e10vq
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 28, 2008
OR
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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)
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Nevada
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94-0849175 |
(State or other jurisdiction of
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(IRS Employer Identification No.) |
incorporation or organization) |
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1791 Deere Avenue, Irvine, California 92606
(Address of principal executive offices) (Zip Code)
(949) 863-3144
(Registrants 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 þ 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 the definitions of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):
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Large accelerated filer
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Accelerated filer
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Non-accelerated filer o
(Do not check if a smaller reporting company) |
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Smaller reporting company
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act). Yes o No þ
As of July 26, 2008, 36,097,021 shares of the registrants sole class of common stock were
outstanding.
NEWPORT CORPORATION
FORM 10-Q
INDEX
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Page |
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Number |
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3 |
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4 |
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5 |
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6 |
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15 |
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23 |
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24 |
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25 |
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25 |
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26 |
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27 |
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2
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
NEWPORT CORPORATION
Consolidated Statements of Operations
(In thousands, except per share data)
(Unaudited)
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Three Months Ended |
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Six Months Ended |
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June 28, |
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June 30, |
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June 28, |
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June 30, |
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2008 |
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2007 |
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2008 |
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2007 |
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Net sales |
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$ |
117,664 |
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$ |
110,904 |
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$ |
232,907 |
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$ |
218,168 |
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Cost of sales |
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70,367 |
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61,843 |
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139,499 |
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122,476 |
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Gross profit |
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47,297 |
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49,061 |
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93,408 |
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95,692 |
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Selling, general and administrative expenses |
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30,092 |
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28,792 |
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59,883 |
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58,806 |
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Research and development expense |
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12,341 |
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10,874 |
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23,785 |
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21,477 |
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Operating income |
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4,864 |
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9,395 |
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9,740 |
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15,409 |
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Write-down of note receivable and other amounts
related to previously discontinued operations |
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(7,060 |
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(7,060 |
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Interest and other income (expense), net |
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(206 |
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16 |
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(689 |
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217 |
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Income (loss) before income taxes |
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(2,402 |
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9,411 |
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1,991 |
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15,626 |
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Income tax provision |
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390 |
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1,448 |
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1,058 |
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2,412 |
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Net income (loss) |
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$ |
(2,792 |
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$ |
7,963 |
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$ |
933 |
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$ |
13,214 |
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Net income (loss) per share: |
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Basic |
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$ |
(0.08 |
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$ |
0.20 |
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$ |
0.03 |
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$ |
0.33 |
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Diluted |
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(0.08 |
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$ |
0.20 |
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$ |
0.03 |
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$ |
0.33 |
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Shares used in per share calculations: |
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Basic |
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36,009 |
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38,955 |
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36,273 |
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39,629 |
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Diluted |
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36,009 |
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39,554 |
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36,385 |
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40,491 |
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See
accompanying notes.
3
NEWPORT CORPORATION
Consolidated Balance Sheets
(In thousands, except share and per share data)
(Unaudited)
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June 28, |
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December 29, |
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2008 |
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2007 |
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
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$ |
65,142 |
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$ |
88,737 |
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Marketable securities |
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75,982 |
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55,127 |
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Accounts receivable, net of allowance for doubtful accounts of $1,705 and
$1,381 as of June 28, 2008 and December 29, 2007, respectively |
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90,095 |
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87,606 |
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Notes receivable, net |
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3,923 |
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3,821 |
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Inventories |
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112,820 |
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113,969 |
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Deferred income taxes |
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6,366 |
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6,248 |
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Prepaid expenses and other current assets |
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14,227 |
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13,603 |
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Total current assets |
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368,555 |
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369,111 |
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Property and equipment, net |
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65,266 |
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61,872 |
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Goodwill |
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174,197 |
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174,197 |
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Deferred income taxes |
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16,975 |
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16,932 |
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Intangible assets, net |
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44,131 |
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46,171 |
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Investments and other assets |
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16,362 |
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21,664 |
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$ |
685,486 |
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$ |
689,947 |
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LIABILITIES AND STOCKHOLDERS EQUITY |
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Current liabilities: |
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Short-term obligations |
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$ |
15,192 |
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$ |
12,402 |
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Accounts payable |
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25,074 |
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33,319 |
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Accrued payroll and related expenses |
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22,520 |
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23,096 |
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Accrued expenses and other current liabilities |
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27,690 |
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24,598 |
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Total current liabilities |
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90,476 |
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93,415 |
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Long-term debt |
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175,000 |
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175,000 |
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Obligations under capital leases, less current portion |
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1,432 |
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1,381 |
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Accrued pension liabilities |
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11,510 |
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10,740 |
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Other liabilities |
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4,908 |
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4,966 |
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Commitments and contingencies |
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Stockholders equity: |
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Common stock, par value $0.1167 per share, 200,000,000 shares authorized;
36,059,190 and 36,917,734 shares issued and outstanding as of
June 28, 2008 and December 29, 2007, respectively |
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4,208 |
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4,308 |
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Capital in excess of par value |
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380,775 |
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389,328 |
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Accumulated other comprehensive income |
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15,678 |
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10,243 |
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Retained earnings |
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1,499 |
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566 |
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Total stockholders equity |
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402,160 |
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404,445 |
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$ |
685,486 |
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$ |
689,947 |
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See
accompanying notes.
4
NEWPORT CORPORATION
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
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Six Months Ended |
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June 28, |
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June 30, |
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2008 |
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2007 |
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CASH FLOWS FROM OPERATING ACTIVITIES: |
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Net income |
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$ |
933 |
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$ |
13,214 |
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Adjustments to reconcile net income to net cash provided by operating activities
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Depreciation and amortization |
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10,572 |
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10,283 |
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Stock-based compensation expense |
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1,604 |
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3,492 |
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Write-down of note receivable and other amounts
related to previously discontinued operations |
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7,060 |
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Provision for losses on inventories |
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2,447 |
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679 |
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Provision for doubtful accounts, net |
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104 |
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40 |
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Loss on disposal of property and equipment |
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48 |
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69 |
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Deferred income taxes, net |
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24 |
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Increase (decrease) in cash due to changes in: |
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Accounts and notes receivable |
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(742 |
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6,937 |
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Inventories |
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148 |
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(15,832 |
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Prepaid expenses and other assets |
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(1,880 |
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1,621 |
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Accounts payable |
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(8,794 |
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(4,755 |
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Accrued payroll and related expenses |
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(1,032 |
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(6,577 |
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Accrued expenses and other liabilities |
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2,408 |
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(412 |
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Accrued restructuring costs and purchase accounting reserves |
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(133 |
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(470 |
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Net cash provided by operating activities |
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12,767 |
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8,289 |
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CASH FLOWS FROM INVESTING ACTIVITIES: |
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Purchase of property and equipment |
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(9,890 |
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(7,760 |
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Purchase of marketable securities |
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(37,953 |
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(33,369 |
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Proceeds from the sale of marketable securities |
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18,292 |
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29,048 |
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Net cash used in investing activities |
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(29,551 |
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(12,081 |
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CASH FLOWS FROM FINANCING ACTIVITIES: |
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Proceeds from the issuance of convertible debt |
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175,000 |
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Debt issuance costs |
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(5,559 |
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Repayment of long-term debt and obligations under capital leases |
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(83 |
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(48,247 |
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Short-term borrowings, net of repayments |
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2,008 |
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1,018 |
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Proceeds from the issuance of common stock under employee plans |
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1,193 |
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2,371 |
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Purchases of the Companys common stock and restricted stock units |
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(11,450 |
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(62,405 |
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Net cash provided by (used in) financing activities |
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(8,332 |
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62,178 |
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Impact of foreign exchange rate changes on cash balances |
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1,521 |
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358 |
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Net increase (decrease) in cash and cash equivalents |
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(23,595 |
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58,744 |
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Cash and cash equivalents at beginning of period |
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88,737 |
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35,930 |
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Cash and cash equivalents at end of period |
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$ |
65,142 |
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$ |
94,674 |
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Supplemental disclosures of cash flow information: |
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Cash paid during the period for: |
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Interest |
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$ |
2,446 |
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$ |
1,020 |
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Income taxes, net |
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$ |
667 |
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$ |
663 |
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See
accompanying notes.
