|
|
|
|
|
|
Aggregate Amount of |
| (In thousands) |
|
Aggregate |
|
Unrealized |
|
|
|
Fair Value |
|
Gains |
|
Losses |
| Equity securities |
|
$ |
22,909 |
|
$ |
121 |
|
$ |
- |
|
| U.S. government and agency debt securities |
|
|
9,724 |
|
|
236 |
|
|
- |
|
| Certificates of deposit |
|
|
6,551 |
|
|
- |
|
|
- |
|
| Corporate debt securities |
|
|
31,960 |
|
|
- |
|
|
(3 |
) |
|
|
|
$ |
71,144 |
|
$ |
357 |
|
$ |
(3 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketable Securities In
Cumulative |
|
|
|
Unrealized Loss
Positions |
|
|
|
Less Than 12 Months |
|
More Than 12 Months |
| (In thousands) |
|
Aggregate |
|
Unrealized |
|
Aggregate |
|
Unrealized |
| |
|
Fair Value |
|
Loss |
|
Fair Value |
|
Loss |
| Corporate debt securities |
|
$ |
22,465 |
|
$ |
(3) |
|
$ |
- |
|
$ |
- |
The aggregate fair
value of available for sale securities and aggregate amount of unrealized gains
and losses for available for sale securities at January 2, 2010 were as
follows:
|
|
|
|
|
|
Aggregate Amount of |
| (In thousands) |
|
Aggregate |
|
Unrealized |
|
|
|
Fair Value |
|
Gains |
|
Losses |
| Equity securities |
|
$ |
20,859 |
|
$ |
450 |
|
$ |
- |
|
| U.S. government and agency debt securities |
|
|
13,610 |
|
|
300 |
|
|
- |
|
| Certificates of deposit |
|
|
7,722 |
|
|
2 |
|
|
- |
|
| Asset-backed securities |
|
|
6,849 |
|
|
172 |
|
|
(3 |
) |
| Corporate debt securities |
|
|
5,156 |
|
|
4 |
|
|
- |
|
| |
|
$ |
54,196 |
|
$ |
928 |
|
$ |
(3 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketable Securities In
Cumulative |
|
|
|
Unrealized Loss
Positions |
|
|
|
Less Than 12 Months |
|
More Than 12 Months |
| (In thousands) |
|
Aggregate |
|
Unrealized |
|
Aggregate |
|
Unrealized |
|
|
|
Fair Value |
|
Loss |
|
Fair Value |
|
Loss |
| Asset-backed securities |
|
$ |
- |
|
$ |
- |
|
$ |
475 |
|
$ |
(3 |
) |
7
NEWPORT CORPORATION
Notes to Consolidated
Financial Statements
July 3, 2010
The contractual
maturities of debt securities, asset-backed securities and certificates of
deposit were as follows:
| (In thousands) |
|
July 3, |
|
|
|
2010 |
| 0 – 1 Year |
|
$ |
45,510 |
| 1 – 2 Years |
|
|
- |
| 2 – 3 Years |
|
|
- |
| 3 – 5 Years |
|
|
1,006 |
| 5 – 10 Years |
|
|
- |
| More than 10 years |
|
|
1,719 |
|
|
|
$ |
48,235 |
| |
|
|
|
The gross realized gains and losses on sales of available for sale
securities were as follows:
|
|
|
Three Months Ended |
|
Six Months Ended |
| (In thousands) |
|
July 3, |
|
July 4, |
|
July 3, |
|
July
4, |
|
|
|
2010 |
|
2009 |
|
2010 |
|
2009 |
| Gross realized gains |
|
$
|
98 |
|
$
|
2 |
|
|
$
|
112 |
|
$
|
4 |
|
| Gross realized losses |
|
|
- |
|
|
(1 |
) |
|
|
- |
|
|
(1 |
) |
|
|
|
$ |
98 |
|
$ |
1 |
|
|
$ |
112 |
|
$ |
3 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE 4 FAIR VALUE MEASUREMENTS
The Company’s
financial instruments include cash and cash equivalents, marketable securities,
pension assets not owned by plan, short-term borrowings and long-term debt. The
carrying amount of cash and cash equivalents and short-term borrowings
approximates fair value due to the short-term maturities of these instruments.
The fair values of marketable securities and pension assets not owned by plan
were estimated based on quoted market prices. The fair value of the Company's
long-term debt was estimated based on the 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 the Company's financial instruments were as follows:
|
|
|
July 3, 2010 |
|
January 2, 2010 |
| (In thousands) |
|
Carrying |
|
|
|
|
Carrying |
|
|
|
|
|
|
Amount |
|
Fair Value |
|
Amount |
|
Fair Value |
| Cash and cash equivalents |
|
$ |
81,271 |
|
$ |
81,271 |
|
$ |
87,727 |
|
$ |
87,727 |
| Marketable securities |
|
$ |
71,144 |
|
$ |
71,144 |
|
$ |
54,196 |
|
$ |
54,196 |
| Pension assets not owned by
plan |
|
$ |
8,047 |
|
$ |
8,047 |
|
$ |
8,990 |
|
$ |
8,990 |
| Short-term borrowings |
|
$ |
11,767 |
|
$ |
11,767 |
|
$ |
11,056 |
|
$ |
11,056 |
| Long-term debt |
|
$ |
119,997 |
|
$ |
121,160 |
|
$ |
121,231 |
|
$ |
121,633 |
8
NEWPORT CORPORATION
Notes to Consolidated
Financial Statements
July 3, 2010
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. The
Company’s assets measured at fair value on a recurring basis are categorized in
the table below based upon their level within the fair value
hierarchy.
| (In thousands) |
|
|
|
|
Fair Value Measurements at Reporting
Date Using |
|
|
|
|
|
|
Quoted Prices in |
|
|
|
|
Significant |
|
|
|
|
|
|
Active Markets for |
|
Significant Other |
|
Unobservable |
|
|
|
|
|
|
Identical Assets |
|
Observable Inputs |
|
Inputs |
| Description |
|
July 3, 2010 |
|
(Level 1) |
|
(Level 2) |
|
(Level 3) |
| Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
| Cash and cash
equivalents: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash |
|
$ |
46,288 |
|
$ |
46,288 |
|
$ |
- |
|
$ |
- |
|
Money market funds |
|
|
4,374 |
|
|
4,374 |
|
|
- |
|
|
- |
|
Short-term investments |
|
|
30,609 |
|
|
22 |
|
|
30,587 |
|
|
- |
| |
|
|
81,271 |
|
|
50,684 |
|
|
30,587 |
|
|
- |
|
Marketable securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities |
|
$ |
22,909 |
|
$ |
22,909 |
|
$ |
- |
|
$ |
- |
|
U.S. government and agency |
|
|
9,724 |
|
|
9,724 |
|
|
- |
|
|
- |
|
Certificates of deposit |
|
|
6,551 |
|
|
- |
|
|
6,551 |
|
|
- |
|
Corporate debt securities |
|
|
31,960 |
|
|
751 |
|
|
31,209 |
|
|
- |
| |
|
|
71,144 |
|
|
33,384 |
|
|
37,760 |
|
|
- |
|
Pension assets not owned by plan |
|
|
8,047 |
|
|
8,047 |
|
|
- |
|
|
- |
|
|
|
$ |
160,462 |
|
$ |
92,115 |
|
$ |
68,347 |
|
$ |
- |
| |
|
|
|
|
|
|
|
|
|
|
|
|
NOTE 5 SUPPLEMENTAL BALANCE SHEET
INFORMATION
Inventories
Inventories were as
follows:
| (In thousands) |
|
July 3, |
|
January 2, |
|
|
|
2010 |
|
2010 |
| Raw materials and purchased
parts |
|
$ |
73,077 |
|
|
$ |
76,636 |
|
| Work in process |
|
|
10,027 |
|
|
|
8,346 |
|
| Finished goods |
|
|
33,893 |
|
|
|
34,581 |
|
|
|
|
|
116,997 |
|
|
|
119,563 |
|
| Provision for excess and obsolete
inventory |
|
|
(26,888 |
) |
|
|
(29,655 |
) |
|
|
|
$ |
90,109 |
|
|
$ |
89,908 |
|
| |
|
|
|
|
|
|
|
|
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 Precision Technologies (PPT)
Division 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. Products of this division sold to
original equipment manufacturer (OEM) customers generally carry longer
warranties, typically 15 to 19 months. Products sold by the Company’s Lasers
Division carry warranties that vary by product and product component, but that
generally range from 90 days to two years. In certain cases, such warranties for
Lasers Division products are limited by either a set time period or a maximum
amount of 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 at the time revenue for that product is recognized. Accrued
warranty obligations are included in accrued expenses and other current liabilities in the accompanying consolidated balance
sheets.
