Search the web
Welcome, Guest
[Sign Out, My Account]
EDGAR_Online

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
NEWP > SEC Filings for NEWP > Form 10-Q on 8-Nov-2012All Recent SEC Filings

Show all filings for NEWPORT CORP

Form 10-Q for NEWPORT CORP


8-Nov-2012

Quarterly Report


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This Management's Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with our unaudited consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q and in conjunction with our Annual Report on Form 10-K/A for the year ended December 31, 2011 previously filed with the SEC. This discussion contains descriptions of our expectations regarding future trends affecting our business. Words such as "anticipate," "believe," "can," "continue," "could," "estimate," "expect," "intend," "may," "plan," "potential," "predict," "should," "will," "would," or the negative or other variations thereof or comparable terminology are intended to identify forward-looking statements. In addition, any statements that refer to projections of our future financial performance or condition, trends in our business, or other characterizations of future events or circumstances are forward-looking statements. These forward-looking statements and other forward-looking statements made elsewhere in this report are made in reliance upon safe harbor provisions in Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of several factors, including, but not limited to those factors set forth and discussed elsewhere in this Quarterly Report on Form 10-Q and in Item 1 (Business) and Item 1A (Risk Factors) of Part I, and Item 7 (Management's Discussion and Analysis of Financial Condition and Results of Operations) of Part II, of our Annual Report on Form 10-K/A for the year ended December 31, 2011. In light of the significant uncertainties inherent in the forward-looking information included in this report, the inclusion of this information should not be regarded as a representation by us or any other person that our objectives or plans will be achieved and readers are cautioned not to place undue reliance on such forward-looking information. Except as required by law, we undertake no obligation to update or revise these forward-looking statements, whether as a result of new information, future events or otherwise.

Overview

We are a global supplier of advanced-technology products and systems, including lasers, photonics instrumentation, precision positioning and vibration isolation products and systems, optical components, subassemblies and subsystems, three-dimensional non-contact measurement equipment and advanced automated manufacturing systems. Our products are used worldwide in industries including scientific research, defense/security, microelectronics, life and health sciences and industrial markets. We operate within three distinct business segments, our Photonics and Precision Technologies (PPT) Division, our Lasers Division and our Ophir Division. All of our divisions offer a broad array of advanced technology products and services to original equipment manufacturer (OEM) and end-user customers across a wide range of applications in all of our targeted end markets.

The following is a discussion and analysis of certain factors that have affected our results of operations and financial condition during the periods included in the accompanying consolidated financial statements.

Critical Accounting Policies and Estimates

The preparation of our financial statements requires that we make estimates and assumptions that affect the reported amounts of assets and liabilities and related disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. We evaluate these estimates and assumptions on an ongoing basis. We base our estimates on our historical experience and on various other factors which we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the amounts of certain expenses that are not readily apparent from other sources. The accounting policies that involve the most significant judgments, assumptions and estimates used in the preparation of our financial statements are those related to revenue recognition, allowances for doubtful accounts, pension liabilities, inventory reserves, warranty obligations, asset impairment, income taxes and stock-based compensation. The judgments, assumptions and estimates used in these areas by their nature involve risks and uncertainties, and in the event that any of them prove to be inaccurate in any material respect, it could have a material effect on our reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. A summary of these critical accounting policies is included in Item 7 (Management's Discussion and Analysis of Financial Condition and Results of Operations) of Part II, of our Annual Report on Form 10-K/A for the fiscal year ended


Table of Contents

December 31, 2011. There have been no material changes to the critical accounting policies disclosed in our Annual Report on Form 10-K/A.

Acquisition

On January 13, 2012, we acquired all of the outstanding capital stock of ILX Lightwave Corporation (ILX) by means of a merger of our wholly owned subsidiary with and into ILX. The total purchase price for the acquisition was $9.0 million. An initial purchase price of $9.3 million was paid in cash at closing, of which $1.2 million was deposited at closing into escrow until July 12, 2013, to secure certain indemnification and other obligations of the ILX securityholders. The purchase price was subsequently reduced by $0.3 million, based on a calculation of ILX's net assets at closing. We incurred $0.1 million in transaction costs, which have been expensed as incurred and are included in selling, general and administrative expenses in the accompanying consolidated statements of income and comprehensive income. This acquisition expanded our optical power meter and fiber optic source product offerings, and added laser diode instrumentation and laser diode and light emitting diode (LED) burn-in, test and characterization systems to our product portfolio. ILX is now a part of our PPT Division.