5
NEWPORT CORPORATION
Notes to Consolidated Financial Statements
June 28, 2008
NOTE 1 BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries. In the opinion of management, all adjustments (consisting of
normal and recurring accruals) considered necessary for a fair presentation have been included.
All significant 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 Companys Annual Report on Form 10-K for the year ended December 29, 2007.
The results for the interim periods are not necessarily indicative of the results the Company will
have for the full year ending January 3, 2009. The December 29, 2007 balances reported herein are
derived from the audited consolidated financial statements included in the Companys Annual Report
on Form 10-K for the year ended December 29, 2007.
Certain prior period amounts have been reclassified to conform to the current period presentation.
NOTE 2 RECENT ACCOUNTING PRONOUNCEMENTS
In December 2007, the Financial Accounting Standards Board (FASB) issued Statement of Financial
Accounting Standards (SFAS) No. 160, Noncontrolling Interests in Consolidated Financial
Statementsan amendment of ARB No. 51. SFAS No. 160 establishes accounting and reporting standards
for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. It
clarifies that a noncontrolling interest in a subsidiary is an ownership interest in the entity
that should be reported as equity in the consolidated financial statements. SFAS No. 160 will be
effective for fiscal years beginning after December 15, 2008, and interim periods within those
fiscal years. The Company is currently evaluating the expected impact of the provisions of SFAS
No. 160, but does not believe that the adoption of SFAS No. 160 will have a material impact on its
financial position or results of operations.
In December 2007, the FASB issued SFAS No. 141 (Revised 2007), Business Combinations (SFAS No.
141R). SFAS No. 141R establishes principles and requirements for the manner in which the acquirer
of a business recognizes and measures in its financial statements the identifiable assets acquired,
the liabilities assumed, and any noncontrolling interest in the acquiree. SFAS No. 141R also
provides guidance for recognizing and measuring the goodwill acquired in the business combination
and disclosure requirements to enable users of the financial statements to evaluate the nature and
financial effects of the business combination. SFAS 141R applies to business combinations that are
consummated on or after the beginning of the first annual reporting period beginning on or after
December 15, 2008. The adoption of SFAS No. 141R will not have an impact on the Companys
financial position or results of operations other than in accounting for any business combination
that may occur after the effective date.
In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging
Activities. SFAS No. 161 requires enhanced disclosures by requiring qualitative disclosures about
objectives and strategies for using derivatives, quantitative disclosures about fair value amounts
of and gains and losses on derivative instruments, and disclosures about credit-risk-related
contingent features in derivative agreements. SFAS No. 161 is effective for financial statements
issued for fiscal years and interim periods beginning after November 15, 2008 and early adoption is
encouraged. The Company is currently evaluating the expected impact of the provisions of SFAS
No. 161, but does not believe that the adoption of SFAS No. 161 will have a material impact on its
financial position or results of operations.
In April 2008, the FASB issued FASB Staff Position (FSP) FAS 142-3, Determination of the Useful
Life of Intangible Assets (FSP FAS 142-3). FSP FAS 142-3 amends the factors that should be
considered in developing renewal or extension assumptions used to determine the useful life of a
recognized intangible asset under SFAS No. 142, Goodwill and Other Intangible Assets. Under FSP
FAS 142-3, companies are required to consider their own historical experience in renewing or
extending similar arrangements and in the absence of historical experience, companies are required
to consider the assumptions that market participants would use regarding renewal or extension,
adjusted for company-specific factors. FSP FAS 142-3 will be effective for fiscal years beginning
after
6
NEWPORT CORPORATION
Notes to Consolidated Financial Statements
June 28, 2008
December 15, 2008, and interim periods within those fiscal years. FSP FAS 142-3 must be applied
prospectively to intangible assets acquired after the effective date and early adoption is
prohibited. The adoption of FSP FAS 142-3 will not have an impact on the Companys financial
position or results of operations other than in accounting for the acquisition of intangible assets
that may occur after the effective date.
In May 2008, the FASB issued SFAS No. 162, The Hierarchy of Generally Accepted Accounting
Principles. SFAS No. 162 identifies the sources of accounting principles and the framework for
selecting the principles used in the preparation of financial statements of nongovernmental
entities that are presented in conformity with generally accepted accounting principles in the
United States. SFAS No. 162 is effective 60 days following the Securities and Exchange
Commissions approval of the Public Company Accounting Oversight Board amendments to AU Section
411, The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles.
The adoption of SFAS No. 162 will not have a material impact on the Companys financial position or
results of operations.
In May 2008, the FASB issued FSP APB 14-1, Accounting for Convertible Debt Instruments That May Be
Settled in Cash upon Conversion (Including Partial Cash Settlement). FSP APB 14-1 requires the
liability and equity components of convertible debt instruments to be separately accounted for in a
manner that reflects the non-convertible debt borrowing rate for interest expense recognition. In
addition, direct issuance costs associated with the convertible debt instruments are required to be
allocated to the liability and equity components in proportion to the allocation of proceeds and
accounted for as debt issuance costs and equity issuance costs, respectively. FSP APB 14-1 will be
effective for fiscal years beginning after December 15, 2008, and interim periods within those
fiscal years. FSP APB 14-1 must be applied retrospectively and early adoption is prohibited. The
Company is currently evaluating the expected impact of the provisions of FSP APB 14-1 and believes
that the adoption of FSP APB 14-1 will result in a reduction in the carrying value of its
convertible subordinated notes, an increase to capital in excess of par value, a cumulative effect
adjustment reducing retained earnings and an increase to interest expense. However, the Company
has not yet determined the amounts of such adjustments.
NOTE 3 FAIR VALUE MEASUREMENTS
During the first quarter of 2008, the Company adopted SFAS No. 157, which requires that, for any
assets and liabilities stated at fair value in the Companys 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. The Companys 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 |
|
June 28, 2008 |
|
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketable securities |
|
$ |
75,982 |
|
|
$ |
75,982 |
|
|
$ |
|
|
|
$ |
|
|
Pension assets not owned by plan |
|
|
7,358 |
|
|
|
7,358 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
83,340 |
|
|
$ |
83,340 |
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7
NEWPORT CORPORATION
Notes to Consolidated Financial Statements
June 28, 2008
NOTE 4 SUPPLEMENTAL BALANCE SHEET INFORMATION
Inventories
Inventories were as follows:
|
|
|
|
|
|
|
|
|
|
|
June 28, |
|
|
December 29, |
|
(In thousands) |
|
2008 |
|
|
2007 |
|
Raw materials and purchased parts |
|
$ |
87,717 |
|
|
$ |
83,954 |
|
Work in process |
|
|
14,829 |
|
|
|
15,239 |
|
Finished goods |
|
|
32,742 |
|
|
|
37,920 |
|
|
|
|
|
|
|
|
|
|
|
135,288 |
|
|
|
137,113 |
|
Allowance for excess and obsolete inventory |
|
|
(22,468 |
) |
|
|
(23,144 |
) |
|
|
|
|
|
|
|
|
|
$ |
112,820 |
|
|
$ |
113,969 |
|
|
|
|
|
|
|
|
Accrued Warranty Obligations
Unless otherwise stated in the Companys product literature or in its agreements with customers,
products sold by the Companys Photonics and Precision Technologies (PPT) Division generally carry
a one-year warranty from the original invoice date on all product materials and workmanship.
Products of this division sold to original equipment manufacturer (OEM) customers generally carry
longer warranties, typically 15 to 24 months. Products sold by the Companys Lasers Division
typically 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 calendar period or a maximum amount of usage of the product, whichever
occurs first. Defective products will be either repaired or replaced, generally at the Companys
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.
