Good morning. My name is Crystal and I will be your conference operator today. At this time, I would like to welcome everyone to the II-VI Incorporated first fiscal year 2008 fourth quarter and year end earnings call. (Operator instructions) Mr. Creaturo, you may begin your conference.

Thank you, Crystal, and good morning everyone. I am Craig Creaturo, Chief Financial Officer and Treasurer of II-VI Incorporated. Welcome to the fourth quarter and fiscal year 2008 II-VI Incorporated investor teleconference. As a reminder, this teleconference is being recorded on Tuesday, August 5, 2008. The forward-looking statements we may make during this teleconference speak as of today and we do not undertake any obligation to update these statements to reflect events or circumstances occurring after today.

Thank you, Craig, for the introduction of today’s conference call. I am Francis Kramer, President and CEO of II-VI Incorporated. Today, I will address some of the highlights that shaped our fourth quarter and full-year fiscal year 2008 results. First, I am pleased to report that for continuing operations at all four of our business segments, revenues and earnings increased on average for the fourth quarter and for the full year as compared to last year 25% to 30%. Talk about the various segments and in the military and material segment, this group realized significant bookings during the quarter with completion of negotiations at the Exotic Electro-Optics military infrared optics business which we call EEO on a multiyear pricing agreement for accelerated deliveries of the Sapphire window shrouds for the sniper Advanced Targeting Pod which is flown on the F-15 and F-16 fighter aircraft. Production deliveries are scheduled to increase to 10 shrouds per month plus pairs starting in the late fourth quarter fiscal year 2009. Exotic has also won multiyear orders for germanium windows from General Dynamics for M1 Abrams Tank totaling $7.7 million, of which $3 million was included in the fourth quarter bookings as this is the amount expected to be shipped within the next 12 months in accordance with our booking policy. A noted highlight at Exotic in the fourth quarter was the receipt of certification of the quality management system to ISO-9001 and AS9100 B quality standards. The other half in the military and materials segment, the PRM subsidiary, completed its first full year of operation under II-VI ownership by meeting all of the objectives we set for the unit at the time of the acquisition. During the fourth quarter, raw material receipts were steady for both tellurium and selenium and are well positioned with…

Thank you, Fran. Here are the items I would like to highlight before we move into the question-and-answer portion of the call. The bookings from continuing operations for the quarter at just over $92 million were comparable to the record level of revenues from continuing operations of just under $92 million. Our full year book-to-bill ratio was a healthy of 1.09 with bookings outpacing revenues by $29 million. Our June 30, 2008 backlog from continuing operations has grown to $134.5 million. The components of the June 30, 2008 backlog from continuing operations were infrared optics, at $38.5 million, near-infrared optics at $27.5 million, military and materials at $46 million and compound semiconductor group at 22.5 million. While our first fiscal quarter usually displays slight seasonality due to slowness in sales to Europe, it nonetheless appears to look like a very good start to fiscal year 2009 with revenues expecting to range between $84 million and $86 million. The gross margin for manufactured products as percentage of revenues from continued operations for the quarter was 41.8% which was close to the 42% gross margin in the prior year fourth quarter and slightly above the 41.7% gross margin in the third quarter of the just completed fiscal year. The infrared optics and near infrared optics segments showed improved gross margins from the third quarter due in part to higher sales volumes from both these businesses. A key contributor to our financial performance in the quarter and year-ended June 30, 2008 was the military and materials segment. The Exotic Electro-Optics business within this segment set records for annual bookings and revenues and continued to make operational improvements which led to a gross margin increase of over 500 basis points from the prior year. The PRM business within this segment achieved its full year…

Thank you, sir. (Operator instructions) Your first question comes from the line of Pierre MacCagno with Needham.

Congratulations on the quarter, Craig and Francis.

Thanks, Pierre.

Question on tellurium, I’m wondering if you’re selling any tellurium into the solar market?

I think we could say, “Yes, we are.” It’s on an indirect basis out of our PRM subsidiary. We sell to an account who is a quite a supplier of that into the thin-film solar cell side of that market.

Do you see that growing significantly going forward, and also are you planning to maybe expand the capacity of tellurium?