9
NEWPORT CORPORATION
Notes to Consolidated
Financial Statements
July 3, 2010
The activity in
accrued warranty obligations was as follows:
|
|
|
Six Months Ended |
| (In thousands) |
|
July 3, |
|
July 4, |
|
|
|
2010 |
|
2009 |
| Balance at beginning of year |
|
$ |
3,898 |
|
|
$ |
5,978 |
|
| Additions charged to cost of
sales |
|
|
2,131 |
|
|
|
2,424 |
|
| Warranty claims |
|
|
(2,607 |
) |
|
|
(3,504 |
) |
| Balance at end of period |
|
$ |
3,422 |
|
|
$ |
4,898 |
|
| |
|
|
|
|
|
|
|
|
Accrued Expenses and Other Current Liabilities
Accrued expenses and
other current liabilities were as follows:
| (In thousands) |
|
July 3, |
|
January 2, |
|
|
|
2010 |
|
2010 |
| Deferred revenue |
|
$ |
13,795 |
|
$ |
15,188 |
| Accrued warranty obligations |
|
|
3,422 |
|
|
3,898 |
| Other |
|
|
12,301 |
|
|
12,251 |
| |
|
$ |
29,518 |
|
$ |
31,337 |
| |
|
|
|
|
|
|
Accumulated Other Comprehensive Income
Accumulated other
comprehensive income consisted of the following:
| (In thousands) |
|
July 3, |
|
January 2, |
|
|
|
2010 |
|
2010 |
| Cumulative foreign currency translation
gains |
|
$ |
776 |
|
|
$ |
9,278 |
|
| Unrecognized net pension losses |
|
|
(30 |
) |
|
|
(549 |
) |
| Unrealized gains on marketable
securities |
|
|
1,253 |
|
|
|
1,650 |
|
|
|
|
$ |
1,999 |
|
|
$ |
10,379 |
|
| |
|
|
|
|
|
|
|
|
10
NEWPORT CORPORATION
Notes to Consolidated
Financial Statements
July 3, 2010
NOTE 6 INTANGIBLE ASSETS
Intangible assets
were as follows:
| (In thousands) |
|
July 3, |
|
January 2, |
|
|
|
2010 |
|
2010 |
| Intangible assets subject to
amortization: |
|
|
|
|
|
|
|
Developed technology, net of accumulated
amortization of $4,550 and
|
|
|
|
|
|
|
|
$4,060 as of July 3, 2010 and January 2,
2010, respectively |
|
$ |
5,580 |
|
$ |
5,740 |
| Customer relationships, net of accumulated
amortization of $11,679 and |
|
|
|
|
|
|
|
$10,674 as of July 3, 2010 and January 2,
2010, respectively |
|
|
8,421 |
|
|
9,426 |
| Other, net of accumulated amortization of $340
and $170 as of July 3, |
|
|
|
|
|
|
|
2010 and January 2, 2010,
respectively |
|
|
- |
|
|
500 |
|
|
|
|
14,001 |
|
|
15,666 |
| Intangible assets not subject to amortization: |
|
|
|
|
|
|
| Trademarks and trade names |
|
|
12,500 |
|
|
12,500 |
| Intangible assets, net |
|
$ |
26,501 |
|
$ |
28,166 |
| |
|
|
|
|
|
|
Amortization expense
related to intangible assets totaled $0.8 million and $1.7 million for the three
and six months ended July 3, 2010, respectively, and $0.7 million and $1.3
million for the three and six months ended July 4, 2009, respectively. Developed
technology and customer relationships are amortized over 10 years. Other
intangible assets includes acquired backlog, which is amortized over one year.
Estimated aggregate
amortization expense for future fiscal years is as follows:
|
|
|
Estimated |
|
|
|
Aggregate |
| (In thousands) |
|
Amortization |
|
|
|
Expense |
| 2010 (remaining) |
|
$
|
1,512 |
| 2011 |
|
|
3,023 |
| 2012 |
|
|
3,023 |
| 2013 |
|
|
3,023 |
| 2014 |
|
|
1,799 |
| Thereafter |
|
|
1,621 |
|
|
|
$ |
14,001 |
| |
|
|
|
NOTE 7
INTEREST AND OTHER EXPENSE, NET
Interest and other expense, net, was as follows:
|
|
|
Three Months Ended |
|
Six Months Ended |
|
|
|
July 3, |
|
July 4, |
|
July 3, |
|
July 4, |
| (In thousands) |
|
2010 |
|
2009 |
|
2010 |
|
2009 |
| Interest and dividend income |
|
$
|
233 |
|
|
$ |
456 |
|
|
$
|
507 |
|
|
$ |
1,071 |
|
| Interest expense |
|
|
(2,070 |
) |
|
|
(2,410 |
) |
|
|
(4,138 |
) |
|
|
(4,770 |
) |
| Bank and portfolio asset management
fees |
|
|
(187 |
) |
|
|
(178 |
) |
|
|
(363 |
) |
|
|
(325 |
) |
| Other income (expense), net |
|
|
19 |
|
|
|
(72 |
) |
|
|
152 |
|
|
|
(299 |
) |
|
|
|
$ |
(2,005 |
) |
|
$ |
(2,204 |
) |
|
$ |
(3,842 |
) |
|
$ |
(4,323 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11
NEWPORT CORPORATION
Notes to Consolidated
Financial Statements
July 3, 2010
NOTE 8 STOCK-BASED COMPENSATION
During the six months
ended July 3, 2010, the Company granted 0.4 million restricted stock units and
0.3 million stock-settled stock appreciation rights with weighted-average grant
date fair values of $12.47 and $5.45, respectively.
The total stock-based
compensation expense included in the Company’s consolidated statements of
operations was as follows:
|
|
|
Three Months Ended |
|
Six Months Ended |
|
|
|
July 3, |
|
July 4, |
|
July 3, |
|
July 4, |
| (In thousands) |
|
2010 |
|
2009 |
|
2010 |
|
2009 |
| Cost of sales |
|
$
|
85 |
|
$
|
33 |
|
$
|
122 |
|
$
|
59 |
| Selling, general and administrative expenses |
|
|
807 |
|
|
534 |
|
|
1,328 |
|
|
912 |
| Research and development
expense |
|
|
105 |
|
|
65 |
|
|
200 |
|
|
110 |
|
|
|
$ |
997 |
|
$ |
632 |
|
$ |
1,650 |
|
$ |
1,081 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
At July 3, 2010, 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 $7.1 million (net of estimated forfeitures
of $2.5 million). This amount excludes compensation expense associated with
awards that are subject to performance conditions that the Company does not
expect will be met. This future compensation expense will be amortized over a
weighted-average period of 1.5 years using the straight-line attribution method.
The actual compensation expense that the Company will recognize in the future
related to stock-based awards will be adjusted for subsequent 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 July 3, 2010, there were 0.6 million performance-based restricted
stock units outstanding with a weighted-average grant date fair value of $9.84
per share that were not expected to vest.
At July 3, 2010, 2.2
million stock options with a weighted-average exercise price of $21.60 per
share, intrinsic value of $0 and remaining contractual term of 2.7 years were
vested or expected to vest and were exercisable. At July 3, 2010, 1.0 million
stock-settled stock appreciation rights with a weighted-average base value of
$6.33 per share, intrinsic value of $3.0 million and remaining contractual term
of 6.0 years were vested or expected to vest, and 0.3 million stock-settled
stock appreciation rights with a weighted-average base value of $4.18 per share,
intrinsic value of $1.2 million and remaining contractual term of 5.7 years were
exercisable.
NOTE 9 DEBT AND LINES OF CREDIT
In February 2007, the
Company issued $175 million in convertible subordinated notes. The notes are
subordinated to all of the Company’s existing and future senior indebtedness,
mature on February 15, 2012 and bear interest at a rate of 2.5% per year,
payable in cash semiannually in arrears on February 15 and August 15 of each
year. During the fourth quarter of 2008, the Company extinguished $28.0 million
of these notes and during the fourth quarter of 2009, the Company extinguished
$20.2 million of these notes.