The activity in accrued warranty obligations was as follows:
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
|
June 28, |
|
|
June 30, |
|
(In thousands) |
|
2008 |
|
|
2007 |
|
Balance at beginning of year |
|
$ |
5,847 |
|
|
$ |
5,159 |
|
Additions charged to cost of sales |
|
|
3,732 |
|
|
|
4,300 |
|
Warranty claims |
|
|
(2,810 |
) |
|
|
(4,413 |
) |
|
|
|
|
|
|
|
Balance at end of period |
|
$ |
6,769 |
|
|
$ |
5,046 |
|
|
|
|
|
|
|
|
Such amounts are included in accrued expenses and other current liabilities in the accompanying
consolidated balance sheets.
8
NEWPORT CORPORATION
Notes to Consolidated Financial Statements
June 28, 2008
Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities were as follows:
|
|
|
|
|
|
|
|
|
|
|
June 28, |
|
|
December 29, |
|
(In thousands) |
|
2008 |
|
|
2007 |
|
Deferred revenue |
|
$ |
9,634 |
|
|
$ |
7,396 |
|
Accrued warranty obligations |
|
|
6,769 |
|
|
|
5,847 |
|
Accrued sales tax |
|
|
305 |
|
|
|
2,031 |
|
Other |
|
|
10,982 |
|
|
|
9,324 |
|
|
|
|
|
|
|
|
|
|
$ |
27,690 |
|
|
$ |
24,598 |
|
|
|
|
|
|
|
|
Accumulated Other Comprehensive Income
Accumulated other comprehensive income consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
June 28, |
|
|
December 29, |
|
(In thousands) |
|
2008 |
|
|
2007 |
|
Cumulative foreign currency translation gains |
|
$ |
15,688 |
|
|
$ |
10,135 |
|
Unrecognized net pension gains |
|
|
75 |
|
|
|
52 |
|
Unrealized gains (losses) on marketable securities |
|
|
(85 |
) |
|
|
56 |
|
|
|
|
|
|
|
|
|
|
$ |
15,678 |
|
|
$ |
10,243 |
|
|
|
|
|
|
|
|
NOTE 5 INTEREST AND OTHER INCOME (EXPENSE), NET
Interest and other income (expense), net, was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
June 28, |
|
|
June 30, |
|
|
June 28, |
|
|
June 30, |
|
(In thousands) |
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
Interest and dividend income |
|
$ |
983 |
|
|
$ |
1,907 |
|
|
$ |
2,064 |
|
|
$ |
3,482 |
|
Interest expense |
|
|
(1,493 |
) |
|
|
(1,470 |
) |
|
|
(2,980 |
) |
|
|
(2,504 |
) |
Bank and portfolio asset management fees |
|
|
(150 |
) |
|
|
(205 |
) |
|
|
(291 |
) |
|
|
(365 |
) |
Other, net |
|
|
454 |
|
|
|
(216 |
) |
|
|
518 |
|
|
|
(396 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(206 |
) |
|
$ |
16 |
|
|
$ |
(689 |
) |
|
$ |
217 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9
NEWPORT CORPORATION
Notes to Consolidated Financial Statements
June 28, 2008
NOTE 6 STOCK-BASED COMPENSATION
During the three and six months ended June 28, 2008, the Company granted 19,425 and 1.4 million
restricted stock units with a weighted average grant date fair value of $12.87 and $9.87,
respectively.
The total stock-based compensation expense included in the Companys consolidated statements of
operations was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
June 28, |
|
|
June 30, |
|
|
June 28, |
|
|
June 30, |
|
(In thousands) |
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
Cost of sales |
|
$ |
117 |
|
|
$ |
12 |
|
|
$ |
162 |
|
|
$ |
244 |
|
Selling, general and administrative expenses |
|
|
588 |
|
|
|
628 |
|
|
|
1,238 |
|
|
|
2,925 |
|
Research and development expense |
|
|
142 |
|
|
|
10 |
|
|
|
204 |
|
|
|
323 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
847 |
|
|
$ |
650 |
|
|
$ |
1,604 |
|
|
$ |
3,492 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation expense associated with personnel engaged in manufacturing is capitalized
and reflected in inventories, when applicable. At June 28, 2008 and June 30, 2007, such amounts
were not material.
NOTE 7 DEBT AND LINES OF CREDIT
At June 28, 2008 and December 29, 2007, the Company had $175.0 million in convertible subordinated
notes outstanding. The notes are subordinated to all of the Companys 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. The notes are included in
long-term debt. The offering fees and expenses of $4.0 million, net of accumulated amortization of
$1.6 million, are included in other long-term assets in investments and other assets, and are being
amortized through February 15, 2012 using the effective interest method.
At June 28, 2008 and December 29, 2007, the Company had a total of four lines of credit, including
one domestic revolving line of credit and three revolving lines of credit with two Japanese banks.
Additionally, the Company has agreements with two Japanese banks under which it sells trade notes
receivable with recourse.
The Companys domestic revolving line of credit has a total credit limit of $5.0 million and
expires December 1, 2008. Certain cash equivalents held at this lending institution collateralize
this line of credit, which bears interest at either the prevailing prime rate (5.00% at June 28,
2008), or the prevailing London Interbank Offered Rate (2.47% at June 28, 2008) plus 1.25%, at the
Companys option, and carries an unused line fee of 0.25% per year. At June 28, 2008, there were
no balances outstanding under this line of credit, with $4.0 million available, after considering
outstanding letters of credit totaling $1.0 million.
The three revolving lines of credit with Japanese banks totaled 1.7 billion yen ($15.8 million at
June 28, 2008) and expire as follows: $2.8 million on June 30, 2008 (which the Company did not
subsequently renew), $5.6 million on September 30, 2008 and $7.4 million on November 30, 2008.
These lines are not secured and bear interest at the prevailing bank rate. At June 28, 2008, the
Company had $12.5 million outstanding (of which $2.8 million was repaid on June 30, 2008) and $3.3
million available for borrowing under these lines of credit. Amounts outstanding are included in
short-term obligations 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 ($5.1 million at
June 28, 2008), have no expiration dates and bear interest at the prevailing bank rate. At June
28, 2008, the Company had $2.7 million outstanding and $2.4 million available for the sale of notes
receivable under these agreements. Amounts outstanding under these agreements are included in
short-term obligations in the accompanying consolidated balance sheets, as the sale of these
receivables has not met the criteria for sale treatment in accordance with SFAS No. 140, Accounting
for Transfers and Servicing of Financial Assets and Extinguishments of Liabilitiesa replacement of
FASB Statement No. 125. The weighted average interest rate on all of the Companys Japanese
borrowings as of June 28, 2008 was 1.8%.
10
NEWPORT CORPORATION
Notes to Consolidated Financial Statements
June 28, 2008
In lieu of renewing the line of credit that expired on June 30, 2008, the Company issued 300
million yen ($2.8 million at June 30, 2008) in private placement bonds on June 30, 2008 through a
Japanese bank and used the proceeds from such issuance to pay the amounts outstanding under such
line of credit. 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.
NOTE 8 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 |
|
|
|
June 28, |
|
|
June 30, |
|
|
June 28, |
|
|
June 30, |
|
(In thousands) |
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
Net income (loss) |
|
$ |
(2,792 |
) |
|
$ |
7,963 |
|
|
$ |
933 |
|
|
$ |
13,214 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding basic |
|
|
36,009 |
|
|
|
38,955 |
|
|
|
36,273 |
|
|
|
39,629 |
|
Dilutive potential common shares, using treasury
stock method |
|
|
|
|
|
|
599 |
|
|
|
112 |
|
|
|
862 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding diluted |
|
|
36,009 |
|
|
|
39,554 |
|
|
|
36,385 |
|
|
|
40,491 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
(0.08 |
) |
|
$ |
0.20 |
|
|
$ |
0.03 |
|
|
$ |
0.33 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
$ |
(0.08 |
) |
|
$ |
0.20 |
|
|
$ |
0.03 |
|
|
$ |
0.33 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended June 28, 2008, 36,009,215 shares have been used to calculate both basic
and diluted shares outstanding, as including dilutive potential common shares in the calculation
would have had an antidilutive effect due to the Company incurring a loss. For the six months
ended June 28, 2008, 2,083,280 stock options with a weighted average exercise price of $23.92 were
excluded from the computation of diluted net income per share, as their inclusion would be
antidilutive and for the three and six months ended June 30, 2007, 858,190 and 540,890 stock
options with a weighted average exercise price of $43.44 and $59.03, respectively, were excluded
from the computations of diluted net income per share, as their inclusion would be antidilutive.
