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, 1998

[ ] Transition report pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934 for the transition
period from _____________________ to ________________.

Commission File Number: 0-16195
II-VI INCORPORATED
(Exact name of registrant as specified in its charter)

PENNSYLVANIA 25-1214948
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
375 Saxonburg Boulevard
Saxonburg, PA 16056
(Address of principal executive offices) (Zip code)

Registrant's telephone number, including area code:
724-352-4455

Securities registered pursuant to Section 12(b) of the Act:
None.
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, no par value.

Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---

Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein
and will not be contained, to the best of registrant's knowledge,
in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]

Aggregate market value of outstanding Common Stock, no par value,
held by non-affiliates of the Registrant at September 15, 1998,
was approximately $43,708,026, based on the closing sale price
reported on NASDAQ/NMS for September 15, 1998. 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, 1998, was 6,842,986.

Documents Incorporated by Reference

Portions of the Annual Report to Shareholders for the fiscal year
ended June 30, 1998 are incorporated by reference into Parts I,
II and IV hereof.

Portions of the Proxy Statement for the 1998 Annual Meeting of
Shareholders are incorporated by reference into Part III hereof.

PART I
ITEM 1. BUSINESS

Introduction

II-VI Incorporated ("II-VI" or the "Company") was incorporated in
Pennsylvania in 1971. The Company's executive offices are located
at 375 Saxonburg Boulevard, Saxonburg, Pennsylvania 16056. Its
telephone number is 724-352-4455. Reference to the "Company" or
"II-VI" in this Form 10-K, unless the context requires otherwise,
refers to II-VI Incorporated and its wholly-owned subsidiaries,
II-VI Worldwide, Incorporated, II-VI Delaware, Incorporated, II-VI
Japan Incorporated, II-VI Singapore Pte., Ltd., II-VI VLOC
Incorporated, II-VI Optics (Suzhou) Co. Ltd., and II-VI U.K. Limited,
as a consolidated operation. eV PRODUCTS operates as a division of
II-VI Incorporated. The Company's name is pronounced "Two-Six
Incorporated."

II-VI Incorporated designs, manufactures and markets optical and
electro-optical components, devices and materials for precision
use in infrared, near-infrared, visible-light and X-ray/gamma-ray
instruments and applications. The Company's infrared products are
used in high-power CO2 (carbon dioxide) lasers for industrial
processing and for commercial and military sensing systems. The
Company's near-infrared and visible-light products are used in
industrial, scientific and medical instruments and solid-state
(such as YAG and YLF) lasers. II-VI also is developing and marketing
solid-state x-ray and gamma-ray products for the nuclear radiation
detection industry. The majority of the Company's revenues are
attributable to the sale of optical parts and components for the
laser processing industry.

Information Regarding Market Segments and Foreign Operations

The Company's business comprises one segment, the design,
manufacture and marketing of optical and electro-optical
components, devices and materials for precision use in infrared,
near-infrared, visible-light and x-ray/gamma-ray instruments and
applications.

Financial data regarding the Company's revenues, results of
operations and export sales for the Company's last three fiscal
years is set forth in, and incorporated herein by reference to,
the Company's Consolidated Statements of Earnings on page 17 of
the II-VI Incorporated 1998 Annual Report (the "Annual Report")
and Note H to the Company's Consolidated Financial Statements on
page 26 of the Annual Report.

Industrial Processing Background

Applications for laser processing are increasing worldwide as
manufacturers seek solutions to increasing demands for quality,
precision, speed, throughput, flexibility, automation and cost
control. High-power CO2 and YAG lasers provide these benefits in
a wide variety of cutting, welding, drilling, ablation, balancing,
cladding, heat-treating and marking applications. For example,
automobile manufacturers use lasers to facilitate rapid product
changeovers, process simplification, efficient sequencing and
computer control on high-throughput production lines.
Manufacturers of recreational vehicles, lawn mowers and garden
tractors cut, trim and weld metal parts with lasers to achieve
flexible, high-consistency, reduced post-processing, lower-cost
operations. For office furniture producers, lasers provide
easily reconfigurable, low-distortion, low-cost prototyping and
production capability that facilitates semi-custom manufacturing
of customer-specified designs. On high-speed consumer product
processing lines, laser marking provides automated date coding for
food packaging and computer driven container identification for
pharmaceuticals.

Precision optics such as total reflectors, partial mirrors,
beamsplitters and lenses are critical to the operation of lasers
and laser systems. Many CO2 and YAG laser systems contain up to
15 optical elements either as part of the laser resonator or
associated with routing of the laser beam to the work piece. To
the extent that optics wear or become contaminated during operation,
optics are consumables in laser processing. Thus, an aftermarket
demand is generated by an estimated current worldwide installed base
of approximately 80,000 industrial YAG and CO2 lasers.

Products

The Company's products include optical and electro-optical
components, devices and materials for precision use in infrared,
near-infrared, visible light, X-ray and gamma-ray instruments, and
their applications. The Company's infrared products are used in
high power CO2 (carbon dioxide) lasers for industrial processing
worldwide. The Company's VLOC subsidiary manufactures near-infrared
and visible light products used in industrial, scientific and
medical instruments and solid-state (such as YAG and YLF) lasers.
The Company is also developing and marketing solid-state X-ray and
gamma-ray detector products for the nuclear radiation detection
industry through its eV PRODUCTS division. The majority of the
Company's revenues are attributable to the sale of optics or
optical elements and components for the industrial laser processing
industry.

Infrared Optics and Materials

Reliable operation of high power (1 to 20 kW) CO2 infrared lasers
requires high quality, low absorption optical elements. The CO2
laser emits infrared energy at a wavelength of 10.6 micrometers, a
wavelength which is optimal for many industrial processes including
cutting, welding, drilling and heat treating of various materials
such as steel and other metals or alloys, plastics, wood, paper,
cardboard, ceramics and numerous composites. This wavelength is
also desirable for certain types of medical surgery and for various
surveillance and sensing systems that must penetrate adverse
atmospheric conditions.

