newport_10q.htm
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC
20549
_________________
FORM 10-Q
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(Mark
One)
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| þ |
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QUARTERLY REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended April 3,
2010
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OR
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| ¨ |
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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 |
94-0849175 |
| (State or other jurisdiction
of |
(IRS Employer Identification
No.) |
| incorporation or
organization) |
|
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 x No o
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 o No o
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 |
|
o |
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Accelerated filer x |
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| |
Non-accelerated filer |
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o |
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(Do not check if a smaller reporting company) |
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Smaller reporting company o |
Indicate by check
mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).
Yes o No x
As of May 1, 2010,
36,677,947 shares of the registrant’s sole class of common stock were
outstanding.
NEWPORT CORPORATION
FORM 10-Q
INDEX
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Page |
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Number |
| PART I. FINANCIAL
INFORMATION |
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| Item 1. |
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Financial Statements
(unaudited): |
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Consolidated Statements of Operations
for the Three Months Ended |
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April 3, 2010 and April 4,
2009 |
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3 |
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Consolidated Balance Sheets as of April
3, 2010 and January 2, 2010 |
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4 |
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Consolidated Statements of Cash Flows
for the Three Months Ended April 3, 2010 and |
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April 4, 2009 |
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5 |
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Notes to Consolidated Financial
Statements |
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6 |
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| Item 2. |
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Management’s Discussion and Analysis of
Financial Condition and Results of Operations |
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16 |
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| Item 3. |
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Quantitative and Qualitative Disclosures
About Market Risk |
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21 |
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| Item 4. |
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Controls and Procedures |
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22 |
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| PART II. OTHER
INFORMATION |
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| |
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| Item 1A. |
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Risk Factors |
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23 |
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| Item 6. |
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Exhibits |
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23 |
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| SIGNATURES |
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24 |
2
PART I – FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
NEWPORT CORPORATION
Consolidated Statements
of Operations
(In thousands, except per share data)
(Unaudited)
|
|
|
Three Months Ended |
|
|
|
April 3, |
|
April 4, |
|
|
|
2010 |
|
2009 |
| Net sales |
|
$
|
107,150 |
|
|
$
|
89,536 |
|
| Cost of sales |
|
|
64,112 |
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55,229 |
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| Gross profit |
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|
43,038 |
|
|
|
34,307 |
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| |
|
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|
|
|
|
|
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| Selling, general and administrative
expenses |
|
|
26,098 |
|
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|
27,487 |
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| Research and development expense |
|
|
9,471 |
|
|
|
9,355 |
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| Operating income (loss) |
|
|
7,469 |
|
|
|
(2,535 |
) |
| |
|
|
|
|
|
|
|
|
| Interest and other expense,
net |
|
|
(1,837 |
) |
|
|
(2,119 |
) |
| Income (loss) before income taxes |
|
|
5,632 |
|
|
|
(4,654 |
) |
| |
|
|
|
|
|
|
|
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| Income tax provision |
|
|
578 |
|
|
|
164 |
|
| Net income (loss) |
|
$ |
5,054 |
|
|
$ |
(4,818 |
) |
| |
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|
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| Net income (loss) per share: |
|
|
|
|
|
|
|
|
| Basic |
|
$ |
0.14 |
|
|
$ |
(0.13 |
) |
| Diluted |
|
$ |
0.14 |
|
|
$ |
(0.13 |
) |
| |
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| Shares used in per share
calculations: |
|
|
|
|
|
|
|
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| Basic |
|
|
36,372 |
|
|
|
36,066 |
|
| Diluted |
|
|
37,261 |
|
|
|
36,066 |
|
See accompanying
notes.
3
NEWPORT CORPORATION
Consolidated Balance
Sheets
(In thousands, except share and per share data)
(Unaudited)
|
|
|
April 3, |
|
January 2, |
|
|
|
2010 |
|
2010 |
| ASSETS |
|
|
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Current assets: |
|
|
|
|
|
|
|
|
|
Cash and cash
equivalents |
|
$ |
86,672 |
|
|
$ |
87,727 |
|
|
Marketable securities |
|
|
51,847 |
|
|
|
54,196 |
|
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Accounts receivable, net of allowance for
doubtful accounts of $3,241 |
|
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and $3,111 as of April 3, 2010 and
January 2, 2010, respectively |
|
|
72,634 |
|
|
|
72,553 |
|
|
Notes receivable |
|
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2,788 |
|
|
|
2,264 |
|
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Inventories |
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88,405 |
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89,908 |
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Deferred income taxes |
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4,774 |
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4,835 |
