Note 10.

Segment 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.

In June 2017, the Company completed its acquisition of IPI. See Note 3. Acquisitions. The operating results of this acquisition have been reflected in the selected financial information of the Company’s II-VI Photonics segment.

In August 2017, the Company completed its acquisition of II-VI Compound Semiconductor Ltd. See Note 3. Acquisitions. The operating results of this acquisition have been reflected in the selected financial information of the Company’s II-VI Laser Solutions segment.

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

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

	Three Months Ended September 30, 2017
	II-VI				II-VI
	Laser		II-VI		Performance
	Solutions		Photonics		Products		Eliminations			Total
Revenues	$	93,262	$	110,614	$	57,627	$	-		$	261,503
Inter-segment revenues		7,184		4,578		827		(12,589	)		-
Operating income		3,265		19,499		7,014		-			29,777
Interest expense											(3,645	)
Other income (expense), net											767
Income taxes											(5,758	)
Net earnings											21,141
Depreciation and amortization		8,306		6,163		4,347		-			18,816
Segment assets		704,405		566,198		313,202		-			1,583,805
Expenditures for property, plant & equipment		13,256		10,578		13,592		-			37,426
Investment		-		-		11,998		-			11,998

	Three Months Ended September 30, 2016
	II-VI				II-VI
	Laser		II-VI		Performance
	Solutions		Photonics		Products		Eliminations			Total
Revenues	$	79,290	$	95,819	$	46,411	$	-		$	221,520
Inter-segment revenues		5,940		3,438		1,733		(11,111	)		-
Operating income		6,698		13,890		3,103		-			23,691
Interest expense											(1,246	)
Other income (expense), net											1,402
Income taxes											(7,553	)
Net earnings											16,294
Depreciation and amortization		5,650		4,848		4,384		-			14,882
Expenditures for property, plant & equipment		20,125		6,597		3,272		-			29,994