The Company is a broad line supplier of virtually all of the optics
and optical elements used in CO2 lasers and laser systems. The
Company supplies a family of standard and custom transmissive,
reflective and precision diamond turned optical elements to high
power CO2 laser manufacturers, CO2 laser system manufacturers and
to the aftermarket as replacement parts. Transmissive optical
elements manufactured by the Company are predominately made from
Zinc Selenide produced in-house. The Company is one of two dominant
manufacturers in the world of this optical material. The Company's
Zinc Selenide capability and its low absorbing, thin film coating
technology have earned the Company a reputation as the quality
leader worldwide in this marketplace.

The Company provides replacement optics and refurbishing services
to users of industrial CO2 lasers. The Company sells its infrared
replacement optics with a 24-hour shipment guarantee under the
trade name of INFRAREADY(r) optics. Consumable items such as
focusing lenses and output couplers are cost effectively refurbished
for the Company's aftermarket customers. The aftermarket portion
of the Company's business continues to grow as industrial laser
applications proliferate worldwide.

The Company supplies Cadmium Zinc Telluride (CdZnTe) substrates
primarily to U.S. military and NATO defense suppliers under the
trade name EPIReady(r). These substrates are subsequently
processed by the Company's customers into infrared detectors using
epitaxial crystal growth and device fabrication techniques. The
Company supplies Zinc Sulfide in the form of domes and windows to
military suppliers for Forward Looking InfraRed (FLIR) systems
worldwide. A portion of the Company's infrared substrate business
involves development programs funded by various governmental
agencies.

YAG Laser Components

The power levels available from Nd:YAG (neodymium doped:Yttrium
Aluminum Garnet) lasers (1 to 3 kW) are increasing while the
costs of such lasers are decreasing. These trends are making YAG
laser processing more attractive in such high-power YAG applications
as the welding of airbag sensors and inflators. Low-power YAG
applications include the high speed micro-welding of multi-blade
shaving razor assemblies, the welding of heart pacemakers, the
precision trimming of resistors in electronic assemblies, and
marking or labeling of integrated circuits. The capability to
deliver the 1.06 micrometer YAG laser wavelength over flexible,
low loss optical fibers has enhanced YAG laser deployment in many
applications where complex shapes require versatile beam delivery
geometries. YAG lasers require the same optical elements as the CO2
lasers except that they are made of different materials to operate
at the YAG laser near-infrared wavelength of 1.06 micrometers.
The Company supplies a family of standard and custom laser gain
materials and optics for industrial, medical, scientific and
research YAG lasers. The YAG laser gain materials are produced to
stringent industry specifications and precisely fabricated into rods
or slabs. Included in the Company's products are refurbished YAG
rods sold to the Company's aftermarket customers. The Company
offers waveplates, polarizers, lenses, prisms and mirrors for visible
and near-infrared applications. These products control and alter
the visible and near-infrared energy and its polarization. The
Company offers cavities for use in flashlamp pumped lasers. These
cavities are made primarily of samarium doped glass which improves
the laser performance.

Nuclear Radiation Detectors

The nuclear radiation detection market is composed of medical probe
and imaging, industrial gauging, environmental monitoring, nuclear
safeguards and nonproliferation, and health physics segments.
Solid-state CdZnTe nuclear radiation detectors are attractive
because of their reduced size, improved tolerance of environmental
conditions and lower voltage/current requirements compared to the
more traditional scintillator/photomultiplier or cryogenically
cooled Germanium devices.

The use of CdZnTe hand-held probes in the medical field allows the
introduction of new cancer location techniques, based on the
injection of a radio-labeled antibody that binds to the cancer
cells. This allows the surgeon to accurately identify and remove
cancerous tissue.

CdZnTe-based imaging arrays can be used in both the nuclear medical
(internal gamma-ray emission) and Radiographic (external X-ray
source) fields. In nuclear medicine, the material is patterned with
up to 2mm x 2mm pixels and allows the manufacture of a new generation
of gamma cameras, offering a much improved position sensitivity and
the potential to produce images using lower doses of injected
radioactivity. In the Radiographic field, the material is processed
into much smaller pixels (<100(m x 100(m) and provides a much
improved sensitivity to the higher energy X-rays used in some of the
newer diagnostic techniques. It also allows the possibility of
direct-readout digital radiography, which allows the doctor to see
the relevant part of the body in real time, thus reducing the time
delay between X-ray and diagnosis.

The Company designs and manufactures CdZnTe room-temperature,
nuclear radiation detectors combined with custom designed low
noise front-end electronics. The Company believes it has become
the leader in room-temperature, direct conversion radiation
detectors.

Fluoride Materials

Nd:YLF (neodymium doped:Yttrium Lithium Fluoride) displays
exceptional qualities as a laser material for solid-state lasers.
The crystal offers high power laser operation at 1.047 micrometers
and 1.053 micrometers with low beam divergence leading to good Q-
switched and single-mode laser operation. YLF is used in both
flashlamp pumped and diode pumped solid-state lasers. Due to high
lasing efficiency, YLF lasers are suitable for use on the
manufacturing floor for scribing, trimming and cutting of
semiconductor materials.YLF also lases at 1.313 micrometers.
That, along with the 1.047 micrometer wavelength, has attractive
applications for use in cable television and other
telecommunication applications which require devices with high
data rates.

Customers and Markets

Industrial

The Company's customers include leading industrial original
equipment manufacturers (OEMs) and system manufacturers worldwide
in the CO2 and YAG laser machine tool industry. The Company has
focused its marketing efforts on growing both high and low power
segments of the laser optics marketplace.

High power CO2 lasers manufactured by the Company's customers are
installed on systems that are used for cutting, drilling, welding
and marking of materials and heat treating of metals. The Company
also sells their products to laser end users which require
replacement optics, such as focusing lenses and beam steering
mirrors. Users of industrial lasers include a broad range of
industries and applications, such as automotive, electrical
equipment, packaging, building products, office furniture,
garment, airframe or aerospace, consumer electronics, tooling
and machinery.

Low power, sealed CO2 lasers are utilized for both medical and
small parts manufacturing, engraving and serialization of
products. These small, lightweight, low-cost systems are flexible
and provide rapid response for a number of medical and light
manufacturing applications. Manufacturers of these laser
sources are high volume optics customers of the Company.

The Company's YAG component customers' systems are used for marking,
scribing, microwelding and precision trimming. A broad range of
industries use YAG systems, including medical devices, consumer
products, automotive and semiconductors. The Company offers YAG
laser manufacturers both the YAG laser rod and the necessary optics
for a complete laser system.

