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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 29, 2013
OR
¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________________ to __________________
Commission File Number: 000-01649
NEWPORT CORPORATION
(Exact name of registrant as specified in its charter)
|
Nevada |
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94-0849175 |
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(State or other jurisdiction of |
|
(IRS Employer Identification No.) |
|
incorporation or organization) |
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1791 Deere Avenue, Irvine, California 92606
(Address of principal executive offices) (Zip Code)
(949) 863-3144
(Registrant’s telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes ý No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes ý No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ¨ Accelerated filer ý
Non-accelerated filer ¨ (Do not check if a smaller reporting company) Smaller reporting company ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ¨ No ý
As of July 26, 2013, 39,116,075 shares of the registrant’s sole class of common stock were outstanding.
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NEWPORT CORPORATION
FORM 10-Q
PART I – FINANCIAL INFORMATION
NEWPORT CORPORATION
Consolidated Statements of Income and Comprehensive Income
(In thousands, except per share data)
(Unaudited)
|
|
|
Three Months Ended |
|
|
|
Six Months Ended |
| ||||||||||||
|
|
|
June 29, |
|
|
|
June 30, |
|
|
|
June 29, |
|
|
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June 30, |
| ||||
|
|
|
2013 |
|
|
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2012 |
|
|
|
2013 |
|
|
|
2012 |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
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Net sales |
|
$ |
134,234 |
|
|
|
$ |
153,655 |
|
|
|
$ |
266,841 |
|
|
|
$ |
310,822 |
|
|
Cost of sales |
|
76,997 |
|
|
|
86,772 |
|
|
|
154,472 |
|
|
|
175,870 |
| ||||
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Gross profit |
|
57,237 |
|
|
|
66,883 |
|
|
|
112,369 |
|
|
|
134,952 |
| ||||
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
| ||||
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Selling, general and administrative expenses |
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38,067 |
|
|
|
41,887 |
|
|
|
75,675 |
|
|
|
85,947 |
| ||||
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Research and development expense |
|
13,577 |
|
|
|
13,651 |
|
|
|
26,678 |
|
|
|
27,450 |
| ||||
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Operating income |
|
5,593 |
|
|
|
11,345 |
|
|
|
10,016 |
|
|
|
21,555 |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
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Gain on sale of investment |
|
- |
|
|
|
5,298 |
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|
|
- |
|
|
|
5,298 |
| ||||
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Interest and other expense, net |
|
(2,042 |
) |
|
|
(2,828 |
) |
|
|
(4,179 |
) |
|
|
(5,015 |
) | ||||
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Income before income taxes |
|
3,551 |
|
|
|
13,815 |
|
|
|
5,837 |
|
|
|
21,838 |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
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Income tax provision |
|
946 |
|
|
|
4,754 |
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|
|
498 |
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|
|
6,189 |
| ||||
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Net income |
|
2,605 |
|
|
|
9,061 |
|
|
|
5,339 |
|
|
|
15,649 |
| ||||
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Net loss attributable to non-controlling interests |
|
(57 |
) |
|
|
(93 |
) |
|
|
(69 |
) |
|
|
(97 |
) | ||||
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Net income attributable to Newport Corporation |
|
$ |
2,662 |
|
|
|
$ |
9,154 |
|
|
|
$ |
5,408 |
|
|
|
$ |
15,746 |
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
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Net income |
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$ |
2,605 |
|
|
|
$ |
9,061 |
|
|
|
$ |
5,339 |
|
|
|
$ |
15,649 |
|
|
Other comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
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Foreign currency translation gains (losses) |
|
777 |
|
|
|
(3,485 |
) |
|
|
(1,675 |
) |
|
|
(1,898 |
) | ||||
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Unrecognized net pension gains |
|
38 |
|
|
|
102 |
|
|
|
228 |
|
|
|
86 |
| ||||
|
Unrealized losses on marketable securities |
|
(50 |
) |
|
|
(140 |
) |
|
|
(148 |
) |
|
|
(107 |
) | ||||
|
Comprehensive income |
|
$ |
3,370 |
|
|
|
$ |
5,538 |
|
|
|
$ |
3,744 |
|
|
|
$ |
13,730 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
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Comprehensive loss attributable to non-controlling interests |
|
$ |
(85 |
) |
|
|
$ |
(69 |
) |
|
|
$ |
(146 |
) |
|
|
$ |
(115 |
) |
|
Comprehensive income attributable to Newport Corporation |
|
3,455 |
|
|
|
5,607 |
|
|
|
3,890 |
|
|
|
13,845 |
| ||||
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Comprehensive income |
|
$ |
3,370 |
|
|
|
$ |
5,538 |
|
|
|
$ |
3,744 |
|
|
|
$ |
13,730 |
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|
|
|
|
|
|
|
|
|
|
|
|
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|
|
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| ||||
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Net income per share attributable to Newport Corporation: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
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Basic |
|
$ |
0.07 |
|
|
|
$ |
0.24 |
|
|
|
$ |
0.14 |
|
|
|
$ |
0.41 |
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Diluted |
|
$ |
0.07 |
|
|
|
$ |
0.24 |
|
|
|
$ |
0.14 |
|
|
|
$ |
0.40 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
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Shares used in per share calculations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
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Basic |
|
39,085 |
|
|
|
38,220 |
|
|
|
38,843 |
|
|
|
37,975 |
| ||||
|
Diluted |
|
39,361 |
|
|
|
38,898 |
|
|
|
39,311 |
|
|
|
38,915 |
| ||||
See accompanying notes.
NEWPORT CORPORATION
(In thousands, except share and per share data)
(Unaudited)
|
|
|
June 29, |
|
|
|
December 29, |
| ||
|
|
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2013 |
|
|
|
2012 |
| ||
|
ASSETS |
|
|
|
|
|
|
| ||
|
Current assets: |
|
|
|
|
|
|
| ||
|
Cash and cash equivalents |
|
$ |
90,186 |
|
|
|
$ |
88,767 |
|
|
Restricted cash |
|
3,220 |
|
|
|
3,107 |
| ||
|
Marketable securities |
|
8,574 |
|
|
|
8,498 |
| ||
|
Accounts receivable, net of allowance for doubtful accounts of $1,354 and $1,548 as of June 29, 2013 and December 29, 2012, respectively |
|
86,467 |
|
|
|
89,445 |
| ||
|
Notes receivable |
|
1,128 |
|
|
|
1,536 |
| ||
|
Inventories |
|
107,946 |
|
|
|
108,728 |
| ||
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Deferred income taxes |
|
19,812 |
|
|
|
19,872 |
| ||
|
Prepaid expenses and other current assets |
|
20,867 |
|
|
|
17,727 |
| ||
|
Total current assets |
|
338,200 |
|
|
|
337,680 |
| ||
|
|
|
|
|
|
|
|
| ||
|
Property and equipment, net |
|
81,220 |
|
|
|
82,843 |
| ||
|
Goodwill |
|
79,489 |
|
|
|
79,586 |
| ||
|
Deferred income taxes |
|
5,426 |
|
|
|
5,646 |
| ||
|
Intangible assets, net |
|
72,171 |
|
|
|
77,446 |
| ||
|
Investments and other assets |
|
35,504 |
|
|
|
37,760 |
| ||
|
|
|
$ |
612,010 |
|
|
|
$ |
620,961 |
|
|
|
|
|
|
|
|
|
| ||
|
LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
|
|
|
|
|
| ||
|
Current liabilities: |
|
|
|
|
|
|
| ||
|
Short-term borrowings, net |
|
$ |
32,767 |
|
|
|
$ |
32,985 |
|
|
Accounts payable |
|
31,181 |
|
|
|
31,061 |
| ||
|
Accrued payroll and related expenses |
|
29,242 |
|
|
|
29,096 |
| ||
|
Accrued expenses and other current liabilities |
|
38,612 |
|
|
|
34,696 |
| ||
|
Total current liabilities |
|
131,802 |
|
|
|
127,838 |
| ||
|
|
|
|
|
|
|
|
| ||
|
Long-term debt, net |
|
128,647 |
|
|
|
150,758 |
| ||
|
Accrued pension liabilities |
|
27,731 |
|
|
|
27,764 |
| ||
|
Deferred income taxes and other liabilities |
|
22,850 |
|
|
|
23,783 |
| ||
|
|
|
|
|
|
|
|
| ||
|
Commitments and contingencies (Note 15) |
|
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
| ||
|
Stockholders’ equity: |
|
|
|
|
|
|
| ||
|
Common stock, par value $0.1167 per share, 200,000,000 shares authorized; 39,101,228 and 38,402,291 shares issued and outstanding as of June 29, 2013 and December 29, 2012, respectively |
|
4,563 |
|
|
|
4,481 |
| ||
|
Capital in excess of par value |
|
447,410 |
|
|
|
441,074 |
| ||
|
Accumulated other comprehensive loss |
|
(8,467 |
) |
|
|
(6,949 |
) | ||
|
Accumulated deficit |
|
(143,766 |
) |
|
|
(149,174 |
) | ||
|
Total stockholders’ equity of Newport Corporation |
|
299,740 |
|
|
|
289,432 |
| ||
|
Non-controlling interests |
|
1,240 |
|
|
|
1,386 |
| ||
|
Total stockholders’ equity |
|
300,980 |
|
|
|
290,818 |
| ||
|
|
|
$ |
612,010 |
|
|
|
$ |
620,961 |
|
See accompanying notes.