We are working hard right now to just improve on our yields and our processing. We are trying to get it more under control with the raw materials we’re bringing in to be more efficient and to get that tuning – let's just stay tuned up and reduce our cost. So capacity, yes, we’re moving up slowly, but our bigger effort is to get more efficient with what we are producing. Tellurium is about a 400-metric ton market, and we have the share that we’ve had which we have enjoyed prior to us buying that business. And I think right now we are just trying to get it tuned up. The new demand for tellurium is just as you said into the photovoltaic and that’s coming along nicely. It has had an effect in the price on tellurium raised – went up for quite a bit in the January to February time period, and then it fell back about 10% to 15% in the quarter. We just completed, so this additional demand for tellurium due to photovoltaics had an effect on us already with higher prices.

I mean positive for you in that sense?

Yes, it’s okay, because we buy all our raw materials from refiners who sell their sludges and we pay for the content of tellurium in it at the higher market price, but then we sell at the higher market price also.

I see. And so, just to have an idea of how large is your share here, out of the 400 metric tons?

I’d really rather not say that. It’s a very small market as you might sense, so there are only handful of producers around there and it’s very competitive, but we’re going to work to get a bigger share.

Okay. Congratulations. And then on the tax for 2009, what are you expecting for the tax rate?

Pierre, we are looking for a tax rate probably in the 25% range. We had some favorable things happen in the fourth quarter, and the big driver of that was the benefit we get from the international operations, but on a full-year basis we are looking more at about 25% for the fiscal year ’09.

Okay, thanks. I might come back later.

Okay.

Your next question comes from the line of Jiwon Lee with the Sidoti & Co.

Good morning.

Good morning, Jiwon. Jiwon Lee– Sidoti & Co.: Frank, could you talk a little bit about these opportunities that you see on the HIGHYAG side?

Yes, as these one micron lasers has been out for a long time, it was always that one micron laser was a welding tool, but it wasn’t as cost effective. Now, in the last three or four years, some high-power fiber lasers have come out with a real cost effective beam that is just nice for welding. So when I said earlier in my comments that the report by one of the fiber laser manufacturers is that they have studied the market and that welding is only 20% served by high-power laser technology, and that their thrust will be to penetrate more, take some of the conventional plasma torch welding, all the other welding ideas, TIG weld and so on and try to move toward laser processing. I think it is very credible, and we have seen it in laser cutting years ago. Now, to pull more of the welding into this tool, this technology, it's so typical what lasers have done. They penetrate an application and then another application and another one. Welding has been penetrated by laser for 20 years, but only to the magnitude that it was cost effective at that time. Now, with the fiber laser which are lower cost operating, and the beam quality needed for welding is no where as near as to difficult to achieve as for cutting. So it’s a great tool; it really seems to be taking a share there and HIGHYAG is well positioned. They have probably delivered welding laser systems – I cannot comment on how they stack up in installed base for welding laser systems, but they will be in the top handful; that’s for sure. Jiwon Lee– Sidoti & Co.: Okay. So tagging along to that comment, if I look at your new FY09 top line guidance, I think previously you expected about $6 million of revenue contributions from HIGHYAG. Was there an upward revision from the HIGHYAG side? Or taking it further, where is this incremental sales opportunities coming from for ’09?

Yes, I think, Jiwon, our overall guidance is probably not granular down to a particular business line. This past year, we have done – we have only had HIGHYAG for two quarters, so we get a little bit of benefit for that in FY09. But I would say that we haven’t probably made any drastic changes or any drastic changes to the HIGHYAG guidance for the full year. I can tell you that for the year that we just completed, HIGHYAG was able to turn in performance that was right where we expected. For the full year, the revenues from HIGHYAG were right around $4 million to $5 million and that was pretty much what we had expected before we acquired them, so we’ll get a full year out of them, so we will definitely grow from that base.

All right. I think investors who appreciate sort of what you see – the colors on the industrial CO2 laser traction out there.

Could you repeat the question, Jiwon?

