Quarterly report pursuant to Section 13 or 15(d)

Segment Reporting

v3.4.0.3
Segment Reporting
6 Months Ended
Mar. 27, 2016
Segment Reporting [Abstract]  
Segment Reporting

Note 4 Segment Reporting

 

Optex Systems Holdings, Inc. has two reportable segments which include Optex Systems (OPX)-Richardson, and Applied Optics Center (AOC) – Dallas. The accounting policies for each segment are the same as those described in the summary of significant accounting policies. Optex Systems Holdings, Inc. evaluates performance based on profit and loss from operations before income taxes excluding nonrecurring gains and losses.

 

Optex Systems Holdings reportable segments are strategic businesses offering similar products to similar markets and customers; however the companies are operated and managed separately due to differences in manufacturing technology, equipment, geographic location, and specific product mix. Applied Optics Center was acquired as a unit, and the management at the time of the acquisition was retained.

 

The Applied Optics Center segment also serves as the key supplier of laser coated filters used in the production of periscope assemblies for the Optex Systems Richardson segment. Intersegment sales and transfers are accounted for at annually agreed to pricing rates based on estimated segment product cost, which includes segment direct manufacturing and general and administrative costs, but exclude profits that would apply to third party external customers.

 

Optex Systems – Dallas, serves as the home office for both segments and shared general and administrative costs attributable to both segments are allocated directly to the segments based on the government costs accounting standard, CAS 403 – “Allocation of Home Office Expenses to Segments”. The purpose of CAS 403 is to provide criteria for allocating home office expenses to the segments of an organization based on the beneficial or causal relationships between the expenses and the receiving segments. Based on CAS 403, Optex Systems Holdings allocates home office expenses based on a three factor formula which is the average of the following three percentages for each of the segments fiscal year:

 

(1) The percentage of segment payroll dollars to total payroll dollars of all segments;

(2) The percentage of the segment’s operating revenue to the total operating revenue of all segments

(3) The percentage of the average net book value of the sum of the segment’s tangible capital assets plus inventories to the total average net book value of such assets of all segments.

 

Optex Systems (OPX) – Richardson, Texas

Optex Systems, Inc. manufactures optical sighting systems and assemblies, primarily for Department of Defense applications. Its products are installed on various types of U.S. military land vehicles, such as the Abrams and Bradley fighting vehicles, light armored and armored security vehicles and have been selected for installation on the Stryker family of vehicles. Optex Systems, Inc. also manufactures and delivers numerous periscope configurations, rifle and surveillance sights and night vision optical assemblies. We have capabilities which include machining, bonding, painting engraving and assembly and can perform both optical and environmental testing in-house.  Optex Systems, Inc. products consist primarily of build-to-customer print products that are delivered both directly to the armed services and to other defense prime contractors. Optex Systems in Richardson is both a prime and sub-prime contractor to the Department of Defense.  Sub-prime contracts are typically issued through major defense contractors such as General Dynamics Land Systems, Raytheon Corp., BAE, NorcaTec and others. Optex Systems is also a military supplier to foreign governments such as Israel, Australia and NAMSA and South American countries and as a subcontractor for several large U.S. defense companies serving foreign governments.

 

Optex Systems – Richardson revenues predominately support prime and subcontracted military customers both domestically and abroad. The Optex Systems segment serves domestic military customers, 63% and foreign military customers, 37%. The Optex Systems segment revenue for six months ending March 27, 2016 was derived from external customers consisting of General Dynamics, 30%, the U.S. government, 49%, International Parts Supply Co (IPS), 10%, and other external customers, 11%.

 

Optex Systems is located in Richardson, Texas, with leased premises consisting of approximately 49,100 square feet.  As of March 27, 2016, the Richardson facility operated with 60 full time equivalent employees in a single shift operation. Optex Systems in Richardson serves as the home office for both the Optex Systems (OPX) and Applied Optics Center (AOC) segments.