NEWPORT CORPORATION
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
|
|
|
Six Months Ended |
| ||||||
|
|
|
June 29, |
|
|
|
June 30, |
| ||
|
|
|
2013 |
|
|
|
2012 |
| ||
|
CASH FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
|
|
|
| ||
|
Net income |
|
$ |
5,339 |
|
|
|
$ |
15,649 |
|
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
| ||
|
Depreciation and amortization |
|
15,682 |
|
|
|
21,377 |
| ||
|
Gain on sale of assets |
|
- |
|
|
|
(5,323 |
) | ||
|
Provision for losses on inventories |
|
3,775 |
|
|
|
3,790 |
| ||
|
Stock-based compensation expense |
|
4,145 |
|
|
|
4,092 |
| ||
|
Provision for doubtful accounts |
|
166 |
|
|
|
191 |
| ||
|
Loss on disposal of property and equipment |
|
432 |
|
|
|
130 |
| ||
|
Deferred income taxes |
|
(101 |
) |
|
|
1,361 |
| ||
|
Increase (decrease) in cash, net of acquisition, due to changes in: |
|
|
|
|
|
|
| ||
|
Accounts and notes receivable |
|
1,636 |
|
|
|
(3,915 |
) | ||
|
Inventories |
|
(3,568 |
) |
|
|
(1,803 |
) | ||
|
Prepaid expenses and other assets |
|
(3,896 |
) |
|
|
448 |
| ||
|
Accounts payable |
|
1,048 |
|
|
|
703 |
| ||
|
Accrued payroll and related expenses |
|
342 |
|
|
|
(6,604 |
) | ||
|
Accrued expenses and other liabilities |
|
4,290 |
|
|
|
(1,963 |
) | ||
|
Other long-term liabilities |
|
(5 |
) |
|
|
180 |
| ||
|
Net cash provided by operating activities |
|
29,285 |
|
|
|
28,313 |
| ||
|
|
|
|
|
|
|
|
| ||
|
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
|
|
| ||
|
Purchase of property and equipment |
|
(8,340 |
) |
|
|
(6,186 |
) | ||
|
Restricted cash |
|
(139 |
) |
|
|
9,412 |
| ||
|
Gain on sale of assets |
|
- |
|
|
|
5,323 |
| ||
|
Business acquisition, net of cash acquired |
|
- |
|
|
|
(8,939 |
) | ||
|
Purchase of marketable securities |
|
(2,400 |
) |
|
|
(1,206 |
) | ||
|
Proceeds from the sale of marketable securities |
|
2,245 |
|
|
|
1,161 |
| ||
|
Net cash used in investing activities |
|
(8,634 |
) |
|
|
(435 |
) | ||
|
|
|
|
|
|
|
|
| ||
|
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
|
|
| ||
|
Repayment of long-term debt and obligations under capital leases |
|
(19,422 |
) |
|
|
(14,489 |
) | ||
|
Proceeds from short-term borrowings |
|
1,683 |
|
|
|
3,894 |
| ||
|
Repayment of short-term borrowings |
|
(3,495 |
) |
|
|
(21,868 |
) | ||
|
Proceeds from the issuance of common stock under employee plans |
|
4,266 |
|
|
|
2,403 |
| ||
|
Tax withholding payments related to net share settlement of equity awards |
|
(1,993 |
) |
|
|
(3,053 |
) | ||
|
Net cash used in financing activities |
|
(18,961 |
) |
|
|
(33,113 |
) | ||
|
Impact of foreign exchange rate changes on cash balances |
|
(271 |
) |
|
|
(748 |
) | ||
|
Net increase (decrease) in cash and cash equivalents |
|
1,419 |
|
|
|
(5,983 |
) | ||
|
Cash and cash equivalents at beginning of period |
|
88,767 |
|
|
|
55,701 |
| ||
|
Cash and cash equivalents at end of period |
|
$ |
90,186 |
|
|
|
$ |
49,718 |
|
|
|
|
|
|
|
|
|
| ||
|
Supplemental disclosures of cash flow information: |
|
|
|
|
|
|
| ||
|
Cash paid during the period for interest |
|
$ |
3,354 |
|
|
|
$ |
3,501 |
|
|
Cash paid during the period for income taxes, net |
|
$ |
2,113 |
|
|
|
$ |
2,837 |
|
|
Property and equipment accrued in accounts payable |
|
$ |
714 |
|
|
|
$ |
138 |
|
See accompanying notes.
NEWPORT CORPORATION
Notes to Consolidated Financial Statements
June 29, 2013
NOTE 1 BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements include the accounts of Newport Corporation and its wholly owned subsidiaries (collectively referred to as the Company) and have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions of Form 10-Q and Rule 10-01 of Regulation S-X. In the opinion of management, all adjustments (consisting of normal and recurring accruals) considered necessary for a fair presentation have been included. All intercompany transactions and balances have been eliminated in consolidation.
The accompanying unaudited consolidated financial statements do not include certain footnotes and financial presentations normally required under generally accepted accounting principles (GAAP) and, therefore, should be read in conjunction with the consolidated financial statements and related notes contained in the Company’s Annual Report on Form 10-K for the year ended December 29, 2012. The results for the interim periods are not necessarily indicative of the results the Company will have for the full year ending December 28, 2013. The December 29, 2012 balances reported herein are derived from the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 29, 2012.
Subsequent to the filing of the Company’s Quarterly Report on Form 10-Q for the six months ended June 30, 2012, management determined that certain debt repayments and borrowings were both overstated by $1.3 million in the Company’s consolidated statement of cash flows for the six months ended June 30, 2012. In the consolidated statement of cash flows included in the accompanying unaudited consolidated financial statements, the Company corrected the presentation of repayment of long-term debt and obligations under capital leases, repayment of short-term borrowings and proceeds from short-term borrowings to accurately report debt repayments and borrowings. The Company believes that the effect of this adjustment is not material to the consolidated statement of cash flows for the six months ended June 30, 2012.
