Note 11.

Segment and Geographic Reporting

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

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

The II-VI Laser Solutions segment is located in the United States, Singapore, China, Germany, Switzerland, Japan, Belgium, the United Kingdom, Italy, South Korea, the Philippines and Taiwan. II-VI Laser Solutions is directed by the President of II-VI Laser Solutions, while each geographic location is directed by a general manager, and is further divided into production and administrative units that are directed by managers. II-VI Laser Solutions designs, manufactures and markets optical and electro-optical components and materials sold under the II-VI Infrared brand name and used primarily in high-power CO₂ lasers, fiber-delivered beam delivery systems and processing tools and direct diode lasers for industrial lasers sold under the II-VI HIGHYAG and II-VI Laser Enterprise brand names. II-VI Laser Solutions also manufactures compound semiconductor epitaxial wafers for applications in optical components, wireless devices, and high-speed communication systems and manufactures 6-inch gallium arsenide wafers allowing for the production of high performance lasers and integrated circuits in high volume sold under the II-VI EpiWorks and II-VI OptoElectronic Devices Division brand names.

The II-VI Photonics segment is located in the United States, China, Vietnam, Germany, Japan, the United Kingdom., Italy and Hong Kong. II-VI Photonics is directed by the President of II-VI Photonics and is further divided into production and administrative units that are directed by managers. II-VI Photonics manufactures crystal materials, optics, microchip lasers and optoelectronic modules for use in optical communication networks and other diverse consumer and commercial applications. In addition, the segment also manufactures pump lasers, optical isolators, and optical amplifiers and micro-optics for optical amplifiers for both terrestrial and submarine applications within the optical communications market.

The II-VI Performance Products segment is located in the United States, Vietnam, Japan, China, Germany and the Philippines. II-VI Performance Products is directed by the President of II-VI Performance Products, while each geographic location is directed by a general manager. II-VI Performance Products is further divided into production and administrative units that are directed by managers. II-VI Performance Products designs, manufactures and markets infrared optical components and high-precision optical assemblies for military, medical and commercial laser imaging applications. In addition, the segment designs, manufactures and markets unique engineered materials for thermoelectric and silicon carbide applications servicing the semiconductor, military and medical markets.

On June 19, 2017, the Company completed its acquisition of IPI. See Note 2. Acquisitions. The operating results of this acquisition have been reflected in the selected financial information of the Company’s II-VI Photonics segment

The accounting policies of the segments are the same as those of the Company. The Company’s corporate expenses are allocated to the segments. The Company evaluates segment performance based upon reported segment operating income, which is defined as earnings from continuing operations before income taxes, interest and other income or expense. Inter-segment sales and transfers have been eliminated.

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

	II-VI				II-VI
	Laser		II-VI		Performance
	Solutions		Photonics		Products		Eliminations			Total
($000)
2017
Revenues	$	339,341	$	418,515	$	214,190	$	-		$	972,046
Inter-segment revenues		33,792		14,236		10,189		(58,217	)		-
Operating income		30,931		62,975		21,635		-			115,541
Interest expense		-		-		-		-			(6,809	)
Other income, net		-		-		-		-			10,056
Income taxes		-		-		-		-			(23,514	)
Net earnings		-		-		-		-			95,274
Depreciation and amortization		24,958		21,442		17,237		-			63,637
Expenditures for property, plant & equipment		82,760		27,397		32,788		-			142,945
Segment assets		589,239		578,315		309,743		-			1,477,297
Equity investment		-		-		11,727		-			11,727
Goodwill		84,180		113,272		52,890		-			250,342

	II-VI				II-VI
	Laser		II-VI		Performance
	Solutions		Photonics		Products		Eliminations			Total
($000)
2016
Revenues	$	303,002	$	325,879	$	198,335	$	-		$	827,216
Inter-segment revenues		24,290		12,081		7,274		(43,645	)		-
Operating income		36,184		37,849		17,780		-			91,813
Interest expense		-		-		-		-			(3,081	)
Other income, net		-		-		-		-			1,223
Income taxes		-		-		-		-			(24,469	)
Net earnings		-		-		-		-			65,486
Depreciation and amortization		17,222		19,855		19,586		-			56,663
Expenditures for property, plant & equipment		25,620		21,096		11,454		-			58,170
Segment assets		469,754		467,486		274,741		-			1,211,981
Equity investment		-		-		11,354		-			11,354
Goodwill		84,105		96,760		52,890		-			233,755

	II-VI				II-VI
	Laser		II-VI		Performance
	Solutions		Photonics		Products		Eliminations			Total
($000)
2015
Revenues	$	287,881	$	260,825	$	193,255	$	-		$	741,961
Inter-segment revenues		21,021		13,210		9,325		(43,556	)		-
Operating income		55,039		7,208		14,552		-			76,799
Interest expense		-		-		-		-			(3,863	)
Other income, net		-		-		-		-			6,176
Income taxes		-		-		-		-			(13,137	)
Net earnings		-		-		-		-			65,975
Depreciation and amortization		14,127		21,073		17,883		-			53,083
Expenditures for property, plant & equipment		27,349		11,324		13,640		-			52,313

Geographic information for revenues from the country of origin (shipped from), and long-lived assets from the country of origin, which include property, plant and equipment, net of related depreciation, and certain other long-term assets, were as follows:

	Revenues
Year Ended June 30,	2017		2016		2015
($000)
United States	$	294,200	$	266,347	$	241,974
Non-United States
China		208,595		172,292		140,586
Hong Kong		190,702		140,821		109,428
Germany		88,304		72,070		77,524
Japan		76,212		57,287		52,864
Switzerland		50,497		54,760		56,940
Vietnam		22,497		24,267		24,307
Italy		10,791		10,160		9,313
United Kingdom		8,473		8,154		7,749
Belgium		7,503		6,026		5,731
Korea		6,584		3,887		-
Singapore		3,913		3,039		3,897
Philippines		3,057		8,106		11,334
Taiwan		718		-		-
Australia		-		-		314
Total Non-United States		677,846		560,869		499,987
	$	972,046	$	827,216	$	741,961

	Long-Lived Assets
June 30,	2017		2016		2015
($000)
United States	$	240,029	$	137,521	$	102,171
Non-United States
China		62,024		51,824		46,794
Switzerland		36,795		38,202		26,384
Germany		15,323		15,162		15,790
Vietnam		8,272		8,895		7,985
Philippines		6,115		4,399		6,003
Hong Kong		1,914		1,765		2,476
Other		1,100		1,146		1,282
Total Non-United States		131,543		121,393		106,714
	$	371,572	$	258,914	$	208,885