Forward-Looking Statements

This Management's Discussion and Analysis contains forward-looking statements as defined by Section 21E of the Securities Exchange Act of 1934, as amended, including statements regarding projected growth rates, markets, product development, financial position, capital expenditures and foreign currency exposure. Forward-looking statements are also identified by words such as "expects," "anticipates," "intends," "plans," "projects" or similar expressions.

Actual results could materially differ from such statements due to the following factors: materially adverse changes in economic or industry conditions generally (including capital markets) or in the markets served by the Company, the development and use of new technology and the actions of competitors. 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 on August 26, 2011, in the Company's Form 10-Q for the period ended December 31, 2011, as filed with the Securities and Exchange Commission on February 8, 2012, and herein.

Introduction

II-VI Incorporated ("II-VI," the "Company," "we," "us" or "our"), the worldwide leader in crystal growth technology, is a vertically-integrated manufacturing company that creates and markets products for diversified markets including industrial manufacturing, military and aerospace, high-power electronics, optical communications, medical and thermoelectronics applications.

The Company generates revenues, earnings and cash flows from developing, manufacturing and marketing high technology materials and derivative products for precision use in industrial, optical communications, military, medical and aerospace applications. We also generate revenues, earnings and cash flows from external customer and government funded research and development contracts relating to the development and manufacture of new technologies, materials and products.

Our customer base includes original equipment manufacturers ("OEM"), laser end users, system integrators of high-power lasers, manufacturers of equipment and devices for industrial, optical communications, security and monitoring applications, U.S. government prime contractors, various U.S. government agencies and thermoelectric solutions suppliers.

Effective July 1, 2011, the Company renamed its former Compound Semiconductor Group reporting segment the Advanced Products Group.

Critical Accounting Estimates

The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America and the Company's discussion and analysis of its financial condition and results of operations require the Company's management to make judgments, assumptions and estimates that affect the amounts reported in its condensed consolidated financial statements and accompanying notes. Note 1 of the Notes to Consolidated Financial Statements in the Company's most recent Form 10-K describes the significant accounting policies and methods used in the preparation of the Company's consolidated financial statements. Management bases its estimates on historical experience and on various other assumptions that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results may differ from these estimates.

Management believes the Company's critical accounting estimates are those related to revenue recognition, allowance for doubtful accounts, warranty reserves, inventory valuation, valuation of long-lived assets including acquired intangibles and goodwill, accrual of bonus and profit sharing estimates, accrual of income tax liability estimates and accounting for share-based payments. Management believes these estimates to be critical because they are both important to the portrayal of the Company's financial condition and results of operations, and they require management to make judgments and estimates about matters that are inherently uncertain.

The Company recognizes revenues when the criteria of SEC Staff Accounting Bulletin: No. 104 - "Revenue Recognition in Financial Statements" ("SAB 104") are met. Revenues for product shipments are realizable when we have persuasive evidence of a sales arrangement, the product has been shipped or delivered, the sales price is fixed or determinable and collectability is reasonably assured. Title and risk of loss passes from the Company to its customer at the time of shipment in all cases with the exception of certain customers. For these customers, which represent approximately 5% of our consolidated revenues, title does not pass and revenue is not recognized until the customer has received the product at its physical location. The Company's

revenue recognition policy is consistently applied across the Company's segments, product lines and geographical locations. Further, we do not have post-shipment obligations such as training or installation, customer acceptance provisions, credits and discounts, rebates and price protection or other similar privileges. Our distributors and agents are not granted price protection. Our distributors and agents, who comprise less than 10% of consolidated revenue, have no additional product return rights beyond the right to return defective products that are covered by our warranty policy. We believe our revenue recognition practices are consistent with SAB 104, and that we have adequately considered the requirements of ASC Topic 605 Revenue Recognition. Revenues generated from transactions other than product shipments are contract related and have historically accounted for less than 5% of the Company's consolidated revenues.

We establish an allowance for doubtful accounts and warranty reserves based on historical experience and believe the collection of revenues, net of these reserves, is reasonably assured. Our allowance for doubtful accounts and warranty reserve balances at March 31, 2012 were $1.4 million and $1.3 million, respectively. Our reserve estimates have historically been proven to be materially correct based upon actual charges incurred.