NOTE 2 RECENT ACCOUNTING PRONOUNCEMENTS
In March 2013, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2013-05, Foreign Currency Matters: Parent’s Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity, which clarifies the guidance in Topics 810 and 830. Topic 810 requires companies to deconsolidate a subsidiary or derecognize a group of assets if the parent ceases to hold a controlling financial interest in that subsidiary or group of assets. Upon the loss of a controlling financial interest, the parent would recognize the cumulative translation adjustment in net income. The guidance in Topic 810 does not distinguish between a sale or transfer of an investment in a foreign entity and a sale or transfer of a subsidiary or group of assets within a foreign entity. Topic 830 requires the release of the cumulative translation adjustment into net income if a sale or transfer represented a complete or substantially complete liquidation of an investment in a foreign entity. ASU No. 2013-05 clarifies that companies that cease to have a controlling financial interest in a subsidiary or group of assets within a foreign subsidiary should release the cumulative translation adjustment into net income if the sale or transfer results in a complete or substantially complete liquidation of the foreign entity in which the subsidiary or group of assets had resided. ASU No. 2013-05 will be effective for fiscal years beginning after December 15, 2013, and early adoption is permitted but has not been elected by the Company. The adoption of ASU No. 2013-05 will not have a material impact on the Company’s financial position or results of operations.
NEWPORT CORPORATION
Notes to Consolidated Financial Statements
June 29, 2013
NOTE 3 MARKETABLE SECURITIES
All marketable securities of the Company were classified as available for sale and were recorded at market value using the specific identification method, and unrealized gains and losses are reflected in accumulated other comprehensive loss in the accompanying consolidated balance sheets. The aggregate fair value of available for sale securities and the aggregate amount of unrealized gains and losses in available for sale securities at June 29, 2013 were as follows:
|
(In thousands) |
|
Aggregate |
|
|
|
Aggregate Amount of |
| |||||||
|
|
|
Fair Value |
|
|
|
Gains |
|
|
|
Losses |
| |||
|
Money market funds |
|
$ |
4,999 |
|
|
|
$ |
85 |
|
|
|
$ |
- |
|
|
Certificates of deposit |
|
3,575 |
|
|
|
- |
|
|
|
- |
| |||
|
|
|
$ |
8,574 |
|
|
|
$ |
85 |
|
|
|
$ |
- |
|
The aggregate fair value of available for sale securities and the aggregate amount of unrealized gains and losses in available for sale securities at December 29, 2012 were as follows:
|
(In thousands) |
|
Aggregate |
|
|
|
Aggregate Amount of |
| |||||||
|
|
|
Fair Value |
|
|
|
Gains |
|
|
|
Losses |
| |||
|
Money market funds |
|
$ |
4,244 |
|
|
|
$ |
86 |
|
|
|
$ |
- |
|
|
Certificates of deposit |
|
4,254 |
|
|
|
- |
|
|
|
- |
| |||
|
|
|
$ |
8,498 |
|
|
|
$ |
86 |
|
|
|
$ |
- |
|
|
|
|
|
|
|
|
|
| |||||||
|
The contractual maturities of certificates of deposit were as follows: |
|
|
|
|
| |||||||||
|
|
|
|
|
|
|
|
| |||||||
|
(In thousands) |
|
June 29, |
|
|
|
|
| |||||||
|
|
|
2013 |
|
|
|
|
|
|
|
|
| |||
|
0 – 1 Year |
|
$ |
3,575 |
|
|
|
|
|
|
|
|
| ||
|
1 – 2 Years |
|
- |
|
|
|
|
|
|
|
|
| |||
|
2 – 3 Years |
|
- |
|
|
|
|
|
|
|
|
| |||
|
3 – 5 Years |
|
- |
|
|
|
|
|
|
|
|
| |||
|
5 – 10 Years |
|
- |
|
|
|
|
|
|
|
|
| |||
|
More than 10 years |
|
- |
|
|
|
|
|
|
|
|
| |||
|
|
|
$ |
3,575 |
|
|
|
|
|
|
|
|
| ||
There were no realized gains or losses on the sale of available for sale securities for the three and six months ended June 29, 2013 or the three and six months ended June 30, 2012.
NOTE 4 FAIR VALUE MEASUREMENTS
Accounting Standards Codification (ASC) 820-10, Fair Value Measurements and Disclosures, requires that for any assets and liabilities stated at fair value on a recurring basis in the Company’s financial statements, the fair value of such assets and liabilities be measured based on the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Level 1 asset and liability values are derived from quoted prices in active markets for identical assets and liabilities and Level 2 asset and liability values are derived from quoted prices in inactive markets or based on other observable inputs.
NEWPORT CORPORATION
Notes to Consolidated Financial Statements
June 29, 2013
The Company’s assets and liabilities measured at fair value on a recurring basis are categorized in the table below based upon their level within the fair value hierarchy as of June 29, 2013.
|
(In thousands) |
|
|
|
|
|
Fair Value Measurements at Reporting Date Using |
| |||||||||||||
|
Description |
|
|
June 29, 2013 |
|
|
Quoted Prices in |
|
Significant Other |
|
|
Significant |
| ||||||||
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
Restricted Cash |
|
|
$ |
3,220 |
|
|
|
$ |
3,220 |
|
|
|
$ |
- |
|
|
|
$ |
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
Marketable securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
Money market funds |
|
|
4,999 |
|
|
|
4,999 |
|
|
|
- |
|
|
|
- |
| ||||
|
Certificates of deposit |
|
|
3,575 |
|
|
|
- |
|
|
|
3,575 |
|
|
|
- |
| ||||
|
|
|
|
8,574 |
|
|
|
4,999 |
|
|
|
3,575 |
|
|
|
- |
| ||||
|
Derivative assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
Option contracts |
|
|
580 |
|
|
|
- |
|
|
|
580 |
|
|
|
- |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
Funds in investments and other assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
Israeli pension funds |
|
|
11,043 |
|
|
|
- |
|
|
|
11,043 |
|
|
|
- |
| ||||
|
Pension assets not owned by plan |
|
|
6,571 |
|
|
|
- |
|
|
|
6,571 |
|
|
|
- |
| ||||
|
|
|
|
17,614 |
|
|
|
- |
|
|
|
17,614 |
|
|
|
- |
| ||||
|
|
|
|
$ |
29,988 |
|
|
|
$ |
8,219 |
|
|
|
$ |
21,769 |
|
|
|
$ |
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
Derivative liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
Option contracts |
|
|
82 |
|
|
|
- |
|
|
|
82 |
|
|
|
- |
| ||||
The Company’s assets and liabilities measured at fair value on a recurring basis are categorized in the table below based upon their level within the fair value hierarchy as of December 29, 2012.