The Company's customers are developing products incorporating
fluoride materials for use in telecommunications, material
processing and environmental monitoring.

The Company is using its close working relationships with its
industrial CO2 customers worldwide to increase its YAG component
supply marketshare, since both products are needed by many of the
same customers.

Scientific and Military

The scientific, research and new product development areas of
the electro-optics device market are creating many opportunities
for the visible, near-infrared and infrared optics and materials
produced by the Company. The Company provides high end, high
specification components to this group of customers, which include
products such as aspheric optics, prisms, parabolic reflectors and
focusing element assemblies. The Company provides specialty optics
and components to instrument manufacturers. The Company's products
are integrated into spectrophotometers, interferometers and distance
measuring instruments; scanning mirrors for high resolution color
printing; and focusing assemblies for infrared cameras. Quick
response, short lead times, high quality products and engineering
support are cornerstones of the Company's pursuit of these markets.

U.S. and NATO allies are pursuing defense strategies, based upon
stringent budgets, to improve the effectiveness of military systems
through electronics upgrades, including infrared imaging systems.
The Company supplies materials and optics to manufacturers of
infrared sensing systems.

Sales and Distribution

The Company markets its products in the United States through
its direct sales force; in Japan through its subsidiary, II-VI
Japan Incorporated; in certain Southeast Asian markets through its
subsidiary, II-VI Singapore Pte., Ltd.; in the United Kingdom
through its subsidiary, II-VI U.K. Limited. For the remainder of
Europe, sales are effected through distributors, and sales throughout
the rest of the world are made through manufacturers'
representatives. The Company's products are sold to over 4,000
customers throughout the world. The Company's principal
international markets are Germany and Japan.

Manufacturing Processes

Infrared and Visible Optics

The manufacturing processes for optics include a number of low-cost,
automated, high-precision processes that have been developed and
documented at the Company's manufacturing sites in Pennsylvania,
Florida, Singapore and China. Manufacturing steps for the majority
of the Company's optical products include:

Grinding and Polishing. The Company rigorously tests starting
materials in the optics fabrication process to assure conformity
to specifications for absorption, clarity, stress and purity.
The manufacturing sequence typically involves grinding a part to
the desired curvature and precision polishing the optic to the
desired high-quality surface shape and finish. The Company has
developed specialized processes for fabricating visible, near-
infrared, and infrared optics. The Company has state-of-the-art,
numerically controlled generating and grinding equipment and
automated synchrospeed optical polishing apparatuses.

Diamond Turning. The Company's diamond turning of metal mirrors
involves state-of-the-art equipment for cutting of flat metal
reflectors and turning of contoured spherical or aspherical shapes.
The ability to produce spherical and aspherical diffraction-free
surfaces, due to a proprietary real-time feedback test system,
provides the highest-quality high-power-handling copper reflecting
mirrors available in the industry.

Thin-Film Coating. Multilayer, thin-film, visible-light and
infrared coatings are produced by evaporating precisely controlled
thicknesses of various substances from microprocessor-controlled
thermal or electron-beam sources onto optical surfaces in custom-
built vacuum chambers. The know-how to control such process
variables as time, pressure, gas flow and temperature are critical
to achieving low-absorption, high-adhesion and properly transmitting
thin films. Production of zero-defect coatings is a part of the
proprietary knowledge of II-VI.

Materials

The Company is a materials-based company. Processes used to
produce these materials require long development periods, are
capital intensive and involve precision process control. Yields
are raised from minimal to acceptable as know-how and process-
consistency techniques are developed.

The Company's infrared components and materials are made from
compounds composed primarily of elements from Groups II and VI
of the Periodic Table of the Elements ("II-VI Compounds"). II-VI
Compounds, a class of non-hygroscopic (do not absorb water)
materials, are leading infrared transmitting materials. Their
high infrared transmission efficiency, the key property needed
for high-power infrared laser optics, is a result of low infrared
absorption. Infrared absorption is low due to the type of bonding
that exists within a II-VI Compound crystalline structure and due
to the relatively high molecular weights of the most useful II-VI
Compounds. The Group II elements used by the Company are Zinc,
Cadmium and Mercury, and the Group VI elements used are Sulfur,
Selenium and Tellurium.

Materials manufactured by the Company include:

Zinc Selenide. The Company manufactures fine-grained
polycrystalline Zinc Selenide by a proprietary chemical vapor
deposition process. The Company is one of two dominant
manufacturers of this material in the world and has earned the
reputation for producing the lowest-absorbing laser-grade Zinc
Selenide. The process involves high-temperature disassociation
of Hydrogen Selenide gas and a gas phase reaction with Zinc vapor.
Solid Zinc Selenide is deposited on graphite mandrels at high
temperatures, forming sheets of the material. Zinc Selenide is
the principal material used in the Company's CO2 laser optics.
All material is polished, inspected and laser-tested for defects.

Zinc Sulfide. The chemical vapor deposition process is also
utilized to manufacture fine-grained polycrystalline Zinc Sulfide.
Some Zinc Sulfide is further processed to form Multispectral Zinc
Sulfide. The Multispectral Zinc Sulfide is highly transmissive
from the ultraviolet to the middle infrared wave lengths, making
it the material of choice for tank windows, for example, through
which humans, laser range-finders and guidance systems identify
targets.

Cadmium Zinc Telluride Substrates. The Company utilizes
vertical and horizontal Bridgman processes to grow its Cadmium
Zinc Telluride single-crystal substrate materials. The Bridgman
processes involve direct solidification from a liquid melt with
closely controlled unidirectional freezing in either a vertical
or horizontal configuration. The substrates are mined from
thoroughly tested Cadmium Zinc Telluride ingots utilizing precision
crystal-orientation techniques followed by a sequence of surface
lapping and semiautomated diamond sawing. Wafers are precision
sized, then surfaced through a series of critical polishing and
chemical etching steps.

Cadmium Zinc Telluride for Nuclear Radiation Detectors. The
high-pressure vertical Bridgman process is used to grow Cadmium
Zinc Telluride for nuclear radiation detectors. This proprietary
process produces critical materials which, when mated to hybrid
front-end electronics built by the Company, are sold to industrial
gauging and other equipment manufacturers. The high-pressure
Bridgman process yields products that are cost-competitive with
scintillator/photomultiplier devices.