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Prepaid expenses and other current
assets |
|
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11,588 |
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13,963 |
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Total current assets |
|
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318,708 |
|
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325,446 |
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| |
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| Property and equipment, net |
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51,212 |
|
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52,901 |
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| Goodwill |
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69,932 |
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69,932 |
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| Deferred income taxes |
|
|
4,017 |
|
|
|
4,437 |
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| Intangible assets, net |
|
|
27,334 |
|
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|
28,166 |
|
| Other assets |
|
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14,930 |
|
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|
12,525 |
|
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$ |
486,133 |
|
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$ |
493,407 |
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| |
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| LIABILITIES AND STOCKHOLDERS’
EQUITY |
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| Current liabilities: |
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Short-term borrowings |
|
$ |
8,758 |
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$ |
11,056 |
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Accounts payable |
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25,814 |
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24,312 |
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Accrued payroll and related
expenses |
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16,996 |
|
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|
22,231 |
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Accrued expenses and other current
liabilities |
|
|
29,180 |
|
|
|
31,337 |
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Total current
liabilities |
|
|
80,748 |
|
|
|
88,936 |
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| |
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| Long-term debt, net |
|
|
122,157 |
|
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|
121,231 |
|
| Obligations under capital leases, less current
portion |
|
|
1,124 |
|
|
|
1,231 |
|
| Accrued pension liabilities |
|
|
11,303 |
|
|
|
10,215 |
|
| Deferred income taxes and other
liabilities |
|
|
16,244 |
|
|
|
17,158 |
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| |
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| Commitments and contingencies |
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| |
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| Stockholders’ equity: |
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Common stock, par value $0.1167 per
share, 200,000,000 shares authorized; |
|
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36,673,130 and 36,315,834 shares issued
and outstanding as of |
|
|
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April 3, 2010 and January 2, 2010,
respectively |
|
|
4,280 |
|
|
|
4,238 |
|
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Capital in excess of par
value |
|
|
409,289 |
|
|
|
409,773 |
|
|
Accumulated other comprehensive
income |
|
|
5,688 |
|
|
|
10,379 |
|
|
Accumulated deficit |
|
|
(164,700 |
) |
|
|
(169,754 |
) |
|
Total stockholders’
equity |
|
|
254,557 |
|
|
|
254,636 |
|
|
|
|
$ |
486,133 |
|
|
$ |
493,407 |
|
| |
|
|
|
|
|
|
|
|
See accompanying
notes.
4
NEWPORT CORPORATION
Consolidated Statements
of Cash Flows
(In thousands)
(Unaudited)
|
|
|
Three Months Ended |
|
|
|
April 3, |
|
April 4, |
|
|
|
2010 |
|
2009 |
| CASH FLOWS FROM OPERATING
ACTIVITIES: |
|
|
|
|
|
|
|
|
| Net income (loss) |
|
$ |
5,054 |
|
|
$ |
(4,818 |
) |
|
Adjustments to
reconcile net income (loss) to net cash provided by (used in) operating
activities:
|
|
|
|
|
|
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Depreciation and
amortization |
|
|
4,630 |
|
|
|
5,331 |
|
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Amortization of discount on convertible
subordinated notes |
|
|
1,002 |
|
|
|
1,129 |
|
|
Provision for losses on
inventories |
|
|
1,164 |
|
|
|
1,833 |
|
|
Stock-based compensation
expense |
|
|
653 |
|
|
|
449 |
|
|
Provision for doubtful
accounts |
|
|
206 |
|
|
|
69 |
|
|
Deferred income taxes |
|
|
7 |
|
|
|
(568 |
) |
|
Increase (decrease) in cash due to changes
in:
|
|
|
|
|
|
|
|
|
|
Accounts and notes
receivable |
|
|
(2,222 |
) |
|
|
11,758 |
|
|
Inventories |
|
|
(1,406 |
) |
|
|
(7,462 |
) |
|
Prepaid expenses and other
assets |
|
|
(608 |
) |
|
|
151 |
|
|
Accounts payable |
|
|
3,351 |
|
|
|
(1,062 |
) |
|
Accrued payroll and related
expenses |
|
|
(4,979 |
) |
|
|
(5,767 |
) |
|
Accrued expenses and other
liabilities |
|
|
46 |
|
|
|
(3,135 |
) |
|
Other long-term
liabilities |
|
|
(903 |
) |
|
|
216 |
|
|
Net cash provided by (used in) operating
activities |
|
|
5,995 |
|
|
|
(1,876 |
) |
| |
|
|
|
|
|
|
|
|
| CASH FLOWS FROM INVESTING
ACTIVITIES: |
|
|
|
|
|
|
|
|
| Purchase of property and
equipment |
|
|
(3,482 |
) |
|
|
(1,224 |
) |
| Purchase of marketable
securities |
|
|
(6,806 |
) |
|
|
(5,082 |
) |
| Proceeds from the sale of marketable
securities |
|
|
7,763 |
|
|
|
12,826 |
|
|
Net
cash (used in) provided by investing activities
|
|
|
(2,525 |
) |
|
|
6,520 |
|
| |
|
|
|
|
|
|
|
|
| CASH FLOWS FROM FINANCING
ACTIVITIES: |
|
|
|
|
|
|
|
|
| Repayment of long-term debt and obligations
under capital leases |
|
|
(41 |
) |
|
|
(30 |
) |
| Proceeds from short term
borrowings |
|
|
2,221 |
|
|
|
9,336 |
|
| Repayment of short term
borrowings |
|
|
(4,348 |
) |
|
|
(12,515 |
) |
| Proceeds from the issuance of common stock
under employee plans |
|
|
248 |
|
|
|
212 |
|
| Tax withholding payment related to net share
settlement of equity awards |
|
|
(1,343 |
) |
|
|
- |
|
|
Net
cash used in financing activities
|
|
|
(3,263 |
) |
|
|
(2,997 |
) |
| Impact of foreign exchange rate changes on cash balances |
|
|
(1,262 |
) |
|
|
(589 |
) |
| Net increase (decrease) in cash and cash
equivalents |
|
|
(1,055 |
) |
|
|
1,058 |
|
| Cash and cash equivalents at beginning of period |
|
|
87,727 |
|
|
|
74,874 |
|
| Cash and cash equivalents at end of
period |
|
$ |
86,672 |
|
|
$ |
75,932 |
|
| |
|
|
|
|
|
|
|
|
| Supplemental disclosures of cash flow
information: |
|
|
|
|
|
|
|
|
| Cash paid (received) during the period
for: |
|
|
|
|
|
|
|
|
|
Interest
|
|
$ |
1,679 |
|
|
$ |
1,937 |
|
|
Income
taxes (refunds), net
|
|
$ |
(35 |
) |
|
$ |
1,056 |
|
| Property and equipment accrued in accounts
payable |
|
$ |
47 |
|
|
$ |
- |
|
See accompanying
notes.