 

Applied Optics Center (AOC) – Dallas

On November 3, 2014, Optex Systems, Inc. entered into a Purchase Agreement with L-3 pursuant to which Optex Systems, Inc. purchased from L-3 the assets comprising L-3’s Applied Optics Center Products Line (see Note 3). Applied Optics Center is engaged in the production, marketing and sales of precision optical assemblies and components which utilize thin film coating technologies. Most of the AOC products and services are directly related to the deposition of thin-film coatings. AOC is both a prime and sub-prime contractor to the Department of Defense.  Sub-prime contracts are typically issued through major defense contractors such as General Dynamics Land Systems, Raytheon Corp., L-3 Communications, Harris Corporation and others. AOC also creates a new sector of opportunity for commercial products. Globally, commercial optical products use thin film coatings to create product differentiation and performance levels. These coatings can be used for redirecting light (mirrors), blocking light (laser protection), absorbing select light (desired wavelengths), and many other combinations. They are used in telescopes, rifle scopes, binoculars, microscopes, range finders, protective eyewear, photography, etc. The Applied Optics Center is a key supplier to Nightforce Optics, Inc. and provides optical assembly components to their markets of interest in commercial sporting optics and select military optics. Given this broad potential, the commercial applications are a key opportunity going forward. The Applied Optics Center segment also serves as the key supplier of the laser coated filters used in the production of periscope assemblies at the Optex Systems Richardson segment.

 

The Applied Optics Center serves primarily domestic U.S. customers, externally, and as an internal supplier for Optex Systems – Dallas. Applied Optics Center sales to commercial customers represent 35% and military sales to prime and subcontracted customers represent 43% of the total segment revenue. Intersegment sales to Optex Systems – Richardson, comprised 22% of the total segments revenue and was primarily in support of military contracts. The Applied Optics Center external customer revenue for the six months ending March 27, 2016 was derived from Nightforce Optics, Inc., 41%, L3 Communications, 24%, Exelis, Inc., 24%, the U.S. government, 5%, and other external customers, 6%.

 

The Applied Optics Center (AOC), is located in Dallas, Texas with leased premises consisting of approximately 56,633 square feet of space, of which 12,000 square feet is currently subleased to L3 Mobile Vision. As of March 27, 2016, AOC operated with 35 full time equivalent employees in a single shift operation.

 

The financial tables below presents the information for each of the reportable segments profit or loss as well as segment assets for the three months ending March 27, 2016 and the three months ending March 29, 2015. Optex Systems Holdings, Inc. does not allocate interest expense, income taxes or unusual items to segments.

  

    Reportable Segment Financial Information
(thousands)
 
    Three months ending March 27, 2016  
    Optex Systems
Richardson
    Applied Optics Center
Dallas
    Other
(non allocated costs
and intersegment
eliminations)
    Consolidated 
Total
 
                         
Revenues from external customers   $ 1,966     $ 1,250     $ -     $ 3,216  
Intersegment revenues     -       437       (437 )     -  
Total Revenue   $ 1,966     $ 1,687     $ (437 )   $ 3,216  
                                 
Interest (income)     -       -       (3 )   $ (3 )
                                 
Depreciation and Amortization     18       68       -       86  
                                 
Income (Loss) before taxes     (166 )     (147 )     3       (310 )
                                 
Other significant noncash items:                                
Allocated home office expense     (188 )     188       -       -  
Stock compensation expense     24       -       -       24  
Royalty expense amortization     8       -       -       8  
Provision for (use of) contract loss reserves     -       (15 )     -       (15 )
                                 
Segment Assets     6,844       4,674       -       11,518  
Expenditures for segment assets     -       (19 )     -       (19 )

   

    Reportable Segment Financial Information
(thousands)
 
                         
    Three months ending March 29, 2015  
    Optex Systems
Richardson
    Applied Optics Center
Dallas
    Other 
(non allocated costs
 and intersegment 
eliminations)
    Consolidated
Total
 