YAG Materials. Neodymium-doped YAG solid-state laser gain
materials are manufactured at the Company's Florida operations.
The Company's precision process control and know-how result in
consistent YAG rod products which are in high demand. The Company
has recently expanded its production capacity for this material.

YLF and LiSAF Materials. Neodymium-doped YLF and chromium-doped
LiSAF solid-state laser gain materials are manufactured at the
Company's Florida operations. The Company utilizes a top-seeded
Czochralski technique with precision computer-aided diameter control
techniques to produce the high-quality YLF and LiSAF crystals
required for the high-demand laser rod products. The Company is the
industry leader in the LiSAF market and competes in the YLF rod and
slab business on price, quality and delivery.

Sources of Supply

The major raw materials used by the Company are Zinc, Selenium,
Hydrogen Selenide, Hydrogen Sulfide, Cadmium, Tellurium, Yttrium
Oxide, Aluminum Oxide and Iridium. The Company produces virtually
all of its Zinc Selenide and Zinc Sulfide requirements internally,
although small quantities of Zinc Selenide and Zinc Sulfide may be
purchased from outside vendors from time to time. The Company also
purchases Gallium Arsenide, Copper, Silicon, Germanium, Quartz,
optical glass and small quantities of other materials for use as
base materials for laser optics. The Company purchases Thorium
Fluoride and other materials for use in optical fabrication and
coating processes. There are more than two suppliers for all of
the above materials except for Zinc Selenide and Hydrogen Selenide
(excluding the Company) and Thorium Fluoride, for each of which
there is only one proven source of merchant supply. For most
materials, the Company has entered into annual purchase arrangements
whereby suppliers provide discounts for annual volume purchases in
excess of specified amounts.

The continued high quality of these raw materials is critical to
the stability of the Company's manufacturing yields. The Company
conducts testing of materials at the onset of the production process
to meet evolving customer requirements. Additional research may be
needed to better define future starting material specifications.
The Company has not experienced significant production delays due
to shortages of materials. However, the Company does occasionally
experience problems associated with vendor-supplied materials that
do not meet contract specifications for quality or purity. A
significant failure of the Company's suppliers to deliver sufficient
quantities of necessary high-quality materials on a timely basis
could have a materially adverse effect on the Company's results of
operations.

Environmental, Health and Safety Matters

The Company uses or generates certain hazardous substances in its
research and manufacturing facilities. The Company believes that
its handling of such substances is in material compliance with
applicable local, state and federal environmental, safety and
health regulations at each operating location. The Company invests
substantially in proper protective equipment, process controls and
specialized training to minimize risks to employees, surrounding
communities and the environment due to the presence and handling of
such hazardous substances. The Company annually conducts employee
physical examinations and workplace air monitoring regarding such
substances. When exposure problems or potential exposure problems
have been indicated, corrective actions have been implemented and
re-occurrence has been minimal or non-existent. The Company does
not carry environmental impairment insurance.

Relative to its generation and use of the extremely hazardous
substance Hydrogen Selenide, the Company has in place a government-
approved emergency response plan. Special attention has been given
to all procedures pertaining to this gaseous material to minimize
the chances of its accidental release to the atmosphere.

With respect to the use, storage and disposal of the low-level
radioactive material Thorium Fluoride, the Company's facilities
and procedures have been inspected and approved by the Nuclear
Regulatory Commission. This material is utilized in the Company's
thin-film coatings. Thorium Fluoride bearing by-products are
collected and shipped as solid waste to a government-approved
low-level radioactive waste disposal site in Barnwell, South
Carolina.

The generation, use, collection, storage and disposal of all
other hazardous by-products, such as suspended solids containing
heavy metals or airborne particulates, are believed by the
Company to be in material compliance with regulations. Management
believes that all of the permits and licenses required for operation
of the Company's business are in place. Although the Company is
not aware of any material environmental, safety or health problems
in its properties or processes, there can be no assurance that
problems will not develop in the future which would have a materially
adverse effect on the Company.

Research and Development

The Company's research and development policy calls for the pursuit
of a program of internally funded and contract research and
development totaling between 5 and 8 percent of product sales.
From time to time the ratio of contract to internally funded
activity varies significantly due to the unevenness and uncertainty
associated with most government research programs. The Company is
committed to accepting only funded research that ties closely to its
growth plans.

Company research and development activities focus on developing
new proprietary products or on understanding, improving and
automating crystal growth, low-damage fabrication or optical thin-
film coating technologies. The Company performs commercial
prototype and engineering work for customers and, in addition,
participates in various government and university research and
development consortia. The Company maintains an engineering,
research and development staff of ninety-five. Eighty-eight of
the Company's employees are engineers or scientists. In addition,
manufacturing personnel support or participate in research and
development on an ongoing basis. Interaction between the
development and manufacturing functions enhances the direction of
projects, reduces costs and accelerates technology transfers.

The Company is primarily engaged in ongoing research and
development in the following areas: Zinc Selenide optical material
production; vertical and horizontal Bridgman Cadmium Zinc Telluride
crystal growth and substrate manufacturing; high-pressure Bridgman
Cadmium Zinc Telluride crystal growth and radiation detector
manufacturing; YAG crystal production; YLF and other fluorides
production; Potassium Niobate crystal growth; automated,
deterministic optical fabrication methods; optical thin-film
processes and products; and microlaser assemblies based on various
combinations of YAG or yttrium vanadate gain materials with
frequency-doubling materials.

Company-funded research and development and contract research
expenditures together totaled approximately $1.7 million, $3.0
illion and $3.3 million during fiscal 1996, 1997 and 1998,
respectively. Contract research revenues during those respective
years totaled approximately $1.7 million, $2.7 million and $2.2
million. The Company has been active in various research and
development programs, including the Pennsylvania Ben Franklin
Partnership program, the Federal Small Business Innovation
Research programs of primarily the Department of Defense agencies
and a DARPA (Defense Advanced Research Projects Agency) sponsored
industry team program focused on infrared materials producibility.

