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<SEC-DOCUMENT>0000820318-98-000014.txt : 19980924
<SEC-HEADER>0000820318-98-000014.hdr.sgml : 19980924
ACCESSION NUMBER:		0000820318-98-000014
CONFORMED SUBMISSION TYPE:	10-K
PUBLIC DOCUMENT COUNT:		10
CONFORMED PERIOD OF REPORT:	19980630
FILED AS OF DATE:		19980923
SROS:			NASD

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			II-VI INC
		CENTRAL INDEX KEY:			0000820318
		STANDARD INDUSTRIAL CLASSIFICATION:	OPTICAL INSTRUMENTS & LENSES [3827]
		IRS NUMBER:				251214948
		STATE OF INCORPORATION:			PA
		FISCAL YEAR END:			0630

	FILING VALUES:
		FORM TYPE:		10-K
		SEC ACT:		
		SEC FILE NUMBER:	000-16195
		FILM NUMBER:		98713563

	BUSINESS ADDRESS:	
		STREET 1:		375 SAXONBURG BLVD
		CITY:			SAXONBURG
		STATE:			PA
		ZIP:			16056
		BUSINESS PHONE:		4123524455

	MAIL ADDRESS:	
		STREET 1:		375 SAXONBURG BLVD
		CITY:			SAXONBURG
		STATE:			PA
		ZIP:			16056
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-K
<SEQUENCE>1
<TEXT>

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)
<TABLE>
<CAPTION>
                                                           Additions
                                                     ---------------------
                                       Balance at    Charged     Charged        Deduction     Balance
                                       Beginning        to       to Other         from        At End
                                        of Year      Expense    Accounts(1)     Reserves(2)   of Year
                                       ------------------------------------------------------------------
<S>                                    <C>           <C>          <C>            <C>            <C>
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
</TABLE>

- --------
(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

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.


</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10
<SEQUENCE>2
<TEXT>


[Amended as of May 30, 1998]




                        II-VI INCORPORATED
                    STOCK OPTION PLAN OF 1997


Section 1.  Amendment.  Upon the effective date set forth in Section 
13, the II-VI Incorporated Stock Option Plan of 1990 is hereby 
amended and restated as the II-VI Incorporated Stock Option Plan of 
1997 (hereinafter called the "Plan").  Under the Plan, directors, 
officers, key employees and consultants/independent contractors of 
II-VI Incorporated (hereinafter called the "Company") and its 
subsidiaries, if any, who are responsible for its continued growth 
and development and future financial success of the Company may be 
granted options to purchase shares of common stock of the Company in 
order to secure to the Company the advantages of the incentive and 
sense of proprietorship inherent in stock ownership by such persons.

Section 2.  Duration.  All options granted under this Plan must be 
granted within ten years of August 16, 1997.  Any options 
outstanding after the expiration of such ten-year period may be 
exercised within the periods prescribed by Section 8.

Section 3.  Administration.  The Plan shall be administered by the 
Board of Directors of the Company or, at the election of the Board 
of Directors, by a committee of the Board of Directors (the 
"Administrator") constituted so as to comply with Rule 16b-3 
promulgated under Section 16 of the Securities Exchange Act of 1934, 
as amended, as such rule may be amended from time-to-time, or any 
successor rule.  In the event that the Administrator is a committee 
of the Board of Directors, a majority of the committee shall 
constitute a quorum and the acts of a majority of the members 
present at any meeting at which a quorum is present or acts approved 
in writing by a majority of the committee shall be deemed the acts 
of the committee.  Subject to the provisions of the Plan and to 
policies determined by the Board of Directors, the Administrator is 
authorized to adopt such rules and regulations and to take such 
action in the administration of the Plan as it shall deem proper.

Section 4.  Eligibility.  Directors, officers and key employees of 
the Company and its subsidiaries, if any (including officers and 
employees who are directors of the Company), who, in the opinion of 
the Administrator, are mainly responsible for the continued growth 
and development and future financial success of the business shall 
be eligible to participate in the Plan.  In addition, 
consultants/independent contractors shall be eligible for the grant 
of Nonstatutory Stock Options only (as hereinafter defined). The 
Administrator shall, in its sole discretion, from time to time, 
select from such eligible persons those to whom options shall be 
granted and determine the number of shares to be included in such 
option.  No officer or employee shall have any right to receive an 
option, except as the Administrator in its discretion shall 
determine.  The terms "subsidiaries" and "parent" where used in the 
Plan or in any stock option agreement entered into under the Plan 
means a "subsidiary corporation" or a "parent corporation" 
respectively as defined in Section 424 of the Internal Revenue Code 
of 1986, as it may be amended from time to time (the "Code").

Section 5.  Shares Subject to Plan.  Inclusive of options granted 
under this Plan prior to amendment hereby, options may be granted 
pursuant to the Plan to purchase up to 1,560,000 shares of no par 
value common stock of the Company (subject to adjustment as provided 
in Section 9), which may be either authorized and unissued shares or 
shares held in the treasury of the Company.  To the extent that 
options granted under the Plan (including options granted under the 
Plan prior to amendment hereby) shall expire or terminate without 
being exercised shares covered thereby shall remain available for 
purposes of the Plan.  Shares delivered to the Company to pay the 
option price or otherwise shall also remain available for purposes 
of the Plan.

Section 6.  Types of Options.  Options granted pursuant to the Plan 
may be either options which are intended to be treated as incentive 
stock options under Section 422 of the Code (hereinafter called 
"Incentive Stock Options") or other options not intended to be 
treated as incentive stock options under Section 422 of the Code 
(hereinafter called "Nonstatutory Stock Options").  Incentive Stock 
Options and Nonstatutory Stock Options shall be granted separately 
hereunder.  Subject to the foregoing, the Administrator shall 
determine, in its sole discretion, whether and to what extent 
options granted under the Plan shall be Incentive Stock Options or 
Nonstatutory Stock Options.

Section 7.  Authority of Administrator.  The Administrator, in its 
sole discretion, may permit an optionee voluntarily to surrender for 
cancellation an option granted under the Plan, such surrender to be 
conditioned upon the granting to such optionee of a new option under 
the Plan for the same or a different number of shares as the option 
surrendered, or may require such voluntary surrender as condition 
precedent to the grant of a new option to such optionee.  Any such 
new option shall be exercisable at the price, during the period, and 
in accordance with any other terms and conditions specified by the 
Administrator at the time the new option is granted, all determined 
in accordance with the provisions of the Plan without regard to the 
price, period of exercise, or any other terms or conditions of the 
option surrendered for cancellation.  The grant of such new option 
shall not be deemed an amendment of the Plan or the option 
surrendered.  For purposes of Section 5 hereof, options granted 
under this Plan and subsequently surrendered for cancellation shall 
be deemed to have terminated without being exercised.

Section 8.  Terms of Options.  Each option granted under the Plan 
shall be evidenced by a stock option agreement between the Company 
and the person to whom such option is granted designating the option 
as either an Incentive Stock Option or a Nonstatutory Stock Option 
and shall be subject to the following terms and conditions:

(a)  Subject to adjustment as provided in Section 9 of this Plan, 
the price at which each share covered by an option may be purchased 
shall be determined in each case by the committee but shall not be 
less than the fair market value thereof at the time the option is 
granted.  If an optionee owns (or is deemed to own under applicable 
provisions of the Code and rules and regulations promulgated 
thereunder) more than 10% of the combined voting power of all 
classes of the stock of the Company (or any parent or subsidiary of 
the Company) and an option granted to such optionee is designated as 
an Incentive Stock Option, the option price shall be no less than 
110% of the fair market value of the shares covered by the option on 
the date the option is granted.

(b)  During the lifetime of the optionee the option may be exercised 
only by the optionee.  The option shall not be transferable by the 
optionee otherwise than by will or by the laws of descent and 
distribution.

(c)  An option may be exercised in whole at any time, or in part 
from time to time, within such period or periods not to exceed ten 
years from the granting of the option as may be determined by the 
Administrator and set forth in the stock option agreement (such 
period or periods being hereinafter referred to as the "option 
period"), provided that all options will terminate if the optionee 
shall cease to be employed by the Company or any of its subsidiaries 
except as follows:

(i)  if the optionee shall cease to be employed by the Company or 
any of its subsidiaries because of early, normal or late retirement, 
as those terms are defined in the Company's profit sharing plan, the 
option may be exercised only within three years after the 
termination of employment and only within the option period;

(ii)  if the optionee shall cease to be employed by the Company or 
any of its subsidiaries because of a total and permanent disability 
as that term is defined in Section 22(e)(3) of the Code, the option 
may be exercised only within twelve months after the termination and 
only within the option period; and

(iii)  if the optionee shall die, the option may be exercised only 
within twelve months after the optionee's death and only within the 
option period (and only within the period set forth in subparagraph 
(i) hereof if such death follows a termination of employment other 
than for a total and permanent disability; or only within the period 
set forth in subparagraph (ii) hereof if such death follows a 
termination of employment due to a total and permanent disability as 
set forth in subparagraph (ii)) and only by the optionee's personal 
representatives or persons entitled thereto under the optionee's 
will or the laws of descent and distribution.

Notwithstanding the foregoing, the Board of Directors, in its sole 
discretion, or the Administrator, in its sole discretion, may extend 
the option period of any option (i) for any period following the 
date of termination of employment (or cessation of service as a 
director) not to exceed the original option period or (ii) for an 
additional three years following the date of termination of 
employment regardless of the original option period.

(d)  The option may not be exercised for more shares (subject to 
adjustment as provided in Section 9) after the termination of the 
optionee's employment or the optionee's death than the optionee was 
entitled to purchase thereunder at the time of the termination of 
the optionee's employment or the optionee's death.

(e)  If an optionee owns (or is deemed to own under applicable 
provisions of the Code and rules and regulations promulgated 
thereunder) more than 10% of the combined voting power of all 
classes of stock of the Company (or any parent or subsidiary of the 
Company) and an option granted to such optionee is designated as an 
Incentive Stock Option, the option by its terms may not be 
exercisable after the expiration of five years from the date such 
option is granted.