Holders may convert
their notes into shares of the Company’s common stock based on a conversion rate
of 41.5861 shares per $1,000 principal amount of notes (equal to an initial
conversion price of $24.05 per share) under certain circumstances. Upon
conversion, in lieu of shares of the common stock, for each $1,000 principal
amount of notes, a holder will receive an amount in cash equal to the lesser of
(i) $1,000 or (ii) the conversion value, determined in the manner set forth in
the indenture. If the conversion value exceeds $1,000, the Company will also
deliver, at its election, cash or common stock or a combination of cash and
common stock with respect to the remaining common stock deliverable upon
conversion. As of July 3, 2010, the conversion value was less than the principal
amount of the notes.
12
NEWPORT CORPORATION
Notes to Consolidated Financial Statements
July 3, 2010
At July 3, 2010, the
Company had $126.8 million in convertible subordinated notes outstanding with a
carrying value of $120.0 million, net of $6.8 million in unamortized debt
discount, which is included in long-term
debt in the accompanying consolidated balance sheets. At January 2, 2010,
the Company had $126.8 million in convertible subordinated notes outstanding
with a carrying value of $118.0 million, net of $8.8 million in unamortized debt
discount. At July 3, 2010 and January 2, 2010, the carrying value of the equity
component was $26.2 million, net of $0.9 million of equity issuance costs. At
July 3, 2010 and January 2, 2010, debt issuance costs of $1.2 million and $1.5
million, respectively, net of accumulated amortization, were included in
long-term assets in other assets. The
remaining debt issuance costs and unamortized debt discount are being amortized
through February 15, 2012 using the effective interest method.
Interest cost on the
convertible subordinated notes consisted of the following components:
|
|
|
Three Months Ended |
|
Six Months Ended |
| (In thousands) |
|
July 3, |
|
July 4, |
|
July 3, |
|
July 4, |
|
|
|
2010 |
|
2009 |
|
2010 |
|
2009 |
| Contractual interest |
|
$ |
792 |
|
$
|
919 |
|
$
|
1,585 |
|
$
|
1,838 |
| Amortization of debt discount |
|
|
1,010 |
|
|
1,139 |
|
|
2,012 |
|
|
2,268 |
| Interest cost on convertible
subordinated notes |
|
$ |
1,802 |
|
$ |
2,058 |
|
$ |
3,597 |
|
$ |
4,106 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
During June 2008, the
Company issued 300 million yen ($3.4 million at July 3, 2010) in private
placement bonds through a Japanese bank. These bonds bear interest at a rate of
1.55% per year, payable in cash semiannually in arrears on June 30 and December
31 of each year. The bonds mature on June 30, 2011. The bonds are included in
short-term borrowings in the accompanying consolidated balance
sheets.
At July 3, 2010, the
Company had a total of three lines of credit, including one domestic revolving
line of credit and two revolving lines of credit with Japanese banks.
Additionally, the Company has agreements with two Japanese banks under which it
sells trade notes receivable with recourse.
The Company’s
domestic revolving line of credit has a total credit limit of $3.0 million and
expires December 1, 2010. Certain certificates of deposit held at this lending
institution collateralize this line of credit, which bears interest at either
the prevailing London Interbank Offered Rate (LIBOR) (0.35% at July 3, 2010)
plus 1.00% or the British Bankers Association LIBOR Daily Floating Rate (0.30%
at July 3, 2010) plus 1.00%, at the Company’s option, and carries an unused line
fee of 0.25% per year. At July 3, 2010, there were no balances outstanding under
this line of credit, with $1.6 million available, after considering outstanding
letters of credit totaling $1.4 million.
The two revolving
lines of credit with Japanese banks totaled 900 million yen ($10.3 million at
July 3, 2010) and expire as follows: $3.4 million on July 31, 2010 (which has
subsequently been extended to August 31, 2010) and $6.9 million on November 30,
2010. The $6.9 million line of credit bears interest at the prevailing bank
rate, which was 2.475% at July 3, 2010, and the $3.4 million line of credit
bears interest at LIBOR plus 1.75%. Certain certificates of deposit held by the
lending institution’s U.S. affiliate collateralize the $3.4 million line of
credit. At July 3, 2010, the Company had $7.1 million outstanding and $3.2
million available for borrowing under these lines of credit. Amounts outstanding
are included in short-term borrowings in the accompanying consolidated balance
sheets.
The Company has
agreements with two Japanese banks under which it sells trade notes receivable
with recourse. These agreements allow the Company to sell receivables totaling
up to 550 million yen ($6.3 million at July 3, 2010), have no expiration dates
and bear interest at the prevailing bank rate, which was 1.475% at July 3, 2010.
At July 3, 2010, the Company had $1.3 million outstanding and $5.0 million
available for the sale of notes receivable under these agreements. Amounts
outstanding under these agreements are included in short-term borrowings in the accompanying consolidated balance sheets, as the sale of these
receivables has not met the criteria for sale treatment in accordance with ASC
860-30, Transfers and Servicing - Secured Borrowing
and Collateral.
As of July 3, 2010,
the weighted-average effective interest rate on all of the Company’s Japanese
borrowings, including the private placement bonds, was 2.8%.
13
NEWPORT CORPORATION
Notes to Consolidated
Financial Statements
July 3, 2010
NOTE 10 NET INCOME (LOSS) PER SHARE
The following table
sets forth the computation of basic and diluted net income (loss) per
share:
|
|
|
Three Months Ended |
|
Six Months Ended |
|
|
|
July 3, |
|
July 4, |
|
July 3, |
|
July 4, |
| (In thousands, except per share
data) |
|
2010 |
|
2009 |
|
2010 |
|
2009 |
| Net income (loss) |
|
$ |
8,279 |
|
$ |
(9,143 |
) |
|
$ |
13,333 |
|
$ |
(13,961 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Shares: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding -
basic
|
|
|
36,691 |
|
|
36,170 |
|
|
|
36,529 |
|
|
36,119 |
|
| Dilutive potential common shares, using
treasury |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
stock method |
|
|
895 |
|
|
- |
|
|
|
975 |
|
|
- |
|
| Weighted average shares outstanding -
diluted |
|
|
37,586 |
|
|
36,170 |
|
|
|
37,504 |
|
|
36,119 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net income (loss) per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Basic |
|
$ |
0.23 |
|
$ |
(0.25 |
) |
|
$ |
0.36 |
|
$ |
(0.39 |
) |
| Diluted |
|
$ |
0.22 |
|
$ |
(0.25 |
) |
|
$ |
0.36 |
|
$ |
(0.39 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three and six
months ended July 3, 2010, 2.0 million and 2.2 million stock options,
respectively, and for the three and six months ended July 4, 2009, 2.6 million
stock options, were excluded from the computations of diluted net income (loss)
per share, as their exercise prices exceeded the average market price of the
Company’s common stock during such periods, and their inclusion would have been
antidilutive. In addition, for the three and six months ended July 3, 2010, 1.3
million performance-based awards, and for the three and six months ended July 4,
2009, 1.3 million performance-based awards, were excluded from the computations
of diluted net income (loss) per share, as the performance criteria for their
vesting had not been met as of the end of such periods. For the three and six
months ended July 4, 2009, an additional 101,547 and 72,474 common stock
equivalents, respectively, were excluded from the denominator for purposes of
computing diluted net loss per share, as their inclusion would be antidilutive
due to the Company incurring a net loss.
NOTE 11 INCOME TAXES
The Company currently
maintains a valuation allowance against substantially all of its gross deferred
tax assets pursuant to ASC 740-10, Income Taxes, due
to the uncertainty as to the timing and ultimate realization of those assets. As
a result, until such valuation allowance is reversed, the U.S. tax provision
relating to future earnings will be offset substantially by a reduction in the
valuation allowance. Accordingly, current and future tax expense will consist of
taxes in certain foreign jurisdictions, required state income taxes, the federal
alternative minimum tax and the impact of discrete items.