5
NEWPORT CORPORATION
Notes to Consolidated
Financial Statements
April 3, 2010
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
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 January 2, 2010. The results for the interim
periods are not necessarily indicative of the results the Company will have for
the full year ending January 1, 2011. The January 2, 2010 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 January 2, 2010.
NOTE 2 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 Accounting Standards Codification (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 regarding 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. The Company is currently evaluating the
impact that ASU No. 2009-13 will have on its financial position and results of
operations.
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 income in the accompanying consolidated balance
sheets. The aggregate fair value of available for sale securities and aggregate
amount of unrealized gains and losses for available for sale securities at April
3, 2010 were as follows:
|
|
|
|
|
|
Aggregate Amount of |
| (In thousands) |
|
Aggregate |
|
Unrealized |
|
|
|
Fair Value |
|
Gains |
|
Losses |
| Equity securities |
|
$
|
25,161 |
|
$
|
114 |
|
$
|
- |
| U.S. government and agency debt securities |
|
|
12,214 |
|
|
285 |
|
|
- |
| Certificates of deposit |
|
|
7,187 |
|
|
- |
|
|
- |
| Asset-backed securities |
|
|
5,133 |
|
|
121 |
|
|
- |
| Corporate debt securities |
|
|
2,152 |
|
|
2 |
|
|
- |
|
|
|
$ |
51,847 |
|
$ |
522 |
|
$ |
- |
| |
|
|
|
|
|
|
|
|
|
6
NEWPORT CORPORATION
Notes to Consolidated
Financial Statements
April 3, 2010
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 |
) |
The contractual
maturities of debt securities, asset-backed securities and certificates of
deposit were as follows:
| (In thousands) |
|
April 3, |
|
|
|
2010 |
| 0 – 1 Year |
|
$
|
19,906 |
| 1 – 2 Years |
|
|
223 |
| 2 – 3 Years |
|
|
3,274 |
| 3 – 5 Years |
|
|
1,282 |
| 5 – 10 Years |
|
|
- |
| More than 10 years |
|
|
2,001 |
|
|
|
$ |
26,686 |
| |
|
|
|
The gross realized
gains and losses on sales of available for sale securities were as follows:
|
|
|
Three Months Ended |
| (In thousands) |
|
April 3, |
|
April 4, |
|
|
|
2010 |
|
2009 |
| Gross realized gains |
|
$
|
14 |
|
$
|
2 |
| Gross realized losses |
|
|
- |
|
|
- |
|
|
|
$ |
14 |
|
$ |
2 |
| |
|
|
|
|
|
|
7
NEWPORT CORPORATION
Notes to Consolidated
Financial Statements
April 3, 2010
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:
|
|
|
April 3, 2010 |
|
January 2, 2010 |
| (In thousands) |
|
Carrying |
|
|
|
Carrying |
|
|
|
|
|
Amount |
|
Fair Value |
|
Amount |
|
Fair Value |
| Cash and cash equivalents |
|
$
|
86,672 |
|
$
|
86,672 |
|
$
|
87,727 |
|
$
|
87,727 |
| Marketable securities |
|
$ |
51,847 |
|
$ |
51,847 |
|
$ |
54,196 |
|
$ |
54,196 |
| Pension assets not owned by
plan |
|
$ |
8,688 |
|
$ |
8,688 |
|
$ |
8,990 |
|
$ |
8,990 |
| Short-term borrowings |
|
$ |
8,758 |
|
$ |
8,758 |
|
$ |
11,056 |
|
$ |
11,056 |
| Long-term debt |
|
$ |
122,157 |
|
$ |
123,267 |
|
$ |
121,231 |
|
$ |
121,633 |
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 |
|
|
|
|
|
|
|
|
|
|
|
|
Active Markets for |
|
Significant Other |
|
Significant |
|
|
|
|
|
|
Identical Assets |
|
Observable Inputs |
|
Unobservable Inputs |
| Description |
|
April 3,
2010 |
|
(Level
1) |
|
(Level
2) |
|
(Level
3) |
| Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
| Cash: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash |
|
$
|
30,237 |
|
$
|
30,237 |
|
$
|
- |
|
$
|
- |
|
Money market funds |
|
|
4,373 |
|
|
4,373 |
|
|
- |
|
|
- |
|
Short-term investments |
|
|
52,062 |
|
|
34 |
|
|
52,028 |
|
|
- |
|
|
|
|
86,672 |
|
|
34,644 |
|
|
52,028 |
|
|
- |
| Marketable securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities |
|
$ |
25,161 |
|
$ |