|
(In thousands) |
|
|
|
|
|
|
Fair Value Measurements at Reporting Date Using |
| ||||||||||||
|
Description |
|
|
December 29, 2012 |
|
|
Quoted Prices in |
|
Significant Other |
|
Significant | ||||||||||
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
Restricted Cash |
|
|
$ |
3,107 |
|
|
|
$ |
3,107 |
|
|
|
$ |
- |
|
|
|
$ |
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
Marketable securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
Money market funds |
|
|
4,244 |
|
|
|
4,244 |
|
|
|
- |
|
|
|
- |
| ||||
|
Certificates of deposit |
|
|
4,254 |
|
|
|
- |
|
|
|
4,254 |
|
|
|
- |
| ||||
|
|
|
|
8,498 |
|
|
|
4,244 |
|
|
|
4,254 |
|
|
|
- |
| ||||
|
Derivative assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
Option contracts |
|
|
755 |
|
|
|
- |
|
|
|
755 |
|
|
|
- |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
Funds in investments and other assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
Israeli pension funds |
|
|
10,690 |
|
|
|
- |
|
|
|
10,690 |
|
|
|
|
| ||||
|
Pension assets not owned by plan |
|
|
6,615 |
|
|
|
- |
|
|
|
6,615 |
|
|
|
- |
| ||||
|
|
|
|
17,305 |
|
|
|
- |
|
|
|
17,305 |
|
|
|
- |
| ||||
|
|
|
|
$ |
29,665 |
|
|
|
$ |
7,351 |
|
|
|
$ |
22,314 |
|
|
|
$ |
- |
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
Derivative liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
Option contracts |
|
|
202 |
|
|
|
- |
|
|
|
202 |
|
|
|
- |
| ||||
NEWPORT CORPORATION
Notes to Consolidated Financial Statements
June 29, 2013
The Company’s other financial instruments include short-term borrowings and long-term debt. The fair value of these financial instruments was estimated based on current rates for similar issues or on the current rates offered to the Company for debt of similar remaining maturities. The estimated fair values of these financial instruments were as follows:
|
|
|
June 29, 2013 |
|
|
|
December 29, 2012 |
| ||||||||||||
|
(In thousands) |
|
Carrying |
|
|
|
|
|
|
|
Carrying |
|
|
|
|
| ||||
|
|
|
Amount |
|
|
|
Fair Value |
|
|
|
Amount |
|
|
|
Fair Value |
| ||||
|
Short-term borrowings |
|
$ |
32,767 |
|
|
|
$ |
33,758 |
|
|
|
$ |
32,985 |
|
|
|
$ |
32,020 |
|
|
Long-term debt |
|
$ |
128,647 |
|
|
|
$ |
133,174 |
|
|
|
$ |
150,758 |
|
|
|
$ |
145,404 |
|
NOTE 5 SUPPLEMENTAL BALANCE SHEET INFORMATION
Inventories
Inventories that are expected to be sold within one year are classified as current inventories and are included in inventories in the accompanying consolidated balance sheets. Such inventories were as follows:
|
(In thousands) |
|
June 29, |
|
|
|
December 29, |
| ||
|
|
|
2013 |
|
|
|
2012 |
| ||
|
Raw materials and purchased parts |
|
$ |
64,627 |
|
|
|
$ |
65,766 |
|
|
Work in process |
|
18,495 |
|
|
|
18,075 |
| ||
|
Finished goods |
|
24,824 |
|
|
|
24,887 |
| ||
|
Short-term inventories |
|
$ |
107,946 |
|
|
|
$ |
108,728 |
|
Inventories that are not expected to be sold within one year are classified as long-term inventories and are included in investments and other assets in the accompanying consolidated balance sheets. Such inventories were as follows:
|
(In thousands) |
|
June 29, |
|
|
|
December 29, |
| ||
|
|
|
2013 |
|
|
|
2012 |
| ||
|
Raw materials and purchased parts |
|
$ |
3,344 |
|
|
|
$ |
4,149 |
|
|
Finished goods |
|
4,354 |
|
|
|
4,926 |
| ||
|
Long-term inventories |
|
$ |
7,698 |
|
|
|
$ |
9,075 |
|
Accrued Warranty Obligations
Unless otherwise stated in the Company’s product literature or in its agreements with customers, products sold by the Company’s Photonics and Optics Groups generally carry a one-year warranty from the original invoice date on all product materials and workmanship, other than filters and gratings products, which generally carry a 90-day warranty and laser beam profilers and dental CAD/CAM scanners, which generally carry a two-year warranty. Products of these groups sold to original equipment manufacturer (OEM) customers generally carry longer warranties, typically 15 to 19 months. Products sold by the Company’s Lasers Group carry warranties that vary by product and product component, but generally range from 90 days to two years. In certain cases, such warranties for Lasers Group products are limited by either a set time period or a maximum amount of hourly usage of the product, whichever occurs first. Defective products will be either repaired or replaced, generally at the Company’s option, upon meeting certain criteria. The Company accrues a provision for the estimated costs that may be incurred for warranties relating to a product (based on historical experience) as a component of cost of sales. Short-term accrued warranty obligations, which expire within one year, are included in accrued expenses and other current liabilities and long-term warranty obligations are included in deferred income taxes and other liabilities in the accompanying consolidated balance sheets. Short-term warranty obligations were $3.0 million and $3.4 million as of June 29, 2013 and December 29, 2012, respectively. As of June 29, 2013 and December 29, 2012, the amounts accrued for long-term warranty obligations were not material.
NEWPORT CORPORATION
Notes to Consolidated Financial Statements
June 29, 2013
The activity in accrued warranty obligations was as follows:
|
|
|
Six Months Ended |
| ||||||
|
(In thousands) |
|
June 29, |
|
|
|
June 30, |
| ||
|
|
|
2013 |
|
|
|
2012 |
| ||
|
Balance at beginning of year |
|
$ |
3,528 |
|
|
|
$ |
4,466 |
|
|
Additions charged to cost of sales |
|
1,193 |
|
|
|
1,290 |
| ||
|
Additions from acquisitions |
|
- |
|
|
|
21 |
| ||
|
Warranty claims |
|
(1,510 |
) |
|
|
(1,749 |
) | ||
|
Balance at end of period |
|
$ |
3,211 |
|
|
|
$ |
4,028 |
|
Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities were as follows:
|
(In thousands) |
|
June 29, |
|
|
|
December 29, |
| ||
|
|
|
2013 |
|
|
|
2012 |
| ||
|
Deferred revenue |
|
$ |
13,276 |
|
|
|
$ |
11,561 |
|
|
Deferred lease liability |
|
5,538 |
|
|
|
5,445 |
| ||
|
Accrued and deferred taxes |
|
2,485 |
|
|
|
3,866 |
| ||
|
Short-term accrued warranty obligations |
|
3,036 |
|
|
|
3,421 |
| ||
|
Other |
|
14,277 |
|
|
|
10,403 |
| ||
|
|
|
$ |
38,612 |
|
|
|
$ |
34,696 |
|
Accumulated Other Comprehensive Loss
Accumulated other comprehensive loss consisted of the following:
|
(In thousands) |
|
June 29, |
|
|
|
December 29, |
| ||
|
|
|
2013 |
|
|
|
2012 |
| ||
|
Cumulative foreign currency translation losses |
|
$ |
(6,167 |
) |
|
|
$ |
(4,569 |
) |
|
Unrecognized net pension losses |
|
(3,020 |
) |
|
|
(3,248 |
) | ||
|
Unrealized gains on marketable securities |
|
720 |
|
|
|
868 |
| ||
|
|
|
$ |
(8,467 |
) |
|
|
$ |
(6,949 |
) |
NEWPORT CORPORATION
Notes to Consolidated Financial Statements
June 29, 2013
NOTE 6 INTANGIBLE ASSETS
Intangible assets were as follows:
|
(In thousands) |
|
June 29, |
|
December 29, |
| ||
|
|
|
2013 |
|
2012 |
| ||
|
Intangible assets subject to amortization: |
|
|
|
|
| ||
|
Developed technology, net of accumulated amortization of $12,433 and $10,885 as of June 29, 2013 and December 29, 2012, respectively |
|
$ |
28,087 |
|
$ |
29,742 |
|
|
Customer relationships, net of accumulated amortization of $29,414 and $26,255 as of June 29, 2013 and December 29, 2012, respectively |
|
16,918 |
|
20,100 |
| ||
|
In-process research and development, net of accumulated amortization of $427 and $158 as of June 29, 2013 and December 29, 2012, respectively |
|
7,472 |
|
7,746 |
| ||
|
Other, net of accumulated amortization of $6,027 and $5,915 as of June 29, 2013 and December 29, 2012, respectively |
|
1,389 |
|
1,553 |
| ||
|
|
|
53,866 |
|
59,141 |
| ||
|
Intangible assets not subject to amortization: |
|
|
|
|
| ||
|
Trademarks and trade names |
|
18,305 |
|
18,305 |
| ||
|
Intangible assets, net |
|
$ |
72,171 |
|
$ |
77,446 |
|
Developed technology is amortized on a straight line basis over 10 to 20 years, depending on the life of the product technology. Intangible assets related to customer relationships are generally amortized over a period of up to 10 years on an accelerated basis. In-process research and development is amortized on a straight line basis over the product’s estimated useful life upon completion of the technology. Other intangible assets include acquired backlog, product trademarks and trade names, non-competition agreements and defensible assets. With the exception of product trademarks and trade names, such assets are amortized on a straight line basis over a period of three months to 10 years, depending on the asset. Trademarks and trade names associated with products are amortized on a straight line basis over the estimated remaining life of the product technology, which ranges from 10 to 20 years. Trademarks and trade names associated with a business have indefinite lives and are not amortized.