Your traction, how you see this industrial CO2 lasers on this year? The growth –

In the fiscal year ’09, yes, I’ll make a few comments there certainly and I tried to allude to that. A couple of our laser OEMs, the major high-power people, are slowing in their order rate, probably the major driver of that North America automotive. On the other hand, continued good draw of the machines into the agricultural section, John Deere, and people like that are producing corn for ethanol. So OEMs, the two or three majors that supply into North America where there is the most uncertainty at the moment showing softness. That is the best way to describe it. But remember for us, 90% or more of what we sell are to the aftermarket through the OEMs or direct to the aftermarket. And that is such a diverse set of customers out there that we’re not on this conference call trying to say that we see a big softness in our CO2 laser optics order book; we do hear from the OEMs that they’re seeing a let up. But again, the numbers are like 55,000 units out there in the world of CO2 laser systems doing work, and coming down the assembly line has been almost 5,500 a year worldwide of this high-power class. Now, what do you think that number is going to be this year, I think people are backing it off to maybe 5,000 to 4,800 [ph]. But that’s the assembly line only for new machines, where we really get our business is from the machines that are out there doing work. If that slows down, you could imagine that we would get less orders. But at this point in time, just a little softness in our U.S. aftermarket, maybe it was off in the quarter a slight few percent compared to the prior quarters, but we haven’t seen a big 10% to 20% slowdown in aftermarket business, just a slight.

Okay. And then tagging along, your percentage of the international sales for the quarter, and then also, how about the European and the Japanese market overall?

I think, Craig, you want on a report on the percent international?

Yes, percent international was almost exactly 50% for the quarter and again I think that is coming back to some of the comments that Kramer was making, and it’s – the other part of your question is, we are definitely seeing that. I will let Kramer elaborate on it, but we’re seeing the stronger growth at least in the last several months be outside of the US, we are seeing some nice opportunities that are not in the US but that has kind of pushed the – almost to be somewhat perfectly balanced with about 50% of our revenues coming from outside of US.

I made a comment earlier and this is accurate, Asia relative to China, take China’s – maybe the hottest market, 49% year-over-year growth for us there. Japan is in the mid 20% range of growth. So both of those economies have been great and I’m reporting FY08 and really a stronger comment about the fourth quarter, so those numbers were representative to the both. In Europe, maybe not quite so robust, maybe on the 17%, 18% range growth in the Germany, Swiss, Belgium, U.K. and Italy. And those five countries just a slight slowing in our one major OEM who’s in that area is one that is really announced that they are going to see a softer July through December than what they have had in the last six months. The rest of the world, the BRIC countries – I reported about China but Brazil and India. They are starting to come online. Korea is a good spot for us right now and Russia so-so. We kind of have to start – we’ve always reported on in three continents. Now, I know China is part of Asia, but that’s a market by itself and the rest of the BRIC countries. So we see growth into that BRIC area as a nice addition to the markets we’ve been serving. So we’re really trying to be active in those areas and doing well in China.

That’s very helpful. Thank you. The final question is on the PRM side. How farther are we along in terms of getting that operations and the efficiency gain aspect of it sort of pull-through [ph], are we more than 50% done?

No, I wouldn’t say that. I think we’re just early on. We’re 20% to 30%. We’ve really worked down the supply chain and controlling pricing and tying our pricing to our cost. In the entire operation, we really have a lot of – over time, we expect we’ll invest some capital there and we’re off on that first phase of the capital investments in the year. I think maybe I announced it at one prior meeting when we spent $1 million just to get our laboratory. We got to assay all the incoming raws and certify the purity of our outgoing products so we’re spending our money on that side of it, first knowing, trying to come up with the metrology to know what we’re doing. We have that, but we’re getting better. Then all our processes out in the factory will be going through quite some big changes. So I could only put us at 20% to 30% started on that project.

That’s very helpful. Thank you.

Your next question comes from the line of Ian Fleischer with FBR Capital Market.

Hi, good morning.

Hi, Ian.

On HIGHYAG, what specifically do they do for the one-micron market?

Okay. They’d build a laser energy delivery system. They would probably – for a laser system user who has bought somebody else’s laser head at – one micron laser head, they would take their custom-design capability which really is built on a number of different standard modules and they would put this together and be able to give the delivery of whatever the power energy is needed at the workplace and they would design holding fixtures. The beam delivery is very difficult. You’re sending 2 and 3 and 4 kilowatts of energy through a fiber optic, getting that to pass into the unit, out properly and then do the work that you want done. So, fixturing on both ends of holding the work, moving the fiber optic-guided beam probably, maybe a robot sometimes they will be buying to integrate into the system or use some type of XY table. So they’ll put that altogether as bit of a system integrator by using their standard modules and their know-how on how to deliver that energy.