The consideration paid for the acquisition of ILX is allocated to the assets acquired, net of the liabilities assumed, based upon their estimated fair values as of the date of the acquisition. The excess of the purchase price over the estimated fair value of the assets acquired, net of the estimated fair value of the liabilities assumed, is recorded as goodwill. Below is a summary of the purchase price, assets acquired and liabilities assumed:

(In thousands)
Assets acquired and liabilities assumed:

Cash                                        $    44
Accounts receivable                           1,224
Inventories                                     861
Other assets                                    587
Goodwill                                      3,762
Developed technology                          2,800
Customer relationships                        1,100
Other intangible assets                       1,090
Deferred income taxes                        (1,841 )
Other liabilities                              (644 )
                                            $ 8,983

The goodwill related to this acquisition has been allocated to our PPT Division and will not be deductible for tax purposes, as this was a merger.

Goodwill

During 2011, we acquired multiple businesses, which resulted in us recording goodwill in our Lasers Division and Ophir Division of $6.1 million and $67.8 million, respectively. Political deadlock in Congress due to ideological differences and the current presidential election year in the U.S., as well as the prospect of automatic spending cuts scheduled to take effect in January 2013 absent Congressional action, have created enormous uncertainty in the levels of Federal spending on research and defense programs for 2013. As a result, many research customers have reduced their spending for any new research projects in 2012 that would extend into 2013 until they have better visibility as to their 2013 funding levels. Similarly, many U.S. defense contractors have reduced their spending levels in 2012 until they have better visibility as to defense procurement levels in 2013. Further, the uncertainty caused by the massive overhaul of the U.S. healthcare system under recent legislation, as well as the possibility for repeal of that legislation in the future, have caused many customers in the life and health sciences market to halt, delay or reduce their spending until they have better visibility as to the future regulatory environment. As a result, our actual 2012 sales, and in particular the sales of our Ophir Division, are below the levels that we had originally forecasted. These sales levels and other factors could negatively impact our evaluation of the goodwill associated with our business. We believe that the assumptions we use in evaluating the goodwill associated with our business


Table of Contents

are reasonable, however we may be required to recognize a goodwill impairment charge in the future as a result of subsequent changes to the factors underlying such assumptions.

Stock-Based Compensation

During the nine months ended September 29, 2012, we granted 0.5 million restricted stock units and 0.4 million stock-settled stock appreciation rights with weighted average grant date fair values of $17.11 and $7.92, respectively.

The total stock-based compensation expense included in our consolidated statements of income and comprehensive income was as follows:

                                          Three Months Ended                Nine Months Ended
                                     September 29,      October 1,     September 29,     October 1,
(In thousands)                           2012              2011            2012             2011
Cost of sales                        $          189     $       133    $          490    $       354
Selling, general and
administrative expenses                       1,767           1,210             5,075          3,807
Research and development expense                217             166               700            518
                                     $        2,173     $     1,509    $        6,265    $     4,679

Results of Operations for the Three and Nine Months Ended September 29, 2012 and
October 1, 2011



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              Nine Months Ended
                                    September 29,    October 1,    September 29,    October 1,
                                        2012            2011           2012            2011
Net sales                                   100.0 %       100.0 %          100.0 %       100.0 %
Cost of sales                                56.0          55.6             56.4          54.9
Gross profit                                 44.0          44.4             43.6          45.1

Selling, general and
administrative expenses                      26.1          24.2             27.2          24.4
Research and development expense              9.0           8.9              8.9           8.3
Operating income                              8.9          11.3              7.5          12.4

Foreign currency translation
gain from dissolution of
subsidiary                                      -             -                -           1.9
Gain on sale of investments                   0.6             -              1.4             -
Interest and other expense, net             (1.5)         (1.9)            (1.6)         (1.6)
Income before income taxes                    8.0           9.4              7.3          12.7

Income tax provision                          2.8           1.1              2.2           0.9
Net income                                    5.2           8.3              5.1          11.8
Net loss attributable to
non-controlling interests                   (0.1)             -            (0.0)             -
Net income attributable to
Newport Corporation                           5.3 %         8.3 %            5.1 %        11.8 %

In the following discussion regarding our net sales, certain prior period amounts have been reclassified between end markets to conform to the current period presentation.

