Note 12.

Segment and Geographic 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 acquisitions of Laser Enterprise on September 12, 2013 and Network Solutions on November 1, 2013, the Company has established a new reporting segment “Active Optical Products” which reports the operating results of the Company’s recently acquired businesses.

The Company has five reportable segments as of June 30, 2014. 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 from continuing operations 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 June 30, 2014: (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, Inc. (“Photop Aeigs”) and Photop AOFR; (iii) Military & Materials, which consists of the Company’s LightWorks Optical Systems (formerly the Company’s EEO and LightWorks Optical Systems subsidiaries, “LWOS”), VLOC Incorporated (“VLOC”), Max Levy Autograph, Inc. (“MLA”) and 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 and Network Solutions.

During December 2013, the Company completed the discontinuance of its tellurium product line by exiting all business activities associated with this product. This product line was previously serviced by PRM and was included as part of the Military & Materials segment. Segment information for all periods presented has been adjusted to properly reflect the tellurium product as a discontinued operation.

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 the Corporate Chief Operating Officer 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 the Corporate Chief Operating Officer, 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 the Corporate Chief Operating Officer. 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., Italy, Japan, Thailand, Hong Kong and the U.K. The Active Optical Products segment is directed by the Corporate Chief Operating Officer. Laser Enterprise manufactures high-power semiconductor laser components enabling fiber and direct diode laser systems for material processing, medical, consumer and printing applications. In addition, Laser Enterprise manufactures pump lasers for optical amplifiers for both terrestrial and submarine applications and VCSELS for optical navigation, optical interconnects and optical sensing applications. Network Solutions manufactures optical amplifiers and micro-optics for both terrestrial and submarine applications within the optical communications market.

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 from continuing operations 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:

			Near-		Military		Advanced		Active
	Infrared		Infrared		&		Products		Optical
	Optics		Optics		Materials		Group		Products			Eliminations			Total
($000)
2014
Revenues	$	209,658	$	144,677	$	98,324	$	115,394	$	115,208		$	-		$	683,261
Inter-segment revenues		1,608		2,406		6,514		6,388		563			(17,479	)		-
Segment earnings (loss)		40,736		9,814		12,851		9,419		(26,334	)		-			46,486
Interest expense		-		-		-		-		-			-			(4,479	)
Other income, net		-		-		-		-		-			-			3,634
Income taxes		-		-		-		-		-			-			(7,325	)
Earnings from discontinued operation		-		-		-		-		-			-			133
Net earnings		-		-		-		-		-			-			38,449
Depreciation and amortization		9,174		16,764		8,111		9,947		9,102			-			53,098
Segment assets		231,874		295,953		117,730		175,986		250,383			-			1,071,926
Expenditures for property, plant and equipment		9,719		8,171		5,539		3,525		2,266			-			29,220
Equity investment		-		-		-		11,589		-			-			11,589
Goodwill		9,754		60,408		30,712		22,178		73,093			-			196,145

			Near-		Military		Advanced
	Infrared		Infrared		&		Products
	Optics		Optics		Materials		Group		Eliminations			Total
($000)
2013
Revenues	$	203,319	$	154,852	$	97,116	$	95,788	$	-		$	551,075
Inter-segment revenues		2,618		896		4,853		5,311		(13,678	)		-
Segment earnings		49,457		19,628		656		1,750					71,491
Interest expense		-		-		-		-		-			(1,160	)
Other income, net		-		-		-		-		-			7,155
Income taxes		-		-		-		-		-			(18,766	)
Loss from discontinued operation		-		-		-		-		-			(6,789	)
Net earnings		-		-		-		-		-			51,931
Depreciation and amortization		8,423		17,286		7,023		8,060		-			40,792
Segment assets		238,700		307,431		139,923		177,748		-			863,802
Expenditures for property, plant and equipment		5,812		9,170		3,909		6,314		-			25,205
Equity investment		-		-		-		11,203		-			11,203
Goodwill		9,677		60,269		30,712		22,694		-			123,352

			Near-		Military		Advanced
	Infrared		Infrared		&		Products
	Optics		Optics		Materials		Group		Eliminations			Total
($000)
2012
Revenues	$	201,611	$	140,001	$	100,235	$	74,556	$	-		$	516,403
Inter-segment revenues		3,174		2,135		7,589		4,295		(17,193	)		-
Segment earnings		51,095		14,060		7,925		8,442					81,522
Interest expense		-		-		-		-		-			(212	)
Other income, net		-		-		-		-		-			7,168
Income taxes		-		-		-		-		-			(17,760	)
Loss from discontinued operation		-		-		-		-		-			(9,443	)
Net earnings		-		-		-		-		-			61,275
Depreciation and amortization		8,480		15,803		5,957		4,283		-			34,523
Expenditures for property, plant and equipment		8,072		12,249		11,983		10,493		-			42,797

Geographic information for revenues from the country of origin, and long-lived assets from the country of origin, which include property, plant and equipment, net of related depreciation, and certain other long-term assets, is as follows:

	Revenues
Year-Ended June 30,	2014		2013		2012
($000)
United States	$	263,493	$	251,735	$	204,706
Non-United States
China		114,247		123,306		123,348
Switzerland		70,260		10,268		11,714
Germany		69,983		59,628		51,962
Hong Kong		54,602		-		-
Japan		38,110		29,462		35,915
Vietnam		23,141		29,425		31,500
Philippines		14,959		17,400		26,185
Italy		8,897		7,593		7,214
Singapore		8,273		6,280		7,238
United Kingdom		7,148		6,865		6,026
Belgium		6,578		5,821		6,010
Australia		3,570		3,292		4,585
Total Non-United States		419,768		299,340		311,697
	$	683,261	$	551,075	$	516,403

	Long-Lived Assets
June 30,	2014		2013		2012
($000)
United States	$	109,138	$	110,337	$	85,709
Non-United States
China		45,667		43,139		45,412
Switzerland		22,524		5		10
Germany		16,129		2,107		1,581
Vietnam		9,107		10,081		10,278
Philippines		6,205		7,207		8,692
Hong Kong		5,111		-		-
Other		2,218		3,244		4,143
Total Non-United States		106,961		65,783		70,116
	$	216,099	$	176,120	$	155,825