Amortization expense related to intangible assets totaled $2.6 million and $5.1 million for the three and six months ended June 29, 2013, respectively, and $5.0 million and $10.2 million for the three and six months ended June 30, 2012, respectively.
NEWPORT CORPORATION
Notes to Consolidated Financial Statements
June 29, 2013
Estimated aggregate amortization expense for future fiscal years is as follows:
|
(In thousands)
|
|
Estimated |
| |
|
2013 (remaining) |
|
$ |
5,180 |
|
|
2014 |
|
8,360 |
| |
|
2015 |
|
6,727 |
| |
|
2016 |
|
6,350 |
| |
|
2017 |
|
5,380 |
| |
|
Thereafter |
|
19,894 |
| |
|
|
|
$ |
51,891 |
|
The Company has excluded $2.0 million of amortization expense related to certain in-process research and development from the table above, as it was uncertain as of June 29, 2013 when the technology will be completed and when the amortization will begin.
NOTE 7 INTEREST AND OTHER EXPENSE, NET
Interest and other expense, net, was as follows:
|
|
|
Three Months Ended |
|
Six Months Ended |
| ||||||||
|
|
|
June 29, |
|
June 30, |
|
June 29, |
|
June 30, |
| ||||
|
(In thousands) |
|
2013 |
|
2012 |
|
2013 |
|
2012 |
| ||||
|
Interest expense |
|
$ |
(1,793) |
|
$ |
(2,041) |
|
$ |
(3,583) |
|
$ |
(4,242) |
|
|
Interest and dividend income |
|
56 |
|
42 |
|
104 |
|
103 |
| ||||
|
Derivative gain (loss) |
|
171 |
|
(488) |
|
373 |
|
183 |
| ||||
|
Bank and portfolio asset management fees |
|
(195) |
|
(170) |
|
(386) |
|
(334) |
| ||||
|
Other expense, net |
|
(281) |
|
(171) |
|
(687) |
|
(725) |
| ||||
|
|
|
$ |
(2,042) |
|
$ |
(2,828) |
|
$ |
(4,179) |
|
$ |
(5,015) |
|
NOTE 8 STOCK-BASED COMPENSATION
During the six months ended June 29, 2013, the Company granted 0.7 million restricted stock units and 0.6 million stock-settled stock appreciation rights with weighted average grant date fair values of $13.74 and $6.59, respectively.
The total stock-based compensation expense included in the Company’s consolidated statements of income and comprehensive income was as follows:
|
|
|
Three Months Ended |
|
Six Months Ended |
| ||||||||
|
|
|
June 29, |
|
June 30, |
|
June 29, |
|
June 30, |
| ||||
|
(In thousands) |
|
2013 |
|
2012 |
|
2013 |
|
2012 |
| ||||
|
Cost of sales |
|
$ |
244 |
|
$ |
184 |
|
$ |
453 |
|
$ |
301 |
|
|
Selling, general and administrative expenses |
|
1,373 |
|
1,469 |
|
3,193 |
|
3,308 |
| ||||
|
Research and development expense |
|
259 |
|
225 |
|
499 |
|
483 |
| ||||
|
|
|
$ |
1,876 |
|
$ |
1,878 |
|
$ |
4,145 |
|
$ |
4,092 |
|
NEWPORT CORPORATION
Notes to Consolidated Financial Statements
June 29, 2013
At June 29, 2013, the total compensation cost related to unvested stock-based awards granted to employees, officers and directors under the Company’s stock-based benefit plans that had not yet been recognized was $17.2 million (net of estimated forfeitures of $3.7 million). This future compensation expense will be amortized over a weighted-average period of 1.8 years using the straight-line attribution method. The actual compensation expense that the Company will recognize in the future related to unvested stock-based awards outstanding at June 29, 2013 will be adjusted for actual forfeitures and will be adjusted based on the Company’s determination as to the extent to which performance conditions applicable to any stock-based awards have been or will be achieved.
At June 29, 2013, 0.7 million stock options with a weighted-average exercise price of $14.58 per share, intrinsic value of $0.2 million and remaining contractual term of 1.2 years were outstanding and were exercisable. At June 29, 2013, 2.0 million stock-settled stock appreciation rights with a weighted-average base value of $12.27 per share, intrinsic value of $5.4 million and remaining contractual term of 5.0 years were outstanding, and 1.0 million stock-settled stock appreciation rights with a weighted-average base value of $9.78 per share, intrinsic value of $5.2 million and remaining contractual term of 3.7 years were exercisable.