Net Sales

Net sales for the three months ended September 29, 2012 increased by $17.3 million, or 13.8%, compared with the corresponding period in 2011. Net sales for the nine months ended September 29, 2012 increased by $69.6 million, or 18.1%, compared with the corresponding period in 2011. For the three months ended September 29, 2012, net sales by our PPT Division decreased $2.8 million, or 3.5%, compared with the corresponding prior year period, and net sales by our Lasers Division decreased $4.1 million, or 8.8%, compared with the corresponding prior year period. For the nine months ended September 29, 2012, net sales by our PPT Division decreased $8.4 million, or


Table of Contents

3.4%, and net sales by our Lasers Division decreased $1.1 million, or 0.8%, compared with the corresponding prior year period. Our Ophir Division, which we established in connection with our acquisition of Ophir Optronics Ltd. (Ophir) in October 2011, contributed net sales of $24.2 million and $79.1 million for the three and nine months ended September 29, 2012, respectively. Our net sales for the three and nine months ended September 29, 2012 also included $5.3 million and $20.9 million, respectively, of net sales from High Q Laser GmbH (High Q), which we acquired in July 2011 and which is included in our Lasers Division, and $1.9 million and $5.5 million, respectively, of net sales from ILX, which we acquired in January 2012 and which is included in our PPT Division. Net sales from High Q for the three and nine months ended October 1, 2011 were $4.9 million. We did not have any comparable sales for Ophir or ILX in the prior year periods.

For the three months ended September 29, 2012 compared with the corresponding period in 2011, we experienced increases in net sales to our industrial manufacturing and other end markets and to our scientific research and defense/security end markets, and decreases in sales to our life and health sciences and microelectronics end markets. For the nine months ended September 29, 2012 compared with the corresponding period in 2011, we experienced increases in net sales to all of our end markets, except for the microelectronics market. Sales by Ophir were primarily to customers in our scientific research and defense/security end markets and industrial manufacturing and other end markets, sales by High Q were primarily to customers in our life and health sciences end market, and sales by ILX were primarily to customers in our industrial and other end markets.

Net sales to the scientific research and defense/security markets for the three months ended September 29, 2012 increased $8.0 million, or 19.1%, compared with the same period in 2011. Net sales to these markets for the nine months ended September 29, 2012 increased $28.3 million, or 23.0%, compared with the same period in 2011. The increases in both periods were due to the addition of sales from our acquisition of Ophir, which contributed sales to these markets of $11.6 million and $38.6 million during the three and nine months ended September 29, 2012, respectively, offset in part by lower sales to these markets by our Lasers Division and PPT Division due to adverse macroeconomic conditions in these markets as a result of budget constraints and uncertainty in future global research and defense spending levels. Generally, our net sales to these markets by each of our divisions may fluctuate from period to period due to changes in overall research and defense spending levels and the timing of large sales relating to major research and aerospace/defense programs and, in some cases, these fluctuations may be offsetting between our divisions or between such periods.

Net sales to the microelectronics market for the three months ended September 29, 2012 decreased $1.3 million, or 3.8%, compared with the same period in 2011. Net sales to this market for the nine months ended September 29, 2012 decreased $11.8 million, or 9.7%, compared with the same period in 2011. The decreases in sales to this market in both periods were due primarily to cyclical downturns in the semiconductor equipment industry. Sales to the microelectronics market were not impacted significantly by any of our acquisitions.

Net sales to the life and health sciences market for the three months ended September 29, 2012 decreased $1.5 million, or 5.0%, compared with the same period in 2011. Net sales to this market for the nine months ended September 29, 2012 increased $17.7 million, or 21.7%, compared with the same period in 2011. The decrease in sales to this market for the three month period was due primarily to lower sales of products for bioinstrumentation applications, offset in part by the addition of $1.8 million of sales from our acquisition of Ophir. The increase in sales to this market for the nine month period was due primarily to our acquisitions of High Q and Ophir, which contributed total sales of $26.9 million to this market during this period, offset in part by decreased sales of products for bioinstrumentation applications. High Q contributed $4.2 million of sales to this market in both prior year periods.

Net sales to our industrial manufacturing and other end markets for the three months ended September 29, 2012 increased $12.1 million, or 64.4%, compared with the same period in 2011. Net sales to these markets for the nine months ended September 29, 2012 increased $35.4 million, or 61.6%, compared with the same period in 2011. The increases in sales to these markets in both periods were due primarily to our acquisitions of Ophir and ILX, which contributed total sales to these markets of $10.6 million and $32.5 million during the three and nine months ended September 29, 2012, respectively.


Table of Contents

The table below reflects our net sales by geographic region. Sales are attributed to each location based on the customer address to which the product is shipped.