In addition, for the six months ended June 28, 2008, 2,162,954 performance-based restricted stock
units, and for both the three and six months ended June 30, 2007, 1,230,340 performance-based
restricted stock units, were excluded from the computation of diluted net income per share, as the
performance criteria had not been met.
For the three and six months ended June 28, 2008 and June 30, 2007, the Companys convertible
subordinated notes had no impact on diluted net income (loss) per share as the average price of the
Companys common stock during those periods was below $24.05, and the convertible subordinated
notes, if converted, would require only cash settlement.
11
NEWPORT CORPORATION
Notes to Consolidated Financial Statements
June 28, 2008
NOTE 9 INCOME TAXES
The Company has maintained a valuation allowance against a portion of its gross deferred tax assets
pursuant to SFAS No. 109, Accounting for 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 certain required
state income taxes, taxes in certain foreign jurisdictions, 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 a portion of the gross deferred tax assets. In the event
it is determined that a valuation allowance is no longer required, the reversal will be recorded as
a discrete item in the appropriate period. As of June 28, 2008 the Company had a remaining
valuation allowance of $26.0 million.
NOTE 10 COMPREHENSIVE INCOME (LOSS)
The components of comprehensive income (loss), net of related tax, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
June 28, |
|
|
June 30, |
|
|
June 28, |
|
|
June 30, |
|
(In thousands) |
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
Net income (loss) |
|
$ |
(2,792 |
) |
|
$ |
7,963 |
|
|
$ |
933 |
|
|
$ |
13,214 |
|
Foreign currency translation gains (losses) |
|
|
(1,263 |
) |
|
|
1,012 |
|
|
|
5,553 |
|
|
|
1,900 |
|
Unrecognized net pension gains (losses) |
|
|
(4 |
) |
|
|
(23 |
) |
|
|
23 |
|
|
|
(29 |
) |
Unrealized gains (losses) on marketable
securities |
|
|
360 |
|
|
|
(59 |
) |
|
|
(141 |
) |
|
|
4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(3,699 |
) |
|
$ |
8,893 |
|
|
$ |
6,368 |
|
|
$ |
15,089 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE 11 STOCKHOLDERS EQUITY TRANSACTIONS
In 2006, the Board of Directors of the Company approved a share repurchase program, authorizing the
purchase of up to 4.2 million shares of its common stock. Under this program, the Company
repurchased 1.1 million shares for $11.4 million during the first quarter of 2008, which completed
its purchases under this program.
In May 2008, the Board of Directors of the Company approved a new share repurchase program,
authorizing the purchase of up to 4.0 million shares of the Companys 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
Companys share price, cash balances, expected cash requirements and general business and market
conditions. The Company has not repurchased any shares under this program.
NOTE 12 DEFINED BENEFIT PENSION PLANS
Several of the Companys 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
managements 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 Companys pension plans.
12
NEWPORT CORPORATION
Notes to Consolidated Financial Statements
June 28, 2008
Net periodic benefit costs for the plans in aggregate included the following components:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
June 28, |
|
|
June 30, |
|
|
June 28, |
|
|
June 30, |
|
(In thousands) |
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
Service cost |
|
$ |
149 |
|
|
$ |
159 |
|
|
$ |
295 |
|
|
$ |
316 |
|
Interest cost on benefit obligation |
|
|
178 |
|
|
|
162 |
|
|
|
351 |
|
|
|
321 |
|
Expected return on plan assets |
|
|
(41 |
) |
|
|
(46 |
) |
|
|
(83 |
) |
|
|
(92 |
) |
Net gain |
|
|
|
|
|
|
2 |
|
|
|
|
|
|
|
4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
286 |
|
|
$ |
277 |
|
|
$ |
563 |
|
|
$ |
549 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE 13 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 in deciding how to allocate resources and in assessing performance. The Company
develops, manufactures and markets its products within two distinct business segments, its Lasers
Division and its PPT Division.
The Company measured operating 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 corporate expenses, interest and other income (expense), net, and income taxes.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Photonics and |
|
|
|
|
|
|
|
|
Precision |
|
|
(In thousands) |
|
Lasers |
|
Technologies |
|
Total |
Three months ended June 28, 2008: |
|
|
|
|
|
|
|
|
|
|
|
|
Sales to external customers |
|
$ |
49,582 |
|
|
$ |
68,082 |
|
|
$ |
117,664 |
|
Segment income (loss) |
|
$ |
(658 |
) |
|
$ |
12,057 |
|
|
$ |
11,399 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30, 2007: |
|
|
|
|
|
|
|
|
|
|
|
|
Sales to external customers |
|
$ |
46,426 |
|
|
$ |
64,478 |
|
|
$ |
110,904 |
|
Segment income |
|
$ |
1,720 |
|
|
$ |
14,409 |
|
|
$ |
16,129 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 28, 2008: |
|
|
|
|
|
|
|
|
|
|
|
|
Sales to external customers |
|
$ |
97,365 |
|
|
$ |
135,542 |
|
|
$ |
232,907 |
|
Segment income (loss) |
|
$ |
(1,925 |
) |
|
$ |
24,432 |
|
|
$ |
22,507 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30, 2007: |
|
|
|
|
|
|
|
|
|
|
|
|
Sales to external customers |
|
$ |
88,755 |
|
|
$ |
129,413 |
|
|
$ |
218,168 |
|
Segment income |
|
$ |
1,288 |
|
|
$ |
28,363 |
|
|
$ |
29,651 |
|
13
NEWPORT CORPORATION
Notes to Consolidated Financial Statements
June 28, 2008
The following reconciles segment income to consolidated income (loss) before income taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
June 28, |
|
|
June 30, |
|
|
June 28, |
|
|
June 30, |
|
(In thousands) |
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
Segment income |
|
$ |
11,399 |
|
|
$ |
16,129 |
|
|
$ |
22,507 |
|
|
$ |
29,651 |
|
Unallocated operating expenses |
|
|
(6,535 |
) |
|
|
(6,734 |
) |
|
|
(12,767 |
) |
|
|
(14,242 |
) |
Write-down of note receivable and other amounts
related to previously discontinued operations |
|
|
(7,060 |
) |
|
|
|
|
|
|
(7,060 |
) |
|
|
|
|
Interest and other income (expense), net |
|
|
(206 |
) |
|
|
16 |
|
|
|
(689 |
) |
|
|
217 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(2,402 |
) |
|
$ |
9,411 |
|
|
$ |
1,991 |
|
|
$ |
15,626 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE 14 WRITE-DOWN OF NOTE RECEIVABLE AND OTHER AMOUNTS
In 2005, the Company sold its robotic systems operations to Kensington Laboratories LLC
(Kensington) for $0.5 million in cash and a note receivable of $5.7 million, after adjustments
provided for in the purchase agreement, and subleased the facility relating to such operations to
Kensington. Such business had been previously classified by the Company as a discontinued
operation. Kensington has failed to make certain principal, interest and rent payments due under
its agreements with the Company. The note is secured by a first-priority security interest in
certain Kensington assets, and the Company has begun legal proceedings to collect amounts owed.
Due to uncertainty regarding collectibility, in the second quarter of 2008, the Company recognized
a charge of $7.1 million to fully write off such note receivable and other amounts owed. In
accordance with the Securities and Exchange Commission Staff Accounting Bulletin Topic 5.Z.5, the
Company has recorded this write-down through continuing operations in its consolidated statements
of operations. Any amounts recovered in the future will be recorded in other income in the
Companys consolidated statement of operations for the period in which the cash is collected.