NOTE 9 DEBT AND LINES OF CREDIT
Total short-term debt was as follows:
|
(In thousands) |
|
June 29, |
|
December 29, |
| ||
|
|
|
2013 |
|
2012 |
| ||
|
|
|
|
|
|
| ||
|
Japanese revolving lines of credit |
|
$ |
3,024 |
|
$ |
5,231 |
|
|
Japanese receivables financing facilities |
|
135 |
|
415 |
| ||
|
Total short-term borrowings |
|
$ |
3,159 |
|
$ |
5,646 |
|
Total long-term debt was as follows:
|
(In thousands) |
|
June 29, |
|
December 29, |
| ||
|
|
|
2013 |
|
2012 |
| ||
|
|
|
|
|
|
| ||
|
U.S. term loan due October 2016 |
|
$ |
152,625 |
|
$ |
171,125 |
|
|
Israeli loans due through October 2015 |
|
2,885 |
|
3,591 |
| ||
|
Japanese private placement bonds due June 2014 |
|
2,016 |
|
2,325 |
| ||
|
Japanese loans due through November 2016 |
|
729 |
|
1,056 |
| ||
|
Total long-term debt |
|
158,255 |
|
178,097 |
| ||
|
Current portion of long-term debt |
|
29,608 |
|
27,339 |
| ||
|
Total long-term debt, less current portion |
|
$ |
128,647 |
|
$ |
150,758 |
|
NEWPORT CORPORATION
Notes to Consolidated Financial Statements
June 29, 2013
NOTE 10 NET INCOME PER SHARE
The following table sets forth the computation of basic and diluted net income per share:
|
|
|
Three Months Ended |
|
Six Months Ended |
| ||||||||
|
|
|
June 29, |
|
June 30, |
|
June 29, |
|
June 30, |
| ||||
|
(In thousands, except per share data) |
|
2013 |
|
2012 |
|
2013 |
|
2012 |
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
Net income attributable to Newport Corporation |
|
$ |
2,662 |
|
$ |
9,154 |
|
$ |
5,408 |
|
$ |
15,746 |
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
Shares: |
|
|
|
|
|
|
|
|
| ||||
|
Weighted average shares outstanding - basic |
|
39,085 |
|
38,220 |
|
38,843 |
|
37,975 |
| ||||
|
Dilutive potential common shares, using treasury stock method |
|
276 |
|
678 |
|
468 |
|
940 |
| ||||
|
Weighted average shares outstanding - diluted |
|
39,361 |
|
38,898 |
|
39,311 |
|
38,915 |
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
Net income per share attributable to Newport Corporation: |
|
|
|
|
|
|
|
|
| ||||
|
Basic |
|
$ |
0.07 |
|
$ |
0.24 |
|
$ |
0.14 |
|
$ |
0.41 |
|
|
Diluted |
|
$ |
0.07 |
|
$ |
0.24 |
|
$ |
0.14 |
|
$ |
0.40 |
|
For the three and six months ended June 29, 2013, an aggregate of 0.9 million stock options and stock appreciation rights, and for the three and six months ended June 30, 2012, an aggregate of 0.9 million stock options and stock appreciation rights, were excluded from the computations of diluted net income per share, as their exercise prices (or base values) exceeded the average market price of the Company’s common stock during such periods, and their inclusion would have been antidilutive. For the three and six months ended June 29, 2013, 0.4 million restricted stock units, and for the three and six months ended June 30, 2012, 0.2 million restricted stock units, were excluded from the computations of diluted net income per share, as the amount of unrecognized future compensation expense associated with these restricted stock units would have resulted in assumed proceeds in excess of the amount required to repurchase the underlying shares under the treasury stock method and, therefore, their inclusion would have been antidilutive. For the three and six months ended June 29, 2013, an additional 0.7 million performance-based restricted stock units, and for the three and six months ended June 30, 2012, 0.4 million performance-based restricted stock units, were excluded from the computations of diluted net income per share, as the performance criteria for their vesting had not been met as of the end of such periods.
NOTE 11 INCOME TAXES
Under ASC 740-270, Income Taxes – Interim Reporting, the Company is required to evaluate and make any necessary adjustments to its effective tax rate each quarter as new information is obtained that may affect the assumptions used to estimate its annual effective tax rate. The Company’s assumptions relate to factors such as the projected level and mix of pre-tax earnings in the various tax jurisdictions in which it operates, valuation allowances against deferred tax assets, the recognition or derecognition of tax benefits related to uncertain tax positions, expected utilization of tax credits and changes in or the interpretation of tax laws in jurisdictions in which the Company conducts business. In addition, jurisdictions for which the Company has projected losses for the year, or a year-to-date loss, where no tax benefit can be recognized, are excluded from the calculation of the estimated annual effective tax rate. Changes in the assumptions and the inclusion or exclusion of certain jurisdictions could result in a higher or lower effective tax rate during a particular quarter. On July 30, 2013 the Israeli Parliament adopted Budget Law 2013-2014 and the Economic Arrangements Law, which will impact the corporate tax rate applicable to the Company’s Israeli based operations effective January 1, 2014. These new tax laws will have a direct impact on valuing the Company’s deferred tax assets and liabilities, and the Company will be required to record an adjustment to the value of the Company’s deferred tax assets and liabilities as a discrete item during the Company’s quarter ending September 28, 2013.
NEWPORT CORPORATION
Notes to Consolidated Financial Statements
June 29, 2013
Deferred income taxes are recognized for the future tax consequences of temporary differences using enacted statutory tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Temporary differences include the difference between the financial statement carrying amounts and the tax bases of existing assets and liabilities and operating loss and tax credit carryforwards. The effect of a change in tax rates on deferred taxes is recognized in income in the period that includes the enactment date. In accordance with the provisions of ASC 740, a valuation allowance for deferred tax assets is recorded to the extent the Company cannot determine that the ultimate realization of the net deferred tax assets is more likely than not. Realization of deferred tax assets is principally dependent upon the achievement of future taxable income, the estimation of which requires significant management judgment. As of June 29, 2013, the Company could not determine that it is more likely than not that deferred tax assets related to certain domestic and foreign net operating loss carryforwards and certain other miscellaneous domestic and foreign deferred tax assets would be realized. Therefore, the Company has maintained a valuation allowance of $3.3 million against its domestic and certain foreign subsidiaries’ deferred tax assets.
The Company utilizes ASC 740-10-25, Income Taxes – Recognition, which requires income tax positions to meet a more-likely-than-not recognition threshold to be recognized in the financial statements. Under ASC 740-10-25, tax positions that previously failed to meet the more-likely-than-not threshold should be recognized in the first subsequent financial reporting period in which that threshold is met. Previously recognized tax positions that no longer meet the more-likely-than-not threshold should be derecognized in the first subsequent financial reporting period in which that threshold is no longer met. As a multi-national corporation, the Company is subject to taxation in many jurisdictions, and the calculation of its tax liabilities involves dealing with uncertainties in the application of complex tax laws and regulations in various taxing jurisdictions. If the Company ultimately determines that the payment of these liabilities will be unnecessary, it reverses the liability and recognizes a tax benefit during the period in which it determines the liability no longer applies. Conversely, the Company records additional tax charges in a period in which it determines that a recorded tax liability is less than it expects the ultimate assessment to be. As a result of these adjustments, the Company’s effective tax rate in a given financial statement period could be materially affected. In the first quarter of 2013, the Company reversed $0.7 million of unrecognized tax benefits related to a Japanese subsidiary, due to the expiration of the applicable audit statute of limitations. As of June 29, 2013, the Company had $14.5 million of gross unrecognized tax benefits and a total of $11.7 million of net unrecognized tax benefits, which, if recognized, would affect the effective tax rate. Interest and penalties related to unrecognized tax benefits were not significant for the three and six months ended June 29, 2013.
NOTE 12 STOCKHOLDERS’ EQUITY TRANSACTIONS
In May 2008, the Board of Directors of the Company approved a share repurchase program, authorizing the purchase of up to 4.0 million shares of the Company’s common stock. No purchases were made under this program during the six months ended June 29, 2013. As of June 29, 2013, 3.9 million shares remained available for purchase under the program. However, the terms of the Company’s senior secured credit facility entered into in October 2011 restrict the Company’s ability to purchase additional shares under this program during the term of such facility. The terms of the Company’s new senior secured revolving credit facility entered into in July 2013, described more fully in Note 16, which replaced the October 2011 credit facility, permit the Company to purchase shares under the repurchase program during the term of such facility, subject to certain conditions and limitations.
In the second quarter of 2013, the Company cancelled 0.1 million restricted stock units in payment by employees of taxes owed upon the vesting of restricted stock units issued to them under the Company’s stock incentive plans. The value of these restricted stock units totaled $2.0 million at the time they were cancelled.