(f)  The option price of each share purchased pursuant to an option 
shall be paid in full at the time of each exercise of the option 
either (i) in cash, (ii) by delivering to the Company shares of the 
common stock of the Company having an aggregate fair market value 
equal to the option price of such shares being purchased; or, (iii) 
by delivering a combination of the foregoing having an aggregate 
fair market value equal to the option price of such shares being 
purchased.

(g)  Nothing contained in the Plan or in any stock option agreement 
shall confer upon any optionee any right with respect to the 
continuance of employment by the Company or any subsidiary or 
interfere in any way with the right of the Company or any subsidiary 
to terminate his employment or change his compensation at any time.

(h)  If the optionee terminates his employment with the Company or a 
subsidiary for any reason, and commences employment with a 
Competitor of the Company or a subsidiary within twelve months of 
the date the option is exercised, the optionee shall return to the 
Company the shares acquired pursuant to such exercise and the 
Company shall return the purchase price of such shares in cash or 
certified check within thirty days after the optionee commences such 
employment with a Competitor.  If the optionee has sold such shares, 
then he agrees to pay to the company, in cash or certified funds, an 
amount equal to the proceeds received by the optionee on the sale of 
such shares less the amount which the optionee paid for such shares 
on the exercise of the option.  Such amount shall be paid to the 
Company within thirty days after the optionee commences his 
employment with the Competitor.  For the purpose of this Plan, a 
"Competitor" shall mean any corporation, partnership, sole 
proprietorship or other entity who sells, manufactures, produces or 
modifies a product or products similar to, the same as or a 
substitute for any product or products sold by the Company or any 
subsidiary.

(i)  A stock option agreement may contain such other terms and 
conditions not inconsistent with the foregoing as the Administrator 
shall approve for any or all options granted hereunder, including a 
vesting restriction on exercise for some or all of the shares 
subject to the option for certain periods of time not to exceed five 
years.

Section 9.  Adjustment of Number and Price of Shares.

(a)  In the event that a dividend shall be declared upon the common 
stock of the Company payable in shares of said stock, including any 
such dividend declared prior to the effective date of this amendment 
to the Plan, the number of shares of common stock covered by each 
outstanding option and the number of shares available for issuance 
pursuant to the Plan but not yet covered by an option shall be 
adjusted by adding thereto the number of shares which would have 
been distributable thereon if such shares had been outstanding on 
the date fixed for determining the shareholders entitled to receive 
such stock dividend.

(b)  In the event that the outstanding shares of common stock of the 
Company shall be changed into or exchanged for a different number or 
kind of shares of stock or other securities of the Company or of 
another corporation, whether through reorganization, 
recapitalization, stock split-up, combination of shares, merger or 
consolidation, then there shall be substituted for the shares of 
common stock covered by each outstanding option and for the shares 
available for issuance pursuant to the Plan but not yet covered by 
an option, the number and kind of shares of stock or other 
securities which would have been substituted therefor if such shares 
had been outstanding on the date fixed for determining the 
shareholders entitled to receive such changed or substituted stock 
or other securities.

(c)  In the event there shall be any change, other than specified 
above in this Section 9, in the number or kind of outstanding shares 
of common stock of the Company or of any stock or other securities 
into which such common stock shall be changed or for which it shall 
have been exchanged, then, if the Board of Directors shall 
determine, in its discretion, that such change equitably requires an 
adjustment in the number or kind of shares covered by an option, 
such adjustment shall be made by the Board of Directors and shall be 
effective and binding for all purposes of the Plan and on each 
outstanding stock option agreement.

(d)  In the event that, by reason of a corporate merger, 
consolidation, acquisition of property or stock, separation, 
reorganization or liquidation, the Board of Directors shall 
authorize the issuance or assumption of a stock option or stock 
options in a transaction to which Section 424(a) of the Code 
applies, then, notwithstanding any other provision of the Plan, the 
Committee may grant an option or options upon such terms and 
conditions as it may deem appropriate for the purpose of assumption 
of the old option, or substitution of a new option for the old 
option, in conformity with the provisions of such Section 424(a) and 
the regulations thereunder, as they may be amended from time to 
time.

(e)  No adjustment or substitution provided for in this Section 9 
shall require the Company to issue or to sell a fractional share 
under any stock option agreement and the total adjustment or 
substitution with respect to each stock option agreement shall be 
limited accordingly.

(f)  In the case of any adjustment or substitution provided for in 
this Section 9, the option price per share in each stock option 
agreement shall be equitably adjusted by the Board of Directors to 
reflect the greater or lesser number of shares of stock or other 
securities into which the stock covered by the option may have been 
changed or which may have been substituted therefor.

Section 10.  Fair Market Value.  In any determination of fair market 
value under this Plan, fair market value shall be deemed to be (i) 
if there quoted, the closing price on the National Association of 
Securities Dealers Automated Quotation-National Market System, for 
the no par value common stock of the Company for the date in 
question, or if no sales were made on that date, on the next 
preceding date on which sales were made, or (ii) the mean between 
the bid and the asked price as quoted by the National Association of 
Securities Dealers Automated Quotation System.

Section 11.  Amendment and Discontinuance.  The Board of Directors 
may alter, amend, suspend or discontinue the Plan, provided that no 
such action shall deprive any person without such person's consent 
of any rights theretofore granted pursuant hereto.  Except as 
provided in Section 9, the Board of Directors shall submit any 
amendment to the Plan to the stockholders of the Company for 
approval only if (i) required by law, or (ii) considered advisable 
or necessary by the Board of Directors.

Section 12.  Compliance with Governmental Regulations.

(a)  Notwithstanding any provision of the Plan or the terms of any 
stock option agreement issued under the Plan, the Company shall not 
be required to issue any shares hereunder prior to registration of 
the shares subject to the Plan under the Securities Act of 1933 or 
the Securities Exchange Act of 1934, if such registration shall be 
necessary, or before compliance by the Company of any participant 
with any other provisions of either of those acts or of regulations 
or rulings of the Securities and Exchange Commission thereunder, or 
before compliance with all other federal and state laws and 
regulations and rulings thereunder.

(b)  The Company shall use its best efforts to effect such 
registrations (except as otherwise provided in paragraph (c) hereof) 
and to comply with such laws, regulations and rulings forthwith upon 
advice by its counsel that any such registration or compliance is 
necessary.

(c)  The Company may, based upon advice by counsel to the Company, 
require an optionee to make such representations and warranties at 
the time of exercise of a stock option granted under the Plan as 
shall be necessary or convenient to cause the issuance of the shares 
to such optionee to be in compliance with such laws, regulations and 
rulings without registration.

Section 13.  Effective Date of Amended Plan.  The Plan, as amended, 
is effective as of August 16, 1997, subject to approval and adoption 
of the amendment to the Plan by the holders of a majority of the 
votes cast at the 1997 annual meeting of stockholders.









</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-13
<SEQUENCE>3
<TEXT>

MANAGEMENT'S DISCUSSION & ANALYSIS


RESULTS OF OPERATIONS
Fiscal 1998 Compared to Fiscal 1997 

Overview
Net earnings decreased 5% in fiscal 1998 to $6.8 million from $7.1 
million in fiscal 1997.  Revenues grew 16% to $61.3 million in 
fiscal 1998 from $52.7 million last fiscal year. Bookings increased 
13% to $64.2 million in fiscal 1998 from $56.7 million in fiscal 
1997.  Order backlog increased 17% to $19.8 million at June 30, 1998 
from $16.9 million at June 30, 1997 as a result of orders outpacing 
shipments in fiscal 1998.  Manufacturing orders comprised 93% of the 
backlog at June 30, 1998 compared to 83% of backlog at June 30, 1997.

Net Earnings
Net earnings decreased 5% in fiscal 1998 to $6.8 million, down from 
$7.1 million in fiscal 1997.  The major contributors to the net 
earnings decrease were lower manufacturing gross margins, higher 
selling, general and administrative expenses, higher internal 
research and development expenses and higher other expenses.  Each 
of these are explained further in this section.

Bookings and Sales
Bookings increased 13% to $64.2 million in fiscal 1998 compared to 
$56.7 million in fiscal 1997.  Manufacturing bookings increased by 
approximately $9.7 million while contract research and development 
bookings decreased by approximately $2.2 million.  The largest 
portion of the growth in manufacturing orders was due to increased 
demand for infrared optics and materials in the international 
industrial markets, excluding Japan, as well as increased bookings 
at the Company's VLOC subsidiary.

Revenues grew 16% to $61.3 million in fiscal 1998 compared to $52.7 
million last fiscal year.  All of this growth was in manufacturing 
revenues, offset by a decrease in contract research and development.  
Contract research and development revenues decreased 17% to $2.2 
million in fiscal 1998 from $2.7 million in fiscal 1997.  The Company 
has decreased the amount of contract research and development 
projects it undertakes in an effort to focus on internal research 
and development projects and higher margin manufacturing products.  
The Company expects this focus to continue in the near future.

Costs And Expenses
Manufacturing gross margin was $25.1 million or 42% of net sales in 
fiscal 1998 compared to $22.5 million or 45% of net sales in fiscal 
1997.  The dollar increase was attributable to higher sales volume, 
particularly sales of infrared optics and materials and sales of 
products from the Company's VLOC subsidiary.  The decrease in gross 
margin as a percentage of net sales was the result of increased per 
unit manufacturing costs in the eV PRODUCTS division due to slower-
than-expected revenue growth, operating inefficiencies at the 
Company's VLOC subsidiary resulting from its relocation to a new 
manufacturing facility, price sensitivity in the infrared optics and 
material market and the strengthening of the U.S. dollar against the 
Japanese yen.