14
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
This Managements Discussion and Analysis of Financial Condition and Results of Operations should
be read in conjunction with our unaudited consolidated financial statements and related notes
included elsewhere in this Quarterly Report on Form 10-Q and in conjunction with our Annual Report
on Form 10-K for the year ended December 29, 2007. 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 may, will, expect, believe, anticipate, intend,
could, estimate, or continue 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, trends in our business, or other
characterizations of future events or circumstances, including statements regarding our expected
net sales, gross margin, selling, general and administrative expenses, research and development
expense, interest and other income (expense), net, income taxes, cash balances, working capital
position, and future cash flows 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 in Item 1 (Business)
and Item 1A (Risk Factors) of Part I, and Item 7 (Managements Discussion and Analysis of Financial
Condition and Results of Operations) of Part II, of our Annual Report on Form 10-K for the year
ended December 29, 2007. 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 lasers, components, instruments, subsystems and
systems to markets where high-precision, efficient manufacturing, test, measurement and assembly
are critical. 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
advanced technology products and services to original equipment manufacturer 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. On an ongoing basis, we evaluate these estimates and
assumptions, which are based on historical experience and on other assumptions that we believe to
be reasonable. In the event that any of our estimates and assumptions are 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 our critical accounting policies is included
in Item 7 (Managements Discussion and Analysis of Financial Condition and Results of Operations)
of Part II, of our Annual Report on Form 10-K for the fiscal year ended December 29, 2007. There
have been no material changes to the critical accounting policies disclosed in our Annual Report on
Form 10-K for the fiscal year ended December 29, 2007.
15
Stock-Based Compensation
During the three and six months ended June 28, 2008, we granted 19,425 and 1.4 million restricted
stock units with a weighted average grant date fair value of $12.87 and $9.87, respectively.
The total stock-based compensation expense included in our consolidated statements of operations
was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
June 28, |
|
|
June 30, |
|
|
June 28, |
|
|
June 30, |
|
(In thousands) |
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
Cost of sales |
|
$ |
117 |
|
|
$ |
12 |
|
|
$ |
162 |
|
|
$ |
244 |
|
Selling, general and administrative expenses |
|
|
588 |
|
|
|
628 |
|
|
|
1,238 |
|
|
|
2,925 |
|
Research and development expense |
|
|
142 |
|
|
|
10 |
|
|
|
204 |
|
|
|
323 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
847 |
|
|
$ |
650 |
|
|
$ |
1,604 |
|
|
$ |
3,492 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation expense associated with personnel engaged in manufacturing is capitalized
and reflected in inventories, when applicable. At June 28, 2008 and June 30, 2007, such amounts
were not material.
Results of Operations for the Three and Six Months Ended June 28, 2008 and June 30, 2007
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 |
|
|
|
June 28, |
|
|
June 30, |
|
|
June 28, |
|
|
June 30, |
|
|
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
Net sales |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
Cost of sales |
|
|
59.8 |
|
|
|
55.8 |
|
|
|
59.9 |
|
|
|
56.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
40.2 |
|
|
|
44.2 |
|
|
|
40.1 |
|
|
|
43.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses |
|
|
25.6 |
|
|
|
26.0 |
|
|
|
25.7 |
|
|
|
27.0 |
|
Research and development expense |
|
|
10.5 |
|
|
|
9.7 |
|
|
|
10.2 |
|
|
|
9.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
4.1 |
|
|
|
8.5 |
|
|
|
4.2 |
|
|
|
7.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Write-down of note receivable and other
amounts
related to previously discontinued
operations |
|
|
(6.0 |
) |
|
|
|
|
|
|
(3.0 |
) |
|
|
|
|
Interest and other income (expense), net |
|
|
(0.1 |
) |
|
|
0.0 |
|
|
|
(0.3 |
) |
|
|
0.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes |
|
|
(2.0 |
) |
|
|
8.5 |
|
|
|
0.9 |
|
|
|
7.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax provision |
|
|
0.4 |
|
|
|
1.3 |
|
|
|
0.5 |
|
|
|
1.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
|
(2.4 |
)% |
|
|
7.2 |
% |
|
|
0.4 |
% |
|
|
6.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
In the following discussion regarding our results of operations, certain prior period amounts have
been reclassified to conform to the current period presentation.
Net Sales
Net sales for the three months ended June 28, 2008 increased $6.8 million, or 6.1%, compared with
the corresponding period in 2007. Net sales by our Lasers Division increased $3.2 million, or
6.8%, and net sales by our PPT Division increased $3.6 million, or 5.6%, compared with the prior
year period. Net sales for the six months ended June 28, 2008 increased $14.7 million, or 6.8%,
compared with the corresponding period in 2007. Net sales by our Lasers Division increased $8.6
million, or 9.7%, and net sales by our PPT Division increased $6.1 million, or 4.7%, compared with
the prior year period. The increases in total net sales during the three and six months ended
16
June
28, 2008 compared with the prior year periods were due primarily to higher sales to customers in
our industrial manufacturing and microelectronics end markets. In addition, approximately $2.2
million and $6.3 million of the increase in the three and six months ended June 28, 2008,
respectively, compared with the prior year periods resulted from the
impact of stronger foreign currencies on the translation of
international sales in the 2008 periods.
Net sales to the scientific research, aerospace and defense/security markets for the three months
ended June 28, 2008 decreased $1.9 million, or 4.7%, compared with the same period in 2007, due to
lower sales by our Lasers Division, offset in part by higher sales by our PPT Division. Net sales
to these markets for the six months ended June 28, 2008 increased $1.8 million, or 2.4%, compared
with the same period in 2007 due to increased sales by our PPT Division, offset in part by lower
sales by our Lasers Division. Generally, our net sales to these markets by each of our divisions
may fluctuate from period to period due to the timing of large sales relating to major research
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 June 28, 2008 increased $3.6
million, or 11.0%, compared with the same period in 2007. Net sales in this market for the six
months ended June 28, 2008 increased $8.2 million, or 12.6%, compared with the same period in 2007.
The increases in sales to this market during the three and six months ended June 28, 2008 compared
with the same periods in 2007 were due primarily to increased sales of products and systems for
photovoltaic applications and laser-based disk texturing systems, offset in part by decreased sales
to our semiconductor manufacturing equipment customers as a result of the continued cyclical
downturn in that market.
Net sales to the life and health sciences market for the three months ended June 28, 2008 increased
$0.8 million, or 4.1%, compared with the same period in 2007. Net sales to this market during the
six months ended June 28, 2008 increased $0.9 million, or 2.1%, compared with the same period in
2007. Increased sales to this market by our Lasers Division were offset by lower sales by our PPT
Division.
Net sales to our industrial manufacturing and other end markets for the three months ended June 28,
2008 increased $4.2 million, or 23.3%, compared with the same period in 2007. Net sales to these
markets for the six months ended June 28, 2008 increased $3.9 million, or 10.4%, compared with the
same period in 2007. Increased sales to this market in both periods in 2008 were primarily driven
by our PPT Division.
Geographically, net sales were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
|
|
|
Percentage |
|
|
|
June 28, |
|
|
June 30, |
|
|
Increase |
|
|
Increase |
|
(In thousands) |
|
2008 |
|
|
2007 |
|
|
(Decrease) |
|
|
(Decrease) |
|
United States |
|
$ |
53,911 |
|
|
$ |
58,336 |
|
|
$ |
(4,425 |
) |
|
|
(7.6 |
)% |
Europe |
|
|
31,727 |
|
|
|
27,718 |
|
|
|
4,009 |
|
|
|
14.5 |
|
Pacific Rim |
|
|
26,962 |
|
|
|
17,963 |
|
|
|
8,999 |
|
|
|
50.1 |
|
Other |
|
|
5,064 |
|
|
|
6,887 |
|
|
|
(1,823 |
) |
|
|
(26.5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
117,664 |
|
|
$ |
110,904 |
|
|
$ |
6,760 |
|
|
|
6.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
|
|
|
|
Percentage |
|
|
|
June 28, |
|
|
June 30, |
|
|
Increase |
|
|
Increase |
|
(In thousands) |
|
2008 |
|
|
2007 |
|
|
(Decrease) |
|
|
(Decrease) |
|
United States |
|
$ |
106,380 |
|
|
$ |
114,552 |
|
|
$ |
(8,172 |
) |
|
|
(7.1 |
)% |
Europe |
|
|
59,817 |
|
|
|
53,380 |
|
|
|
6,437 |
|
|
|
12.1 |
|
Pacific Rim |
|
|
56,335 |
|
|
|
37,176 |
|
|
|
19,159 |
|
|
|
51.5 |
|
Other |
|
|
10,375 |
|
|
|
13,060 |
|
|
|
(2,685 |
) |
|
|
(20.6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
232,907 |
|
|
$ |
218,168 |
|
|
$ |
14,739 |
|
|
|
6.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The increase in sales to international customers for the three and six months ended June 28, 2008
compared with the same period in 2007 was due primarily to stronger sales to customers in our
microelectronics and industrial manufacturing markets. In addition, approximately $2.2 million and
$6.3 million of the increase in sales to
17
international customers in the three and six months ended
June 28, 2008, respectively, compared with the prior year
periods resulted from the impact of stronger foreign currencies on
the translation of international sales in the 2008 periods. Our increased sales to the Pacific Rim in both periods were
due in large part to increased sales of laser-based disk texturing systems into this region
compared with the prior year period. Our sales of these systems are typically made in batches
rather than a steady stream and do not occur every quarter.
