in
investment advisory publications or on-line bulletin boards or
otherwise emanating from a source other than us could in the future
contribute to volatility in the market price of our common stock.

We Have Adopted Antitakeover Devices Which May Limit the Price that
Certain Investors May be Willing to Pay in the Future for Shares of Our
Common Stock

Our articles of incorporation and by-laws contain provisions which
could make us a less attractive target for a hostile takeover or make
it more difficult or discourage a merger proposal, a tender offer or a
proxy contest. This could limit the price that certain investors might
be willing to pay in the future for shares of our common stock. The
provisions include:

classification of the board of directors into three classes;

a procedure which requires shareholders or the board of
directors to nominate directors in advance of a meeting to elect
such directors;

the ability of the board of directors to issue additional shares
of common stock or preferred stock without shareholder approval;
and

certain provisions requiring supermajority approval (at least
two-thirds of the votes cast by all shareholders entitled to
vote thereon, voting together as a single class).

In addition, the Pennsylvania Business Corporation Law contains
provisions which may have the effect of delaying or preventing a change
in our control.

We Are Subject to Stringent Environmental Regulation

We use or generate certain hazardous substances in our research
and manufacturing facilities. We believe that our handling of such
substances is in material compliance with applicable local, state and
federal environmental, safety and health regulations at each operating
location. We invest substantially in proper 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. We annually conduct
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. We do not carry
environmental impairment insurance.

Relative to its generation and use of the extremely hazardous
substance Hydrogen Selenide, we have in place an 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, our facilities and
procedures have been inspected and licensed by the Nuclear Regulatory
Commission. This material is utilized in our thin-film coatings.
Thorium bearing by-products are collected and shipped as solid waste to
a government-approved low-level radioactive waste disposal site in
Barnwell, South Carolina or Clive, Utah.

The generation, use, collection, storage and disposal of all other
hazardous by-products, such as suspended solids containing heavy metals
or airborne particulates, are believed by us to be in material
compliance with regulations. We believe that all of the permits and
licenses required for operation of our business are in place. Although
we do not know 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 us.

Some Laser Systems Are Complex in Design and May Contain Defects that
Are Not Detected Until Deployed Which Could Increase Our Costs and/or
Reduce Our Revenues

Laser systems are inherently complex in design and require ongoing
regular maintenance. The manufacture of lasers, laser products and
systems involves a highly complex and precise process. As a result of
the technical complexity of our products, changes in our or our
suppliers' manufacturing processes or in the use of defective or
contaminated materials by us or our suppliers could result in a
material adverse effect on our ability to achieve acceptable
manufacturing yields and product reliability. To the extent that we do
not achieve such yields or product reliability, our business, operating
results, financial condition and customer relationships could be
adversely affected. Our customers may discover defects in our products
after the products have been fully deployed and operated under peak
stress conditions. In addition, some of our products are combined with
products from other vendors, which may contain defects. Should problems
occur, it may be difficult to identify the source of the problem. If we
are unable to fix defects or other problems, we could experience, among
other things:

loss of customers;

increased costs of product returns and warranty expenses;

damage to our brand reputation;

failure to attract new customers or achieve market acceptance;

diversion of development and engineering resources; and

legal action by our customers.

The occurrence of any one or more of the foregoing factors could
seriously harm our business or financial condition.

ITEM 2. PROPERTIES

Facilities

Our headquarters are located in Saxonburg, Pennsylvania, 25 miles
north of Pittsburgh, in a 115,000 square-foot facility, on
approximately 64 acres of land. In fiscal 1998, we completed
construction of a 30,000 square-foot facility in Saxonburg which is
occupied by our eV PRODUCTS division manufacturing operation and a
45,000 square-foot facility in Florida which is occupied by our VLOC
subsidiary. In fiscal 2000, we completed construction of a 6,000
square-foot facility in Saxonburg serving as our Advanced Materials
Development Center for research and development activities. In
addition, we lease manufacturing and office space in Florida,
Singapore, China, U.K., and Japan totaling 58,000 square feet, and own
two other facilities, totaling 35,000 square feet, in Florida.