Contract research and development gross margin was $516,000 or 23% of 
net sales in fiscal 1998 compared to $707,000 or 27% of net sales in 
fiscal 1997.  The Company has decreased the amount of contract 
research and development projects it undertakes in an effort to focus 
on internal research and development projects and higher margin 
manufacturing products.  The Company expects this focus to continue 
in the near future.

Company-funded internal research and development increased to $1.6 
million in fiscal 1998 from $1.0 million in fiscal 1997.  The 
Company continues to expand its internal research and development 
projects, including nuclear radiation detector development and 
infrared optics and materials development.

Selling, general and administrative expenses were $14.3 million or 
23% of net sales in fiscal 1998 compared to $12.7 million or 24% of 
net sales in fiscal 1997.  This dollar increase is attributable to 
higher general and administrative expenses needed to support the 
Company's growth.  The decrease in selling, general and 
administrative expenses as a percentage of net sales reflects 
improved utilization of existing personnel and resources to support 
the Company's overall growth.

                                9

Other expense, including interest expense, was $177,000 in fiscal 
1998 compared to other income of $488,000 in fiscal 1997.  The 
primary reasons for the increase in other expense are the lower 
investment earnings on lower cash balances compared to the previous 
year and the occurrence of foreign currency losses due to the 
strengthening of the U.S. dollar against the Japanese yen and the
Singapore dollar.

The effective corporate income tax rate was 29.3% in fiscal 1998 
compared to 28.8% in fiscal 1997. The Company's future effective 
tax rates will continue to be affected by the level of profit or 
loss generated by the foreign subsidiaries.  The Company 
anticipates that its effective corporate income tax rate for fiscal 
1999 will increase.  

Fiscal 1997 Compared to Fiscal 1996

Overview
Net earnings rose 63% in fiscal 1997 to $7.1 million, up from $4.4 
million in fiscal 1996. Revenues grew 39% to $52.7 million in fiscal 
1997 compared to $37.9 million last fiscal year. This growth was 
attributed to improved CO2 laser optics sales throughout the world 
along with the results of operations of Lightning Optical 
Corporation, which was acquired during February 1996, being included 
for a full fiscal year (the "Acquisition"). Bookings increased 35% 
to $56.7 million in fiscal 1997 compared to $42.1 million in fiscal 
1996.  Order backlog increased 30% to $16.9 million at June 30, 1997 
from $12.9 million at June 30, 1996 as a result of orders outpacing 
shipments in fiscal 1997 and, to a lesser extent, the Acquisition. 
Manufacturing orders comprised 83% of the backlog at June 30, 1997, 
compared to 82% of backlog at June 30, 1996.

Net Earnings
Net earnings rose 63% in fiscal 1997 to $7.1 million, up from $4.4 
million in fiscal 1996. The major contributors to the net earnings 
growth were improved CO2 laser optics sales volume, the Acquisition, 
and additional other income as a result of higher interest income 
from increased cash levels and a foreign currency gain. These 
contributors more than offset both the increased selling, general 
and administrative expenses that were needed to support the Company's 
growth, and a slight increase in the effective corporate income tax 
rate.

Bookings and Sales
Bookings increased 35% to $56.7 million in fiscal 1997 compared to 
$42.1 million in fiscal 1996. Orders for manufactured products 
accounted for the entire increase in bookings. Contract research and 
development bookings decreased slightly from fiscal year 1996. The 
largest portion of the growth in manufacturing orders was driven by 
increased demand in the international industrial markets, including 
Japan, and the Acquisition.

Revenues grew 39% to $52.7 million in fiscal 1997 compared to $37.9 
million last fiscal year. Approximately 93% of this growth was in 
manufacturing revenues. This growth was led by increased demand in 
the international industrial markets and the Acquisition. Contract 
research and development revenues increased 59% to $2.7 million in 
fiscal 1997 from $1.7 million in fiscal 1996. This increase was 
attributable to work being performed on several additional government 
contract awards in fiscal 1997.

Costs and Expenses
Manufacturing gross margin was $22.5 million or 45% of net sales in 
fiscal 1997 compared to $15.7 million or 43% of net sales in fiscal 
1996. This increase was attributable to higher sales volume in the 
CO2 laser optics market and the Acquisition. The increase in gross 
margin as a percentage of net sales was driven by lower per unit 
operating costs associated with increased production volume and 
improved manufacturing efficiencies.

Contract research and development gross margin was $707,000 or 27% 
of net contract sales in fiscal 1997 compared to $452,000 or 27% of 
net contract sales in fiscal 1996. The increase was attributable to 
work being performed on the additional government contract awards 
mentioned above.

Company-funded internal research and development increased to $1.0 
million in fiscal 1997 from $514,000 in fiscal 1996. The majority 
of this increase was attributable to nuclear radiation detector 
development. 

                               10

Selling, general and administrative expenses were $12.7 million 
or 24% of net sales in fiscal 1997 compared to $9.9 million or 26% 
of net sales in fiscal 1996. This increase was attributable to 
the Acquisition, increased compensation expense associated with 
the Company's worldwide profit-driven bonus programs and increased 
payroll and other general administrative expenses needed to support 
the Company's growth.

Other income increased to $544,000 in fiscal 1997 from $369,000 in 
fiscal 1996 as a result of investment earnings on increased cash 
balances and a foreign currency gain driven by the favorable position 
of the U.S. dollar against the Japanese yen experienced for the 
majority of the year.

The effective corporate income tax rate was 29% in fiscal 1997 
compared to 27% in fiscal 1996. This increase was attributable to 
the lower proportion of the Company's earnings that were generated 
by foreign subsidiaries. The Company's future effective tax rates 
will continue to be affected by the level of profit or loss generated 
by the foreign subsidiaries. 

LIQUIDITY AND CAPITAL RESOURCES

The Company historically has funded its working capital needs, 
capital expenditures and growth from cash flow from operations and, 
to a lesser extent, borrowings and sales of equity.

The largest source of the $6.9 million in cash generated from 
operations in fiscal 1998 was $10.6 million in net earnings before 
depreciation and amortization. This cash source was partially offset 
by increases in accounts receivable and inventory of $0.9 million 
and $2.5 million, respectively, as well as a $0.8 million decrease 
in accrued salaries, wages and bonuses. The increase in accounts 
receivable was attributed mainly to the increased revenue volume. 
The increase in inventory was necessary to keep pace with customer 
demand for the Company's products and to increase customer service 
with shorter lead times as well as to improve on-time deliveries.  
The decrease in accrued salaries, wages and bonuses is primarily the 
result of lower earnings and related profit-driven bonus programs as 
compared to the prior year.

During the year ended June 30, 1998, the Company entered into a 
$10.0 million unsecured line of credit agreement and a 237 million 
yen loan.  Borrowings were used to support the Company's capital 
expenditures and working capital requirements.  During the year 
ended June 30, 1998, the Company borrowed approximately $7.5 million 
under these two debt instruments.

The Company invested $20.5 million in capital expenditures during 
the year. These expenditures focused on the automation of processes 
and facility expansions in Pennsylvania and Florida. Planned 
discretionary capital expenditures for fiscal 1999 of approximately 
$8.0 million will focus on continued automation of processes and 
increased capacity.

The Company believes internally generated funds, existing cash 
reserves and available borrowing capacity will be sufficient to fund 
its working capital needs, capital expenditures and scheduled debt 
payments for fiscal 1999 and the foreseeable future.

The impact of inflation on the Company's business has not been 
material.

In the normal course of business, the Company enters into foreign 
currency forward exchange contracts with its banks. The purpose of 
these contracts is to hedge the impact of foreign currency 
fluctuations on committed or anticipated foreign currency positions. 
The Company monitors its positions and the credit ratings of the 
parties to these contracts. While the Company may be exposed to 
potential losses due to credit risk in the event of non-performance 
by the counterparties to these financial instruments, it does not 
anticipate such losses. The Company entered into a low interest 
rate, 237 million yen loan with a bank in September 1997 in an 
effort to minimize the foreign currency exposure in Japan.

This Management's Discussion and Analysis and the Letters to 
Shareholders contained in the Annual Report to Shareholders contain 
forward looking statements as defined by Section 21E of the 
Securities Exchange Act of 1934, as amended, including the 
statements regarding the Company's long-term and short-term 
growth rate, anticipated demand for the Company's products, the 
expected increase in the effective corporate income tax rate for 
fiscal 1999, expected increase in production and product yields, 
the Company's focus on internal research and development

                                11

as well as on higher margin manufacturing products, the Company's 
ability to fund future working capital needs, capital expenditures 
and scheduled debt payments from internally generated funds, 
existing cash reserves and available borrowings and the Company's 
plan to address the Year 2000 issue.  Actual results could differ 
from such statements if worldwide economic conditions change, 
competitive conditions intensify, technology problems emerge, 
and/or if suitable acquisitions of technologies or businesses 
cannot be consummated.  There are additional risk factors that 
could affect the Company's business, results of operations or 
financial condition.  Investors are encouraged to review the risk 
factors set forth in the Company's most recent Form 10-K as filed 
with the Securities and Exchange Commission.

Recently Issued Financial Accounting Standards
In June 1997, the Financial Accounting Standards Board issued 
Statement of Financial Accounting Standards No. 130, "Reporting 
Comprehensive Income" (SFAS No. 130), the objective of which is 
to report and disclose a measure ("comprehensive income") of all 
changes in equity of a company that result from transactions and 
other economic events of the period other than transactions with 
owners.  SFAS No. 130 is effective for financial statements issued 
for periods beginning after December 15, 1997.  The Company will 
adopt SFAS No. 130 in fiscal 1999.  The adoption of SFAS No. 130 
will not have a material impact on the Company's financial 
position or results of operations.