New Accounting Standards

See "Note 2. Recent Accounting Pronouncements," to our unaudited financial statements in Part I, Item 1 of this Quarterly Report for a description of recent accounting pronouncements, including the expected dates of adoption and estimated effects, if any, on our consolidated financial statements.

Results of Operations ($000's except per-share data)

The following tables set forth bookings and select items from our Condensed
Consolidated Statements of Earnings for the three and nine months ended
March 31, 2012 and 2011, respectively:



                                               Three Months Ended                Three Months Ended
                                                 March 31, 2012                    March 31, 2011

Bookings                                   $  145,776                        $  142,883


                                                               % of                              % of
                                                             Revenues                          Revenues
Total Revenues                             $  132,590            100.0 %     $  129,997            100.0 %
Cost of goods sold                             86,589             65.3           77,149             59.3

Gross margin                                   46,001             34.7           52,848             40.7

Operating Expenses:
Internal research and development               5,698              4.3            3,892              3.0
Selling, general and administrative            23,329             17.6           23,286             17.9
Interest and other, net                        (2,263 )           (1.7 )         (1,397 )           (1.1 )

Earnings before income tax                     19,237             14.5           27,067             20.8
Income taxes                                    4,967              3.7            3,871              3.0

Net earnings                                   14,270             10.8           23,196             17.8
Net earnings attributable to
noncontrolling interest                           276              0.2               77              0.1

Net earnings attributable to II-VI
Incorporated                               $   13,994             10.6       $   23,119             17.8

Diluted earnings per-share                 $     0.22                        $     0.36

                                               Nine Months Ended                Nine Months Ended
                                                 March 31, 2012                   March 31, 2011

Bookings                                   $ 392,906                        $ 389,061


                                                              % of                             % of
                                                            Revenues                         Revenues
Total Revenues                             $ 397,720            100.0 %     $ 371,018            100.0 %
Cost of goods sold                           253,241             63.7         218,898             59.0

Gross margin                                 144,479             36.3         152,120             41.0

Operating Expenses:
Internal research and development             15,877              4.0          11,095              3.0
Selling, general and administrative           74,355             18.7          68,006             18.3
Interest and other, net                       (5,263 )           (1.3 )        (2,944 )           (0.8 )

Earnings before income tax                    59,510             15.0          75,963             20.5
Income taxes                                  13,006              3.3          15,111              4.1

Net earnings                                  46,504             11.7          60,852             16.4
Net earnings attributable to
noncontrolling interest                          644              0.2             209              0.1

Net earnings attributable to II-VI
Incorporated                               $  45,860             11.5       $  60,643             16.3

Diluted earnings per-share                 $    0.71                        $    0.95

The above results include MLA and Aegis for the periods since their acquisition dates.

Executive Summary

During the three months ended March 31, 2012, the Company began to see positive signs of strengthening markets for its largest business units. The Infrared Optics segment benefited from higher world-wide laser utilization which resulted in strong order intake for its products. In addition, Photop's bookings strengthened as a result of increasing demand related to the optical communication market. Despite the recent positive bookings trends and the increases in consolidated revenues when compared to the same periods last fiscal year, net earnings attributable to II-VI Incorporated for the three and nine months ended March 31, 2012 decreased to $13,994,000 ($0.22 per-share diluted) and $45,860,000 ($0.71 per-share diluted), respectively, compared to $23,119,000 ($0.36 per-share diluted) and $60,643,000 ($0.95 per-share diluted), respectively, for the same periods last fiscal year. During the three and nine months ended March 31, 2012, the Company's operating results were negatively impacted by an after-tax write-down of tellurium inventory of $3.6 million ($0.06 per-share diluted) and $6.1 million ($0.10 per-share diluted), respectively, at our PRM business unit. The write-down at PRM was driven by the recent weakness attributable to photovoltaic market demand resulting in significant downward pressure on global tellurium index prices. In the event that the global index price of tellurium experiences a further decline from its current level, the Company would be required to record an additional write-down of its tellurium inventory in future periods. The impact of the tellurium write-down during the three months ended March 31, 2012, was somewhat offset by an after-tax gain on the sale of the Company's equity investment in Haobo of $1.0 million. The impact of the tellurium write-down during the nine months ended March 31, 2012 was somewhat offset by the sale of Haobo as well as a $1.4 million gain related to the sale of precious metals inventory used in the production process. In addition, the Company continues to invest resources in restoring Aegis to full manufacturing capacity in wake of the recent flooding in Thailand, as well as in research and development activities at Aegis and Photop in an effort to expand and improve current product offerings in the optical communications market for the ongoing transition of 40G and 100G applications. Furthermore, lower profitability at certain of the Company's lower tax jurisdictions has contributed to a shift in earnings to high tax jurisdictions, resulting in an increase in the Company's year-to-date effective income tax rate.