ITEM 3. LEGAL PROCEEDINGS

Litigation

On June 13, 2000, a complaint naming Laser Power Corporation and
certain current and former directors of the company as defendants was
served on Laser Power. The complaint seeks to assert a breach of
fiduciary duty claim, and requests class action relief. It is styled C.
Oliver Burt, III v. Laser Power Corp., et al., Case No GIC 749273 (San
Diego Superior Court). On September 1, 2000, the Superior Court
dismissed the claim regarding this complaint against Laser Power,
without leave to amend. The Court also dismissed the claim against the
directors, with leave to amend. Laser Power believes that the claims
are without merit and intends to defend itself vigorously. However,
there can be no assurance that Laser Power will prevail in these
proceedings or that an outcome unfavorable to Laser Power in these
proceedings will not materially adversely affect Laser Power's
business, financial condition or results of operations. Laser Power had
previously entered into indemnification contracts with each of its
officers and directors, including the directors who were named
defendants in the complaint. As a result, Laser Power is paying the
expenses of the directors in defending themselves in this matter
subject to reimbursement under its insurance policies. Subject to
certain limited exceptions, Laser Power will reimburse the directors
for any monetary damages assessed against the individual directors that
are not covered by Laser Power's insurance policies. In addition, the
conduct of litigation can be time-consuming and costly. There can be
no assurance that these factors will not materially adversely affect
Laser Power's business, financial condition or results of operations.

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 58 Chairman, Chief Executive Officer
and Director
Francis J. Kramer 51 President, Chief Operating Officer
and Director
Herman E. Reedy 57 Vice President and General Manager
of Quality and Engineering
James Martinelli 42 Chief Financial Officer and
Treasurer

Carl J. Johnson, a co-founder of II-VI in 1971, serves as
Chairman, Chief Executive Officer, and Director of II-VI. He served as
President of II-VI 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.

Francis J. Kramer has served as a Director of II-VI since 1989.
Mr. Kramer has been employed by II-VI since 1983 and has been its
President and Chief Operating Officer since 1985. Mr. Kramer joined
II-VI 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 II-VI, 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 II-VI 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 II-VI, 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 SemiElements, 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 II-VI since 1986 and has
served as Chief Financial Officer and Treasurer and Assistant Secretary
since May of 1994. Mr. Martinelli joined II-VI as Accounting Manager
and was named Controller in 1990. Prior to his employment by II-VI,
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. Sale prices have been adjusted to reflect the
two-for-one stock split effected on September 20, 2000.

High Low
---- ---

Fiscal 2000
First Quarter $7 3/8 $4 27/32
Second Quarter $11 $5 3/8
Third Quarter $35 3/4 $9 5/16
Fourth Quarter $26 3/4 $14 15/16

Fiscal 1999
First Quarter $7 1/8 $3 5/8
Second Quarter $4 1/2 $2 15/16
Third Quarter $5 3/32 $3 5/8
Fourth Quarter $4 3/4 $3 5/8

On September 15, 2000, the last reported sale price for the Common
Stock on the NASDAQ National Market was $24.00 per share. As of such
date, there were approximately 900 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 15 of the Company's 2000 Annual Report to Shareholders.

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 11 through 14 of the Company's 2000 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 4 through 14 of the Company's 2000 Annual Report to
Shareholders.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The information required by this item is incorporated by reference
from pages 16 through 32 of the Company's 2000 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 2000 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
2000 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 2000
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 2000 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.

(a) (1) The consolidated balance sheets as of June 30, 2000
and 1999, the consolidated statements of earnings,
shareholders' equity, comprehensive income and cash
flow for each of the three years in the period ended
June 30, 2000, and the notes to consolidated financial
statements, presented in the Company's 2000 Annual
Report to Shareholders, are incorporated herein by
reference.

The report of Deloitte & Touche LLP, dated August 4,
2000 (August 14, 2000 as to Notes D and J and
September 20, 2000 as to Note K) on the 2000, 1999 and
1998 financial statements presented in the Company's
2000 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 2000 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, 2000, is
included herein.

Schedule II - Valuation and Qualifying Accounts for
each of the three years in the period ended June 30,
2000.

(3) Exhibits.

Exhibit Number Description Of Exhibit
-------------- ----------------------

2.01 Agreement and Plan of Merger Incorporated herein by
dated as of June 28, 2000, reference is Exhibit 2.01
among II-VI Incorporated, to the Company's Registration
Laser Power Corporation Statement No. 333-41314 on
and II-VI Acquisition Corp. Form S-4.