NOTE 13 DEFINED BENEFIT PENSION PLANS
The Company has defined benefit pension plans covering substantially all full-time employees in France, Germany, Israel and Japan. In addition, the Company has certain pension liabilities relating to former employees of the Company in the United Kingdom. The German plan is unfunded, as permitted under the plan and applicable laws. For financial reporting purposes, the calculation of net periodic pension costs is based upon a number of actuarial assumptions, including a discount rate for plan obligations, an assumed rate of return on pension plan assets and an assumed rate of compensation increase for employees covered by the plan. All of these assumptions are based upon management’s judgment, considering all known trends and uncertainties. Actual results that differ from these assumptions would impact future expense recognition and the cash funding requirements of the Company’s pension plans.
NEWPORT CORPORATION
Notes to Consolidated Financial Statements
June 29, 2013
Net periodic benefit costs for the plans in aggregate included the following components:
|
|
|
Three Months Ended |
|
Six Months Ended |
| ||||||||
|
|
|
June 29, |
|
June 30, |
|
June 29, |
|
June 30, |
| ||||
|
(In thousands) |
|
2013 |
|
2012 |
|
2013 |
|
2012 |
| ||||
|
Service cost |
|
$ |
1,133 |
|
$ |
937 |
|
$ |
1,438 |
|
$ |
1,527 |
|
|
Interest cost on benefit obligations |
|
161 |
|
183 |
|
326 |
|
368 |
| ||||
|
Expected return on plan assets |
|
(51) |
|
(57) |
|
(103) |
|
(114) |
| ||||
|
Amortization of net loss |
|
62 |
|
38 |
|
124 |
|
76 |
| ||||
|
|
|
$ |
1,305 |
|
$ |
1,101 |
|
$ |
1,785 |
|
$ |
1,857 |
|
NOTE 14 BUSINESS SEGMENT INFORMATION
The operating segments reported below are the segments of the Company for which separate financial information is available and for which operating results are evaluated regularly by the Chief Executive Officer, who is the chief operating decision maker, in deciding how to allocate resources and in assessing performance. Prior to 2013, the Company developed, manufactured and marketed its products within three distinct business segments: its Lasers Division, its Photonics and Precision Technologies Division and its Ophir Division. In January 2013, the Company reorganized its operations to create three new operating segments: its Photonics Group, its Lasers Group and its Optics Group. As a result, the Company has revised its reportable segments to correspond with its new operating segments, reflecting the manner in which it now assesses performance and allocates resources. The results of operations of the Company’s reportable segments for the three and six months ended June 30, 2012 reported below have been restated to conform to the new reportable segments.
The Company measured income reported for each business segment, which included only those costs that were directly attributable to the operations of that segment, and excluded certain unallocated operating expenses, such as corporate overhead and intangible asset amortization, certain gains, interest and other expense, net, and income taxes.
|
(In thousands) |
|
Photonics |
|
Lasers |
|
Optics |
|
Total |
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
Three months ended June 29, 2013: |
|
|
|
|
|
|
|
|
| ||||
|
Sales to external customers |
|
$ |
55,449 |
|
$ |
39,423 |
|
$ |
39,362 |
|
$ |
134,234 |
|
|
Segment income |
|
$ |
10,767 |
|
$ |
4,225 |
|
$ |
1,875 |
|
$ |
16,867 |
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
Three months ended June 30, 2012: |
|
|
|
|
|
|
|
|
| ||||
|
Sales to external customers |
|
$ |
60,497 |
|
$ |
44,734 |
|
$ |
48,424 |
|
$ |
153,655 |
|
|
Segment income |
|
$ |
13,488 |
|
$ |
2,905 |
|
$ |
7,449 |
|
$ |
23,842 |
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
Six months ended June 29, 2013: |
|
|
|
|
|
|
|
|
| ||||
|
Sales to external customers |
|
$ |
113,816 |
|
$ |
78,308 |
|
$ |
74,717 |
|
$ |
266,841 |
|
|
Segment income |
|
$ |
23,333 |
|
$ |
7,358 |
|
$ |
2,575 |
|
$ |
33,266 |
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
Six months ended June 30, 2012: |
|
|
|
|
|
|
|
|
| ||||
|
Sales to external customers |
|
$ |
120,629 |
|
$ |
93,961 |
|
$ |
96,232 |
|
$ |
310,822 |
|
|
Segment income |
|
$ |
25,768 |
|
$ |
9,588 |
|
$ |
13,638 |
|
$ |
48,994 |
|
NEWPORT CORPORATION
Notes to Consolidated Financial Statements
June 29, 2013
The following table reconciles segment income to consolidated income before income taxes:
|
|
|
Three Months Ended |
|
Six Months Ended |
| ||||||||
|
|
|
June 29, |
|
June 30, |
|
June 29, |
|
June 30, |
| ||||
|
(In thousands) |
|
2013 |
|
2012 |
|
2013 |
|
2012 |
| ||||
|
Segment income |
|
$ |
16,867 |
|
$ |
23,842 |
|
$ |
33,266 |
|
$ |
48,994 |
|
|
Unallocated operating expenses |
|
(11,274) |
|
(12,497) |
|
(23,250) |
|
(27,439) |
| ||||
|
Gain on sale of assets |
|
- |
|
5,298 |
|
- |
|
5,298 |
| ||||
|
Interest and other expense, net |
|
(2,042) |
|
(2,828) |
|
(4,179) |
|
(5,015) |
| ||||
|
|
|
$ |
3,551 |
|
$ |
13,815 |
|
$ |
5,837 |
|
$ |
21,838 |
|
NOTE 15 LEGAL PROCEEDINGS
In November 2010, two former employees of Spectra-Physics, Linda Pope and Yvette Flores, together with their children, Tia Pope Hudson and Mark Flores, filed a complaint against Spectra-Physics and the Company in the Superior Court for Santa Clara County, California. Plaintiffs alleged that between 1975 and 1985 they were harmed by exposure to toxic substances at Spectra-Physics, and that Spectra-Physics failed to warn them about dangers associated with the substances and failed to implement adequate safeguards to protect them from the substances.
In November 2012, the Company reached an agreement with Linda Pope and Tia Pope Hudson to settle all claims related to their portion of the suit. In June 2013, the court granted the Company’s motion for summary judgment of Yvette Flores’ claims on the grounds that they were barred by the exclusivity of the State of California’s workers’ compensation system. In July 2013, the Company reached an agreement with Mark Flores to settle his claims, which were then the only claims remaining in the suit. Such settlement amounts will be paid from coverage by applicable insurance policies, and as such will not have any net impact on the Company’s income, cash flows or stockholders’ equity.
NOTE 16 SUBSEQUENT EVENT
On July 18, 2013, the Company entered into a new credit agreement with certain lenders (New Credit Agreement). The New Credit Agreement replaced the Company’s prior credit agreement, which had consisted of an initial term loan of $185 million and a $65 million revolving line of credit. The New Credit Agreement consists of a senior secured revolving credit facility of $275 million with a term of five years (New Credit Facility). The New Credit Agreement also provides the Company with the option to increase the aggregate principal amount of loans in the form of additional revolving loans or a separate tranche of term loans, in an aggregate amount that does not exceed $50 million, in each case subject to certain terms and conditions contained in the New Credit Agreement. Concurrently with the closing of the New Credit Agreement, the Company terminated the prior credit agreement after repaying the entire outstanding principal amount of $152.6 million and all accrued interest and fees thereon, utilizing $120.0 million borrowed under the New Credit Facility together with a portion of the Company’s existing cash balances.