Consolidated

Bookings. Bookings for the three months ended March 31, 2012 increased 2.0% to $145,776,000, compared to $142,883,000 for the same period last fiscal year. Bookings for the nine months ended March 31, 2012 increased 1.0% to $392,906,000, compared to $389,061,000 for the same period last fiscal year. Bookings are defined as customer orders received that are expected to be converted to revenues over the next twelve months. For long-term customer orders, the Company does not include in bookings the portion of the customer order that is beyond twelve months, due to the inherent uncertainty of an order that far out in the future. The consistency in overall bookings levels is attributable to positive order trends in the Infrared Optics and Military & Materials segments, offset somewhat by bookings declines at Marlow and WBG within the Company's Advanced Products Group segment. The increased bookings at Infrared Optics was pervasive across the majority of the segment's markets and was driven by higher world-wide laser utilization and increased activity in regard to the low-power and high-power CO2 laser systems. Within the Military & Materials segment, PRM experienced higher bookings as a result of a

new product offering of a rare earth element used in a non-photovoltaic green energy application as well as favorable selenium pricing. Within the Advanced Products Group segment, two large blanket orders at the Company's WBG business unit were delayed while the Company's Marlow business unit continued to experience a shortfall of orders due to delays in government funding for military related programs and reductions in orders for its gesture recognition product line.

Revenues. Revenues for the three months ended March 31, 2012 increased 2.0% to $132,590,000, compared to $129,997,000 for the same period last fiscal year. Revenues for the nine months ended March 31, 2012 increased 7.2% to $397,720,000, compared to $371,018,000 for the same period last fiscal year. The increase in revenues was attributable to the Infrared Optics and Military & Materials segments, somewhat offset by the lower volume of product shipments at the Company's Marlow business within the Advanced Products Group segment. The Infrared Optics segment benefited from increased shipment volumes to the US aftermarket and Asian low-power markets while demand in Europe for products manufactured by the segment's HIGHYAG business unit grew. The Military & Materials segment benefited from increased shipment volume and pricing of selenium at the Company's PRM business unit resulting from increased demand. These increased shipment volumes were somewhat offset by lower revenues at the Company's Marlow business unit within the Advanced Products Group segment as a result of declines in demand for the gesture recognition product line combined with shipment delays in the defense, medical and telecommunication markets.

Gross margin. Gross margin for the three months ended March 31, 2012 was $46,001,000 or 34.7% of total revenues, compared to $52,848,000 or 40.7% of total revenues, for the same period last fiscal year. Gross margin for the nine months ended March 31, 2012 was $144,479,000, or 36.3% of total revenues, compared to $152,120,000, or 41.0% of total revenues, for the same period last fiscal year. A major contributor to the lower gross margin for the three and nine months ended March 31, 2012, was the inventory write-down and reduced gross margins on tellurium products sold at PRM caused by the significant decline in global tellurium index prices. In addition, the decline in gesture recognition shipment volume at the Company's Marlow business unit resulted in an unfavorable change in product mix which further compressed gross margin, while a shift in product mix at the Company's Photop business unit to products with lower margin profiles negatively impacted gross margins during the three and nine months ended March 31, 2012 when compared to the same periods last fiscal year. Furthermore, for the nine months ended March 31, 2012, gross margin at the Company's Aegis business unit was negatively impacted by an impairment charge for machinery, equipment and inventory that were damaged as a result of the Thailand flooding at its contract manufacturer.