In June 1997, the Financial Accounting Standards Board issued SFAS 
No. 131, "Disclosure About Segments of an Enterprise and Related 
Information," which requires the use of the "management approach" 
model for segment reporting.  The management approach model is based 
on the way a company's management organizes segments within the 
company for making operating decisions and assessing performance.  
Reportable segments are based on products and services, geography, 
legal structure, management structure or any other manner in which 
management segregates a company.  SFAS No. 131 is effective for 
financial statements issued for periods beginning after December 
15, 1997.  The Company will adopt SFAS No. 131 in fiscal 1999. The 
adoption of SFAS No. 131 will not have a material impact on the 
Company's financial position or results of operations.

Other Matters
The "Year 2000" issue concerns the potential exposures related to 
the automated generation of business and financial misinformation 
resulting from the use of computer programs which have been written 
using two digits, rather than four, to define the applicable year of 
business transactions.  

The Company has developed a formal plan to address the Year 2000 
implications of its information technology and non-information 
technology systems.  The first phase of this plan is in process and 
consists of an evaluation of the systems impacted by the Year 2000 
issue.  Until this phase of the plan is completed, the Company 
cannot assess all risks related to the Year 2000 issue.  This phase 
is expected to be completed by October 31, 1998.  The second phase of 
this plan will be an evaluation of the third parties with whom the 
Company has significant relations and their Year 2000 compliance.  
This phase is expected to be completed by December 31, 1998.  The 
last phase of this plan will be the implementation of corrective 
measures deemed necessary, as identified during the first two stages 
of the plan.  This phase is expected to be completed by June 30, 
1999.

To date, the Company has spent approximately $100,000 on the 
Year 2000 issue and believes that the remaining potential cost 
related to the Year 2000 issue will range between $200,000 and 
$300,000.

Although the Company has developed and expects to execute the 
plan described above, due to the inherent uncertainty and 
complexity involved with the Year 2000 issue, there can be no 
assurance that the Company will address all aspects of the 
Year 2000 issue.  A contingency plan is expected to be developed 
by June 30, 1999.

                                12









                                                    FIVE-YEAR FINANCIAL SUMMARY
                                                        Year Ended June 30,
<TABLE>
<CAPTION>
(000 except per share data)            1998        1997        1996        1995        1994*
<S>                                  <C>        <C>         <C>         <C>         <C>
Statement of Earnings
Net revenues                         $61,340    $52,741     $37,940     $27,760     $18,681
Net earnings                         $ 6,780    $ 7,111     $ 4,371     $ 2,518     $ 1,135
Basic earnings per share             $  1.05    $  1.12     $  0.75     $  0.50     $  0.23
Diluted earnings per share           $  1.02    $  1.08     $  0.70     $  0.48     $  0.22
Diluted weighted average 
  shares outstanding                   6,674      6,614       6,253       5,289       5,061
</TABLE>



Share and per share data for the fiscal years ended June 30, 1995 and 
1994 were adjusted to reflect the two-for-one stock split in fiscal 
1996.
*  Included in net earnings is a gain of $699,000 on the sale of an 
   investment in a former Japanese distributor.

<TABLE>
<CAPTION>
                                                              June 30,
($000)                                 1998        1997        1996        1995        1994
<S>                                  <C>        <C>         <C>         <C>         <C>
Balance Sheet
Working capital                      $13,420    $21,089     $16,687     $ 8,872     $ 6,648
Total assets                          67,774     54,512      44,169      24,367      17,570
Total debt                             8,209      1,346       1,461       1,563         263
Deferred taxes - net                     622      1,185       1,324         658         562
Retained earnings                     31,922     25,142      18,031      13,660      11,142
Shareholders' equity                  50,063     42,522      34,403      16,998      14,237
</TABLE>


For the five-year period ended June 30, 1998, no dividends were declared.


                                              13


QUARTERLY FINANCIAL DATA
<TABLE>
<CAPTION>
Fiscal 1998                                                      Quarter Ended
($000 except per share data)                 9/30/97        12/31/97        3/31/98        6/30/98
<S>                                          <C>            <C>             <C>
Net revenues                                 $15,519         $15,058        $16,230        $14,533
Cost of goods sold                             8,776           8,322          9,483          9,159
Internal research and development                300             345            516            407
Selling, general and administrative expenses   3,450           3,652          3,727          3,439
Interest and other expense (income) - net        (17)            200            (41)            35
Earnings before income taxes                   3,010           2,539          2,545          1,493
Income taxes                                     898             755            762            392
Net earnings                                 $ 2,112         $ 1,784        $ 1,783        $ 1,101
Basic earnings per share                     $  0.33         $  0.28        $  0.28        $  0.17
Diluted earnings per share                   $  0.32         $  0.27        $  0.27        $  0.17
</TABLE>

<TABLE>
<CAPTION>
Fiscal 1997                                                      Quarter Ended
($000 except per share data)                 9/30/96        12/31/96        3/31/97        6/30/97
<S>                                          <C>            <C>             <C>
Net revenues                                 $12,110        $ 12,190        $13,651        $14,790
Cost of goods sold                             6,743           6,732          7,691          8,364
Internal research and development                124             260            312            306
Selling, general and administrative expenses   3,030           2,951          3,210          3,522
Interest and other expense (income) - net       (125)           (168)           (52)          (143)
Earnings before income taxes                   2,338           2,415          2,490          2,741
Income taxes                                     678             700            722            773
Net earnings                                 $ 1,660        $  1,715        $ 1,768        $ 1,968
Basic earnings per share                     $  0.26        $   0.27        $  0.28        $  0.31
Diluted earnings per share                   $  0.25        $   0.25        $  0.27        $  0.30
</TABLE>
                                              14







INDEPENDENT AUDITORS' REPORT

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

We have audited the accompanying 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. These consolidated 
financial statements are the responsibility of the Company's 
management. Our responsibility is to express an opinion on these 
consolidated financial statements based on our audits. The 
consolidated statements of earnings, shareholders' equity and cash 
flows of II-VI Incorporated and subsidiaries for the year ended 
June 30, 1996, were audited by other auditors whose report dated 
August 12, 1996, expressed an unqualified opinion on those statements.

We conducted our audits 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 audits provide 
a reasonable basis for our opinion. 

In our opinion, the fiscal 1998 and 1997 consolidated financial 
statements referred to above present fairly, in all material 
respects, the financial position of II-VI Incorporated and 
subsidiaries as of June 30, 1998 and 1997 and the results of their 
operations and their cash flows for the years then ended in 
conformity with generally accepted accounting principles.




Deloitte & Touche LLP
Pittsburgh, Pennsylvania
August 7, 1998



                                15




CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
                                                                       June 30,
($000 except share data)                                        1998              1997
<S>                                                         <C>               <C>
Current Assets
Cash and cash equivalents                                   $  4,160          $ 10,854
Accounts receivable - less allowance for doubtful accounts 
  of $428 in 1998 and $306 in 1997                            11,018            10,808
Inventories                                                   10,056             8,129
Deferred income taxes                                            695               428
Prepaid and other current assets                               1,303               563
Total Current Assets                                          27,232            30,782
Property, Plant & Equipment, Net                              35,887            19,631
Other Assets                                                   4,655             4,099
                                                            $ 67,774          $ 54,512

Current Liabilities
Notes payable                                               $  5,833          $    590
Accounts payable                                               2,810             3,207
Accrued salaries, wages and bonuses                            2,972             3,740
Income taxes payable                                               -                80
Accrued profit sharing contribution                              711               740
Other current liabilities                                      1,418             1,264
Current portion of long-term debt                                 68                72
Total Current Liabilities                                     13,812             9,693
Long-Term Debt (Less Current Portion)                          2,308               684
Deferred Income Taxes                                          1,591             1,613
Commitments & Contingencies                                        -                 -
Shareholders' Equity
Preferred stock, no par value; 
  authorized - 5,000,000 shares; unissued                          -                 -
Common stock, no par value; authorized
  - 30,000,000 shares; 
  issued - 6,834,786 shares in 1998;
  6,802,946 shares in 1997                                    18,468            18,072
Cumulative translation adjustment                                435                70
Retained earnings                                             31,922            25,142
                                                              50,825            43,284
Less treasury stock at cost, 384,440 shares                      762               762
Total Shareholders' Equity                                    50,063            42,522
                                                            $ 67,774          $ 54,512
</TABLE>


See notes to Consolidated Financial Statements.

                                              16



CONSOLIDATED STATEMENTS OF EARNINGS 
<TABLE>
<CAPTION>
                                                        Year Ended June 30,
($000 except per share data)                1998               1997               1996
<S>                                     <C>                <C>                <C>
Revenues
Net sales:
  Domestic                              $ 31,705           $ 27,634           $ 19,922
  International                           27,429             22,450             16,344
Contract research and development          2,206              2,657              1,674
                                          61,340             52,741             37,940
Costs, Expenses and 
    Other Expense (Income) 
Cost of goods sold                        34,049             27,580             20,588
Contract research and development          1,690              1,950              1,222
Internal research and development          1,568              1,002                514
Selling, general and
 administrative expenses                  14,268             12,713              9,924
Interest expense                              23                 56                 41
Other expense (income) - net                 154               (544)              (369)
                                          51,752             42,757             31,920
Earnings Before Income Taxes               9,588              9,984              6,020
Income Taxes                               2,808              2,873              1,649
Net Earnings                            $  6,780           $  7,111           $  4,371
Basic Earnings Per Share                $   1.05           $   1.12           $   0.75
Diluted Earnings Per Share              $   1.02           $   1.08           $   0.70
</TABLE>
See notes to Consolidated Financial Statements.