Okay, that’s helpful. On the military businesses, could you just touch on your visibility there into fiscal ’09 and maybe any thoughts on how that business will be impacted by democratic administration?

I’ll start on – military touches us in every one of our segments we reported on. Certainly, our VLOC UV product business, I mentioned earlier that that would be ramping down and we’ll be going down from our delivery rates by about 20%, maybe even 25% or 30% over this first half of the year. And then the second half we will have to see what happens there. To our Marlow subsidiary where we have a very nice military business, I think we’ve been strong all year. Right now, I think we have a good backlog and that looks to have maybe about the same pace. It’s not going to be growing but it’s a steady good business. The Exotic business which is 100% military is growing and I think I made my comments where I tried to allude to the fact that they certainly grew this year and we expect to grow next year. The Joint Strike Fighter has a product that we have nice opportunity on. Those ATP shrouds for the F-15 and F-16, very good. Some tank windows I reported on. Business in that side which is long-term strategic relative to JSF and ATP and then some tactical tank stuff which comes back from the Gulf War and there’s going to be this reset program that looks like it will three or four years. I think the Exotic business has a good visibility into a solid one to three-year plan there. And that’s irregardless I think of the administration. We do want to recharge up our armor and so on and we believe that it will happen either way. Now the speed at which JSF or some of the bigger strategic programs will go on, I think an administration change might slow it down, but we can only judge the first year or so. The last one would be the fourth group that has military work certainly is this group here, we are located in Saxonburg, these IR optics, CO2 laser optics. They do have a component to their business, maybe 5% that is military related and that business looks steady to even a pickup because of this desire to reduce the number of optics that one wants to design and to assist them. So this I hear tends to do difficult diamond turn products for many of the primes, Lockheed Martin and so on. That is a need that the military has in their system design, get the weight down, get two or three optics designed into one optic and this particular capability that we have at this site has been very good at helping to do that.

Okay. When I look at your guidance for fiscal year 2009, what do you think the biggest swing factors that would put you at the high or low end that guidance?

I think, Francis probably touched on some of them – I think some of the opportunities that we have with the utilizing some of our offshore manufacturing, specifically within the Vietnam facility. That sure is a factor that has really helped our growth here in the last 12 to 18 months and there is definitely some upside there as well. I think we have talked about the – we have got an anticipated downturn in our business for UV filter business and we are watching that and monitoring that, and I think we’re trying to take all the right steps to make sure we’re on the right footing for wherever that program ultimately lands for us. So that is something that we tried to factor in to the guidance. Then I would say just overall, I would say would be kind of the – Francis touched on the infrared optics business and how well we think that that business will continue to grow. We do anticipate continued double-digit growth for that business in spite of some of the challenges that we mentioned as far as slowdown from laser OEM, but utilization of lasers we anticipate is going to be still very healthy and that’s why we are anticipating that that group will be one of the main contributors to our growth in FY09.

I can only add HIGHYAG, we are still new at running that business; they could perform better than we have in our projections and our order taking in this area of where we sell zinc selenide and zinc sulfide materials. That would be a second upside opportunity, maybe we have underestimated how much we will be able to get as we’re back in that market.

Okay. And just lastly, if you could just touch on the acquisition environment, what you’re seeing there?

I would say it’s – I think we’re getting a chance to look at companies that might be compatible to II-VI. We obviously don’t have anything that is imminent or that needs to be released at this time, but I think our success is that of late, going outside of the U.S has given us comforts that we should continue to look outside of the U.S. for those types of opportunities. I would say that overall, we are very well positioned to take advantage from a financial standpoint with the balance sheet that is just incredibly healthy with a lot of access to debt we don’t have – or we have anything borrowed. We are definitely in a good position to take advantage of the right opportunities. I don’t think we are feeling pressured to get in to a wrong type of an acquisition but if one comes along and its sizable and fits with all the criteria that we look for in in an acquisition, I think we are in a very good shape to react quickly to such an opportunity. But I’d say overall, I think the environment is pretty positive especially if that's a company with a profile that we have right now.