Competition

The Company believes that it is a leading producer of products
and services in its addressed markets. In the area of high-power
CO2 laser optics and materials, II-VI believes it supplies over half
of the world market. The Company is a leading supplier of Cadmium
Zinc Telluride substrates used for infrared imaging arrays, and
believes that it is the only supplier of Cadmium Telluride electro-
optic modulators to U.S. and NATO defense contractors. The Company
is a significant supplier of YAG rods and YAG laser optics to the
worldwide markets of scientific, research, medical and industrial
laser manufacturers.

The Company competes on the basis of product quality, quick
delivery, strong technical support and pricing. Management
believes that the Company competes favorably with respect to these
factors and that its vertical integration, manufacturing facilities
and equipment, experienced technical and manufacturing employees,
and worldwide marketing and distribution provide competitive
advantages.

The Company has a number of present and potential competitors,
many of which have greater financial, selling, marketing or technical
resources. The significant competitor of the Company in the
production of Zinc Selenide is Morton International's Advanced
Materials Division. The competitors producing infrared and CO2
laser optics include Laser Power Corporation and Coherent in the
United States and Sumitomo in Japan. Competing producers of YAG
materials and optics include the Litton Airtron Division of Litton
Industries and the Crystal Products Group of Union Carbide. The
Company is not currently aware of any significant competitors for
its Cadmium Zinc Telluride radiation detector product line.

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

Order Backlog

Order backlog increased 17% to $19.8 million at June 30, 1998
from $16.9 million at June 30, 1997. Manufacturing orders comprise
93% of the backlog at June 30, 1998, compared to 83% of backlog
at June 30, 1997. All of the manufacturing order backlog at June
30, 1998 is expected to be shipped in fiscal 1999.
Employees
As of June 30, 1998, the Company employed 689 persons worldwide.
Of these employees, 95 were engaged in research, development and
engineering, 440 in direct production and the balance in sales and
marketing, administration, finance and support services. The
Company's production staff includes highly skilled optical craftsmen.
None of the Company's employees are covered by a collective
bargaining agreement, and the Company has never experienced any
work stoppages. The Company has a long standing policy of
encouraging active employee participation in selected areas of
operations management. The Company believes its relations with
its employees to be good. The Company rewards its employees with
incentive compensation based on achievement of performance goals.

Patents, Trade Secrets And Trademarks

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

The processes and specialized equipment utilized in crystal growth,
infrared materials fabrication and infrared optical coatings as
developed at the Company are complex and difficult to duplicate.
However, there can be no assurance that others will not develop or
patent similar technology or that all aspects of the Company's
proprietary technology will be protected. Others have obtained
patents covering a variety of infrared optical configurations and
processes, and others could obtain patents covering technology
similar to the Company's. The Company may be required to obtain
licenses under such patents, and there can be no assurance that
the Company would be able to obtain such licenses, if required, on
commercially reasonable terms, or that claims regarding rights to
technology will not be asserted which may adversely affect the
Company. In addition, Company research and development contracts
with agencies of the United States Government present a risk that
project-specific technology could be disclosed to competitors as
contract reporting requirements are fulfilled.

The Company holds four registered trademarks: the II-VI INCORPORATED
(registered) name; INFRAREADY OPTICS(registered) for replacement
optics for industrial CO2 lasers; EPIREADY(registered) for low
surface damage substrates for Mercury Cadmium Telluride epitaxy;
and eV PRODUCTS(registered) for products manufactured by the
Company's eV PRODUCTS division. The trademarks are registered
with the United States Patent and Trademark Office, but not with
any states. The Company is not aware of any interference or
opposition to these trademarks in any jurisdiction.

Risk Factors

Environmental Concerns

The Company is subject to a variety of federal, state and
local governmental regulations related to the storage, use and
disposal of environmentally hazardous materials. Both the
governmental regulations and the costs associated with complying
with such regulations are subject to change in the future.
There can be no assurance that any such change will not have a
material adverse effect on the Company. The Company manufactures
and utilizes Hydrogen Selenide gas, an extremely hazardous
material, in the production of Zinc Selenide. In its processes,
the Company also generates waste containing Thorium Fluoride, a
low-level radioactive material, and other hazardous by-products
such as suspended solids containing heavy metals and airborne
particulates. The Company has made and continues to make
substantial investments in protective equipment, process controls,
manufacturing procedures and training in order to minimize the risks
to employees, surrounding communities and the environment due to the
presence and handling of such extremely hazardous materials. The
failure to properly handle such materials, however, could lead to
harmful exposure to employees or the discharge of certain hazardous
waste materials, and, since the Company does not carry environmental
impairment insurance, this could have a material adverse effect on
the financial condition or results of operations of the Company.
Although the Company has not encountered material environmental
problems in its properties or processes to date, there can be no
assurance that problems will not develop in the future which would
have a material adverse effect on the business, results of
operations or financial condition of the Company.

Manufacturing and Sources of Supply

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

The Company produces the Hydrogen Selenide gas used in its
production of Zinc Selenide. There are risks inherent in the
production and handling of such material. The inability of the
Company to effectively handle Hydrogen Selenide could result in
the Company being required to curtail its production of Hydrogen
Selenide. Hydrogen Selenide can be obtained from one external
source, and the Company has previously purchased, and to supplement
its internal production, currently purchases such material from
this source. The cost of purchasing such material is significantly
greater than the cost of internal production. As a result, if the
Company purchased a substantial portion of such material from its
outside source, it would significantly increase the Company's
production costs of Zinc Selenide. Therefore, the Company's
inability to internally produce Hydrogen Selenide could have a
material adverse effect on the business, results of operations or
financial condition of the Company.

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

Competition

The Company has a number of present and potential competitors,
many of which have greater financial resources than the Company.
The markets for many of the Company's products can be subject to
competitive pricing in order to gain or retain market share. Such
competitive pressures could affect the Company's pricing and
adversely affect the business, results of operations or financial
condition of the Company.