25,161 |
|
$ |
- |
|
$ |
- |
|
U.S. government and
agency |
|
|
12,214 |
|
|
12,214 |
|
|
- |
|
|
- |
|
Certificates of deposit |
|
|
7,187 |
|
|
- |
|
|
7,187 |
|
|
- |
|
Asset-backed securities |
|
|
5,133 |
|
|
5,133 |
|
|
- |
|
|
- |
|
Corporate debt
securities |
|
|
2,152 |
|
|
2,152 |
|
|
- |
|
|
- |
|
|
|
|
51,847 |
|
|
44,660 |
|
|
7,187 |
|
|
- |
| Pension assets not owned by
plan |
|
|
8,688 |
|
|
8,688 |
|
|
- |
|
|
- |
|
|
|
$ |
147,207 |
|
$ |
87,992 |
|
$ |
59,215 |
|
$ |
- |
| |
|
|
|
|
|
|
|
|
|
|
|
|
8
NEWPORT CORPORATION
Notes to Consolidated
Financial Statements
April 3,
2010
NOTE 5 SUPPLEMENTAL BALANCE SHEET INFORMATION
Inventories
Inventories were as follows:
| (In thousands) |
|
April 3, |
|
January 2, |
|
|
|
2010 |
|
2010 |
| Raw materials and purchased
parts |
|
$
|
73,868 |
|
|
$
|
76,636 |
|
| Work in process |
|
|
9,944 |
|
|
|
8,346 |
|
| Finished goods |
|
|
34,176 |
|
|
|
34,581 |
|
|
|
|
|
117,988 |
|
|
|
119,563 |
|
| Allowance for excess and obsolete
inventory |
|
|
(29,583 |
) |
|
|
(29,655 |
) |
|
|
|
$ |
88,405 |
|
|
$ |
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, gratings and crystals
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.
The activity in
accrued warranty obligations was as follows:
|
|
|
Three Months Ended |
| (In thousands) |
|
April 3, |
|
April 4, |
|
|
|
2010 |
|
2009 |
| Balance at beginning of year |
|
$
|
3,898 |
|
|
$
|
5,978 |
|
| Additions charged to cost of sales |
|
|
1,053 |
|
|
|
1,411 |
|
| Warranty claims |
|
|
(1,254 |
) |
|
|
(1,951 |
) |
| Balance at end of period |
|
$ |
3,697 |
|
|
$ |
5,438 |
|
| |
|
|
|
|
|
|
|
|
Accrued Expenses and Other Current Liabilities
Accrued expenses and
other current liabilities were as follows:
| (In thousands) |
|
April 3, |
|
January 2, |
|
|
|
2010 |
|
2010 |
| Deferred revenue |
|
$
|
14,126 |
|
$
|
15,188 |
| Accrued warranty obligations |
|
|
3,697 |
|
|
3,898 |
| Other |
|
|
11,357 |
|
|
12,251 |
|
|
|
$ |
29,180 |
|
$ |
31,337 |
| |
|
|
|
|
|
|
9
NEWPORT CORPORATION
Notes to Consolidated
Financial Statements
April 3, 2010
Accumulated Other Comprehensive Income
Accumulated other
comprehensive income consisted of the following:
| (In thousands) |
|
April 3, |
|
January 2, |
|
|
|
2010 |
|
2010 |
| Cumulative foreign currency translation
gains |
|
$ |
4,650 |
|
|
$ |
9,278 |
|
| Unrecognized net pension losses |
|
|
(514 |
) |
|
|
(549 |
) |
| Unrealized gains on marketable
securities |
|
|
1,552 |
|
|
|
1,650 |
|
|
|
|
$ |
5,688 |
|
|
$ |
10,379 |
|
| |
|
|
|
|
|
|
|
|
NOTE 6 INTANGIBLE ASSETS
Intangible assets
were as follows:
| (In thousands) |
|
April 3, |
|
January 2, |
|
|
|
2010 |
|
2010 |
| Intangible assets subject to
amortization: |
|
|
|
|
|
|
| Developed technology, net of
accumulated amortization of $4,305 and |
|
|
|
|
|
$4,060 as of April 3, 2010 and January 2, 2010, respectively |
|
$ |
5,495 |
|
$ |
5,740 |
|
Customer relationships, net of accumulated amortization of $11,176
and |
|
|
|
|
|
$10,674 as of April 3, 2010 and January 2, 2010, respectively |
|
|
8,924 |
|
|
9,426 |
| Other, net of accumulated
amortization of $255 and $170 as of April 3, 2010 |
|
|
|
|
| and
January 2, 2010, respectively |
|
|
415 |
|
|
500 |
| |
|
|
14,834 |
|
|
15,666 |
| Intangible assets not subject to amortization: |
|
|
|
|
|
|
|
Trademarks and trade names |
|
|
12,500 |
|
|
12,500 |
| Intangible assets, net |
|
$ |
27,334 |
|
$ |
28,166 |
| |
|
|
|
|
|
|
Amortization expense
related to intangible assets totaled $0.8 million and $0.7 million for the three
months ended April 3, 2010 and April 4, 2009, respectively. Developed technology
and customer relationships are amortized over 10 years. Other intangible assets
include acquired backlog, which is amortized over one year, and in-process
research and development, which will not be amortized until the technology is
completed.