                         
Revenues from external customers   $ 1,921     $ 1,482     $ -     $ 3,403  
Intersegment revenues     -       -       -       -  
Total Revenue   $ 1,921     $ 1,482     $ -     $ 3,403  
                                 
Interest (income)     -       -       (5,326 )   $ (5,326 )
                                 
Depreciation and Amortization     23       68       -       91  
                                 
Income (Loss) before taxes     (331 )     (506 )     4,479       3,642  
                                 
Other significant noncash items:                                
Allocated home office expense     (100 )     100       -       -  
(Gain) on purchased asset - AOC     -       -       -       -  
Change in Fair Value - Derivatives                     (847 )     (847 )
Amortization of intangible assets     -       171       -       171  
Stock option compensation expense     24       -       -       24  
Royalty expense amortization     8       -       -       8  
Provision for (use of) contract loss reserves     -       41       -       41  
                                 
Segment Assets     7,619       4,075       -       11,694  
Expenditures for segment assets     (6 )     -       -       (6 )

 

The financial tables below presents the information for each of the reportable segments profit or loss as well as segment assets for the six months ending March 27, 2016 and the six months ending March 29, 2015. Optex Systems Holdings, Inc. does not allocate interest expense, income taxes or unusual items to segments.

 

    Reportable Segment Financial Information
(thousands)
 
                         
    Six months ending March 27, 2016  
    Optex Systems
Richardson
    Applied Optics Center
Dallas
    Other
(non allocated costs
and intersegment
eliminations)
    Consolidated 
Total
 
                         
Revenues from external customers   $ 4,134     $ 2,295     $ -     $ 6,429  
Intersegment revenues     -       658       (658 )     -  
Total Revenue   $ 4,134     $ 2,953     $ (658 )   $ 6,429  
                                 
Interest expense     -       -       15     $ 15  
                                 
Depreciation and Amortization     37       135       -       172  
                                 
(Loss) before taxes     (152 )     (389 )     (15 )     (556 )
                                 
Other significant noncash items:                                
Allocated home office expense     (376 )     376       -       -  
Stock compensation expense     48       -       -       48  
Royalty expense amortization     15       -       -       15  
Provision for (use of) contract loss reserves     -       (30 )     -       (30 )
                                 
Segment Assets     6,844       4,674       -       11,518  
Expenditures for segment assets     -       (19 )     -       (19 )

  

    Reportable Segment Financial Information
(thousands)
 
                         
    Six months ending March 29, 2015  
    Optex Systems
Richardson
    Applied Optics Center
Dallas (1)
    Other

(non allocated costs
and intersegment
eliminations)
    Consolidated
Total
 
                         
Revenues from external customers   $ 3,677     $ 1,824     $ -     $ 5,501  
Intersegment revenues     -       -       -       -  
Total Revenue   $ 3,677     $ 1,824     $ -     $ 5,501  
                                 
Interest (income) expense     -       -       153     $ 153  
                                 
Depreciation and Amortization     47       111       -       158  
                                 
Income (Loss) before taxes     (445 )     1,411       (153 )     813  
                                 
Other significant noncash items:                                
Allocated home office expense     (166 )     166       -       -  
(Gain) on purchased asset - AOC     -       2,110       -       2,110  
Change in Fair Value - Derivatives                     -       -  
Amortization of intangible assets     -       171       -       171  
Stock option compensation expense     91       -       -       91  
Royalty expense amortization     15       -       -       15  
Provision for (use of) contract loss reserves     (10 )     41       -       31  
                                 
Segment Assets     7,619       4,075       -       11,694  
Expenditures for segment assets     (30 )     (2,064 )     -       (2,094 )

  

(1) The Applied Optics Center was acquired on November 3, 2014. Activity is for the period from November 3, 2014 through March 29, 2015.