International Sales and Operations

Sales to customers in countries other than the United States
accounted for approximately 43% of revenues during both fiscal
1996 and 1997 and 45% during fiscal 1998. The Company anticipates
that international sales will continue to account for a significant
portion of revenues for the foreseeable future. In addition, the
Company manufactures products in Singapore and China, and maintains
direct sales offices in Japan and the United Kingdom. Sales and
operations outside of the United States are subject to certain
inherent risks, including fluctuations in the value of the U.S.
dollar relative to foreign currencies, tariffs, quotas, taxes and
other market barriers, political and economic instability,
restrictions on the export or import of technology, potentially
limited intellectual property protection, difficulties in staffing
and managing international operations and potentially adverse tax
consequences. There can be no assurance that any of these factors
will not have a material adverse effect on the Company's business,
financial condition or results of operations. In particular,
although the Company's international sales, other than in Japan
and the United Kingdom, are denominated in U.S. dollars, currency
exchange fluctuations in countries where the Company does business
could have a material adverse affect on the Company's business,
financial condition or results of operations, by rendering the
Company less price-competitive than foreign manufacturers. The
Company's sales in Japan and the United Kingdom are denominated
in the foreign currency and, accordingly, are affected by
fluctuations in exchange rates. The Company generally reduces
its exposure in Japan to such fluctuations through forward
exchange agreements. The Company does not engage in the
speculative trading of financial derivatives. There can be no
assurance, however, that the Company's practices will eliminate
the risk of fluctuation in the currency exchange rates.

Acquisitions

The Company's business strategy includes expanding its product
lines and markets through internal product development and
acquisitions. Any acquisition may result in potentially dilutive
issuances of equity securities, the incurrence of debt and
contingent liabilities, and amortization expense related to
intangible assets acquired, any of which could have material
adverse affect on the Company's business, financial condition or
results of operations. In addition, acquired businesses may be
experiencing operating losses. Any acquisition will involve
numerous risks, including difficulties in the assimilation of the
acquired company's operations and products, uncertainties
associated with operating in new markets and working with new
customers, and the potential loss of the acquired company's key
employees.

Sustaining and Managing Growth

The Company is currently undergoing a period of growth and there
can be no assurance that such growth can be sustained or managed
successfully. This expansion has resulted in a higher fixed cost
structure which will require increased revenue in order to
maintain historical gross margin and operating margins. There can
be no assurance that the Company will obtain the increased orders
necessary to generate increased revenue sufficient to cover this
higher cost structure. Failure by the Company to manage growth
successfully or have the systems and capacities necessary to sustain
its growth could have a material adverse affect on the Company's
business, results of operations or financial condition. In addition,
in connection with any future acquisitions, the Company expects that
it will hire additional senior management. There can be no assurance
that the Company will be able effectively to achieve growth,
including in such new markets, integrate such new personnel or
manage any such growth, and failure to do so could have a material
adverse effect on the business, results of operations or financial
condition of the Company.

Dependence on New Products and Processes

In order to meet its strategic objectives, the Company must
continue to develop, manufacture and market new products, develop
new processes and improve existing processes. As a result, the
Company expects to continue to make significant investments in
research and development and to continue to consider from time to
time the strategic acquisition of businesses, products, or
technologies complementary to the Company's business. The
success of the Company in developing, introducing and selling
new and enhanced products depends upon a variety of factors
including product selection, timely and efficient completion of
product design and development, timely and efficient implementation
of manufacturing and assembly processes, effective sales and
marketing, and product performance in the field. There can be no
assurance that the Company will be able to develop and introduce
new products or enhancements to its existing products and processes
in a manner which satisfies customer needs or achieves market
acceptance. The failure to do so could have a material adverse
affect on the Company's ability to grow its business.

Dependence on Key Personnel

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

Proprietary Technology Claims

The Company does not currently hold any material patents
applicable to its processes and relies on a combination of trade
secret, copyright and trademark laws and employee non-compete and
nondisclosure agreements to protect its intellectual property
rights. There can be no assurance that the steps taken by the
Company to protect its rights will be adequate to prevent
misappropriation of the Company's technology. Furthermore, there
can be no assurance that, in the future, third parties will not
assert infringement claims against the Company. Asserting the
Company's rights or defending against third-party claims could
involve substantial expense, thus materially and adversely
affecting the business, results of operations or financial
condition of the Company. In the event a third party were
successful in a claim that one of the Company's processes
infringed its proprietary rights, the Company may have to pay
substantial damages or royalties, or expend substantial amounts
in order to obtain a license or modify the process so that it no
longer infringes such proprietary rights, any of which could have
a material adverse effect on the business, results of operations
or financial condition of the Company.

ITEM 2. PROPERTIES

Facilities

The Company's headquarters are located in Saxonburg, Pennsylvania,
25 miles north of Pittsburgh, in a 90,000-square-foot facility, on
approximately 64 acres of land. In fiscal 1998, the Company
completed construction of a 30,000-square-foot facility in Saxonburg
which is occupied by the eV PRODUCTS manufacturing operation and a
45,000 square-foot facility in Florida which is occupied by the
Company's VLOC subsidiary. In addition, the Company has leases for
its manufacturing and office space in Florida, Singapore, China,
U.K., and Japan totaling 39,000 square feet, and owns two facilities,
one of which is currently being held for sale, totaling 35,000
square feet in Florida.

ITEM 3. LEGAL PROCEEDINGS

The Company is not a party to any litigation which could have a
materially adverse effect on the Company or its business.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to a vote of security holders during
the fourth quarter of the fiscal year covered by this Form 10-K.

Executive Officers of the Registrant

The executive officers of the Company and their respective ages
and positions are as follows:

Name Age Position
Carl J. Johnson 56 Chairman, Chief Executive
Officer and Director
Francis J. Kramer 49 President, Chief Operating
Officer and Director
Herman E. Reedy 55 Vice President and
General Manager of
Quality and Engineering
James Martinelli 40 Treasurer and
Chief Financial Officer

Carl J. Johnson, a co-founder of the Company in 1971, serves as
Chairman, Chief Executive Officer and a Director of the Company.
He served as President of the Company from 1971 until 1985 and
has been a Director since its founding and Chairman since 1985.
From 1966 to 1971, Dr. Johnson was Director of Research &
Development for Essex International, Inc., an automotive
electrical and power distribution products manufacturer, now a
subsidiary of United Technologies Corporation. From 1964 to 1966,
Dr. Johnson worked at Bell Telephone Laboratories as a member of
the technical staff. In August 1996, he was selected as a
director of Xymox Technology, Inc. Dr. Johnson completed his
Ph.D. in Electrical Engineering at the University of Illinois in
1969. He holds B.S. and M.S. degrees in Electrical Engineering
from Purdue University and Massachusetts Institute of Technology
(MIT), respectively.