The Company will
continue to monitor actual results, refine forecasted data and assess the need
for retaining a valuation allowance against the U.S. and certain foreign gross
deferred tax assets. In the event it is determined that a valuation allowance is
no longer required, substantially all of the reversal will be recorded as a
discrete item in the appropriate period. As of July 3, 2010, the Company’s
valuation allowance was $61.7 million.
14
NEWPORT CORPORATION
Notes to Consolidated
Financial Statements
July 3, 2010
NOTE 12 COMPREHENSIVE INCOME (LOSS)
The components of
comprehensive income (loss), net of related tax, were as follows:
|
|
|
Three Months Ended |
|
Six Months Ended |
|
|
|
July 3, |
|
July 4, |
|
July 3, |
|
July 4, |
| (In thousands) |
|
2010 |
|
2009 |
|
2010 |
|
2009 |
| Net income (loss) |
|
$
|
8,279 |
|
|
$
|
(9,143 |
) |
|
$
|
13,333 |
|
|
$
|
(13,961 |
) |
| Foreign currency translation gains (losses) |
|
|
(3,874 |
) |
|
|
3,312 |
|
|
|
(8,502 |
) |
|
|
964 |
|
| Unrecognized net pension gains
(losses) |
|
|
484 |
|
|
|
(11 |
) |
|
|
519 |
|
|
|
(19 |
) |
| Unrealized gains (losses) on marketable securities |
|
|
(299 |
) |
|
|
371 |
|
|
|
(397 |
) |
|
|
1,078 |
|
|
|
|
$ |
4,590 |
|
|
$ |
(5,471 |
) |
|
$ |
4,953 |
|
|
$ |
(11,938 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE 13 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. Purchases may be made under this program from time to time in the open
market or in privately negotiated transactions, and the timing and amount of the
purchases will be based on factors including the Company’s share price, cash
balances, expected cash requirements and general business and market conditions.
No purchases were made under this program during the first six months of 2010.
As of July 3, 2010, 3.9 million shares remained available for purchase under the
program.
In March 2010, 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 $1.3 million at the time they were cancelled.
NOTE 14 DEFINED BENEFIT PENSION PLANS
Several of the
Company’s non-U.S. subsidiaries have defined benefit pension plans covering
substantially all full-time employees at those subsidiaries. Some of the plans
are unfunded, as permitted under the plans 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.
Net periodic benefit
costs for the plans in aggregate included the following components:
|
|
|
Three Months Ended |
|
Six Months Ended |
|
|
|
July 3, |
|
July 4, |
|
July 3, |
|
July 4, |
| (In thousands) |
|
2010 |
|
2009 |
|
2010 |
|
2009 |
| Service cost |
|
$
|
152 |
|
|
$ |
142 |
|
|
$
|
308 |
|
|
$
|
287 |
|
| Interest cost on benefit obligations |
|
|
169 |
|
|
|
154 |
|
|
|
350 |
|
|
|
303 |
|
| Expected return on plan assets |
|
|
(37 |
) |
|
|
(30 |
) |
|
|
(76 |
) |
|
|
(59 |
) |
| Net gain |
|
|
2 |
|
|
|
(7 |
) |
|
|
4 |
|
|
|
(14 |
) |
| Curtailment loss |
|
|
722 |
|
|
|
- |
|
|
|
722 |
|
|
|
- |
|
|
|
|
$ |
1,008 |
|
|
$ |
259 |
|
|
$ |
1,308 |
|
|
$ |
517 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15
NEWPORT CORPORATION
Notes to Consolidated
Financial Statements
July 3, 2010
During the second
quarter of 2010, the Company entered into negotiations to sell all of the
outstanding capital stock of its Hilger Crystals Limited subsidiary (see Note 16
for additional detail). As a result of these negotiations, it became probable
that employee participants in the Company’s United Kingdom defined benefit
pension plan would stop accruing pension benefits upon completion of the sale
transaction. As a result, the Company was required to recognize a charge of $0.7
million in the second quarter related to the expected plan curtailment,
consisting of $0.6 million in previously unrecognized actuarial losses, which
had been included in other comprehensive income, and an increase of $0.1 million
in the projected benefit obligation, which resulted from a change in actuarial
assumptions due to the change in status of the employee participants to deferred
membership.
NOTE 15 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. The
Company develops, manufactures and markets its products within two distinct
business segments, its PPT Division and its Lasers Division.
The Company measured
income (loss) 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, interest and other expense,
net, and income taxes.
|
|
|
Photonics and |
|
|
|
|
|
|
|
|
|
|
|
Precision |
|
|
|
|
|
|
|
|
| (In thousands) |
|
Technologies |
|
Lasers |
|
Total |
| Three months ended July 3,
2010: |
|
|
|
|
|
|
|
|
|
|
|
| Sales to external customers |
|
$ |
71,334 |
|
$ |
43,266 |
|
|
$ |
114,600 |
|
| Segment income |
|
$ |
14,521 |
|
$ |
3,354 |
|
|
$ |
17,875 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
| Three months ended July 4,
2009: |
|
|
|
|
|
|
|
|
|
|
|
| Sales to external customers |
|
$ |
51,812 |
|
$ |
35,729 |
|
|
$ |
87,541 |
|
| Segment income (loss) |
|
$ |
6,555 |
|
$ |
(7,333 |
) |
|
$ |
(778 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
| Six months ended July 3, 2010: |
|
|
|
|
|
|
|
|
|
|
|
| Sales to external customers |
|
$ |
134,504 |
|
$ |
87,246 |
|
|
$ |
221,750 |
|
| Segment income |
|
$ |
25,172 |
|
$ |
5,374 |
|
|
$ |
30,546 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
| Six months ended July 4, 2009: |
|
|
|
|
|
|
|
|
|
|
|
| Sales to external customers |
|
$ |
104,123 |
|
$ |
72,954 |
|
|
$ |
177,077 |
|
| Segment income (loss) |
|
$ |
13,532 |
|
$ |
(8,795 |
) |
|
$ |
4,737 |
|
Segment income
reported for the Company’s PPT Division for the three and six months ended July
3, 2010 includes expenses related to the anticipated sale of the Company’s
Hilger Crystals Limited subsidiary of $0.8 million (see Note 16). The segment
losses reported for the Company’s Lasers Division for the three and six months
ended July 4, 2009 include a loss on the sale of assets and related costs,
totaling $4.1 million, related to the divestiture of the Company’s diode laser
operations in July 2009.
16
NEWPORT CORPORATION
Notes to Consolidated
Financial Statements
July 3, 2010
The following table
reconciles segment income to consolidated income (loss) before income
taxes:
|
|
|
Three Months Ended |
|
Six Months Ended |
|
|
|
July 3, |
|
July 4, |
|
July 3, |
|
July 4, |
| (In thousands) |
|
2010 |
|
2009 |
|
2010 |
|
2009 |
| Segment income (loss) |
|
$
|
17,875 |
|
|
$
|
(778 |
) |
|
$
|
30,546 |
|
|
$
|
4,737 |
|
| Unallocated operating expenses |
|
|
(6,691 |
) |
|
|
(6,910 |
) |
|
|
(11,893 |
) |
|
|
(14,960 |
) |
| Interest and other expense,
net |
|
|
(2,005 |
) |
|
|
(2,204 |
) |
|
|
(3,842 |
) |
|
|
(4,323 |
) |
|
|
|
$ |
9,179 |
|
|
$ |
(9,892 |
) |
|
$ |
14,811 |
|
|
$ |
(14,546 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE 16 ASSETS HELD FOR SALE AND SUBSEQUENT
EVENTS
During the second
quarter of 2010, the Company began negotiations to sell all of the outstanding
capital stock of its Hilger Crystals Limited subsidiary. As a result, during the
second quarter of 2010, the Company recognized $0.7 million in pension costs
(see Note 14 for additional detail) and $0.1 million in legal and consulting
fees related to this transaction, which have been included in loss on sale of assets and related costs.