Estimated aggregate
amortization expense for future fiscal years is as follows:
|
|
|
Estimated |
|
|
|
Aggregate |
| (In thousands) |
|
Amortization |
|
|
|
Expense |
| 2010 (remaining) |
|
$ |
2,328 |
| 2011 |
|
|
2,990 |
| 2012 |
|
|
2,990 |
| 2013 |
|
|
2,990 |
| 2014 |
|
|
1,766 |
| Thereafter |
|
|
1,440 |
|
|
|
$ |
14,504 |
| |
|
|
|
The Company has
excluded $330,000 of amortization expense related to in-process research and
development from the table above, as it is uncertain when the technology will be
completed and when the amortization will begin.
10
NEWPORT CORPORATION
Notes to Consolidated
Financial Statements
April 3, 2010
NOTE 7 INTEREST AND OTHER EXPENSE, NET
Interest and other
expense, net, was as follows:
|
|
|
Three Months Ended |
| (In thousands) |
|
April 3, |
|
April 4, |
|
|
|
2010 |
|
2009 |
| Interest and dividend income |
|
$ |
273 |
|
|
$ |
615 |
|
| Interest expense |
|
|
(2,068 |
) |
|
|
(2,356 |
) |
| Bank and portfolio asset management
fees |
|
|
(176 |
) |
|
|
(147 |
) |
| Other
income (expense), net |
|
|
134 |
|
|
|
(231 |
) |
|
|
|
$ |
(1,837 |
) |
|
$ |
(2,119 |
) |
| |
|
|
|
|
|
|
|
|
NOTE 8 STOCK-BASED COMPENSATION
During the three
months ended April 3, 2010, the Company 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 the Company’s consolidated statements of
operations was as follows:
|
|
|
Three Months Ended |
| (In thousands) |
|
April 3, |
|
April 4, |
|
|
|
2010 |
|
2009 |
| Cost of sales |
|
$ |
37 |
|
$ |
26 |
| Selling, general and administrative expenses |
|
|
521 |
|
|
378 |
| Research and development
expense |
|
|
95 |
|
|
45 |
|
|
|
$ |
653 |
|
$ |
449 |
| |
|
|
|
|
|
|
At April 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 $8.1 million (net of estimated forfeitures
of $3.1 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 1.7 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 April 3, 2010, there were 0.6 million performance-based restricted
stock units outstanding with a weighted-average grant date fair value of $9.85
per share that were not expected to vest.
At April 3, 2010, 2.2
million stock options with a weighted-average exercise price of $21.67 per
share, intrinsic value of $0.8 million and remaining contractual term of 2.9
years were vested or expected to vest and were exercisable. At April 3,
2010, 1.0 million stock appreciation rights with a weighted-average base value
of $6.28 per share, intrinsic value of $6.1 million and remaining contractual
term of 6.2 years were vested or expected to vest, and 0.3 million stock
appreciation rights with a weighted-average base value of $4.18 per share,
intrinsic value of $2.5 million and remaining contractual term of 6.0 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.
11
NEWPORT CORPORATION
Notes to Consolidated
Financial Statements
April 3, 2010
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 approximately $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 April 3, 2010, the
conversion value was less than the principal amount of the notes.
At April 3, 2010, the
Company had $126.8 million in convertible subordinated notes outstanding with a
carrying value of $119.0 million, net of $7.8 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
April 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 April 3,
2010 and January 2, 2010, debt issuance costs of $1.4 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 |
| (In thousands) |
|
April 3, |
|
April 4, |
|
|
|
2010 |
|
2009 |
| Contractual interest |
|
$ |
792 |
|
$ |
919 |
| Amortization of debt discount |
|
|
1,002 |
|
|
1,129 |
| Interest cost on convertible
subordinated notes |
|
$ |
1,794 |
|
$ |
2,048 |
| |
|
|
|
|
|
|
During June 2008, the
Company issued 300 million yen ($3.2 million at April 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
long-term debt in the accompanying consolidated balance
sheets.
At April 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) (0.25% at April 3, 2010)
plus 1.00% or the British Bankers Association LIBOR Daily Floating Rate (0.22%
at April 3, 2010) plus 1.00%, at the Company’s option, and carries an unused
line fee of 0.25% per year. At April 3, 2010, there were no balances outstanding
under this line of credit, with $1.7 million available, after considering
outstanding letters of credit totaling $1.3 million.
The two revolving
lines of credit with Japanese banks totaled 1.1 billion yen ($11.6 million at
April 3, 2010) and expire on May 31, 2010. The $8.4 million line of credit bears
interest at the prevailing bank rate and the $3.2 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 $3.2 million line of
credit. At April 3, 2010, the Company had $7.3 million outstanding and $4.3
million available for borrowing under these lines of credit. Amounts outstanding
are included in short-term borrowings in the accompanying consolidated balance
sheets.