The initial interest rates per annum applicable to amounts outstanding under the New Credit Facility are, at the Company’s option, either (a) the base rate as defined in the New Credit Agreement (Base Rate) plus 1.0% per annum, or (b) the Eurodollar Rate as defined in the New Credit Agreement (Eurodollar Rate) plus 2.0% per annum. Following the filing of the Company’s Quarterly Report on Form 10-Q for the quarter ending September 28, 2013, the margins over the Base Rate and Eurodollar Rate applicable to the loans outstanding under the New Credit Facility, and the commitment fee payable on the unused portion of the New Credit Facility, may be adjusted periodically based on the consolidated leverage ratio of the Company, as calculated pursuant to the New Credit Agreement. The maximum applicable margins are 1.25% per annum for Base Rate loans and 2.25% per annum for Eurodollar Rate loans, and the minimum applicable margins are 0.5% per annum for Base Rate loans and 1.5% per annum for Eurodollar Rate loans. The maximum commitment fee is 0.40% per annum, and the minimum commitment fee is 0.25% per annum.
The Company’s obligations under the New Credit Agreement are secured by a lien on substantially all of the assets of Newport Corporation and certain of its domestic subsidiaries, which are guarantors under the New Credit Agreement, as well as by a pledge of certain shares of foreign subsidiaries of Newport Corporation. The terms and conditions of the New Credit Agreement and the related guaranty and security and pledge agreement are described in more detail in the Current Report on Form 8-K filed by the Company with the Securities and Exchange Commission on July 19, 2013.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with our unaudited consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q and in conjunction with our Annual Report on Form 10-K for the year ended December 29, 2012 previously filed with the SEC. This discussion contains descriptions of our expectations regarding future trends affecting our business. Words such as “anticipate,” “believe,” “can,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “should,” “will,” “would,” or the negative or other variations thereof or comparable terminology are intended to identify forward-looking statements. In addition, any statements that refer to projections of our future financial performance or condition, trends in our business, or other characterizations of future events or circumstances are forward-looking statements. These forward-looking statements and other forward-looking statements made elsewhere in this report are made in reliance upon safe harbor provisions in Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of several factors, including, but not limited to those factors set forth and discussed in Item 1A (Risk Factors) of Part II and elsewhere in this Quarterly Report on Form 10-Q and in Item 1 (Business) and Item 1A (Risk Factors) of Part I, and Item 7 (Management’s Discussion and Analysis of Financial Condition and Results of Operations) of Part II, of our Annual Report on Form 10-K for the year ended December 29, 2012. In light of the significant uncertainties inherent in the forward-looking information included in this report, the inclusion of this information should not be regarded as a representation by us or any other person that our objectives or plans will be achieved and readers are cautioned not to place undue reliance on such forward-looking information. Except as required by law, we undertake no obligation to update or revise these forward-looking statements, whether as a result of new information, future events or otherwise.
Overview
We are a global supplier of advanced-technology products and systems, including lasers, photonics instrumentation, precision positioning and vibration isolation products and systems, optical components, subassemblies and subsystems, three-dimensional non-contact measurement equipment and advanced automated manufacturing systems. Our products are used worldwide in a variety of industries including scientific research, defense and security, microelectronics, life and health sciences and industrial markets. Prior to 2013, we operated within three distinct business segments: our Lasers Division, our Photonics and Precision Technologies Division and our Ophir Division. In January 2013, we reorganized our operations to create three new operating groups: our Photonics Group, our Lasers Group and our Optics Group. All of these groups offer a broad array of advanced technology products and services to original equipment manufacturer (OEM) and end-user customers across a wide range of applications in all of our targeted end markets.
The following is a discussion and analysis of certain factors that have affected our results of operations and financial condition during the periods included in the accompanying consolidated financial statements.
Critical Accounting Policies and Estimates
The preparation of our financial statements requires that we make estimates and assumptions that affect the reported amounts of assets and liabilities and related disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. We evaluate these estimates and assumptions on an ongoing basis. We base our estimates on our historical experience and on various other factors which we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the amounts of certain expenses that are not readily apparent from other sources. The accounting policies that involve the most significant judgments, assumptions and estimates used in the preparation of our financial statements are those related to revenue recognition, allowances for doubtful accounts, pension liabilities, inventory reserves, warranty obligations, asset impairment, income taxes and stock-based compensation. The judgments, assumptions and estimates used in these areas by their nature involve risks and uncertainties, and in the event that any of them prove to be inaccurate in any material respect, it could have a material effect on our reported amounts of assets and liabilities at the date of the financial statements and on the reported amounts of revenues and expenses during the reporting periods. A summary of these critical accounting policies is included in Item 7 (Management’s Discussion and Analysis of Financial Condition and Results of Operations) of Part II of our Annual Report on Form 10-K for the fiscal year ended December 29, 2012. There have been no material changes to the critical accounting policies disclosed in our Annual Report on Form 10-K.
Stock-Based Compensation
During the six months ended June 29, 2013, we granted 0.7 million restricted stock units and 0.6 million stock-settled stock appreciation rights with weighted average grant date fair values of $13.74 and $6.59, respectively.
The total stock-based compensation expense included in our consolidated statements of income and comprehensive income was as follows:
|
|
|
Three Months Ended |
|
Six Months Ended |
| ||||||||
|
|
|
June 29, |
|
June 30, |
|
June 29, |
|
June 30, |
| ||||
|
(In thousands) |
|
2013 |
|
2012 |
|
2013 |
|
2012 |
| ||||
|
Cost of sales |
|
$ |
244 |
|
$ |
184 |
|
$ |
453 |
|
$ |
301 |
|
|
Selling, general and administrative expenses |
|
1,373 |
|
1,469 |
|
3,193 |
|
3,308 |
| ||||
|
Research and development expense |
|
259 |
|
225 |
|
499 |
|
483 |
| ||||
|
|
|
$ |
1,876 |
|
$ |
1,878 |
|
$ |
4,145 |
|
$ |
4,092 |
|
Results of Operations for the Three and Six Months Ended June 29, 2013 and June 30, 2012
The following table presents our results of operations for the periods indicated as a percentage of net sales:
|
|
|
Percentage of Net Sales |
| ||||||
|
|
|
For the Three Months Ended |
|
For the Six Months Ended |
| ||||
|
|
|
June 29, |
|
June 30, |
|
June 29, |
|
June 30, |
|
|
|
|
2013 |
|
2012 |
|
2013 |
|
2012 |
|
|
Net sales |
|
100.0 |
% |
100.0 |
% |
100.0 |
% |
100.0 |
% |
|
Cost of sales |
|
57.4 |
|
56.5 |
|
57.9 |
|
56.6 |
|
|
Gross profit |
|
42.6 |
|
43.5 |
|
42.1 |
|
43.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses |
|
28.4 |
|
27.2 |
|
28.4 |
|
27.7 |
|
|
Research and development expense |
|
10.1 |
|
8.9 |
|
10.0 |
|
8.8 |
|
|
Operating income |
|
4.1 |
|
7.4 |
|
3.7 |
|
6.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on sale of investment |
|
- |
|
3.4 |
|
- |
|
1.7 |
|
|
Interest and other expense, net |
|
(1.5) |
|
(1.8) |
|
(1.5) |
|
(1.6) |
|
|
Income before income taxes |
|
2.6 |
|
9.0 |
|
2.2 |
|
7.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax provision |
|
0.7 |
|
3.1 |
|
0.2 |
|
2.0 |
|
|
Net income |
|
1.9 |
|
5.9 |
|
2.0 |
|
5.0 |
|
|
Net loss attributable to non-controlling interests |
|
(0.0) |
|
(0.1) |
|
(0.0) |
|
(0.0) |
|
|
Net income attributable to Newport Corporation |
|
1.9 |
% |
||||||