As of July 3, 2010,
the Company had the following assets held for sale related to this transaction,
which were included in the Company’s PPT Division:
| (In thousands) |
July 3, |
|
|
2010 |
| Accounts receivable, net |
$
|
584 |
| Prepaid expenses and other assets |
|
115 |
| Inventories |
|
896 |
| Property and equipment, net |
|
1,129 |
| Assets held for sale |
|
2,724 |
| |
|
|
| Accounts payable |
$ |
340 |
| Accrued payroll and related expenses |
|
87 |
| Accrued expenses and other current
liabilities |
|
37 |
| Liabilities to be disposed of by sale |
|
464 |
| |
|
|
| Net assets held for sale |
$ |
2,260 |
| |
|
|
The transaction
closed on July 19, 2010, and the Company received $4.0 million in cash, subject
to a post-closing adjustment based on the net working capital of Hilger Crystals
Limited at closing. In addition, if Hilger Crystals Limited achieves certain
specified revenue targets in the 18 month period following the closing date, the
Company could receive up to an additional $750,000 in cash.
17
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 January 2, 2010 previously filed
with the SEC. This discussion contains descriptions of our expectations
regarding future trends affecting our business. 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. 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. 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
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 January 2, 2010. 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. 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, sub-micron positioning systems, vibration isolation
products, optical components and subsystems and advanced automated manufacturing
systems. Our products are used worldwide in industries including scientific
research, microelectronics, aerospace and defense/security, life and health
sciences and industrial manufacturing. We operate within two distinct business
segments, our Lasers Division and our Photonics and Precision Technologies (PPT)
Division. Both of our divisions offer a broad array of products and services to
original equipment manufacturer (OEM) and end-user customers across a wide range
of applications and 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.
Subsequent Event
During the second
quarter of 2010, we began negotiations to sell all of the outstanding capital
stock of our Hilger Crystals Limited subsidiary. The transaction closed on July
19, 2010, and we received $4.0 million in cash, subject to a post-closing
adjustment based on the net working capital of Hilger Crystals Limited at
closing. In addition, if Hilger Crystals Limited achieves certain specified
revenue targets over the 18 month period following the closing date, we could
receive up to an additional $750,000 in cash. During the second quarter of 2010,
we recognized $0.8 million in costs related to this transaction, as discussed in
more detail in Note 14 and Note 16 to the Consolidated Financial Statements
included in this Quarterly Report on Form 10-Q. We expect any gain from this
transaction to be minimal after accounting for the carrying value of the assets
sold, costs related to the disposition of our United Kingdom defined benefit
pension plan, and legal and consulting fees related to the
transaction.
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 adverse effect on our reported amounts of
assets and liabilities at the date of the financial statements and 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 January 2,
2010. There have been no material changes to the critical accounting policies
disclosed in our Annual Report on Form 10-K.
18
Stock-Based Compensation
During the six months
ended July 3, 2010, we granted 0.4 million restricted stock units and 0.3
million stock appreciation rights with weighted-average grant date fair values
of $12.47 and $5.45, respectively.
The total stock-based
compensation expense included in our consolidated statements of operations was
as follows:
|
|
|
Three Months Ended |
|
Six Months Ended |
|
|
|
July 3, |
|
July 4, |
|
July 3, |
|
July 4, |
| (In thousands) |
|
2010 |
|
2009 |
|
2010 |
|
2009 |
| Cost of sales |
|
$
|
85 |
|
$
|
33 |
|
$
|
122 |
|
$
|
59 |
| Selling, general and administrative expenses |
|
|
807 |
|
|
534 |
|
|
1,328 |
|
|
912 |
| Research and development
expense |
|
|
105 |
|
|
65 |
|
|
200 |
|
|
110 |
|
|
|
$ |
997 |
|
$ |
632 |
|
$ |
1,650 |
|
$ |
1,081 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
Results of Operations for the Three and Six
Months Ended July 3, 2010 and July 4, 2009
The following table
presents our results of operations for the periods indicated as a percentage of
net sales:
|
|
|
Percentage of Net Sales |
|
|
|
|
Three Months Ended |
|
Six Months Ended |
|
|
|
|
July 3, |
|
|
July 4, |
|
July 3, |
|
|
July 4, |
|
|
|
|
2010 |
|
|
2009 |
|
2010 |
|
|
2009 |
|
| Net sales |
|
100.0 |
|
% |
|
100.0 |
|
% |
100.0 |
|
% |
|
100.0 |
|
% |
| Cost of sales |
|
56.6 |
|
|
|
63.3 |
|
|
58.2 |
|
|
|
62.5 |
|
|
| Gross profit |
|
43.4 |
|
|
|
36.7 |
|
|
41.8 |
|
|
|
37.5 |
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Selling, general and administrative
expenses |
|
24.7 |
|
|
|
30.5 |
|
|
24.5 |
|
|
|
30.6 |
|
|
| Research and development expense |
|
8.2 |
|
|
|
10.3 |
|
|
8.5 |
|
|
|
10.4 |
|
|
| Loss on sale of assets and related
costs |
|
0.7 |
|
|
|
4.7 |
|
|
0.4 |
|
|
|
2.3 |
|
|
| Operating income (loss) |
|
9.8 |
|
|
|
(8.8 |
) |
|
8.4 |
|
|
|
(5.8 |
) |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Interest and other expense,
net |
|
(1.8 |
) |
|
|
(2.5 |
) |
|
(1.7 |
) |
|
|
(2.4 |
) |
|
| Income (loss) before income taxes |
|
8.0 |
|
|
|
(11.3 |
) |
|
6.7 |
|
|
|
(8.2 |
) |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Income tax provision (benefit) |
|
0.8 |
|
|
|
(0.9 |
) |
|
0.7 |
|
|
|
(0.3 |
) |
|
| Net income
(loss) |
|
7.2 |
|
% |
|
(10.4 |
) |
% |
6.0 |
|
% |
|
(7.9 |
) |
% |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19
In the following
discussion regarding our net sales, certain prior period amounts have been
reclassified between end markets to conform to the current period presentation.
Net Sales
Net sales for the
three months ended July 3, 2010 increased by $27.1 million, or 30.9%, compared
with the corresponding period in 2009. Net sales for the six months ended July
3, 2010 increased by $44.7 million, or 25.2%, compared with the corresponding
period in 2009. For the three months ended July 3, 2010, net sales by our Lasers
Division increased $7.6 million, or 21.1%, and net sales by our PPT Division
increased $19.5 million, or 37.7%, compared with the prior year period. For the
six months ended July 3, 2010, net sales by our Lasers Division increased $14.3
million, or 19.6%, and net sales by our PPT Division increased $30.4 million, or
29.2%, compared with the prior year period.
We experienced
increases in net sales during the three and six months ended July 3, 2010
compared with the same periods in 2009 in all of our end markets, except for
sales to our life and health sciences market, which were approximately the same
as the levels in the prior year periods. These increases resulted primarily from
improved worldwide macroeconomic conditions across our end markets, particularly
an upturn in the semiconductor equipment industry, and the addition of the New
Focus business, which we acquired at the end of the second quarter of 2009. The
New Focus business generated $11.0 million and $19.3 million in sales for the
three and six months ended July 3, 2010, respectively. The increases in net
sales in the 2010 periods were offset in part by the absence of sales from our
diode laser operations in the current year periods, as we divested these
operations at the end of the second quarter of 2009. Such sales were $2.4
million and $4.3 million for the three and six months ended July 4, 2009,
respectively, and were primarily to customers in our life and health sciences
market.
Net sales to the
scientific research, aerospace and defense/security markets for the three months
ended July 3, 2010 increased $6.3 million, or 19.1%, compared with the same
period in 2009. Net sales to these markets for the six months ended July 3, 2010
increased $10.2 million, or 14.6%, compared with the same period in 2009. The
increases in sales to these markets during both periods in 2010 compared with
the same periods in 2009 were due primarily to the addition of the New Focus
business, which contributed $2.8 million and $5.8 million in sales to these
markets for the three months and six months ended July 3, 2010, respectively,
and to an improvement in overall macroeconomic conditions in these markets.
Generally, our net sales to these markets by each of our divisions may fluctuate
from period to period due to changes in overall research and defense spending
levels and the timing of large sales relating to major research and
aerospace/defense programs and, in some cases, these fluctuations may be
offsetting between our divisions or between such periods.
Net sales to the
microelectronics market for the three months ended July 3, 2010 increased $15.1
million, or 70.1%, compared with the same period in 2009. Net sales to this
market for the six months ended July 3, 2010 increased $24.7 million, or 61.3%,
compared with the same period in 2009. The increases in sales to this market
during both periods in 2010 compared with the same periods in 2009 were due
primarily to a significant increase in sales to customers in the semiconductor
equipment industry as a result of an upturn in that historically cyclical
industry, and to the addition of the New Focus business, which contributed $5.9
million and $9.0 million in sales to this market for the three months and six
months ended July 3, 2010, respectively. This increase was offset in part by a
decrease in sales of products and systems for photovoltaic applications.