2.02 First Amendment to Agreement Incorporated herein by
and Plan of Merger dated reference is Exhibit 2.02
as of August 1, 2000, among to the Company's Registration
II-VI Incorporated, Statement No. 333-41314 on
II-VI Acquisition Corp. and Form S-4.
Laser Power Corporation.
3.01 Amended and Restated Articles Incorporated herein by
of Incorporation of reference is Exhibit 3.02 to
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 II-VI'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 Incorporated herein by
Employees' Stock reference is Exhibit 10.03 to
Purchase Plan Registration Statement
No. 33-16389 on Form S-1.

10.02 II-VI Incorporated and Incorporated herein by
Amended and Restated reference is Exhibit 10.04 to
Employees' Stock Purchase Registration Statement
Plan No. 33-16389 on Form S-1.

10.03 First Amendment Incorporated herein by
II-VI Incorporated reference is Exhibit 10.01 to
Amended and Restated Employees' the II-VI's Form 10-Q for the
Stock Purchase Plan Quarter Ended March 31, 1996.

10.04 II-VI Incorporated Amended and Incorporated herein by
Restated Employees' reference is Exhibit 10.05 to
Profit-Sharing Registration Statement
Plan and Trust Agreement, No. 33-16389 on Form S-1.
as amended

10.05 Form of Representative Agreement Incorporated herein by
between II-VI and its foreign reference is Exhibit 10.15 to
representatives Registration Statement
No. 33-16389 on Form S-1.

10.06 Form of Employment Agreement* Incorporated herein by
reference is Exhibit 10.16 to
Registration Statement
33-16389 on Form S-1.

10.07 Description of Management-By- Incorporated herein by
Objective Plan* reference is Exhibit 10.09 to
II-VI'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
Option Plan* II-VI's Proxy Statement dated
September 30, 1994.

10.09 II-VI Incorporated Deferred Incorporated herein by
Compensation Plan* reference is Exhibit 10.12 to
II-VI's Annual Report on
Form 10-K for the fiscal year
ended June 30, 1996.

10.10 Trust Under the Incorporated herein by
II-VI Incorporated reference is Exhibit 10.13 to
Deferred Compensation Plan* II-VI'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
II-VI'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 to
Compensation Plan* II-VI'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 to
Option Plan* II-VI'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 Association reference is Exhibit 10.01 to
and II-VI Incorporated for the II-VI's Form 10-Q for the
Amended and Restated Quarter Ended March 31, 1999.
Letter Agreement for Committed
Line of Credit and Japanese Yen
Term Loan

10.15 Credit Agreement by and among Incorporated herein by
II-VI Incorporated, its reference is Exhibit (b)(1)
subsidiary guarantors, to Amendment No. 3 to the
various lenders and PNC Bank, Company's Tender Offer
National Association dated Statement on Schedule TO
as of August 14, 2000 filed on August 24, 2000.

13.01 Annual Report to Shareholders Portions of the 2000 Annual
Report are filed herewith.

21.01 List of Subsidiaries of Filed herewith.
II-VI Incorporated

23.01 Consent of Deloitte & Touche LLP Filed herewith.

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 2000.

(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 2000 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 2000 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 27, 2000 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, 2000 By: /s/ Carl J. Johnson
Carl J. Johnson
Chairman, Chief Executive Officer
and Director

September 27, 2000 By: /s/ Francis J. Kramer
Francis J. Kramer
President, Chief
Operating Officer and Director

Principal Financial and Accounting Officer:

September 27, 2000 By: /s/ James Martinelli
James Martinelli
Chief Financial Officer, Treasurer

September 27, 2000 By: /s/ Richard W. Bohlen
Richard W. Bohlen
Director

September 27, 2000 By: /s/ Thomas E. Mistler
Thomas E. Mistler
Director

September 27, 2000 By: /s/ Duncan A. J. Morrison
Duncan A. J. Morrison
Director

September 27, 2000 By: /s/ Peter W. Sognefest
Peter W. Sognefest
Director

EXHIBIT INDEX

Exhibit Number Description Of Exhibit
-------------- ----------------------

3.01 Amended and Restated Articles Incorporated herein by
of Incorporation of reference is Exhibit 3.02 to
II-VI Incorporated Registration Statement
No. 33-16389 on Form S-1.