Internal research and development. Company-funded internal research and development expenses for the three months ended March 31, 2012 were $5,698,000, or 4.3% of revenues, compared to $3,892,000, or 3.0% of revenues, for the same period last fiscal year. Company-funded internal research and development expenses for the nine months ended March 31, 2012 were $15,877,000, or 4.0% of revenues, compared to $11,095,000, or 3.0% of revenues, for the same period last fiscal year. This increase in Company-funded internal research and development expenses was primarily the result of ongoing research and development investment at Photop and Aegis within the Near-Infrared optics segment. Photop is focusing research and development efforts on optical communication and commercial optic markets, specifically regarding optical switching router modules for data network customers as well as certain solutions for 40G and 100G optical networks. In conjunction with the addition of recently-acquired Aegis, the Company is currently investing in new product development of optical channel monitors and high-power fiber couplers and combiners.

Selling, general and administrative. Selling, general and administrative expenses for the three months ended March 31, 2012 were $23,329,000, or 17.6% of revenues, compared to $23,286,000, or 17.9% of revenues, for the same period last fiscal year. Selling, general and administrative expenses for the nine months ended March 31, 2012 were $74,355,000, or 18.7% of revenues, compared to $68,006,000, or 18.3% of revenues, for the same period last fiscal year. Selling, general and administrative expense as a percentage of revenues has normalized with the continued recovery of the global economy and has remained materially consistent during the three and nine months ended March 31, 2012 compared to the same periods last fiscal year.

Interest and other, net. Interest and other, net for the three and nine months ended March 31, 2012 was income of $2,263,000 and $5,263,000, respectively. Included in interest and other, net for the three months ended March 31, 2012 is a $1.0 million gain related to the Company's sale of its equity investment in Haobo. In addition, the Company benefited from unrealized gains on the deferred compensation plan, business interruption insurance proceeds at AOFR from the Thailand flooding, earnings from the Company's equity investment in Fuxin. The majority of interest and other, net for the nine months ended March 31, 2012 was the result of the aforementioned $1.0 million gain on the sale of Haobo, a $1.4 million gain related to the sale of precious metals inventory, earnings of equity investments and net interest income on excess cash reserves. Interest and other, net for the three and nine months ended March 31, 2011 was income of $1,397,000 and $2,944,000, respectively. The majority of interest and other, net for the three and nine months ended March 31, 2011 was the result of foreign currency gains as well as earnings from the Company's equity investments, unrealized gains on the deferred compensation plan and interest income on excess cash reserves.

Income taxes. The Company's year-to-date effective income tax rate at March 31, 2012 was 21.9%, compared to an effective tax rate of 19.9% for the same period last fiscal year. The variation between the Company's effective tax rate and the U.S. statutory rate of 35% is primarily due to the Company's foreign operations which are subject to income taxes at lower statutory rates. The majority of the change in the Company's year-to-date effective tax rate from the same period last fiscal year is the result of a shift in the mix of earnings from the Company's lower tax jurisdictions to its higher tax jurisdictions.

Segment Reporting

Bookings, revenues and segment earnings for the Company's reportable segments are discussed below. Segment earnings differ from income from operations in that segment earnings exclude certain operational expenses included in other expense (income) - net as reported. Management believes segment earnings to be a useful measure as it reflects the results of segment performance over which management has direct control and is used by management in its evaluation of segment performance. See "Note 12. Segment Reporting," to our unaudited financial statements in Part I, Item 1 of this Quarterly Report for further information on the Company's reportable segments and for the reconciliation of segment earnings to net earnings.

Infrared Optics ($000's)



                                       Three Months Ended                           Nine Months Ended
                                            March 31,                %                  March 31,                %
                                        2012          2011        Increase         2012          2011         Increase

Bookings                             $   59,112     $ 52,535             13 %    $ 153,983     $ 140,843              9 %
Revenues                             $   50,678     $ 48,407              5 %    $ 148,236     $ 130,275             14 %
Segment earnings                     $   13,845     $ 12,664              9 %    $  37,672     $  30,732             23 %

The Company's Infrared Optics segment includes the combined operations of Infrared Optics and HIGHYAG.