12
NEWPORT CORPORATION
Notes to Consolidated Financial Statements
April 3, 2010
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 ($5.8 million at April 3, 2010), have no expiration dates
and bear interest at the prevailing bank rate. At April 3, 2010, the Company had
$1.5 million outstanding and $4.3 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 April 3, 2010,
the weighted-average effective interest rate on all of the Company’s Japanese
borrowings, including the private placement bonds, was 2.5%.
Total long-term debt
was as follows:
| (In thousands) |
|
April 3, |
|
January 2, |
|
|
|
2010 |
|
2010 |
| Japanese private placement bonds due
June 2011, interest at 1.55% payable semi-annually |
|
$ |
3,170 |
|
$ |
3,246 |
| Convertible notes due February 2012, interest at 2.5% payable
semi-annually |
|
|
118,987 |
|
|
117,985 |
| Total long-term debt |
|
$ |
122,157 |
|
$ |
121,231 |
| |
|
|
|
|
|
|
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 |
| (In thousands) |
|
April 3, |
|
April 4, |
|
|
|
2010 |
|
2009 |
| Net income (loss) |
|
$ |
5,054 |
|
$ |
(4,818 |
) |
| Shares: |
|
|
|
|
|
|
|
|
Weighted average shares outstanding - basic |
|
|
36,372 |
|
|
36,066 |
|
| Dilutive potential common
shares, using treasury stock method |
|
|
889 |
|
|
- |
|
|
Weighted average shares outstanding - diluted |
|
|
37,261 |
|
|
36,066 |
|
| |
| Net income (loss) per share: |
|
|
|
|
|
|
|
| Basic |
|
$ |
0.14 |
|
$ |
(0.13 |
) |
|
Diluted |
|
$ |
0.14 |
|
$ |
(0.13 |
) |
| |
|
|
|
|
|
|
|
For the three months
ended April 3, 2010 and April 4, 2009, 2.1 million and 2.6 million stock
options, respectively, 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 months ended April 3, 2010 and
April 4, 2009, 1.3 million and 4.1 million performance-based awards,
respectively, 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.
NOTE 11 INCOME TAXES
The Company has
maintained 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.
13
NEWPORT CORPORATION
Notes to Consolidated
Financial Statements
April 3, 2010
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 April 3, 2010, the Company’s
valuation allowance was $61.3 million.
NOTE 12 COMPREHENSIVE INCOME (LOSS)
The components of
comprehensive income (loss), net of related tax, were as follows:
|
|
|
Three Months Ended |
| (In thousands) |
|
April 3, |
|
April 4, |
|
|
|
2010 |
|
2009 |
| Net income (loss) |
|
$ |
5,054 |
|
|
$ |
(4,818 |
) |
| Foreign
currency translation losses |
|
|
(4,628 |
) |
|
|
(2,348 |
) |
| Unrecognized net pension gains
(losses) |
|
|
35 |
|
|
|
(8 |
) |
| Unrealized gains (losses) on marketable securities |
|
|
(98 |
) |
|
|
707 |
|
|
|
|
$ |
363 |
|
|
$ |
(6,467 |
) |
| |
|
|
|
|
|
|
|
|
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 quarter of 2010. As
of April 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.
14
NEWPORT CORPORATION
Notes to Consolidated
Financial Statements
April 3, 2010
Net periodic benefit
costs for the plans in aggregate included the following components:
|
|
|
Three Months Ended |
| (In thousands) |
|
April 3, |
|
April 4, |
|
|
|
2010 |
|
2009 |
| Service cost |
|
$ |
157 |
|
|
$ |
145 |
|
| Interest cost on benefit obligations |
|
|
180 |
|
|
|
149 |
|
| Expected return on plan assets |
|
|
(39 |
) |
|
|
(29 |
) |
| Amortization of actuarial net gain (loss) |
|
|
2 |
|
|
|
(7 |
) |
|
|
|
$ |
300 |
|
|
$ |
258 |
|
| |
|
|
|
|
|
|
|
|
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 April 3,
2010: |
|
|
|
|
|
|
|
|
|
|
| Sales
to external customers |
|
$ |
63,170 |
|
$ |
43,980 |
|
|
$ |
107,150 |
| Segment income |
|
$ |
10,651 |
|
$ |
2,020 |
|
|
$ |
12,671 |
| |
| Three months ended April 4,
2009: |
|
|
|
|
|
|
|
|
|
|
| Sales
to external customers |
|
$ |
52,311 |
|
$ |
37,225 |
|
|
$ |
89,536 |
| Segment income (loss) |
|
$ |
6,977 |
|
$ |
(1,462 |
) |
|
$ |
5,515 |
The following
table reconciles segment income to consolidated income (loss) before income
taxes:
|
|
|
Three Months Ended |
| (In thousands) |
|
April 3, |
|
April 4, |
|
|
|
2010 |
|
2009 |
| Segment
income |
|
$ |
12,671 |
|
|
$ |
5,515 |
|
| Unallocated operating expenses |
|
|
(5,202 |
) |
|
|
(8,050 |
) |
| Interest and other expense, net |
|
|
(1,837 |
) |
|
|
(2,119 |
) |
|
|
|
$ |
5,632 |
|
|
$ |
(4,654 |
) |
| |
|
|
|
|
|
|
|
|
15
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.