We expect our consolidated net sales in the third quarter of 2008 to decrease moderately from the
second quarter level. Our business is subject to risks arising from market conditions in our
primary end markets, as well as from general economic conditions.
We expect our sales to the scientific research, aerospace and defense/security markets in the third
quarter of 2008 to be down slightly compared with the second quarter level. In the third quarter
of each year, we typically experience seasonal weakness in these markets in Europe but stronger
sales in the United States due to government fiscal year end spending. Overall, we expect that our
sales to these markets will fluctuate from period to period in line with changes in overall
research and defense spending levels and the timing of sales of our products for major research
programs, but will increase over time as we increase our penetration into these markets.
We expect our sales to the microelectronics market in the third quarter of 2008 to be slightly
higher than the second quarter of 2008, due to increased sales of products and systems for
photovoltaic applications, offset in part by lower sales to semiconductor equipment manufacturers
due to the continued cyclical downturn in that industry. Overall, we expect our sales to this
market to fluctuate from period to period due primarily to cyclical changes in the levels
of capital spending by semiconductor manufacturers and to the uncertainty of the precise timing of
shipments of newly developed systems for photovoltaic applications.
We expect our sales to the life and health sciences market in the third quarter of 2008 to be down
slightly compared with the second quarter of 2008. In general, we expect our sales to this market
to fluctuate on a quarter-to-quarter basis in the near term due to the timing of programs and the
concentration of our sales within a limited number of original equipment manufacturer (OEM)
customers in this market, but to increase over time as we increase our penetration of this market.
Gross Margin
Gross margin was 40.2% and 44.2% for the three months ended June 28, 2008 and June 30, 2007,
respectively, and was 40.1% and 43.9% for the six months ended June 28, 2008 and June 30, 2007,
respectively. The decrease in gross margin in both periods in 2008 was due primarily to lower
gross margins in our Lasers Division resulting from higher manufacturing costs and greater market
pricing pressure.
Selling, General and Administrative (SG&A) Expenses
SG&A expense totaled $30.1 million, or 25.6% of net sales, and $28.8 million, or 26.0% of net
sales, for the three months ended June 28, 2008 and June 30, 2007, respectively. The increase in
SG&A expense in absolute dollars in the current year period was due primarily to an increase in
personnel costs of $1.4 million, consisting primarily of
salaries and benefits costs, offset in part by a decrease in accounting and legal
fees.
SG&A expense totaled $59.9 million, or 25.7% of net sales, and $58.8 million, or 27.0% of net
sales, for the six months ended June 28, 2008 and June 30, 2007, respectively. SG&A expense
increased in absolute dollars during the six months ended June 28, 2008 from the corresponding
prior year period due primarily to an increase in rent and utilities and consulting fees, offset in
part by a decrease in accounting and legal fees.
18
Research and Development (R&D) Expense
R&D expense totaled $12.3 million, or 10.5% of net sales, and $10.9 million, or 9.7% of net sales,
for the three months ended June 28, 2008 and June 30, 2007, respectively, and $23.8 million, or
10.2% of net sales, and $21.5 million, or 9.8% of net sales, for the six months ended June 28, 2008
and June 30, 2007, respectively. The increase in R&D expense in the current year periods was due
primarily to increased spending on new product development for photovoltaic applications.
We believe that the continued development and advancement of our key products and technologies is
critical to our future success, and we intend to continue to invest in key R&D initiatives, while
working to ensure that the efforts are focused and the funds 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 the changes in net sales.
Write-Down of Note Receivable and Other Amounts
In 2005, we sold our robotic systems operations to Kensington Laboratories LLC (Kensington) for
$0.5 million in cash and a note receivable of $5.7 million, after adjustments provided for in the
purchase agreement, and subleased the facility relating to such operations to Kensington. We had
previously classified such business as a discontinued operation. Kensington has failed to make
certain principal, interest and rent payments due under our agreements. The note is secured by a
first-priority security interest in certain Kensington assets, and we have begun legal proceedings
to collect amounts owed. Due to uncertainty regarding collectibility, in the second quarter of
2008, we recognized a charge of $7.1 million to fully write off the note receivable and other
amounts owed. In accordance with the Securities and Exchange Commission Staff Accounting Bulletin
Topic 5.Z.5, we have recorded this write-down through continuing operations in our consolidated
statements of operations. In the future, any amounts recovered will be recorded in other income in
our consolidated statement of operations for the period in which the cash is collected.
Interest and Other Income (Expense), Net
Interest and other expense, net totaled $0.2 million for the three months ended June 28, 2008
compared with interest and other income, net of $16,000 for the three months ended June 30, 2007.
In the current year period, interest income was negatively impacted by lower interest rates. The
decrease in interest income was offset in part by an increase in other income due to transaction
gains resulting from foreign currency fluctuations.
Interest and other expense, net totaled $0.7 million for the six months ended June 28, 2008 and
interest and other income, net was $0.2 million for the six months ended June 30, 2007. In the
current year period, interest income was negatively impacted by lower interest rates and interest
expense increased due to the accrual of a full six months of interest on our convertible notes.
This was offset in part by an increase in other income due to transaction gains resulting from
foreign currency fluctuations.
We expect that interest and other expense, net in the third quarter of 2008 will be slightly higher
than the second quarter. In general, we expect interest and other income (expense), net to
fluctuate slightly in future periods, depending on our levels of cash and marketable securities and
interest earned thereon in a given period. Upon adoption of FSP APB 14-1 in fiscal year 2009, we
expect that the interest expense associated with our convertible subordinated notes will increase
significantly.
Income Taxes
Our effective tax rate for the three and six months ended June 28, 2008 was (16.2%) and 53.1%,
respectively, compared with 15.4% in both the corresponding prior year periods. The net income
(loss) for both the three and six month periods ended June 28, 2008 reflects the impact of the
write-down of the note receivable and other amounts related to previously discontinued operations,
as discussed above. This charge was treated as a discrete item in the second quarter, and we
received a low tax benefit related to this charge.
19
We have maintained a valuation allowance against a portion of our gross deferred tax assets
pursuant to Statement of Financial Accounting Standard (SFAS)
No. 109, Accounting for 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 certain required
state income taxes, taxes in certain foreign jurisdictions, the federal alternative minimum tax and
the impact of discrete items.
We will continue to monitor 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, the reversal will be recorded as
a discrete item in the appropriate period. Based upon our past projections of future
profitability, we anticipate recording a reversal of a substantial portion of the valuation
allowance as a discrete item during the fourth quarter of 2008. We continue to evaluate our
business outlook and our judgments regarding future profitability may change due to many factors,
including future market conditions and our ability to successfully execute our business plans
and/or tax planning strategies. These changes, if any, may require material adjustments to these
deferred tax asset balances. We will continue to monitor actual results and
refine forecasted data as appropriate to facilitate future determinations made with respect to the
realization of deferred tax assets.
Liquidity and Capital Resources
Our cash and cash equivalents and marketable securities balances decreased to $141.1 million as of
June 28, 2008 from $143.9 million as of December 29, 2007. The decrease was attributable primarily
to repurchases of our common stock and to capital expenditures made during the year, offset in part
by cash generated by operations.