Consolidated Statements of Shareholders' Equity
<TABLE>
<CAPTION>
                                                          Cumulative             
                                                          Translation  Retained  
(000)                                      Common Stock   Adjustment   Earnings  Treasury Stock     Total
                                          Shares  Amount                         Shares   Amount
<S>                                      <C>     <C>         <C>       <C>        <C>    <C>       <C>
Balance-July 1, 1995                     5,670   $ 4,485     $ (17)    $ 13,660   (571)  $(1,130)  $16,998
Shares issued for the purchase
  of Lightning Optical Corporation           -     1,470         -            -    187       368     1,838
Net proceeds from stock offering         1,000    10,929         -            -      -         -    10,929
Shares issued under the
 stock option plans                         22        71         -            -      -         -        71
Net earnings for the year                    -         -         -        4,371      -         -     4,371
Translation adjustment                       -         -        96            -      -         -        96
Income tax benefit for options exercised     -       100         -            -      -         -       100
Balance-June 30, 1996                    6,692    17,055        79       18,031   (384)     (762)   34,403
Shares issued under 
 stock option plans                        111       285         -            -      -         -       285
Net earnings for the year                    -         -         -        7,111      -         -     7,111
Translation adjustment                       -         -        (9)           -      -         -        (9)
Income tax benefit for options exercised     -       732         -            -      -         -       732
Balance-June 30, 1997                    6,803    18,072        70       25,142   (384)     (762)   42,522
Shares issued under 
 stock option plans                         32       173         -            -      -         -       173
Net earnings for the year                    -         -         -        6,780      -         -     6,780
Translation adjustment                       -         -       365            -      -         -       365
Income tax benefit for options exercised     -       223         -            -      -         -       223
Balance-June 30, 1998                    6,835   $18,468     $ 435     $ 31,922   (384)  $  (762)  $50,063
</TABLE>
See notes to Consolidated Financial Statements.

                                                     17

CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
                                                                           Year Ended June 30,
($000)                                                             1998           1997           1996
<S>                                                             <C>            <C>            <C>
Cash Flows From Operating Activities 
Net earnings                                                    $ 6,780        $ 7,111        $ 4,371
Adjustments to reconcile net earnings to net cash
provided by operating activities:
   Depreciation                                                   3,550          2,852          2,156
   Amortization                                                     301            333            332
   Loss (gain) on foreign currency transactions                     588           (104)             9
   Net loss (gain) on disposal of property, plant and equipment     125            (32)             -
   Deferred income taxes                                           (563)          (138)           (83)
   Increase (decrease) in cash from changes in:
      Accounts receivable                                          (924)        (2,061)        (2,462)
      Inventories                                                (2,473)        (2,633)        (1,296)
      Accounts payable                                              500          1,961            576
      Other operating net assets                                   (985)         1,150            211
Net cash provided by operating activities                         6,899          8,439          3,814
Cash Flows From Investing Activities 
Additions to property, plant and equipment                      (20,515)        (7,432)        (6,146)
Proceeds from sale of property, plant and equipment                   -             66              -
Net cash on purchase of subsidiaries                                  -              -         (1,938)
Disposals (additions) to other assets                                 1             (3)           (23)
Net cash used in investing activities                           (20,514)        (7,369)        (8,107)
Cash Flows From Financing Activities 
Proceeds (payments) on short-term borrowings                      5,345           (728)        (1,095)
Proceeds from long-term borrowings                                1,980            741              -
Payments on long-term borrowings                                    (60)           (53)           (23)
Proceeds from sale of common stock                                  173            285         11,100
Net cash provided by financing activities                         7,438            245          9,982
Effect of exchange rate changes on cash and cash equivalents       (517)           122            (94)
Net (decrease) increase in cash and cash equivalents             (6,694)         1,437          5,595
Cash and Cash Equivalents
Beginning of year                                                10,854          9,417          3,822
End of year                                                     $ 4,160        $10,854        $ 9,417
</TABLE>

                                              18


See notes to Consolidated Financial Statements.


NOTE TO CONSOLIDATED FINANCIAL STATEMENTS

                           Note A
           SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation
The consolidated financial statements include II-VI Incorporated 
(the "Company") and its wholly-owned subsidiaries II-VI Worldwide, 
Incorporated, II-VI Delaware, Incorporated, II-VI Japan 
Incorporated, II-VI VLOC Incorporated, II-VI U.K. Limited, and 
II-VI Singapore Pte., Ltd. All significant intercompany 
transactions and balances have been eliminated.

During fiscal 1996 the Company formed II-VI Optics (Suzhou) Co. 
Ltd., a wholly-owned subsidiary located in China that manufactures 
infrared optics. The subsidiary began operations in fiscal 1997 and 
is consolidated as part of II-VI Singapore Pte., Ltd.

Inventories 
Inventories are valued at the lower of cost or market, with cost 
determined on the first-in, first-out basis. Inventory costs 
include material, labor and manufacturing overhead.

Depreciation  
Depreciation for financial reporting purposes is computed primarily 
by the straight-line method over the estimated useful lives of the 
assets, which range from 5 to 20 years.

Foreign Currency Translation
For II-VI Singapore Pte., Ltd., the functional currency is the U.S. 
dollar. Gains and losses on the remeasurement of the local currency 
financial statements are included in net earnings.

For II-VI Japan Incorporated and II-VI U.K. Limited, the functional 
currency is the local currency. Assets and liabilities of those 
operations are translated into U.S. dollars using year-end exchange 
rates; income and expenses are translated using the average exchange 
rates for the reporting period. Translation adjustments are recorded 
as a separate component of shareholders' equity.

Income Taxes  
Deferred income tax assets and liabilities are determined based on 
the differences between the financial statement and tax basis of 
assets and liabilities using enacted tax rates in effect in the years 
in which the differences are expected to reverse.  Valuation 
allowances are established when necessary to reduce deferred tax 
assets to the amount expected to be realized.

Revenue Recognition
Revenue, other than on long-term U.S. Government sales contracts and 
subcontracts, is recognized when a product is shipped. Revenue on 
long-term U.S. Government sales contracts and subcontracts is 
accounted for using the percentage-of-completion method, whereby 
revenue and profits are recognized throughout the performance period 
of the contract. Percentage of completion is determined by relating 
the actual cost of work performed to date to the estimated total 
cost for each contract. Losses on contracts are recorded in full 
when identified.

Earnings Per Share

During fiscal 1998, the Company adopted Statement of Financial 
Accounting Standards No. 128, "Earnings per Share" which 
establishes standards for computing and presenting earnings per 
share.  This statement requires restatement of all prior period 
earnings per share data presented.

The following table sets forth the computation of earnings per 
share for the periods indicated:

                                         Year Ended June 30,
(000 except per share data)        1998        1997        1996
                                  ------      ------      ------

Net earnings                      $6,780      $7,111      $4,371
Divided by:
  Weighted average shares          6,437       6,359       5,842
                                  ------      ------      ------
Basic earnings per share          $ 1.05      $ 1.12      $ 0.75


Net earnings                      $6,780      $7,111      $4,371
Divided by:
  Weighted average shares          6,437       6,359       5,842
  Diluted effect of common 
         stock equivalents           237         255         444
                                  ------      ------      ------
  Diluted weighted average
         common shares             6,674       6,614       6,286
                                  ------      ------      ------
Diluted earnings per share        $ 1.02      $ 1.08      $ 0.70


On August 16, 1995, the Board of Directors declared a two-for-one 
split of the Company's common stock to be distributed to shareholders 
of record on August 30, 1995, effective at the close of business 
September 6, 1995. 

On October 20, 1995, a registration statement on Form S-3 covering 
the public offering of 1,000,000 shares was declared effective by 
the Securities and Exchange Commission, with the shares sold to the 
public at $12.00 per share.

                                19

Cash 
For purposes of the statement of cash flows, the Company considers 
highly liquid debt instruments with an original maturity of three 
months or less to be cash equivalents. The majority of cash and 
cash equivalents is invested in investment grade money market type 
instruments. Sufficient cash to fund current operations of foreign 
subsidiaries is on deposit at banks in Japan, Singapore, China and 
the United Kingdom.

Nature of Business
The Company designs, manufactures and markets 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 markets its products 
in the United States through its direct sales force and worldwide 
through its wholly-owned sales subsidiaries, II-VI Japan Incorporated 
and II-VI U.K. Limited, and manufacturers' representatives.

The Company uses certain uncommon materials and compounds to 
manufacture its products. Some of these materials are available from 
only one proven outside source. The continued high quality of these 
materials is critical to the stability of the Company's manufacturing 
yields. The Company has not experienced significant production delays 
due to a shortage of materials. However, the Company does 
occasionally experience problems associated with vendor supplied 
materials not meeting contract specifications for quality or purity. 
A significant failure of the Company's suppliers to deliver 
sufficient quantities of necessary high-quality materials on a 
timely basis could have a material adverse effect on the Company's 
results of operations.

Estimates
The preparation of financial statements in conformity with generally 
accepted accounting principles requires management to make estimates 
and assumptions that affect the reported amounts of assets and 
liabilities and disclosure of contingent assets and liabilities at 
the date of the financial statements and the reported amounts of 
revenues and expenses during the reporting period. Actual results 
could differ from those estimates.

Acquisitions
On February 22, 1996, the Company acquired substantially all of the 
assets and assumed certain liabilities of Lightning Optical 
Corporation, a Florida Corporation, located in Tarpon Springs, 
Florida.  


The aggregate purchase price paid to the shareholders of Lightning 
Optical Corporation consisted of $2.4 million in cash and 186,183 
shares of the Common Stock, no par value, of the Company. The 
acquisition was accounted for as a purchase. The purchase price was 
allocated as follows:

($000)
Accounts receivable                     $ 1,125
Inventories                                 227
Property, plant and equipment             1,381
Goodwill                                  2,169
Other intangible assets                   2,000
Other assets                                 47
                                        -------
                                          6,949
Current liabilities                      (2,059)
Long-term debt                             (320)
Deferred income taxes - noncurrent         (794)
                                        -------
Purchase price, net of cash acquired    $ 3,776


The other intangible assets acquired, including technology and sales 
and marketing expertise, are being amortized on a straight-line basis 
over a 10 year period, while goodwill is being amortized on a 
straight-line basis over a 25 year period. Accumulated amortization 
amounted to $672,000 and $385,000 at June 30, 1998 and 1997, respectively.

The following unaudited pro forma financial information presents the 
consolidated results of operations as if the Lightning Optical 
Corporation acquisition had occurred on the first day of II-VI 
Incorporated's 1996 fiscal year (July 1, 1995).