Bookings for the three months ended March 31, 2012 for Infrared Optics increased 13% to $59,112,000, compared to $52,535,000 for the same period last fiscal year. Bookings for the nine months ended March, 31 2012 for Infrared Optics increased 9% to $153,983,000, compared to $140,843,000 for the same period last fiscal year. The increase in bookings for the three and nine months ended March 31, 2012 compared to the same periods last fiscal year was primarily driven by increased demand across the majority of markets and geographic locations of the segment. Increased world-wide laser utilization, strengthening activity in the North American low-power and high-power CO2laser markets and positive order activity from the segment's HIGHYAG business unit contributed to the higher bookings levels.

Revenues for the three months ended March 31, 2012 for Infrared Optics increased 5% to $50,678,000, compared to $48,407,000 for the same period last fiscal year. Revenues for the nine months ended March 31, 2012 increased 14% to $148,236,000, compared to $130,275,000 for the same period last fiscal year. The increase in revenues for the three and nine months ended March 31, 2012 compared to the same periods last fiscal year was primarily due to higher shipment volumes of laser optics used by both low-power OEM's and aftermarket customers while the segment's HIGHYAG business unit continues to experience higher revenues for its one micron beam components used primarily in laser welding applications.

Segment earnings for the three months ended March 31, 2012 for Infrared Optics increased 9% to $13,845,000, compared to $12,664,000 for the same period last fiscal year. Segment earnings for the nine months ended March 31, 2012 increased 23% to $37,672,000, compared to $30,732,000 for the same period last fiscal year. The increase in segment earnings for the three and nine months ended March 31, 2012 compared to the same periods last fiscal year was primarily due to the additional margin realized on the segment's higher revenue levels as well as favorable operating leverage from cost-containment efforts to ensure incremental revenues outpaced incremental operating costs.

Near-Infrared Optics ($000's)



                                     Three Months Ended                              Nine Months Ended             %
                                          March 31,                 %                    March 31,              Increase
                                      2012          2011        (Decrease)          2012          2011         (Decrease)

Bookings                           $   46,149     $ 47,195               (2 )%    $ 119,462     $ 116,917                2 %
Revenues                           $   39,677     $ 42,354               (6 )%    $ 117,255     $ 120,717               (3 )%
Segment earnings                   $    2,647     $  5,526              (52 )%    $   6,039     $  20,475              (71 )%

The Company's Near-Infrared Optics segment includes the combined operations of Photop, Aegis and VLOC. The above results include Aegis for the three and nine months ended March 31, 2012 only, as this acquisition was completed in July 2011.

Bookings for the three months ended March 31, 2012 for Near-Infrared Optics decreased 2% to $46,149,000, compared to $47,195,000 for the same period last fiscal year. Bookings for the nine months ended March 31, 2012 increased 2% to $119,462,000, compared to $116,917,000 for the same period last fiscal year. Excluding Aegis, bookings for the three and nine months ended March 31, 2012 decreased by 14% and 9%, respectively, as Photop experienced slower order intake from major Chinese customers in the optical communications market whose inventory build peaked during the prior year quarter. Furthermore, VLOC experienced a decline in orders from current military customers for its UV Filter and other military product lines due to budget constraints and uncertainty in funding levels.

Revenues for the three months ended March 31, 2012 for Near-Infrared Optics decreased 6% to $39,677,000, compared to $42,354,000 for the same period last fiscal year. Revenues for the nine months ended March 31, 2012 decreased 3% to $117,255,000, compared to $120,717,000 for the same period last fiscal year. Excluding Aegis, revenues decreased by 15% and 12%, respectively, for the current three and nine month periods due to declining shipment volumes at VLOC of its UV Filter product line and other military related products as well as decreased contract revenues.

Segment earnings for the three months ended March 31, 2012 for Near-Infrared . . .