Great. Okay, very nice quarter. Thank you very much.

Thanks, Ian.

Your next question comes from the line of Scott Blumenthal with Emerald Advisers. Scott Blumenthal –Emerald Advisers: Good morning, Fran and Craig. Congratulations.

Thank you. Scott Blumenthal –Emerald Advisers: Craig, just following up on a couple of things that Ian asked. Did you give us a CapEx number for all of 2008?

In the press release at the very back page there, Scott, there is some detail and we did – Fran mentioned in his prepared remarks, we think there will about $20 million in ’09 and that is coming off about $18 million what we did in FY08. Scott Blumenthal –Emerald Advisers: Yes, I did get the $20 million that Fran mentioned, and he didn’t mention that you planned on putting about $1 million into PRM.

That is correct. Scott Blumenthal –Emerald Advisers: Talk about where you see the rest, the other $19 million for 2009.

I think it is definitely scattered across – I’ll try to start it and let Fran add to it. I know specifically in our infrared optics business, one of the items that Fran mentioned before, our diamond turning business and that is the business that we have now not only a facility in here in Pennsylvania, but also capabilities as well as in Singapore, and there is definitely planned investments in that business over the next six months in both of those occasions, so that would be one of the areas that we will be utilizing those capital dollars. Within the rest of the infrared optics business, just kind of continue the investment in coding capability and again (inaudible), so dual location both in Pennsylvania, as well as in Singapore. I would say around the company, there’s probably not any real, too many large bricks and mortar type jobs that we have going on. We had a few of those within the last 12 months to 24 months, especially here in Saxonburg with the CVD, the crystal birth area for our infrared optics business. But most of it is more or less, equipment and just added capacity within existing operations, and not so much too many bricks and mortar projects going on. Fran, did you want to add to that?

I'll just try to give a general overview of it. If you said where is our capital going for that IR segments, it’s probably 45% to 50% of our capital. Our other three business segments might each take 15%, and that’s the way it is going to fall out. Certainly, we find a little bit more of our money going to IT-type equipment and communication equipment with our eight or nine factories around the world that we are really trying to hone in and optimize and fine-tune, and being in touch, so IT is taking a little bit more. Scott Blumenthal –Emerald Advisers: Okay, that’s really helpful. And I guess I’m going to follow up on the one question that Jiwon asked. When you talk about capacity utilization over at PRM and where you feel you are right now, I understand you’re going to put some money in there to improve the operations, but where do you feel you are now? Where do you feel that you’ll be able to get to? And I guess a follow on to that would be, talk about any other customer qualifications and interest that you might have in some of the selenium and tellurium recycle products you have put through there.

Okay. So I would comment that capacity utilization, PRM probably in the 80% to 85%. Could we take and produce more product by adding more machinery? Yes, that is what we would need, but that is not necessarily the limiter. The limiter is the supply line. It’s a byproduct material whether it is copper telluride, for example, that we get from one of our refiners. There is only so much tellurium and selenium raw materials out there, so it’s getting a good handle on those raw materials coming into our factory and because of spending [ph] a long established industry one has a rough time jumping in and saying, "I’m going to double my amount of raw material supply coming in." You really buying somebody’s waste, and when you’re buying somebody’s waste, they are not in a real big hurry to give it to you, to get yourself – expedite or higher price won’t even move it, but it’s really manage by the waste side of many of these businesses. So it’s a little bit different amount of intensity that you can apply to improve your incoming supply. You can apply a lot of intensity, but it doesn’t have much reaction. So what I’m saying is we’re quite tied to the amount of raw material supply we can bring in. Our factory could go up another 10%, 15%, 20%, and I’ll put we can do that either – flex rather quickly with more personnel, a little bit more equipment. But at the moment, I think we’re trying to be smarter in saying, “Let’s just figure this out. Let’s tune up our processes. Let’s get a little bit better supply line side and we’ll get a little bit more efficiency, not overcome it by adding capital or manpower.” I think we’re knowing that we could sell more but we’re not sure the effort to get more at the moment is the spot to go. We just don’t have the yields. I mentioned earlier that our processing chemical cost is going up quite a bit right now. We want to figure that out. So, we are in a slight growth mode for PRM. We are not trying to push it at a big rate. I think we’ll figure that out in the next six to 20 months or something like that.