This information does not purport to present what II-VI 
Incorporated's results of operations actually would have been had 
the acquisition occurred on July 1, 1995, or to project the 
results of operations for any future period.
                                      Unaudited Pro Forma Results
                                     for Year Ended June 30, 1996
($000 except per share data)                
Revenues                                      $ 41,951
Net earnings                                     4,976
Diluted earnings per share                        0.78

Fair Value of Financial Instruments
The following methods and assumptions were used to estimate the 
fair value of financial instruments:

Cash and Cash Equivalents  The carrying amount approximates fair 
    value because of the short maturity of these instruments.

                                20

Debt Obligations  The fair values of debt obligations are 
    established from the market values of similar issues.  The 
    fair value and carrying amount of the Company's debt 
    obligations, specifically the line of credit, Yen loan and 
    the PIDA loan, are approximately equivalent.

The Company has entered into foreign currency forward exchange 
contracts in order to hedge its currency exposure in Japan. Gains 
and losses on those contracts are recognized as they occur. At 
June 30, 1998 and 1997, the Company had contracts outstanding of 
approximately $1,290,000 and $3,046,000, respectively. The 
counterparties to these financial instruments consist of large 
financial institutions, and the Company does not believe that it 
is subject to any significant credit risk associated with these 
contracts.

Concentrations of Credit Risk
Concentrations of credit risk with respect to accounts receivable 
are limited due to the large number of customers.  However, a 
significant portion of accounts receivable are from European 
distributors of the Company's products.  Although the Company 
does not currently foresee a credit risk associated with these 
receivables, repayment is dependent upon the financial stability 
of these distributors.

Recently Issued Financial Accounting Standards
In June 1997, the Financial Accounting Standards Board issued 
Statement of Financial Accounting Standards No. 130, "Reporting 
Comprehensive Income" (SFAS No. 130), the objective of which is 
to report and disclose a measure ("comprehensive income") of all 
changes in equity of a company that result from transactions and 
other economic events of the period other than transactions with 
owners.  SFAS No. 130 is effective for financial statements 
issued for periods beginning after December 15, 1997.  The Company 
will adopt SFAS No. 130 in fiscal 1999. The adoption of SFAS No. 
130 will not have a material impact on the Company's financial 
position or results of operations.

In June 1997, the Financial Accounting Standards Board issued 
SFAS No. 131, "Disclosure About Segments of an Enterprise and 
Related Information," which requires the use of the "management 
approach" model for segment reporting.  The management approach 
model is based on the way a company's management organizes segments 
within the company for making operating decisions and assessing 
performance.  Reportable segments are based on products and 
services, geography, legal structure, management structure or any 
other manner in which management segregates a company.  SFAS No. 
131 is effective for financial statements issued for periods 
beginning after December 15, 1997.  The Company will adopt SFAS 
No. 131 in fiscal 1999. The adoption of SFAS No. 131 will not have 
a material impact on the Company's financial position or results of 
operations.


                       Note B

                    INVENTORIES
The components of inventories are as follows:
                                       June 30, 
($000)                          1998              1997
Raw materials               $  3,220          $  3,083
Work in process                3,633             1,992
Finished goods                 3,203             3,054
                            --------          --------
                            $ 10,056          $  8,129



                             Note C

                   PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment (at cost) consist of the 
following:

                                      June 30, 
($000)                          1998              1997
Land and land improvements    $ 1,501          $   876
Buildings and improvements     16,951            8,073
Machinery and equipment        37,980           27,893
                              -------          -------
                               56,432           36,842
Less accumulated depreciation  20,545           17,211
                              -------          -------
                              $35,887          $19,631

The interest capitalized associated with the construction of 
buildings and improvements approximated $166,000 during the 
year ended June 30, 1998.  No interest was capitalized during 
the years ended June 30, 1997 and 1996.

                                21

                               Note  D

                                Debt

The components of debt are as follows:
                                                           June 30, 
                                                        1998     1997
($000)
Line of credit, interest at Euro-Rate, as defined,
    plus 0.75%, payable in full in December 1998      $5,500    $   -
Term note, interest at 2.125%, payable in monthly
    installments through January 1999, with final 
    principal payment in February 1999                   283    $ 590
Term note, interest at 2.125%, payable monthly 
    through July 1998, with final principal payment
    in August 1998                                        50        -
                                                       ------   ------
Notes Payable                                          $5,833   $  590



Pennsylvania Industrial Development Authority
    (PIDA) term note, interest at 3%, payable in 
    monthly installments through October 2011          $  671   $  711
Term note, interest at Japanese Yen Base Rate,
    as defined, plus 1.49% up to a maximum rate 
    of 3.74%, principal payable in full in 
    September 2002                                      1,681        -
Term note, interest at 7.5%, payable in monthly
    installments through August 1999                       24       45
                                                       ------   ------
                                                        2,376      756
Current maturities                                        (68)     (72)
                                                       ------   ------
Total long-term debt                                   $2,308   $  684

On December 31, 1997, the Company entered into a $10.0 million 
unsecured line of credit agreement with PNC Bank which will expire 
December 30, 1998.  The average interest rate in effect as of 
June 30, 1998 was 6.47%.  The average outstanding borrowings under 
this line of credit were $1.8 million during the year ended 
June 30, 1998.  The Company is subject to certain restrictive 
covenants under this agreement.  During the year ended June 30, 1998 
the Company was not in compliance with one covenant relating to a 
limitation on capital expenditures which was exceeded and received 
a waiver from the bank dated June 11, 1998 for this covenant 
violation.

In September 1997, the Company secured a 237 million Yen loan with 
PNC Bank.  Interest is at a rate equal to the lesser of the floating 
rate or the maximum rate as defined in the loan agreement.  The 
floating rate is equal to the Japanese Yen Base Rate, as defined, 
plus 1.49% and the maximum rate is 3.74%.  On June 30, 1998, the 
Japanese Yen Base Rate was 0.66% and the floating rate was 2.15%.  

The Company has a line of credit facility with a Singapore bank which 
permits maximum borrowings of approximately $475,000. Borrowings are 
payable upon demand with interest being charged at the rate of 1.5% 
above the bank's prevailing prime lending rate. The interest rate at 
June 30, 1998 was 9.0%. At June 30, 1998 and 1997 there were no 
borrowings under this facility.

The aggregate annual amounts of principal payments required on the 
long-term debt are as follows:

($000) Year Ended June 30,                   
1999                                         $   68
2000                                             44
2001                                             44
2002                                             45
2003                                          1,728
Thereafter                                      447


Interest payments made during the years ended June 30, 1998, 1997 
and 1996 totaled $23,000, $56,000, and $41,000, respectively.

                            Note E

                          INCOME TAXES
The components of income tax expense are as follows:

                     Year Ended June 30,
($000)           1998        1997        1996
Current:
   Federal     $2,843      $2,754      $1,457
   State          463         202         227
   Foreign         65          55          48
               ------      ------      ------
                3,371       3,011       1,732
Deferred         (563)       (138)        (83)
               ------      ------      ------
               $2,808      $2,873      $1,649

                                22

Principal items comprising deferred income taxes are as follows:

                                              June 30, 
($000)                                  1998            1997
Deferred income tax liabilities
Tax over book accumulated 
  depreciation                        $  978          $  910
Intangible assets                        613             703
                                      ------          ------
Deferred income tax liability 
  - long-term                         $1,591          $1,613
Deferred income tax assets
Inventory capitalization              $  264          $  126
Non-deductible accruals                  431             302
                                      ------          ------
Deferred income tax asset - current   $  695          $  428

Net operating loss carryforward       $  548               -
Valuation allowance                     (274)              -
                                      ------          ------
Deferred income tax asset - long-term
  (included in other assets)          $  274          $    -

The reconciliation of income tax expense at the statutory federal 
rate to the reported income tax expense is as follows:



<TABLE>
<CAPTION>
                                                              Year Ended June 30,
($000)                                            1998    %        1997    %        1996    %
<S>                                            <C>       <C>    <C>       <C>    <C>       <C>
Taxes at statutory rate                        $ 3,260   34     $ 3,395   34     $ 2,047   34
Increase (decrease) in taxes resulting from:
  State income taxes - net of federal benefit      306    3         133    1         150    2
  Excludable Foreign Sales Corporation income     (173)  (2)        (80)   -         (50)  (1)
  Excludable foreign income                       (407)  (4)       (503)  (5)       (559)  (9)
  Foreign taxes                                      -    -          36    -          32    1
  Non-deductible expenses                           26    -          20    -          29    -
  Other                                           (204)  (2)       (128)  (1)          -    -
                                               --------  ---    --------  ---    --------  --
                                               $ 2,808   29     $ 2,873   29     $ 1,649   27
</TABLE>





One of the Company's foreign subsidiaries operates under a tax 
holiday and does not pay income taxes. The tax holiday has been 
extended to March 2000.

During the years ended June 30, 1998, 1997 and 1996, cash paid by 
the Company for income taxes was approximately $3,665,000, $2,660,000, 
and $1,772,000, respectively.

The ultimate realization of the long-term deferred tax asset depends 
on the Company's ability to generate sufficient taxable income at 
II-VI Japan, the source of the net operating loss carryforward.  
Due to the limited operating history of II-VI Japan, the Company 
provided a valuation allowance against the long-term deferred tax 
asset as of June 30, 1998.

The Company has not recorded deferred income taxes applicable to 
undistributed earnings of foreign subsidiaries that are 
indefinitely reinvested outside the United States. If the earnings 
of such foreign subsidiaries were not indefinitely reinvested, a 
deferred tax liability of approximately $2,638,000 and $2,152,000 
would have been required as of June 30, 1998 and 1997, respectively.