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.
16
Stock-Based Compensation
During the three
months ended April 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 |
| (In thousands) |
|
April 3, |
|
April 4, |
|
|
|
2010 |
|
2009 |
| Cost of sales |
|
$ |
37 |
|
$ |
26 |
| Selling, general and administrative expenses |
|
|
521 |
|
|
378 |
| Research and development
expense |
|
|
95 |
|
|
45 |
|
|
|
$ |
653 |
|
$ |
449 |
| |
|
|
|
|
|
|
Results of Operations for the Three Months
Ended April 3, 2010 and April 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 |
|
|
|
April 3, |
|
April 4, |
|
|
|
|
2010 |
|
2009 |
|
| Net sales |
|
100.0 |
|
% |
100.0 |
|
% |
| Cost of
sales |
|
59.8 |
|
|
61.7 |
|
|
| Gross profit |
|
40.2 |
|
|
38.3 |
|
|
| |
| Selling, general and administrative
expenses |
|
24.4 |
|
|
30.7 |
|
|
| Research and development expense |
|
8.8 |
|
|
10.4 |
|
|
| Operating income (loss) |
|
7.0 |
|
|
(2.8 |
) |
|
| |
| Interest and other expense,
net |
|
(1.7 |
) |
|
(2.4 |
) |
|
| Income
(loss) before income taxes |
|
5.3 |
|
|
(5.2 |
) |
|
| |
| Income tax provision |
|
0.6 |
|
|
0.2 |
|
|
| Net
income (loss) |
|
4.7 |
|
% |
(5.4 |
) |
% |
| |
|
|
|
|
|
|
|
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 April 3, 2010 increased by $17.6 million, or 19.7%, compared
with the corresponding period in 2009. For the three months ended April 3, 2010,
net sales by our Lasers Division increased $6.7 million, or 18.1%, and net sales
by our PPT Division increased $10.9 million, or 20.8%, compared with the prior
year period. We experienced increases in net sales during the first quarter of
2010 compared with the first quarter of 2009 in all of our end markets, except
for our life and health sciences market. These increases resulted primarily from
improved worldwide macroeconomic conditions across our end markets, particularly
a rebound 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.
These increases were offset in part by sales from our diode laser operations
during the first quarter of 2009 that did not recur in the current year period,
as we divested these operations at the end of the second quarter of 2009. Such
sales were primarily associated with customers in our life and health sciences
market.
17
Net sales to the
scientific research, aerospace and defense/security markets for the three months
ended April 3, 2010 increased $3.6 million, or 9.9%, compared with the same
period in 2009. The increase in sales to these markets during the three months
ended April 3, 2010 compared with the same period in 2009 was due primarily to
the addition of the New Focus business, and an improvement in 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 April 3, 2010 increased $9.5
million, or 51.2%, compared with the same period in 2009. This increase was due
primarily to a significant increase in sales to customers in the semiconductor
equipment industry as a result of a rebound in that industry, which has
historically been very cyclical, and to the addition of the New Focus business.
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 months ended April 3, 2010 decreased
$0.1 million, or 0.4%, compared with the same period in 2009. The decrease in
sales to this market for the three months ended April 3, 2010 compared with the same period in 2009
was due primarily to sales of products from our diode laser operations in the
2009 period that did not recur in the 2010 period, as we divested these
operations at the end of the second quarter of 2009, offset in part by
higher sales of products for bioimaging applications.
Net sales to our
industrial manufacturing and other end markets for the three months ended April
3, 2010 increased $4.5 million, or 34.4%, compared with the same period in 2009.
The increase in sales to this market during the three months ended April 3, 2010
compared with the same period in 2009 was due primarily to improved
macroeconomic conditions.
Geographically, net
sales were as follows:
|
|
|
Three Months Ended |
|
|
|
|
|
Percentage |
|
| (In thousands) |
|
April 3, |
|
April 4, |
|
Increase |
|
Increase |
|
|
|
|
2010 |
|
2009 |
|
(Decrease) |
|
(Decrease) |
|
| United States |
|
$ |
46,471 |
|
$ |
36,990 |
|
$ |
9,481 |
|
|
25.6 |
|
% |
| Europe |
|
|
24,055 |
|
|
23,433 |
|
|
622 |
|
|
2.7 |
|
|
| Pacific Rim |
|
|
31,615 |
|
|
23,035 |
|
|
8,580 |
|
|
37.2 |
|
|
| Other |
|
|
5,009 |
|
|
6,078 |
|
|
(1,069 |
) |
|
(17.6 |
) |
|
|
|
|
$ |
107,150 |
|
$ |
89,536 |
|
$ |
17,614 |
|
|
19.7 |
|
% |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The increase in sales
to customers in the United States, Europe and Pacific Rim during the three
months ended April 3, 2010 compared with the corresponding period in 2009 was
due primarily to the recovery in the semiconductor equipment industry as well as
the improved overall macroeconomic conditions. The decrease in sales to
customers in the other areas of the world was due primarily to lower sales to
customers in Canada, primarily in our research and life and health sciences end
markets.