Your CapEx at PRM is going to be in equipments that analyzes incoming raw materials or improve the yields or both?

Probably three things, yes; incoming and outgoing materials, some new processing equipment to improve yields, and third, at our yard in the Philippines, which is this factory is more like in a yard. It has a number of different buildings within the yard, each one which we call different plant, whether it’s sodium selenide plant – we have a handful of plants, and these are rather big two-storey buildings in which a lot of processing tanks and so on exist. We have one new plant that we’re building there. It was part of the plant when we bought the business. It was underway at the time and now it is being outfitted. So the building is there. The tanks and the processing are moving in. That will be our objective, to make the plants that we have there, and you could describe this three or four major plants within the yard to at least take one of them in the next year-and-a-half and get it into a more efficient operation.

Okay. Is there any reason why a user of tellurium or selenium would need virgin rather than recycled?

I don’t know if one could tell the difference. It’s just so many of the selenium-tellurium products are once processed, you wouldn’t be able – we sell return from this site (inaudible) and I announced that during the comments that the zinc selenide scraps that come from here go to PRM, turned into selenium, and that selenium will be sold by PRM to whatever customer they want. It’s not critical for us to get that back and there wouldn’t be any difference in our processing when we got that selenium back or some selenium that came from some raw from Mexican refinery, for example.

Okay. That’s really helpful. And I guess my last question is, Craig, I understand that you’re unable to predict the future, but can you give us an idea in your budgeting and forecasting process, kind of what you assumed to be average pricing for tellurium and selenium for the coming year?

It’s a good question. It’s something that is obviously a factor that we look at quite often in that business because, as Kramer was describing, that not only impacts the top line but also the bottom line as well. I would say that we are no great predictors of that business, and I would say that whatever we come up with, as far as the end of the quarter and whatever it is right around the quarter time, that’s probably what we’ll use. I don’t think we have any great assumptions, either positively or negatively based on the prices of selenium or tellurium. So I think we’re anticipating at least in our guidance, our guidance anticipates that the pricing will be fairly stable from what it ended at the end of June.

We’ve kind of taken the idea that we cannot predict that price; it's a minor metal; it’s very, very limited trading, 400-metric ton market is very strong. It will be smarter to spend our time managing that margin. The difference between the cost and the sell price on either of those two; we just do not have any way to predict it if photovoltaic takes some more tellurium or even selenium. I mean, one of the thin-film photovoltaic approaches is called CIGS (copper indium gallium selenide) which takes selenium. If that would take some more of the supply out in the marketplace, the selenium will take a run up. So, there are just too many factors for us to predict the pricing and we’re trying to figure out how to protect ourselves, whether it goes up or down, spend our time on that rather than determining where it’s going to go.

Okay, understood. That’s very good information. Thank you and congratulations again.

Thank you.

You have a follow-up question from Jiwon Lee with Sidoti & Co.

Hi. One of them was the ’09 CapEx (inaudible) revision which has been answered and the other one, I don’t know whether you have an answer on this yet, but one of your grow crystal consider [ph] is being bought out by even larger company and I understand that their strength was on the military side rather than the commercial side. But is there any sort of an early expectations or indications that the market dynamics may shift a little bit as a result of the acquisition?

I don’t think we have seen any change in their behavior. We haven’t really assumed that – it is a small division at that company and I don’t think the ownership by another large company would change, reach that far down into the company. But you’re right; they supply a lot of the materials. CVD – produce chemical vapor deposition, produce materials for military and defense where we really use our material in this commercial CO2 laser optics area.

Okay, fair enough, thank you.

You’re welcome.

(Operator instructions) At this time, presenters, there are no further questions. Do you have any closing remarks?

Yes, I do. If there are no further questions, I would like to thank everyone for participating today. Our next earnings release for the quarter ending September 30, 2008 is tentatively scheduled for before the market opens on Tuesday, October 21, with a conference call to follow that same day at 9 o’clock Eastern Time. Thank you for participating in today’s conference call.

Thank you. This concludes today’s conference call. You may now disconnect.