                                23

The sources of differences resulting in deferred income tax expense 
(credit) and the related tax effect of each were as follows:

                                     Year Ended June 30,
($000)                          1998        1997        1996
Depreciation                   $ (22)     $ (136)      $ (79)
Inventory capitalization        (138)        (30)        (18)
Net operating loss carryforward 
  less valuation allowance      (274)          -           -
Other - primarily 
  nondeductible accruals        (129)         28          14
                               ------     -------      ------
                               $(563)     $ (138)      $ (83)


                              Note F

                         OPERATING LEASES
The Company leases certain property under operating leases that 
expire at various dates through 2001. Future rental commitments 
applicable to the operating leases at June 30, 1998 are approximately 
$406,000, $261,000, and $35,000 for fiscal 1999, 2000 and 2001, 
respectively. Rent expense was approximately $475,000, $519,000 and 
$507,000 for the years ended June 30, 1998, 1997 and 1996, 
respectively.

 
                              Note G

                         STOCK OPTION PLANS
The Company has a stock option plan under which stock options have 
been granted by the Board of Directors to certain officers and key 
employees, with 1,560,000 shares of common stock reserved for use 
under this plan. All options to purchase shares of common stock 
granted to-date have been at market price at the date of grant. 
Generally, twenty percent of the options granted may be exercised 
one year from the date of grant with comparable annual increases 
on a cumulative basis each year thereafter.  The stock option plan 
also has vesting provisions predicated upon the death, retirement 
or disability of the optionee.

The Company added a nonemployee directors stock option plan in 1995, 
with 120,000 shares of common stock reserved for use under this 
plan. The plan provides for the automatic grant of options to 
purchase 15,000 shares to each nonemployee director at the fair 
value on the date of shareholder approval of the plan and a similar 
grant for each nonemployee director that joins the Board prior to 
October 1999. Twenty percent of the options granted may be exercised one 
year from the date of grant with comparable annual increases on a 
cumulative basis each year thereafter.

All stock options expire 10 years after the grant date.

Stock option activity relating to the plans in each of the three 
years in the period ended June 30, 1998 is as follows:

                              Number of          Weighted 
                            Shares Subject   Average Exercise 
Options                       to Option       Price Per Share

Outstanding -July 1, 1995     502,520            $  2.79
Granted                       132,200            $ 10.03
Exercised                     (19,640)           $  1.68
Forfeited                      (5,200)           $  3.94
                              -------            -------
Outstanding -June 30, 1996    609,880            $  4.38
Exercisable -June 30, 1996    185,440            $  2.45

Outstanding -July 1, 1996     609,880            $  4.38
Granted                        86,100            $ 19.10
Exercised                    (109,246)           $  2.37
Forfeited                      (1,200)           $ 17.50
                              -------            -------
Outstanding -June 30, 1997    585,534            $  6.89
Exercisable -June 30, 1997    209,074            $  3.53

Outstanding -July 1, 1997     585,534            $  6.89
Granted                        74,597            $ 20.83
Exercised                     (31,840)           $  3.64
Forfeited                      (5,800)           $  8.31
                              -------            -------
Outstanding -June 30, 1998    622,491            $  8.72
Exercisable -June 30, 1998    321,192            $  6.03

                                24


Outstanding and exercisable options at June 30, 1998 by expiration 
date are as follows:

                            Number of        Per Share      Number of
                          Shares Subject      Exercise       Shares
Expiration Date             to Option          Price       Exercisable
May 1999                      8,000           $ 3.69          8,000
May 2000                        360           $ 2.69            360
August 2000                  24,600           $ 1.83         24,600
February 2002                38,200           $ 2.13         38,200
June 2002                     3,000           $ 2.13          3,000
April 2004                    1,600           $ 1.50            800
July 2004                    30,000           $ 2.00         18,000
July 2004                     4,000           $ 1.97          2,400
September 2004               80,800           $ 2.69         45,600
November 2004                58,000           $ 4.00         34,000
December 2004                92,000           $ 3.94         50,800
February 2005                 3,200           $ 4.94              -
June 2005                     2,000           $16.13          1,200
December 2005                   960           $10.63            240
February 2006                 1,500           $ 9.75            600
February 2006               114,274           $ 9.88         59,452
May 2006                      2,500           $15.25          1,000
August 2006                  60,200           $17.50         12,600
November 2006                 1,800           $22.00            360
February 2007                 3,500           $30.25            700
June 2007                    17,400           $22.38          3,480
June 2007                     4,000           $21.00            800
August 2007                   8,500           $25.25              -
September 2007                  500           $26.50              -
November 2007                 4,800           $24.75              -
January 2008                 50,000           $20.00         15,000
February 2008                 4,797           $19.25              -
May 2008                      1,500           $15.25              -
June 2008                       500           $15.50              -
                            -------                         -------
                            622,491                         321,192

In 1997, the Company adopted SFAS No. 123, Accounting for 
Stock-Based Compensation. SFAS No. 123 provides that companies 
may choose to change their methods of accounting for stock options 
to a fair value method using an option pricing model. The Company 
uses the intrinsic value approach specified in Accounting Principles 
Board Opinion No. 25 in accounting for stock options and did not 
change from this method upon adoption of the new standard. Had the
Company changed its accounting method, its net income for 1998, 
1997 and 1996 would have been reduced by $263,000, $177,000 and 
$35,000 or $.04, $.03 and $.01 per diluted share, respectively. 
The pro forma adjustments were calculated using the Black-Scholes 
option pricing model to value all stock options granted since 
July 1, 1995 under the following assumptions in each year:



                              1998            1997            1996
Risk free interest rate       5.7%            6.4%            5.8%
Expected volatility            44%             68%             69%
Expected life of options    7.33 years     7.33 years      7.33 years
Expected dividends            none            none            none
 
Based on the option pricing model, options granted during 
1998, 1997 and 1996 had fair values of $11.69, $13.77 and $7.17 
per share, respectively.

                                25






                                        Note H
                INTERNATIONAL AND DOMESTIC OPERATIONS AND EXPORT SALES
<TABLE>
<CAPTION>
                                                         Year Ended June 30,
($000)                                            1998          1997           1996
<S>                                             <C>           <C>            <C>
Sales:
  United States                                 $ 58,889      $ 50,489       $ 37,244
  International                                   25,338        21,063         13,204
                                                --------      --------       --------
Total                                           $ 84,227      $ 71,552       $ 50,448
Sales or transfers between geographic areas(1)
  United States                                 $ 14,499      $ 11,925       $  7,172
  International                                    8,388         6,886          5,336
                                                --------      --------       --------
Total                                             22,887        18,811         12,508
                                                --------      --------       --------
Net sales                                       $ 61,340      $ 52,741       $ 37,940
Export sales from the United States(2)          $ 10,479      $  5,979       $  6,938
Operating income:
  United States                                 $  7,758      $  7,822       $  3,975
  International                                    2,007         1,674          1,717
  Other (expense) income - net                      (177)          488            328
                                                --------      --------       --------
Earnings before income taxes                    $  9,588      $  9,984       $  6,020
Identifiable assets:
  United States                                 $ 59,566      $ 46,923       $ 39,478
  International                                    8,208         7,589          4,691
                                                --------      --------       --------
Total assets                                    $ 67,774      $ 54,512       $ 44,169
</TABLE>



Amounts for international operations in the above table primarily 
relate to the Company's operations in Asia.
(1) Intersegment sales are made at established transfer prices.
(2) Export sales are primarily made to western Europe.




                              Note I

                       EMPLOYEE BENEFIT PLANS
Eligible employees of the Company participate in a profit sharing 
retirement plan. Contributions to the plan are made at the discretion 
of the Company's Board of Directors and were approximately $711,000 
in 1998, $740,000 in 1997 and $455,000 in 1996. The Company has an 
employee stock purchase plan for all employees who have six months 
of continuous employment with the Company. The employee may purchase 
the common stock at 5% below the prevailing market price. The amount 
of shares which may be bought by an employee is limited to 10% of 
the employee's base pay for each fiscal year. The plan, as amended, 
limits the number of shares of common stock available for purchase 
to 200,000 shares. At June 30, 1998, 123,645 shares of common stock 
were available for purchase under the plan.

The Company has no program for postretirement health and welfare 
and postemployment benefits.

On June 21, 1996, the Board of Directors of the Company approved 
the II-VI Incorporated Deferred Compensation Plan (the "Plan"). The 
Plan is designed to allow officers and key employees of the Company 
to defer receipt of compensation into a trust fund for retirement 
purposes. The Plan is a nonqualified, defined contribution 
employees' retirement plan. At the Company's discretion, the Plan 
may be funded by the Company making contributions based on 
compensation deferrals, matching contributions and discretionary 
contributions. Compensation deferrals will be based on an election 
by the participant to defer a percentage of compensation under the 
Plan. All assets in the Plan are subject to claims of the Company's 
creditors until such amounts are paid to the Plan participants. The 
Company made contributions to the Plan in the amount of 
approximately $67,000 in 1998, $139,000 in 1997 and did not make any 
contributions in 1996.

                                26

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-21
<SEQUENCE>4
<TEXT>






     LIST OF SUBSIDIARIES OF II-VI INCORPORATED







                                         Jurisdiction of
       Subsidiary                         Incorporation
       ----------                        ---------------


II-VI Delaware, Incorporated                Delaware
II-VI Singapore Pte., Ltd.                  Singapore
II-VI Worldwide, Incorporated               Barbados
II-VI Japan Incorporated                    Japan
II-VI VLOC Incorporated                     Pennsylvania
II-VI U.K. Limited                          United Kingdom
II-VI Optics (Suzhou) Co. Ltd.              China


</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-23
<SEQUENCE>5
<TEXT>













                INDEPENDENT AUDITORS' CONSENT
                -----------------------------


We consent to the incorporation by reference in Registration 
Statements No. 33-19511, No. 33-38019, No. 33-19510, No. 33-63739 
and No. 333-12737 on Form S-8 and No. 333-04531 on Form S-3 of II-
VI Incorporated of our reports dated August 7, 1998, appearing in 
and incorporated by reference in this Annual Report on Form 10-K 
of II-VI Incorporated for the year ended June 30, 1998.


