Note 11.

Segment Reporting

The Company reports its business segments using the “management approach” model for segment reporting. The Company determines its reportable business segments based on the way the chief operating decision maker organizes business segments within the Company for making operating decisions and assessing performance.

In conjunction with the acquisition of Oclaro, Inc.’s Switzerland-based semiconductor laser business on September 12, 2013, the Company has established a new reporting segment “Active Optical Products” which will report the operating results of the Company’s recently acquired business.

The Company has five reportable segments as of September 30, 2013. The Company’s chief operating decision maker receives and reviews financial information in this format. The Company evaluates business segment performance based upon reported business segment earnings, which is defined as earnings before income taxes, interest and other income or expense. The segments are managed separately due to the production requirements and facilities unique to each segment. The Company has the following reportable segments at September 30, 2013: (i) Infrared Optics, which consists of the Company’s infrared optics and material products businesses, HIGHYAG Lasertechnologies, GmbH (“HIGHYAG”) and certain remaining corporate activities, primarily corporate assets and capital expenditures; (ii) Near-Infrared Optics, which consists of Photop, Photop Aegis and Photop AOFR; (iii) Military & Materials, which consists of the Company’s LightWorks Optical Systems (formerly the Company’s EEO and LightWorks subsidiaries, “LWOS”), VLOC, Max Levy Autograph (“MLA”) and Pacific Rare Specialty Metals and Chemicals, Inc. (“PRM”); (iv) Advanced Products Group, which is comprised of the Company’s Marlow Industries, Inc. (“Marlow”), M Cubed, the Wide Bandgap Materials Group (“WBG”) and the Worldwide Materials Group (“WMG”), which is responsible for corporate research and development activities; and (v) Active Optical Products which consists of Laser Enterprise.

The Infrared Optics segment is divided into geographic locations in the U.S., Singapore, China, Germany, Switzerland, Japan, Belgium, the U.K. and Italy. The Infrared Optics segment is directed by a general manager, while each geographic location is also directed by a general manager, and is further divided into production and administrative units that are directed by managers. The Infrared Optics segment designs, manufactures and markets optical and electro-optical components and materials sold under the II-VI brand name and used primarily in high-power CO₂ lasers. The Infrared Optics segment also manufactures fiber-delivered beam delivery systems and processing tools for industrial lasers sold under the HIGHYAG brand name.

The Near-Infrared Optics segment is located in the U.S., China, Vietnam, Australia, Germany, Japan, the U.K., Italy and Hong Kong. The Near-Infrared Optics segment is directed by a Corporate Executive Vice President and is further divided into production and administrative units that are directed by managers. The Near-Infrared Optics segment manufactures crystal materials, optics, microchip lasers and opto-electronic modules for use in optical communication networks and other diverse consumer and commercial applications sold under the Photop brand name and manufactures tunable optical devices and couplers and combiners required for high speed optical networks sold under the Photop Aegis and Photop AOFR brand names, respectively.

The Military & Materials segment is located in the U.S. and the Philippines. The Military & Materials segment is directed by a Corporate Vice President, while each geographic location is directed by a general manager. The Military & Materials segment is further divided into production and administrative units that are directed by managers. The Military & Materials segment designs, manufactures and markets ultra-violet to infrared optical components and high-precision optical assemblies for military, medical and commercial laser and imaging applications under the LWOS and VLOC brand names and manufactures and markets micro-fine conductive mesh patterns for optical, mechanical, and ceramic components for applications under the MLA brand name. The segment also refines selenium metals for internal consumption and a rare earth element under the PRM brand name.

The Advanced Products Group is located in the U.S., Vietnam, Japan, China and Germany and is directed by a Corporate Executive Vice President. In the Advanced Products Group segment, Marlow designs and manufactures thermoelectric cooling and power generation solutions for use in defense and space, optical communications, medical, consumer and industrial markets. M Cubed develops advanced ceramic materials and precision motion control products addressing the semiconductor, display, industrial and defense markets. WBG manufactures and markets single crystal silicon carbide substrates for use in solid-state lighting, wireless infrastructure, radio frequency (“RF”) electronics and power switching industries. WMG directs the corporate research and development initiatives.

The Active Optical Products segment is located in Switzerland, China, the U.S. and the U.K. The Active Optical Products segment is directed by a Corporate Executive Vice President. The Active Optical Products segment manufacturers high-power semiconductor laser components enabling fiber and direct diode laser systems for material processing, medical, consumer and printing applications. In addition, the segment manufactures pump lasers for optical amplifiers for both terrestrial and submarine applications and VCSELS for optical navigation, optical interconnects and optical sensing applications.

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

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


	Three Months Ended September 30, 2013
	Infrared Optics		Near- Infrared Optics		Military & Materials		Advanced Products Group		Active Optical Products			Eliminations			Total
Revenues	$	52,601	$	39,887	$	27,424	$	26,478	$	4,782		$	—		$	151,172
Inter-segment revenues		274		285		1,871		1,520		—			(3,950	)		—
Segment earnings (loss)		10,844		3,089		3,424		314		(4,184	)		—			13,487
Interest expense		—		—		—		—		—			—			(483	)
Other expense, net		—		—		—		—		—			—			(67	)
Income taxes		—		—		—		—		—			—			(3,243	)
Net earnings		—		—		—		—		—			—			9,694
Depreciation and amortization		2,134		4,611		2,079		2,487		525			—			11,836
Segment assets		237,395		317,044		133,130		176,964		134,985			—			999,518
Expenditures for property, plant and equipment		1,891		2,528		1,128		831		195			—			6,573
Equity investment		—		—		—		11,461		—			—			11,461
Goodwill		9,733		60,434		30,712		22,178		38,994			—			162,051


	Three Months Ended September 30, 2012
	Infrared Optics		Near- Infrared Optics		Military & Materials			Advanced Products Group			Eliminations			Total
Revenues	$	51,556	$	40,646	$	23,935		$	16,155		$	—		$	132,292
Inter-segment revenues		500		332		1,540			1,184			(3,556	)		—
Segment earnings (loss)		11,842		7,722		(2,148	)		(822	)		—			16,594
Interest expense		—		—		—			—			—			(36	)
Other income, net		—		—		—			—			—			761
Income taxes		—		—		—			—			—			(4,187	)
Net earnings		—		—		—			—			—			13,132
Depreciation and amortization		2,063		4,287		1,487			1,234			—			9,071
Expenditures for property, plant and equipment		1,376		1,409		1,330			1,814			—			5,929