Net cash provided by our operating activities of $12.8 million for the six months ended June 28,
2008 consisted of our net income of $0.9 million and net non-cash charges of $21.9 million, offset
in part by a decrease in working capital of $10.0 million. Such non-cash charges consisted of
$10.6 million for depreciation and amortization, $7.1 million for the write-down of the note
receivable and other amounts related to previously discontinued operations, $2.4 million for the
provision for losses on inventories and $1.6 million for stock-based compensation. The decrease in
working capital consisted of a decrease in accounts payable of $8.8 million due to the timing of
payments, an increase in prepaid expenses and other assets of $1.9 million due to an increase in
income taxes receivable, a decrease in accrued payroll and related expenses of $1.0 million due to
timing of payments and an increase in accounts receivable of $0.7 million due to slower
collections, offset in part by an increase in accrued expenses and other liabilities of $2.4
million due to an increase in income taxes payable and an increase in deferred revenue.
Net cash used in investing activities of $29.6 million for the six months ended June 28, 2008
consisted of purchases of property and equipment of $9.9 million, which included $4.0 million in
purchases related to our SAP implementation, and net purchases of marketable securities of $19.7
million.
Net cash used in financing activities for the six months ended June 28, 2008 of $8.3 million
consisted primarily of the repurchase of 1.1 million shares of our common stock for approximately
$11.5 million, including the cancellation of common stock in connection with the payment of taxes
owed by employees related to our stock incentive plans, offset in part by short-term borrowings of
$2.0 million and by $1.2 million received as consideration for the issuance of common stock in
connection with exercises of stock options and purchases of common stock under our employee stock
purchase plan.
At June 28, 2008, we had cash and cash equivalents of $65.1 million and marketable securities of
$76.0 million. The majority of the marketable securities are invested in one portfolio managed by
a professional investment management firm, under the oversight of our senior financial management
team. This portfolio manager invests the funds allocated in accordance with our Investment Policy,
which is reviewed regularly by our senior financial management and the Audit Committee of our Board
of Directors. We expect that our cash balances will fluctuate in the future based on factors such
as cash used in or provided by ongoing operations, acquisitions or divestitures, investments in
other companies, share repurchases, capital expenditures and contractual obligations, and changes
in interest rates.
20
At June 28, 2008, we had a total of four lines of credit, including one domestic revolving line of
credit and three revolving lines of credit with two 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 $5.0 million and expires on
December 1, 2008. Certain cash equivalents held at this lending institution collateralize this
line of credit, which bears interest at either the prevailing prime rate (5.00% at June 28, 2008),
or the prevailing London Interbank Offered Rate (2.47% at June 28, 2008) plus 1.25%, at our option,
and carries an unused line fee of 0.25% per year. At June 28, 2008, there were no balances
outstanding under this line of credit, with $4.0 million available, after considering outstanding
letters of credit totaling $1.0 million.
Our three revolving lines of credit with Japanese banks totaled 1.7 billion yen ($15.8 million at
June 28, 2008) and expire as follows: $2.8 million on June 30, 2008 (which we did not subsequently
renew), $5.6 million on September 30, 2008 and $7.4 million on November 30, 2008. These lines are
not secured and bear interest at the prevailing bank rate. At June 28, 2008, we had $12.5 million
outstanding (of which $2.8 million was repaid on June 30, 2008)
and $3.3 million available for borrowing under these lines of credit. Amounts outstanding under
these revolving lines of credit are included in short-term obligations 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 ($5.1 million at June 28, 2008), have
no expiration dates and bear interest at the banks prevailing rate. At June 28, 2008, we had $2.7
million outstanding and $2.4 million available for the sale of notes receivable under these
agreements. Amounts outstanding under these agreements are included in short-term obligations in
the accompanying consolidated balance sheets. The weighted average interest rate on all of our
Japanese borrowings as of June 28, 2008 was 1.8%.
In lieu of renewing our line of credit that expired on June 30, 2008, we issued 300 million yen
($2.8 million at June 30, 2008) in private placement bonds on June 30, 2008 through a Japanese bank
and used the proceeds from such issuance to pay the amounts outstanding under such line of credit.
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.
In 2006, our Board of Directors approved a share repurchase program, authorizing the purchase of up
to 4.2 million shares of our common stock. During the first quarter of 2008, we repurchased 1.1
million shares of common stock under this program in the open market at an average price of $10.78
per share for a total of $11.4 million, which completed our purchases under this program.
In May 2008, our Board of Directors approved a new 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. We have not repurchased any shares
under this program.
During the remainder of 2008, we expect to use an additional $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 December 29, 2007, 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, there can be no assurance that we will not need to obtain additional sources
of capital in the future to finance any such acquisitions and/or investments. There can be no
assurance that any such financing would be available, or that, if available, such financing would
be obtainable on terms favorable to us and would not be dilutive.
21
Recent Accounting Pronouncements
In December 2007, the Financial Accounting Standards Board (FASB) issued SFAS No. 160,
Noncontrolling Interests in Consolidated Financial Statementsan amendment of ARB No. 51. SFAS
No. 160 establishes accounting and reporting standards for the noncontrolling interest in a
subsidiary and for the deconsolidation of a subsidiary. It clarifies that a noncontrolling
interest in a subsidiary is an ownership interest in the entity that should be reported as equity
in the consolidated financial statements. SFAS No. 160 will be effective for fiscal years
beginning after December 15, 2008, and interim periods within those fiscal years. We are currently
evaluating the expected impact of the provisions of SFAS No. 160, but do not believe that the
adoption of SFAS No. 160 will have a material impact on our financial position or results of
operations.
In December 2007, the FASB issued SFAS No. 141 (Revised 2007), Business Combinations (SFAS No.
141R). SFAS No. 141R establishes principles and requirements for the manner in which the acquirer
of a business recognizes and measures in its financial statements the identifiable assets acquired,
the liabilities assumed, and any noncontrolling interest in the acquiree. SFAS No. 141R also
provides guidance for recognizing and measuring the goodwill acquired in the business combination
and disclosure requirements to enable users of the financial statements to evaluate the nature and
financial effects of the business combination. SFAS 141R applies to business combinations that are
consummated on or after the beginning of the first annual reporting period beginning on or after
December 15, 2008. The adoption of SFAS No. 141R will not have an impact on our financial position
or results of operations other than in accounting for any business combination that may occur after
the effective date.
In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging
Activities. SFAS No. 161 requires enhanced disclosures by requiring qualitative disclosures about
objectives and strategies for using derivatives, quantitative disclosures about fair value amounts
of and gains and losses on derivative instruments, and disclosures about credit-risk-related
contingent features in derivative agreements. SFAS No. 161 is effective for financial statements
issued for fiscal years and interim periods beginning after November 15, 2008 and early adoption is
encouraged. We are currently evaluating the expected impact of the provisions of SFAS No. 161, but
do not believe that the adoption of SFAS No. 161 will have a material impact on our financial
position or results of operations.
In April 2008, the FASB issued FASB Staff Position (FSP) FAS 142-3, Determination of the Useful
Life of Intangible Assets (FSP FAS 142-3). FSP FAS 142-3 amends the factors that should be
considered in developing renewal or extension assumptions used to determine the useful life of a
recognized intangible asset under SFAS No. 142, Goodwill and Other Intangible Assets. Under FSP
FAS 142-3, companies are required to consider their own historical experience in renewing or
extending similar arrangements and in the absence of historical experience, companies are required
to consider the assumptions that market participants would use regarding renewal or extension,
adjusted for company-specific factors. FSP FAS 142-3 will be effective for fiscal years beginning
after December 15, 2008, and interim periods within those fiscal years. FSP FAS 142-3 must be
applied prospectively to intangible assets acquired after the effective date and early adoption is
prohibited. The adoption of FSP FAS 142-3 will not have an impact on our financial position or
results of operations other than in accounting for the acquisition of intangible assets that may
occur after the effective date.