/s/ Deloitte & Touche LLP

Pittsburgh, Pennsylvania
September 22, 1998



</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-23
<SEQUENCE>6
<TEXT>









              CONSENT OF INDEPENDENT AUDITORS
              -------------------------------


We hereby consent to the incorporation by reference in 
Registration Statements No. 33-19511, No. 33-38019, No. 33-19510, 
No. 33-63739 and 333-12737 on Form S-8 and No. 333-04531 on Form 
S-3 of  II-VI Incorporated of our report dated August 12, 1996, 
appearing in this Annual Report on Form 10-K of II-VI Incorporated 
for  the year ended June 30, 1998.

/s/ Alpern, Rosenthal & Company
Pittsburgh, Pennsylvania
September 22, 1998



</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-27
<SEQUENCE>7
<TEXT>

<TABLE> <S> <C>

<ARTICLE> 5
       
<S>                             <C>                     <C>
<PERIOD-TYPE>                   3-MOS                   YEAR
<FISCAL-YEAR-END>                          JUN-30-1998             JUN-30-1998
<PERIOD-START>                             APR-01-1998             JUL-01-1997
<PERIOD-END>                               JUN-30-1998             JUN-30-1998
<CASH>                                           4,160                   4,160
<SECURITIES>                                         0                       0
<RECEIVABLES>                                   11,446                  11,446
<ALLOWANCES>                                       428                     428
<INVENTORY>                                     10,056                  10,056
<CURRENT-ASSETS>                                27,232                  27,232
<PP&E>                                          56,432                  56,432
<DEPRECIATION>                                  20,545                  20,545
<TOTAL-ASSETS>                                  67,774                  67,774
<CURRENT-LIABILITIES>                           13,812                  13,812
<BONDS>                                          2,308                   2,308
<PREFERRED-MANDATORY>                                0                       0
<PREFERRED>                                          0                       0
<COMMON>                                        18,468                  18,468
<OTHER-SE>                                      31,595                  31,595
<TOTAL-LIABILITY-AND-EQUITY>                    67,774                  67,774
<SALES>                                         14,533                  61,340
<TOTAL-REVENUES>                                14,533                  61,340
<CGS>                                            9,159                  35,739
<TOTAL-COSTS>                                    9,159                  35,739
<OTHER-EXPENSES>                                 3,949                  15,990
<LOSS-PROVISION>                                     0                       0
<INTEREST-EXPENSE>                                 (68)                     23
<INCOME-PRETAX>                                  1,493                   9,588
<INCOME-TAX>                                       392                   2,808
<INCOME-CONTINUING>                              1,101                   6,780
<DISCONTINUED>                                       0                       0
<EXTRAORDINARY>                                      0                       0
<CHANGES>                                            0                       0
<NET-INCOME>                                     1,101                   6,780
<EPS-PRIMARY>                                     0.17                    1.05
<EPS-DILUTED>                                     0.17                    1.02
        


</TABLE>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-27
<SEQUENCE>8
<TEXT>

<TABLE> <S> <C>

<ARTICLE> 5
<RESTATED> 
       
<S>                             <C>                     <C>
<PERIOD-TYPE>                   3-MOS                   6-MOS
<FISCAL-YEAR-END>                          JUN-30-1998             JUN-30-1998
<PERIOD-START>                             JUL-01-1997             JUL-01-1997
<PERIOD-END>                               SEP-30-1997             DEC-31-1997
<CASH>                                           7,097                   2,673
<SECURITIES>                                         0                       0
<RECEIVABLES>                                   12,591                  12,257
<ALLOWANCES>                                       319                     345
<INVENTORY>                                      8,836                   9,672
<CURRENT-ASSETS>                                29,302                  25,337
<PP&E>                                          41,767                  47,754
<DEPRECIATION>                                  18,190                  19,196
<TOTAL-ASSETS>                                  56,895                  57,829
<CURRENT-LIABILITIES>                            7,892                   6,862
<BONDS>                                          2,651                   2,637
<PREFERRED-MANDATORY>                                0                       0
<PREFERRED>                                          0                       0
<COMMON>                                        18,117                  18,297
<OTHER-SE>                                      26,552                  28,354
<TOTAL-LIABILITY-AND-EQUITY>                    56,895                  57,829
<SALES>                                         15,519                  30,577
<TOTAL-REVENUES>                                15,519                  30,577
<CGS>                                            8,776                  17,097
<TOTAL-COSTS>                                    8,776                  17,097
<OTHER-EXPENSES>                                 3,733                   7,930
<LOSS-PROVISION>                                     0                       0
<INTEREST-EXPENSE>                                   0                       0
<INCOME-PRETAX>                                  3,010                   5,550
<INCOME-TAX>                                       898                   1,654
<INCOME-CONTINUING>                              2,112                   3,896
<DISCONTINUED>                                       0                       0
<EXTRAORDINARY>                                      0                       0
<CHANGES>                                            0                       0
<NET-INCOME>                                     2,112                   3,896
<EPS-PRIMARY>                                     0.33                    0.61
<EPS-DILUTED>                                     0.32                    0.58
        

</TABLE>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-27
<SEQUENCE>9
<TEXT>

<TABLE> <S> <C>

<ARTICLE> 5
<RESTATED> 
       
<S>                             <C>                     <C>                     <C>                     <C>
<PERIOD-TYPE>                   3-MOS                   6-MOS                   9-MOS                   YEAR
<FISCAL-YEAR-END>                          JUN-30-1997             JUN-30-1997             JUN-30-1997             JUN-30-1997
<PERIOD-START>                             JUL-01-1996             JUL-01-1996             JUL-01-1996             JUL-01-1996
<PERIOD-END>                               SEP-30-1996             DEC-31-1996             MAR-31-1997             JUN-30-1997
<CASH>                                           8,606                   9,389                   8,817                  10,854
<SECURITIES>                                         0                       0                       0                       0
<RECEIVABLES>                                    9,433                   8,799                  10,032                  10,808
<ALLOWANCES>                                       256                     266                     275                     306
<INVENTORY>                                      6,004                   6,766                   7,281                   8,129
<CURRENT-ASSETS>                                24,936                  25,803                  26,942                  30,782
<PP&E>                                          30,982                  33,125                  34,893                  36,842
<DEPRECIATION>                                  15,220                  15,962                  16,727                  17,211
<TOTAL-ASSETS>                                  45,051                  47,292                  49,234                  54,512
<CURRENT-LIABILITIES>                            6,436                   6,668                   6,421                   9,693
<BONDS>                                            731                     715                     700                     684
<PREFERRED-MANDATORY>                                0                       0                       0                       0
<PREFERRED>                                          0                       0                       0                       0
<COMMON>                                        17,121                  17,480                  17,919                  18,072
<OTHER-SE>                                      19,010                  20,732                  22,508                  24,450
<TOTAL-LIABILITY-AND-EQUITY>                    45,051                  47,292                  49,234                  54,512
<SALES>                                         12,110                  24,300                  37,951                  52,741
<TOTAL-REVENUES>                                12,110                  24,300                  37,951                  52,741
<CGS>                                            6,743                  13,475                  21,166                  29,530
<TOTAL-COSTS>                                    6,743                  13,475                  21,166                  29,530
<OTHER-EXPENSES>                                 3,029                   6,072                   9,542                  13,171
<LOSS-PROVISION>                                     0                       0                       0                       0
<INTEREST-EXPENSE>                                   0                       0                       0                      56
<INCOME-PRETAX>                                  2,338                   4,753                   7,243                   9,984
<INCOME-TAX>                                       678                   1,378                   2,100                   2,873
<INCOME-CONTINUING>                              1,660                   3,375                   5,143                   7,111
<DISCONTINUED>                                       0                       0                       0                       0
<EXTRAORDINARY>                                      0                       0                       0                       0
<CHANGES>                                            0                       0                       0                       0
<NET-INCOME>                                     1,660                   3,375                   5,143                   7,111
<EPS-PRIMARY>                                     0.26                    0.53                    0.81                    1.12
<EPS-DILUTED>                                     0.25                    0.50                    0.78                    1.08
        

</TABLE>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-27
<SEQUENCE>10
<TEXT>

<TABLE> <S> <C>

<ARTICLE> 5
<RESTATED> 
       
<S>                             <C>
<PERIOD-TYPE>                   YEAR
<FISCAL-YEAR-END>                          JUN-30-1996
<PERIOD-START>                             JUL-01-1995
<PERIOD-END>                               JUN-30-1996
<CASH>                                           9,417
<SECURITIES>                                         0
<RECEIVABLES>                                    8,712
<ALLOWANCES>                                       246
<INVENTORY>                                      5,490
<CURRENT-ASSETS>                                24,655
<PP&E>                                          29,575
<DEPRECIATION>                                  14,490
<TOTAL-ASSETS>                                  44,169
<CURRENT-LIABILITIES>                            7,968
<BONDS>                                             45
<PREFERRED-MANDATORY>                                0
<PREFERRED>                                          0
<COMMON>                                        17,055
<OTHER-SE>                                      17,348
<TOTAL-LIABILITY-AND-EQUITY>                    44,169
<SALES>                                         37,940
<TOTAL-REVENUES>                                37,940
<CGS>                                           21,810
<TOTAL-COSTS>                                   21,810
<OTHER-EXPENSES>                                10,069
<LOSS-PROVISION>                                     0
<INTEREST-EXPENSE>                                  41
<INCOME-PRETAX>                                  6,020
<INCOME-TAX>                                     1,649
<INCOME-CONTINUING>                              4,371
<DISCONTINUED>                                       0
<EXTRAORDINARY>                                      0
<CHANGES>                                            0
<NET-INCOME>                                     4,371
<EPS-PRIMARY>                                     0.75
<EPS-DILUTED>                                     0.70
        

</TABLE>
</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
-----END PRIVACY-ENHANCED MESSAGE-----