Gross Margin
Gross margin was
40.2% and 38.3% for the three months ended April 3, 2010 and April 4, 2009,
respectively. The increase in gross margin in the current year period was 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, improved absorption of
manufacturing overhead resulting from our higher sales level and the positive
impact of our cost reduction initiatives. These increases were offset in part by
a higher proportion of sales of lower margin products by our Lasers Division
during the first quarter of 2010 compared with the prior year period and the
negative impact of the strengthening U.S. dollar versus the euro.
18
Selling, General and Administrative (SG&A) Expenses
SG&A expenses
totaled $26.1 million, or 24.4% of net sales, and $27.5 million, or 30.7% of net
sales, for the three months ended April 3, 2010 and April 4, 2009, respectively.
The decrease in SG&A expenses in the current year period was due primarily
to decreased rent and utilities expenses and salary costs, offset in part by
increased incentive compensation costs and commissions.
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 $9.5 million, or 8.8% of net sales, and $9.4 million, or 10.4% of net
sales, for the three months ended April 3, 2010 and April 4, 2009, respectively.
The increase in R&D expense in absolute dollars in the current year period
was 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,
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, as well as other
headcount reductions.
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.
Interest and Other Expense, Net
Interest and other
expense, net totaled $1.8 million and $2.1 million for the three months ended
April 3, 2010 and April 4, 2009, respectively. The decrease in interest and
other expense, net in the current year period compared with the 2009 period
resulted primarily from a decrease in interest expense due to the extinguishment
of $20.2 million of our convertible subordinated notes in the fourth quarter of
2009 and to foreign currency gains, offset in part by a decrease in interest
income earned due to lower interest rates during the current year period.
Income Taxes
Our effective tax
rate for the three months ended April 3, 2010 and April 4, 2009 was 10.3% and
(3.5)%, 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.
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.
19
As of April 3,
2010, our valuation allowance was $61.3 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 decreased to a total of $138.5
million as of April 3, 2010 from $141.9 million as of January 2, 2010. This
decrease was attributable primarily to 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, offset in part by cash
generated from our operations.
Net cash provided by
our operating activities of $6.0 million for the three months ended April 3,
2010 was attributable primarily to cash provided by our operations and $3.4
million related to the timing of trade payables, offset in part by a decrease of
$5.0 million in accrued payroll and related expenses due to the payment of
incentive compensation, an increase of $2.2 million in accounts receivable due
to increased balances in Japan and an increase in gross inventory of $1.4
million. During the first quarter of 2010, while we used cash for gross
inventory purchases, our net inventory actually decreased by $1.5 million
primarily as a result of $1.2 million in charges related to excess and obsolete
inventory, a $1.2 million impact from foreign currency translation, and $0.5
million in amortization of demonstration equipment.
Net cash used in
investing activities of $2.5 million for the three months ended April 3, 2010
was attributable to purchases of property and equipment of $3.5 million, offset
in part by net sales of marketable securities of $1.0 million.
Net cash used in
financing activities of $3.3 million for the three months ended April 3, 2010
was attributable primarily to the net repayment of short-term borrowings of $2.1
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.
During June 2008, we
issued 300 million yen ($3.2 million at April 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 long-term debt in
the accompanying consolidated balance sheets.
At April 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.
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) (0.25% at April 3, 2010)
plus 1.00% or the British Bankers Association LIBOR Daily Floating Rate (0.22%
at April 3, 2010) plus 1.00%, at our option, and carries an unused line fee of
0.25% per year. At April 3, 2010, there were no balances outstanding under this
line of credit, with $1.7 million available, after considering outstanding
letters of credit totaling $1.3 million.
Our two revolving
lines of credit with Japanese banks totaled 1.1 billion yen ($11.6 million at
April 3, 2010) and expire on May 31, 2010. The $8.4 million line of credit bears
interest at the prevailing bank rate and the $3.2 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 $3.2 million line of
credit. At April 3, 2010, we had $7.3 million outstanding and $4.3 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 ($5.8 million at April 3, 2010), have no expiration
dates and bear interest at the bank’s prevailing rate. At April 3, 2010, we had
$1.5 million outstanding and $4.3 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 April 3, 2010, the weighted-average
effective interest rate on all of our Japanese borrowings, including the private
placement bonds, was 2.5%.
20
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 2010. As of April 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, if at
all. In the current uncertain global macroeconomic climate, we believe it may be
difficult to obtain additional financing if needed. Even if we are able to
obtain additional financing, it may contain undue restrictions on our
operations, in the case of debt financing, or cause substantial 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.
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.
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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 our current 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 months ended April
3, 2010. There were no forward exchange contracts outstanding at April 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 10% change in foreign exchange rates would not have had a material effect
on our reported net income for the three months ended April 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 $3.2 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 $138.5 million at April 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
$8.7 million at April 3, 2010, are sensitive to interest rates and economic
conditions in Europe. We estimate that a 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
months ended April 3, 2010.
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 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. |
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| (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. |
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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: May 13,
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)
|
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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. |
25