Segment Reporting

3 Months Ended

Sep. 30, 2012

Segment Reporting

Note 10. 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.

Effective July 1, 2012, the Company’s VLOC business unit has been included in the Military & Materials operating segment for financial reporting purposes in accordance with how the Company’s chief operating decision maker receives and reviews financial information. Prior to July 1, 2012, VLOC was included in the Near-Infrared Optics operating segment. The Company has revised the consolidated segment information for all periods presented in this Form 10-Q to reflect this reclassification.

The Company has four reportable segments. 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 that are unique to each segment. The Company had the following reportable segments at September 30, 2012: (i) Infrared Optics, which consists of the Company’s infrared optics and material products businesses, HIGHYAG Lasertechnologie GmbH (“HIGHYAG”) and certain remaining corporate activities, primarily corporate assets and capital expenditures; (ii) Near-Infrared Optics, which consists of Photop, Aegis Lightwave, Inc. and AOFR; (iii) Military & Materials, which consists of the Company’s Exotic Electro-Optics, Inc. (“EEO”) subsidiary, VLOC, Max Levy Autograph (“MLA”), and Pacific Rare Speciality Metals & Chemicals, Inc. (“PRM”); and (iv) Advanced Products Group, which is comprised of the Company’s Marlow Industries, Inc. (“Marlow”) subsidiary, the Wide Bandgap Materials Group (“WBG”) and the Worldwide Materials Group (“WMG”); WMG is responsible for the corporate research and development activities.

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 Aegis and 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 infrared products for military applications under the EEO brand name, refines specialty metals and rare earth elements, primarily selenium and tellurium, under the PRM brand name, and manufactures and markets micro-fine conductive mesh patterns for optical, mechanical, and ceramic components for applications under the MLA brand name. The Military & Materials segment also designs, manufactures and markets near-infrared and visible-light products for military applications and laser gain material and products for solid-state yttrium aluminum garnet (“YAG”) lasers, yttrium lithium fluoride (“YLF”) lasers and Ultra-Violet (“UV”) Filter components sold under the VLOC 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. 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 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:

	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		2,064		4,287		1,487			1,234			—			9,072
Segment assets		225,857		273,585		106,658			105,025			—			711,125
Expenditures for property, plant and equipment		1,376		1,409		1,330			1,814			—			5,929
Equity investment		—		—		—			11,026			—			11,026
Goodwill		9,695		48,413		12,326			10,314			—			80,748

	Three Months Ended September 30, 2011
	Infrared Optics		Near- Infrared Optics		Military & Materials		Advanced Products Group		Eliminations			Total
Revenues	$	50,796	$	30,989	$	30,780	$	25,808	$	—		$	138,373
Inter-segment revenues		658		542		1,936		784		(3,920	)		—
Segment earnings		12,357		2,560		2,110		6,008		—			23,035
Interest expense		—		—		—		—		—			(59	)
Other income, net		—		—		—		—		—			1,630
Income taxes		—		—		—		—		—			(5,892	)
Net earnings		—		—		—		—		—			18,714
Depreciation and amortization		2,195		3,643		1,535		937		—			8,310
Segment assets		201,558		236,405		126,498		101,467		—			665,928
Expenditures for property, plant and equipment		1,700		4,215		3,513		3,284		—			12,712
Equity investments		—		—		—		15,777		—			15,777
Goodwill		9,834		53,359		12,326		10,314		—			85,833