Francis J. Kramer has been employed by the Company since 1983,
has been its President and Chief Operating Officer since 1985
and was elected to the Board of Directors in 1989. Mr. Kramer
joined the Company as Vice President and General Manager of
Manufacturing and was named Executive Vice President and General
Manager of Manufacturing in 1984. Prior to his employment by the
Company, Mr. Kramer was the Director of Operations for the Utility
Communications Systems Group of Rockwell International
Corporation. Mr. Kramer graduated from the University of
Pittsburgh in 1971 with a B.S. in Industrial Engineering and from
Purdue University in 1975 with an M.S. in Industrial Administration.

Herman E. Reedy has been with the Company since 1977 and is Vice
President and General Manager of Quality and Engineering.
Previously, Mr. Reedy held positions at II-VI as General Manager
of Quality and Engineering, Manager of Quality and Manager of
Components. From 1973 until joining the Company, Mr. Reedy was
employed by Essex International, Inc., now a subsidiary of United
Technologies Corporation, serving last as Manager, MOS Wafer
Process Engineering. Prior to 1973, he was employed by Carnegie
Mellon University and previously held positions with Semi-Elements,
Inc. and Westinghouse Electric Corporation. Mr. Reedy is a 1975
graduate of the University of Pittsburgh with a B.S. degree in
Electrical Engineering.

James Martinelli has been employed by the Company since 1986 and
has served as Treasurer and Chief Financial Officer and Assistant
Secretary since May of 1994. Mr. Martinelli joined the Company as
Accounting Manager and was named Controller in 1990. Prior to his
employment by the Company, Mr. Martinelli was Accounting Manager at
Tippins Incorporated and Pennsylvania Engineering Corporation from
1980 to 1985. Mr. Martinelli graduated from Indiana University of
Pennsylvania with a B.S. degree in Accounting and is a member of the
Pennsylvania Institute of Certified Public Accountants.

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS

The Company's Common Stock is traded on the National Association
of Securities Dealers, Inc. Automated Quotations ("NASDAQ")
National Market under the symbol "IIVI." The following table sets
forth the range of high and low closing sale prices per share of
the Company's Common Stock for the fiscal periods indicated, as
reported by the NASDAQ National Market.

High Low
Fiscal 1998
First Quarter $28 $21 3/8
Second Quarter $28 1/2 $21
Third Quarter $23 3/4 $17 15/16
Fourth Quarter $20 1/2 $12 5/8

Fiscal 1997
First Quarter $23 $12 3/4
Second Quarter $27 1/8 $19 1/2
Third Quarter $31 3/4 $22 1/8
Fourth Quarter $25 1/4 $16 3/32

On September 15, 1998, the last reported sale price for the
Common Stock on the NASDAQ National Market was $8 9/16 per share.
As of such date, there were approximately 725 holders of record
of the Common Stock. The Company has not historically paid cash
dividends and does not anticipate paying cash dividends in the
foreseeable future.

ITEM 6. SELECTED FINANCIAL DATA

The information required by this item is incorporated by reference
from page 13 of the Company's 1998 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 9 through 12 of the Company's 1998 Annual Report to
Shareholders.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The information required by this item is incorporated by reference
from pages 2 through 8 of the Company's 1998 Annual Report to
Shareholders.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The information required by this item is incorporated by
reference is incorporated by reference from pages 14 through
26 of the Company's 1998 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 1998 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 1998 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 1998 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 1998 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, 1998 and
1997, the consolidated statements of earnings,
shareholders' equity, and cash flows for each of the
three years in the period ended June 30, 1998, and the
notes to consolidated financial statements, presented in the
Company's 1998 Annual Report to Shareholders, are
incorporated herein by reference.

The report of Deloitte & Touche LLP, dated August 7, 1998
on the 1998 and 1997 financial statements presented in the
Company's 1998 Annual Report to Shareholders, is incorporated
herein by reference.

The report of Alpern, Rosenthal & Company, dated August 12,
1996 on the consolidated statements of earnings,
shareholders' equity, and cash flows for the year ended June
30, 1996 is included herein.

(b) Financial Statement Schedule:

The financial statement schedule shown below should be read
in conjunction with the financial statements contained in the
1998 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 two years ended June 30, 1998, is included
herein.

The report of Alpern, Rosenthal & Company, dated August
12, 1996 on Schedule II for the year ended June 30, 1996,
is included herein.

Schedule II - Valuation and Qualifying Accounts for each of
the three years in the period ended June 30, 1998.

(3) Exhibits.

EXHIBIT NO. REFERENCE

2.01 Merger Agreement and Plan of Incorporated herein by
Reorganization by and among reference is Exhibit 2.01
II-VI Incorporated, to the Company's Report
II-VI Lightning Optical on Form 8-K for the event
Incorporated and Lightning dated February 22, 1996.
Optical Corporation, dated
as of February 22, 1996

2.02 Registration Rights Agreement Incorporated herein by
dated February 22, 1996 by reference is Exhibit 2.02
and among certain former to the Company's Report
shareholders of Lightning on Form 8-K for the event
Optical Corporation and dated February 22, 1996.
II-VI Incorporated

2.03 Escrow Agreement dated Incorporated herein by
February 22, 1996 by and reference is Exhibit 2.03
among certain shareholders to the Company's Report
of Lightning Optical on Form 8-K for the event
Corporation and II-VI dated February 22, 1996.
Incorporated

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

3.02 Amended and Restated By-Laws Incorporated herein by
of II-VI Incorporated reference is Exhibit 3.02 to
the Company's Annual Report
on Form 10-K for the fiscal
year ended June 30, 1991
(file number 0-16195 and
docketed on September 30, 1991).

10.01 II-VI Incorporated Employees' Incorporated herein by
Stock Purchase Plan reference is Exhibit 10.03 to
Registration Statement
No. 33-16389 on Form S-1.

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

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

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

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

10.06 Form of Employment Agreement* Incorporated herein by
reference is Exhibit 10.16 to
Registration Statement
No. 33-16389 on Form S-1.

10.07 Description of Management- Incorporated herein by
By-Objective Plan* reference is Exhibit 10.09 to
the Company's Annual Report on
Form 10-K for the fiscal year
ended June 30, 1993.

10.08 II-VI Incorporated 1994 Incorporated herein by
Nonemployee Directors Stock reference is Exhibit A to the
Option Plan Company's Proxy Statement
dated September 30, 1994.