Net sales to the life
and health sciences market for the three and six months ended July 3, 2010 were
comparable with the sales levels in the same periods in 2009. Sales to this
market in the current year periods were negatively impacted by the absence of
sales of products from our diode laser operations, as we divested these
operations at the end of the second quarter of 2009. Such sales were $1.9
million and $3.1 million in the three and six months ended July 4, 2009,
respectively. However, this negative impact was offset almost entirely by an
increase in sales of products for bioinstrumentation applications by our PPT
Division.
Net sales to our
industrial manufacturing and other end markets for the three months ended July
3, 2010 increased $5.7 million, or 57.0%, compared with the same period in 2009.
Net sales to these markets for the six months ended July 3, 2010 increased $9.9
million, or 43.2%, compared with the same period in 2009. The increase in sales
to these markets during both periods in 2010 compared with the same periods in
2009 was due primarily to improved macroeconomic conditions in these varied
markets.
20
Geographically, net
sales were as follows:
|
|
|
Three Months Ended |
|
|
|
|
|
Percentage |
|
|
|
|
July 3, |
|
July 4, |
|
Increase |
|
Increase |
|
| (In thousands) |
|
2010 |
|
2009 |
|
(Decrease) |
|
(Decrease) |
|
| United States |
|
$ |
58,649 |
|
$ |
42,287 |
|
$ |
16,362 |
|
|
38.7 |
|
% |
| Europe |
|
|
24,280 |
|
|
23,804 |
|
|
476 |
|
|
2.0 |
|
|
| Pacific Rim |
|
|
26,861 |
|
|
16,541 |
|
|
10,320 |
|
|
62.4 |
|
|
| Other |
|
|
4,810 |
|
|
4,909 |
|
|
(99 |
) |
|
(2.0 |
) |
|
|
|
|
$ |
114,600 |
|
$ |
87,541 |
|
$ |
27,059 |
|
|
30.9 |
|
% |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
|
|
|
Percentage |
|
|
|
|
July 3, |
|
July 4, |
|
Increase |
|
Increase |
|
| (In thousands) |
|
2010 |
|
2009 |
|
(Decrease) |
|
(Decrease) |
|
| United States |
|
$ |
105,120 |
|
$ |
79,277 |
|
$ |
25,843 |
|
|
32.6 |
|
% |
| Europe |
|
|
48,335 |
|
|
47,237 |
|
|
1,098 |
|
|
2.3 |
|
|
| Pacific Rim |
|
|
58,476 |
|
|
39,576 |
|
|
18,900 |
|
|
47.8 |
|
|
| Other |
|
|
9,819 |
|
|
10,987 |
|
|
(1,168 |
) |
|
(10.6 |
) |
|
|
|
|
$ |
221,750 |
|
$ |
177,077 |
|
$ |
44,673 |
|
|
25.2 |
|
% |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The increases in
sales to customers in the United States and the Pacific Rim during the three and
six months ended July 3, 2010 compared with the corresponding periods in 2009
was due primarily to the upturn in the semiconductor equipment industry as well
as the improved overall macroeconomic conditions. The increase in sales to
customers in Europe during the three and six months ended July 3, 2010 was due
primarily to increased sales to customers in our industrial manufacturing and
research end markets. The decrease in sales to customers in the other areas of
the world during the three and six months ended July 3, 2010 was due primarily
to lower sales to customers in Canada, primarily in our life and health sciences
and research end markets.
Gross Margin
Gross margin was
43.4% and 36.7% for the three months ended July 3, 2010 and July 4, 2009,
respectively, and 41.8% and 37.5% for the six months ended July 3, 2010 and July
4, 2009, respectively. The increases in gross margins in the current year
periods were due primarily to the positive impact of our asset exchange with
Oclaro, Inc., which we completed at the end of the second quarter of 2009, a net
reduction in excess and obsolete inventory reserves as a result of increased
demand for products for which inventory had been previously written down as
excess inventory, and improved absorption of manufacturing overhead resulting
from our higher sales level. These increases were offset in part by a higher
proportion of sales of lower margin products by our Lasers Division compared
with the prior year periods and the negative impact of the strengthening U.S.
dollar versus the euro.
Selling, General and Administrative (SG&A) Expenses
SG&A expenses
totaled $28.3 million, or 24.7% of net sales, and $26.7 million, or 30.5% of net
sales, for the three months ended July 3, 2010 and July 4, 2009, respectively.
The increase in SG&A expenses in absolute dollars in the current year period
was due primarily to an increase in personnel costs of $3.7 million due to
higher incentive compensation costs, offset in part by a decrease in rent and
utilities of $1.3 million due primarily to the lower rental rate under the lease
of our new facility in Santa Clara, California, and a decrease in bad debt
charges of $0.7 million.
SG&A expenses
totaled $54.4 million, or 24.5% of net sales, and $54.2 million, or 30.6% of net
sales, for the six months ended July 3, 2010 and July 4, 2009, respectively. The
increase in SG&A expenses in absolute dollars in the current year period was
due primarily to increases in personnel costs of $3.2 million, due to higher
incentive compensation costs, and increases in freight costs of $0.5 million and
independent sales representative commissions of $0.4 million, offset in large
part by decreases in rent and utilities of $2.7 million, professional fees of
$0.8 million and bad debt charges of $0.6 million.
21
In general, we expect
that SG&A expense will vary as a percentage of net sales in the future based
on our sales level in any given period. Because the majority of our SG&A
expense is fixed in the short term, changes in SG&A expense will likely not
be in proportion to changes in net sales.
Research and Development (R&D) Expense
R&D expense
totaled $9.4 million, or 8.2% of net sales, and $9.0 million, or 10.3% of net
sales, for the three months ended July 3, 2010 and July 4, 2009, respectively.
R&D expense totaled $18.9 million, or 8.5% of net sales, and $18.4 million,
or 10.4% of net sales, for the six months ended July 3, 2010 and July 4, 2009,
respectively. The increases in R&D expense in absolute dollars in the
current year periods were due primarily to the addition of R&D expense
related to the New Focus business, for which there was no corresponding expense
in the prior year period. These increases were offset in part by the
elimination of R&D expense related to our diode laser operations as a result
of our divestiture of such operations.
We believe that the
continued development and advancement of our products and technologies is
critical to our success, and we intend to continue to invest in R&D
initiatives, while working to ensure that our efforts are focused and the
resources are deployed efficiently. In general, we expect that R&D expense
as a percentage of net sales will vary in the future based on our sales level in
any given period. Because of our commitment to continued product development,
and because the majority of our R&D expense is fixed in the short term,
changes in R&D expense will likely not be in proportion to changes in net
sales.
Loss on Sale of Assets and Related Costs
During the three and
six months ended July 3, 2010, we recognized $0.8 million in costs associated
with the anticipated sale of our Hilger Crystals Limited subsidiary, which was
completed on July 19, 2010, as discussed on page 18 above. These costs include
$0.7 million in pension costs recorded as a result of the expected plan
curtailment, consisting of the recognition of $0.6 million in previously
unrecognized actuarial losses and a $0.1 million increase in the projected
benefit obligation, and $0.1 million in legal and consulting fees related to the
transaction.
In the second quarter
of 2009, we sold certain assets and transferred certain liabilities related to
our diode laser operations based in Tucson, Arizona to Oclaro, Inc., and we
recorded a loss on the sale of such assets of $4.1 million, after considering
the net book value of these assets of $14.6 million, the fair value of these
assets of $11.1 million, and selling costs of $0.6 million. These assets had
previously been included in our Lasers Division.
Interest and Other Expense, Net
Interest and other
expense, net totaled $2.0 million and $2.2 million for the three months ended
July 3, 2010 and July 4, 2009, respectively, and $3.8 million and $4.3 million
for the six months ended July 3, 2010 and July 4, 2009, respectively. The
decrease in interest and other expense, net in the current year periods compared
with the 2009 periods resulted primarily from a decrease in interest expense due
to lower outstanding balances on our convertible subordinated notes and lower
realized foreign currency losses, offset in part by a decrease in interest
income earned due to lower interest rates during the current year
periods.