In May 2008, the FASB issued SFAS No. 162, The Hierarchy of Generally Accepted Accounting
Principles. SFAS No. 162 identifies the sources of accounting principles and the framework for
selecting the principles used in the preparation of financial statements of nongovernmental
entities that are presented in conformity with generally accepted accounting principles in the
United States. SFAS No. 162 is effective 60 days following the Securities and Exchange
Commissions approval of the Public Company Accounting Oversight Board amendments to AU Section
411, The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles.
The adoption of SFAS No. 162 will not have a material impact on our financial position or results
of operations.
22
In May 2008, the FASB issued FSP APB 14-1, Accounting for Convertible Debt Instruments That May Be
Settled in Cash upon Conversion (Including Partial Cash Settlement). FSP APB 14-1 requires the
liability and equity components of convertible debt instruments to be separately accounted for in a
manner that reflects the non-convertible debt borrowing rate for interest expense recognition. In
addition, direct issuance costs associated with the convertible debt instruments are required to be
allocated to the liability and equity components in proportion to the allocation of proceeds and
accounted for as debt issuance costs and equity issuance costs, respectively. FSP APB 14-1 will be
effective for fiscal years beginning after December 15, 2008, and interim periods within those
fiscal years. FSP APB 14-1 must be applied retrospectively and early adoption is prohibited. We
are currently evaluating the expected impact of the provisions of FSP APB 14-1 and believe that the
adoption of FSP APB 14-1 will result in a reduction in the carrying value of our convertible
subordinated notes, an increase to capital in excess of par, a cumulative effect adjustment
reducing retained earnings and an increase in interest expense. However, we have not yet
determined the amounts of such adjustments.
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 (banks rated A+ or better) do not fulfill their obligations to deliver the
contracted currencies, we could be at risk for any currency related fluctuations. Transaction
gains and losses are included in our current net income (loss) 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 June 28, 2008. There were no forward exchange contracts outstanding
at June 28, 2008.
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 (loss) for
the three and six months ended June 28, 2008. 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 prime rate, or the
prevailing London Interbank Offered Rate plus 1.25%, at our option. Our revolving lines of credit
and other credit agreements with Japanese banks bear interest at the lending banks prevailing
rate. Our convertible notes bear interest at a fixed rate of 2.5% per year and are not impacted by
changes in interest rates. Our investments in marketable securities, which totaled $76.0 million
at June 28, 2008, 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 $7.4 million at June 28, 2008, are sensitive to interest rates and economic conditions in
Europe. We estimate that a 10% change in the interest rate earned on our investment portfolio or a
10% change in interest rates payable on our lines of credit would not have had a material effect on
our net income (loss) for the three and six months ended June 28, 2008.
23
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. |
|
|
(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. |
24
PART II OTHER INFORMATION
Item 1A. Risk Factors
Our Annual Report on Form 10-K for the year ended December 29, 2007 contains a full discussion of
the risks associated with our business. There has been no material change to the risks described
in our Annual Report on Form 10-K.
Item 4. Submission of Matters to a Vote of Security Holders
Our annual meeting of stockholders was held on May 20, 2008. Of the 35,958,226 shares of common
stock issued and outstanding and entitled to vote at the meeting, there were present at the
meeting, in person or by proxy, the holders of 33,547,887 shares of common stock, representing
approximately 93.3% of the total number of shares entitled to vote at the meeting. This percentage
represented a quorum. The following three proposals were presented and voted on at the meeting:
Proposal 1
To elect two nominees, Robert L. Guyett and Robert J. Phillippy, as Class IV members of our Board
of Directors. The two nominees were elected by a plurality of the shares present and entitled to
vote at the meeting in person or by proxy. The voting results were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nominee |
|
For |
|
Withheld |
|
|
|
Robert L. Guyett |
|
|
|
33,276,886 |
|
|
|
271,001 |
|
|
|
|
|
Robert J. Phillippy |
|
|
|
33,282,426 |
|
|
|
265,461 |
|
|
Proposal 2
To ratify the appointment of Ernst & Young LLP as our independent auditors for the fiscal year
ending January 3, 2009. Such proposal was approved by more than a majority of the shares present
and entitled to vote at the meeting in person or by proxy. The voting results were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For |
|
Against |
|
Abstain |
|
Broker Non-Vote |
|
|
|
32,883,536 |
|
|
|
70,089 |
|
|
|
594,262 |
|
|
|
0 |
Proposal 3
To consider a stockholder proposal to declassify our Board of Directors. Such proposal was
approved by more than a majority of the shares present and entitled to vote at the meeting in
person or by proxy. The voting results were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For |
|
Against |
|
Abstain |
|
Broker Non-Vote |
|
|
|
13,567,411 |
|
|
|
12,212,917 |
|
|
|
65,314 |
|
|
|
7,702,245 |
|
25
Item 6. Exhibits
|
|
|
Exhibit |
|
|
Number |
|
Description of Exhibit |
|
|
|
10.1
|
|
Severance Compensation Agreement dated April 1, 2008
between the Registrant and Robert J. Phillippy, President
and Chief Executive Officer (incorporated by reference to
Exhibit 10.1 to the Registrants Current Report on Form 8-K
filed with the Securities and Exchange Commission on April
7, 2008). |
|
|
|
10.2
|
|
Severance Compensation Agreement dated April 1, 2008
between the Registrant and Charles F. Cargile, Senior Vice
President, Chief Financial Officer and Treasurer
(incorporated by reference to Exhibit 10.2 to the
Registrants Current Report on Form 8-K filed with the
Securities and Exchange Commission on April 7, 2008). |
|
|
|
10.3
|
|
Form of Severance Compensation Agreement between the
Registrant and certain of its executive and other officers
(incorporated by reference to Exhibit 10.3 to the
Registrants Current Report on Form 8-K filed with the
Securities and Exchange Commission on April 7, 2008). |
|
|
|
31.1
|
|
Certification of Chief Executive Officer pursuant to Rule
13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act
of 1934 (the Exchange Act). |
|
|
|
31.2
|
|
Certification of Chief Financial Officer pursuant to Rule
13a-14(a) or Rule 15d-14(a) of the Exchange Act. |
|
|
|
32.1
|
|
Certification of Chief Executive Officer 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 of Chief Financial Officer 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 7, 2008 |
NEWPORT CORPORATION
|
|
|
By: |
/s/ Charles F. Cargile
|
|
|
|
Charles F. Cargile, |
|
|
|
Senior Vice President, Chief Financial
Officer and Treasurer (Principal
Financial Officer and Duly Authorized
Officer) |
|
|
27
EXHIBIT INDEX
|
|
|
Exhibit |
|
|
Number |
|
Description of Exhibit |
|
|
|
10.1
|
|
Severance Compensation Agreement dated April 1, 2008
between the Registrant and Robert J. Phillippy, President
and Chief Executive Officer (incorporated by reference to
Exhibit 10.1 to the Registrants Current Report on Form 8-K
filed with the Securities and Exchange Commission on April
7, 2008). |
|
|
|
10.2
|
|
Severance Compensation Agreement dated April 1, 2008
between the Registrant and Charles F. Cargile, Senior Vice
President, Chief Financial Officer and Treasurer
(incorporated by reference to Exhibit 10.2 to the
Registrants Current Report on Form 8-K filed with the
Securities and Exchange Commission on April 7, 2008). |
|
|
|
10.3
|
|
Form of Severance Compensation Agreement between the
Registrant and certain of its executive and other officers
(incorporated by reference to Exhibit 10.3 to the
Registrants Current Report on Form 8-K filed with the
Securities and Exchange Commission on April 7, 2008). |
|
|
|
31.1
|
|
Certification of Chief Executive Officer pursuant to Rule
13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act
of 1934 (the Exchange Act). |
|
|
|
31.2
|
|
Certification of Chief Financial Officer pursuant to Rule
13a-14(a) or Rule 15d-14(a) of the Exchange Act. |
|
|
|
32.1
|
|
Certification of Chief Executive Officer 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 of Chief Financial Officer pursuant to Rule
13a-14(b) or Rule 15d-14(b) of the Exchange Act and 18
U.S.C. Section 1350. |
28