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

10.10 Trust Under the II-VI Incorporated herein by
Incorporated Deferred reference is Exhibit 10.13 to
Compensation Plan* the Company's Annual Report on
Form 10-K for the fiscal year
ended June 30, 1996.

10.11 Description of Bonus Incorporated herein by
Incentive Plan* reference is Exhibit 10.14 to
the Company's Annual Report on
Form 10-K for the fiscal year
ended June 30, 1996.

10.12 Amended and Restated II-VI Incorporated herein by
Incorporated Deferred reference is Exhibit 10.01
Compensation Plan* to the Company's Form 10-Q
for the Quarter Ended
December 31, 1996.

10.13 Agreement by and between Incorporated herein by
PNC Bank, National reference is Exhibit 10.01
Association and II-VI to the Company's Form 10-Q
Incorporated for Committed for the Quarter Ended
Line of Credit (including March 31, 1998.
credit note) and Japanese
Yen Term Loan

10.14 Amended and Restated II-VI Filed herewith.
Incorporated 1997 Stock
Option Plan

13.01 Annual Report to Shareholders Portions of the 1998 Annual
Report are filed herewith.

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

23.01 Consent of Deloitte Filed herewith.
& Touche LLP

23.02 Consent of Alpern, Rosenthal Filed herewith.
& Company

27.01 Financial Data Schedule Filed herewith.

27.02 Restated Financial Data Filed herewith.
Schedule (Updated for basic
and diluted earnings per
share) for the Three and Six
Month Periods Ended
September 30, 1997
and December 31, 1997,
respectively

27.03 Restated Financial Data Filed herewith.
Schedule (Updated for basic
and diluted earnings per
share) for the Three, Six and
Nine Month Periods and the
Year Ended September 30, 1996,
December 31, 1996,
March 31, 1997 and June 30, 1997,
respectively

27.04 Restated Financial Data Filed herewith.
Schedule (Updated for basic
and diluted earnings per
share) for the Year Ended
June 30, 1996

- -----------
* 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 1998.

(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 1998 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 1998 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 22, 1998 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 22, 1998 By: /s/ Carl J. Johnson
Carl J. Johnson
Chairman and Chief Executive Officer
and Director

September 22, 1998 By: /s/ Francis J. Kramer
Francis J. Kramer
President and Chief
Operating Officer and Director

Principal Financial and
Accounting Officer:

September 22, 1998 By: /s/ James Martinelli
James Martinelli
Treasurer and Chief Financial Officer

September 22, 1998 By: /s/ Richard W. Bohlen
Richard W. Bohlen
Director

September 22, 1998 By: /s/ Thomas E. Mistler
Thomas E. Mistler
Director

September 22, 1998 By: /s/ Duncan A. J. Morrison
Duncan A. J. Morrison
Director

September 22, 1998 By: /s/ Peter W. Sognefest
Peter W. Sognefest
Director

INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Shareholders of
II-VI Incorporated and Subsidiaries
Saxonburg, Pennsylvania

We have audited the consolidated statements of earnings,
shareholders' equity and cash flows of II-VI Incorporated and
Subsidiaries for the year ended June 30, 1996; such consolidated
financial statements are included in the Company's 1998 Annual
Report to Shareholders and are incorporated herein by reference.
Our audit also included the financial statement schedule II,
Valuation and Qualifying Accounts of II-VI Incorporated and
Subsidiaries for the year ended June 30, 1996, listed in Part
IV at Item 14. These consolidated financial statements and
financial statement schedule are the responsibility of the
Company's management. Our responsibility is to express an
opinion on these consolidated financial statements and financial
statement schedule based on our audit.

We conducted our audit in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement.
An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting
principles used and significant estimates made by management,
as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our
opinion.

In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the results
of operations and cash flows of II-VI Incorporated and Subsidiaries
for the year ended June 30, 1996, in conformity with generally
accepted accounting principles. Also, in our opinion, the
financial statement schedule, when considered in relation to
the basic consolidated financial statements taken as a whole,
presents fairly in all material respects, the information set
forth therein.

/s/ Alpern, Rosenthal & Company
Pittsburgh, Pennsylvania
August 12, 1996

INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Shareholders of
II-VI Incorporated and subsidiaries:

We have audited the consolidated balance sheets of II-VI
Incorporated and subsidiaries as of June 30, 1998 and 1997 and
the related consolidated statements of earnings, shareholders'
equity and cash flows for the years then ended, and have issued
our report thereon dated August 7, 1998; such consolidated
financial statements and report are included in your 1998 Annual
Report to Shareholders and are incorporated herein by reference.
Our audits also included the consolidated financial statement
Schedule II, Valuation and Qualifying Accounts, of II-VI
Incorporated and subsidiaries for each of the two years in the
period ended June 30, 1998. The consolidated financial statement
schedule is the responsibility of the Company's management. Our
responsibility is to express an opinion based on our audits. In
our opinion, such financial statement schedule, when considered
in relation to the basic consolidated financial statements taken
as a whole, presents fairly in all material respects the
information set forth therein.

/s/ Deloitte & Touche LLP

Pittsburgh, Pennsylvania
August 7, 1998

SCHEDULE II

II-VI INCORPORATED AND SUBSIDIARIES

VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED JUNE 30, 1996, 1997, AND 1998
(IN THOUSANDS OF DOLLARS)

Additions
---------------------
Balance at Charged Charged Deduction Balance
Beginning to to Other from At End
of Year Expense Accounts(1) Reserves(2) of Year
------------------------------------------------------------------

YEAR ENDED JUNE 30, 1996:
Allowance for doubtful accounts
& warranty returns $ 261 $ 86 $ 16 $ 117 $ 246

YEAR ENDED JUNE 30, 1997:
Allowance for doubtful accounts
& warranty returns $ 246 $ 45 $ 35 $ 20 $ 306

YEAR ENDED JUNE 30, 1998:
Allowance for doubtful accounts
& warranty returns $ 306 $ 185 $ (8) $ 55 $ 428

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(1) Amounts primarily relate to businesses acquired ,warranty
returns and the effects of foreign currency translation.
(2) Uncollectible accounts written off, net of recoveries.

EXHIBIT INDEX