Income Taxes
Our effective tax
rate was 9.8% and 7.6% for the three months ended July 3, 2010 and July 4, 2009,
respectively, and 10.0% and 4.0% for the six months ended July 3, 2010 and July
4, 2009, respectively. Under Accounting Standards Codification (ASC) 740-270,
Income Taxes – Interim
Reporting, we are required
to adjust our effective tax rate each quarter to be consistent with the
estimated annual effective tax rate and interim period tax. We are also required
to record the tax impact of certain unusual or infrequently occurring discrete
items, including changes in judgment about valuation allowances and effects of
changes in tax laws or rates, in the interim period in which they occur. In addition, jurisdictions for which we have 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. The
impact of such an exclusion could result in a higher or lower effective tax rate
during a particular quarter, based upon the mix and timing of actual earnings
compared with annual projections.
22
We have maintained a
valuation allowance against substantially all of our gross deferred tax assets
pursuant to ASC 740-10, Income Taxes, due
to the uncertainty as to the timing and ultimate realization of those assets. As
a result, until such valuation allowance is reversed, the U.S. tax provision
relating to future earnings will be offset substantially by a reduction in the
valuation allowance. Accordingly, current and future tax expense will consist of
taxes in certain foreign jurisdictions, required state income taxes, the federal
alternative minimum tax and the impact of discrete items.
As of July 3, 2010,
our valuation allowance was $61.7 million. We will continue to monitor our
actual results, refine forecasted data and assess the need for retaining a
valuation allowance against a portion of our gross deferred tax assets. In the
event it is determined that a valuation allowance is no longer required,
substantially all of the reversal will be recorded as a discrete item in the
appropriate period.
Liquidity and Capital
Resources
Our cash and cash
equivalents and marketable securities balances increased to a total of $152.4
million as of July 3, 2010 from $141.9 million as of January 2, 2010. This
increase was attributable primarily to cash generated from our operations,
offset in part by capital expenditures, net repayments of short-term borrowings,
and payments made in connection with the cancellation of restricted stock units
for taxes owed by employees upon vesting of restricted stock units issued under
our stock incentive plans.
Net cash provided by
our operating activities of $24.8 million for the six months ended July 3, 2010
was attributable primarily to cash provided by our operations, an increase of
$4.9 million in accounts payable due to timing of payments, an increase of $0.7
million in accrued expenses due to the timing of payments, and a decrease of
$0.8 million in other assets related to pension assets not owned by the plan,
offset in part by an increase of $4.6 million in accounts receivable due to
increased sales and the timing of receipts, and an increase in gross inventory
of $6.3 million. During the first half of 2010, while we used $6.3 million in
cash for gross inventory purchases, our net inventory only increased by $0.2
million as a result of $2.2 million in charges related to excess and obsolete
inventory, a $2.0 million impact from foreign currency translation, $1.0 million
in amortization of demonstration equipment and $0.9 million in inventory held
for sale. Although we recorded excess and obsolete inventory charges of $2.2
million during the first half of 2010, demand for many of our products has
increased and we sold inventory that had been previously written down as excess
inventory, which resulted in a net reduction in our excess and obsolete
inventory reserves and positively impacted our gross margin for the three and
six months ended July 3, 2010.
Net cash used in
investing activities of $25.0 million for the six months ended July 3, 2010 was
attributable to net purchases of marketable securities of $20.0 million and
purchases of property and equipment of $5.0 million.
Net cash used in
financing activities of $4.1 million for the six months ended July 3, 2010 was
attributable primarily to the net repayment of short-term borrowings of $3.2
million and payments of $1.3 million in connection with the cancellation of
restricted stock units for taxes owed by employees upon the vesting of
restricted stock units issued under our stock incentive plans, offset in part by
proceeds from the sale of stock under employee plans.
During June 2008, we
issued 300 million yen ($3.4 million at July 3, 2010) in private placement bonds
through a Japanese bank. These bonds bear interest at a rate of 1.55% per year,
payable in cash semiannually in arrears on June 30 and December 31 of each year.
The bonds mature on June 30, 2011. The bonds are included in short-term borrowings in the accompanying consolidated balance sheets.
At July 3, 2010, we
had a total of three lines of credit, including one domestic revolving line of
credit and two revolving lines of credit with Japanese banks. In addition, we
had two other agreements with Japanese banks under which we sell trade notes
receivable with recourse.
23
Our domestic
revolving line of credit has a total credit limit of $3.0 million and expires on
December 1, 2010. Certain certificates of deposit held at this lending
institution collateralize this line of credit, which bears interest at either
the prevailing London Interbank Offered Rate (LIBOR) (0.35% at July 3, 2010)
plus 1.00% or the British Bankers Association LIBOR Daily Floating Rate (0.30%
at July 3, 2010) plus 1.00%, at our option, and carries an unused line fee of
0.25% per year. At July 3, 2010, there were no balances outstanding under this
line of credit, with $1.6 million available, after considering outstanding
letters of credit totaling $1.4 million.
Our two revolving
lines of credit with Japanese banks totaled 900 million yen ($10.3 million at
July 3, 2010) and expire as follows: $3.4 million on July 31, 2010 (which has
subsequently been extended to August 31, 2010) and $6.9 million on November 30,
2010. The $6.9 million line of credit bears interest at the prevailing bank
rate, which was 2.475% at July 3, 2010, and the $3.4 million line of credit
bears interest at LIBOR plus 1.75%. Certain certificates of deposit held by the
lending institution’s U.S. affiliate collateralize the $3.4 million line of
credit. At July 3, 2010, we had $7.1 million outstanding and $3.2 million
available for borrowing under these lines of credit. Amounts outstanding under
these revolving lines of credit are included in short-term borrowings in the accompanying consolidated balance sheets. Our two other agreements
with Japanese banks, under which we sell trade notes receivable with recourse,
totaled 550 million yen ($6.3 million at July 3, 2010), have no expiration dates
and bear interest at the bank’s prevailing rate, which was 1.475% at July 3,
2010. At July 3, 2010, we had $1.3 million outstanding and $5.0 million
available for the sale of notes receivable under these agreements. Amounts
outstanding under these agreements are included in short-term borrowings in the accompanying consolidated balance sheets. As of July 3,
2010, the weighted-average effective interest rate on all of our Japanese
borrowings, including the private placement bonds, was 2.8%.
In May 2008, our
Board of Directors approved a share repurchase program, authorizing the purchase
of up to 4.0 million shares of our common stock. Purchases may be made under
this program from time to time in the open market or in privately negotiated
transactions, and the timing and amount of the purchases will be based on
factors including our share price, cash balances, expected cash requirements and
general business and market conditions. No purchases were made under this
program during the first six months of 2010. As of July 3, 2010, 3.9 million
shares remained available for purchase under the program.
During the remainder
of 2010, we expect to use $5 million to $8 million of cash for capital
expenditures.
We believe our
current working capital position, together with our expected future cash flows
from operations, will be adequate to fund our operations in the ordinary course
of business, anticipated capital expenditures, debt payment requirements and
other contractual obligations for at least the next twelve months. However, this
belief is based upon many assumptions and is subject to numerous risks including
those discussed in Item 1A (Risk Factors) of Part I of our Annual Report on Form
10-K for the year ended January 2, 2010, and there can be no assurance that we
will not require additional funding in the future.
Except for the
aforementioned capital expenditures, we have no present agreements or
commitments with respect to any material acquisitions of other businesses,
products, product rights or technologies or any other material capital
expenditures. However, we will continue to evaluate acquisitions of and/or
investments in products, technologies, capital equipment or improvements or
companies that complement our business and may make such acquisitions and/or
investments in the future. Accordingly, we may need to obtain additional sources
of capital in the future to finance any such acquisitions and/or investments. We
may not be able to obtain such financing on commercially reasonable terms, and
any additional financing that we obtain may contain restrictions on our
operations, in the case of debt financing, or cause dilution for our
stockholders, in the case of equity financing.
Recent Accounting
Pronouncements
In October 2009, the
Financial Accounting Standards Board (FASB) issued Accounting Standards Update
(ASU) No. 2009-13, Multiple-Deliverable Revenue Arrangements—a consensus of the FASB
Emerging Issues Task Force, which amends the guidance in ASC 605, Revenue Recognition. ASU No. 2009-13 eliminates the residual method of accounting for
revenue on undelivered products and instead, requires companies to allocate
revenue to each of the deliverable products based on their relative selling
price. In addition, this ASU expands the disclosure requirements surrounding
multiple-deliverable arrangements. ASU No. 2009-13 will be effective for revenue
arrangements entered into for
fiscal years beginning on or after June 15, 2010. We are currently evaluating
the impact that ASU No. 2009-13 will have on our financial position and results
of operations.
24
In April 2010, the
FASB issued ASU No. 2010-17, Milestone Method of Revenue Recognition—a consensus of the FASB Emerging
Issues Task Force, which
amends the guidance in ASC 605, Revenue Recognition. ASU No. 2010-17 provides guidance on defining a milestone and
determining when it is appropriate to utilize the milestone method of revenue
recognition in research and development arrangements. In addition, this ASU
requires new disclosures for companies that have research and development
arrangements that are accounted for using the milestone method. ASU No. 2010-17
will be effective on a prospective basis for milestones achieved during interim
and annual periods beginning on or after June 15, 2010 and early adoption is
permitted. Our adoption of ASU 2010-17 is not expected to have a material impact
on our financial position or results of operations.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The principal market
risks (i.e., the risk of loss arising from adverse changes in market rates and
prices) to which we are exposed are foreign currency exchange rates, which may
generate translation and transaction gains and losses, and changes in interest
rates.
Foreign Currency Risk
Operating in
international markets sometimes involves exposure to volatile movements in
currency exchange rates. The economic impact of currency exchange rate movements
on our operating results is complex because such changes are often linked to
variability in real growth, inflation, interest rates, governmental actions and
other factors. These changes, if material, may cause us to adjust our financing
and operating strategies. Consequently, isolating the effect of changes in
currency does not incorporate these other important economic
factors.
From time to time we
use forward exchange contracts to mitigate the risks associated with certain
foreign currency transactions entered into in the ordinary course of business,
primarily foreign currency denominated receivables and payables. We do not
engage in currency speculation. The forward exchange contracts generally require
us to exchange U.S. dollars for foreign currencies at maturity, at rates agreed
to at the inception of the contracts. If the counterparties to the exchange
contracts (typically highly rated banks) do not fulfill their obligations to
deliver the contracted currencies, we could be at risk for any currency related
fluctuations. Such contracts are typically closed out prior to the end of each
quarter. Transaction gains and losses are included in net income in our
statements of operations. Net foreign exchange gains and losses were not
material to our reported results of operations for the three and six months
ended July 3, 2010. There were no forward exchange contracts outstanding at July
3, 2010.
As currency exchange
rates change, translation of the statements of operations of international
operations into U.S. dollars affects the year-over-year comparability of
operating results. We do not generally hedge translation risks because cash
flows from international operations are generally reinvested locally. We do not
enter into hedges to minimize volatility of reported earnings because we do not
believe it is justified by the exposure or the cost.
Changes in currency
exchange rates that would have the largest impact on translating our future
international operating income include the euro and Japanese yen. We estimate
that a hypothetical 10% change in foreign exchange rates would not have had a
material effect on our reported net income for the three and six months ended
July 3, 2010. We believe that this quantitative measure has inherent limitations
because, as discussed in the first paragraph of this section, it does not take
into account any governmental actions or changes in either customer purchasing
patterns or our financing and operating strategies.
Interest Rate Risk
The interest rates we
pay on certain of our debt instruments are subject to interest rate risk. Our
collateralized line of credit bears interest at either the prevailing London
Interbank Offered Rate (LIBOR) plus 1.00% or the British Bankers Association
LIBOR Daily Floating Rate plus 1.00%, at our option. Our $3.4 million revolving
line of credit with a Japanese bank bears interest at LIBOR plus 1.75%. Our
other revolving line of credit and other credit agreements with Japanese banks
bear interest at the lending bank’s prevailing rate. Our convertible
subordinated notes and private placement bonds bear interest at a fixed rate of
2.5% and 1.55% per year, respectively, and are not impacted by changes in interest rates. Our
investments in cash, cash equivalents and marketable securities, which totaled
$152.4 million at July 3, 2010, are sensitive to changes in the general level of
U.S. interest rates. In addition, certain assets related to our pension plans
that are not owned by such plans, which totaled $8.0 million at July 3, 2010,
are sensitive to interest rates and economic conditions in Europe. We estimate
that a hypothetical 10% change in the interest rate earned on our investments or
a 10% change in interest rates payable on our lines of credit would not have had
a material effect on our net income for the three and six months ended July 3,
2010.
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ITEM 4. CONTROLS AND PROCEDURES
|
|
(a) |
|
Evaluation of Disclosure Controls and
Procedures |
|
|
|
|
|
|
|
Our
Chief Executive Officer and our Chief Financial Officer, after evaluating
our “disclosure controls and procedures” (as defined in the Securities
Exchange Act of 1934 (the “Exchange Act”) Rules 13a-15(e) and 15d-15(e))
as of the end of the period covered by this Quarterly Report on Form 10-Q
(the “Evaluation Date”), have concluded that as of the Evaluation Date,
our disclosure controls and procedures are effective to ensure that
information we are required to disclose in reports that we file or submit
under the Exchange Act is recorded, processed, summarized and reported
within the time periods specified in Securities and Exchange Commission
rules and forms, and to ensure that information required to be disclosed
by us in such reports is accumulated and communicated to our management,
including our chief executive officer and chief financial officer where
appropriate, to allow timely decisions regarding required
disclosure. |
|
|
|
|
|
(b) |
|
Changes in Internal Control Over
Financial Reporting |
|
|
|
|
|
|
|
There
was no change in our internal control over financial reporting that
occurred during the period covered by this Quarterly Report on Form 10-Q
that has materially affected, or is reasonably likely to materially
affect, our internal control over financial reporting. We continue to
enhance our internal control over financial reporting, primarily by
evaluating and enhancing our process and control documentation, in
connection with our ongoing efforts to meet the requirements of Section
404 of the Sarbanes-Oxley Act of 2002. We discuss with and disclose these
matters to the Audit Committee of our Board of Directors and our
independent registered public accounting
firm. |
PART II – OTHER INFORMATION
ITEM 1A. RISK FACTORS
Our Annual Report on
Form 10-K for the year ended January 2, 2010 contains a full discussion of the
risks associated with our business. There have been no material changes to the
risks described in our Annual Report on Form 10-K.
ITEM 6. EXHIBITS
| Exhibit |
|
|
| Number |
|
Description of
Exhibit |
| 31.1 |
|
Certification pursuant to Rule 13a-14(a)
or Rule 15d-14(a) of the Securities Exchange Act of 1934 (the “Exchange
Act”). |
| |
| 31.2 |
|
Certification pursuant to Rule 13a-14(a)
or Rule 15d-14(a) of the Exchange Act. |
| |
| 32.1 |
|
Certification pursuant to Rule 13a-14(b)
or Rule 15d-14(b) of the Exchange Act and 18 U.S.C. Section
1350. |
| |
| 32.2 |
|
Certification pursuant to Rule 13a-14(b)
or Rule 15d-14(b) of the Exchange Act and 18 U.S.C. Section
1350. |
26
SIGNATURES
Pursuant to the
requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly
authorized.
| Dated: August 11, 2010 |
NEWPORT CORPORATION |
| |
| |
|
|
By:
|
/s/ Charles F. Cargile |
|
|
|
Charles F. Cargile, |
| |
|
Senior Vice President and Chief Financial |
|
|
|
Officer (Principal Financial Officer and Duly |
|
|
|
Authorized Officer) |
27
EXHIBIT INDEX
| Exhibit |
|
|
| Number |
|
Description of
Exhibit |
| 31.1 |
|
Certification
pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange
Act of 1934 (the “Exchange Act”). |
| |
| 31.2 |
|
Certification
pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Exchange
Act. |
| |
| 32.1 |
|
Certification
pursuant to Rule 13a-14(b) or Rule 15d-14(b) of the Exchange Act and 18
U.S.C. Section 1350. |
| |
| 32.2 |
|
Certification
pursuant to Rule 13a-14(b) or Rule 15d-14(b) of the Exchange Act and 18
U.S.C. Section 1350. |
28