                                   Three Months Ended
                               September 29,    October 1,                Percentage
(In thousands)                     2012            2011       Increase     Increase
United States                  $       61,741    $   57,729    $  4,012          6.9 %
Germany                                16,225        16,058         167          1.0
Other European countries               18,913        15,941       2,972         18.6
Japan                                  15,913        10,323       5,590         54.2
Other Pacific Rim countries            20,157        19,223         934          4.9
Rest of world                           9,932         6,324       3,608         57.1
                               $      142,881    $  125,598    $ 17,283         13.8 %




                                    Nine Months Ended
                               September 29,    October 1,                Percentage
(In thousands)                     2012            2011       Increase     Increase
United States                  $      188,997    $  173,624    $ 15,373          8.9 %
Germany                                56,228        38,029      18,199         47.9
Other European countries               56,388        51,483       4,905          9.5
Japan                                  47,028        37,081       9,947         26.8
Other Pacific Rim countries            73,346        59,233      14,113         23.8
Rest of world                          31,716        24,691       7,025         28.5
                               $      453,703    $  384,141    $ 69,562         18.1 %

The increases in sales to customers in the United States and Germany for the three months ended September 29, 2012 compared with the corresponding period in 2011 were attributable to higher sales to our industrial manufacturing and other end markets and our scientific research and defense/security end markets, offset in part by lower sales to our microelectronics and life and health sciences end markets. The increases in sales into these countries for the nine months ended September 29, 2012 compared with the corresponding period in 2011 were attributable to higher sales to all of our end markets other than the microelectronics market. In particular, in the United States, sales to our industrial manufacturing and other end markets, and our scientific research and defense/security end markets, were positively impacted by our acquisition of Ophir. In Germany, sales to our life and health sciences market were positively impacted by our acquisition of High Q.

The increases in sales to customers in other parts of Europe for the three and nine months ended September 29, 2012 compared with the corresponding prior year periods were attributable to higher sales to all of our end markets other than the microelectronics market.

The increases in sales to customers in Japan for the three and nine months ended September 29, 2012 compared with the corresponding prior year periods were due to higher sales to all of our end markets other than the life and health sciences market.

The increases in sales to customers in other parts of the Pacific Rim for the three and nine months ended September 29, 2012 compared with the corresponding prior year periods were due to higher sales to all of our end markets, with the exception of lower sales to our scientific research and defense/security markets for the three month period and lower sales to our life and health sciences market for the nine month period.

The increase in sales to customers in the rest of the world for the three and nine months ended September 29, 2012 compared with the corresponding prior year periods were due to higher sales to all of our end markets other than the microelectronics market.


Table of Contents

Gross Margin

Gross margin was 44.0% and 44.4% for the three months ended September 29, 2012 and October 1, 2011, respectively, and 43.6% and 45.1% for the nine months ended September 29, 2012 and October 1, 2011, respectively. The addition of Ophir in October 2011 has resulted in decreases in overall gross margins for the 2012 periods compared with the 2011 periods, as the gross margins of our Ophir Division are generally lower than our overall gross margins. In addition, gross margins of our PPT Division decreased in the current year periods compared with the prior year periods due to a higher proportion of sales of lower margin products. Gross margins of our Lasers Division increased during the three months ended September 29, 2012 compared with the corresponding prior year period, due to lower charges for excess and obsolete inventory and lower manufacturing costs related to certain products. Gross margins of our Lasers Division increased during the nine months ended September 29, 2012 due to lower charges for excess and obsolete inventory and warranty reserves, offset in part by higher manufacturing costs for certain products.

In general, we expect that our gross margin will vary in any given period depending upon factors such as our mix of sales, product pricing variations, manufacturing absorption levels, and changes in levels of inventory and warranty reserves.

Selling, General and Administrative (SG&A) Expenses

SG&A expenses totaled $37.3 million, or 26.1% of net sales, and $30.4 million, or 24.2% of net sales, for the three months ended September 29, 2012 and October 1, 2011, respectively. SG&A expenses totaled $123.3 million, or 27.2% of net sales, and $93.6 million, or 24.4% of net sales, for the nine months ended September 29, 2012 and October 1, 2011, respectively. The increases in SG&A expenses in the 2012 periods compared with the prior year periods were due to increased personnel costs and amortization expenses related to acquired intangible assets as a result of our acquisitions of Ophir, High Q and ILX. SG&A expenses related to Ophir, High Q and ILX totaled $9.4 million and $31.2 million for the three and nine months ended September 29, 2012, respectively. In the prior year periods, SG&A expenses related to High Q, which we acquired in July 2011, totaled $0.8 million, and there were no comparable SG&A expenses for Ophir or ILX.

In general, we expect that SG&A expense will vary as a percentage of net sales in the future based on our sales level in any given period. Because the majority of our SG&A expense is fixed in the short term, changes in SG&A expense will likely not be in proportion to changes in net sales.

Research and Development (R&D) Expense

R&D expense totaled $12.9 million, or 9.0% of net sales, and $11.2 million, or 8.9% of net sales, for the three months ended September 29, 2012 and October 1, 2011, respectively. R&D expense totaled $40.3 million, or 8.9% of net sales, and $31.8 million, or 8.3% of net sales, for the nine months ended September 29, 2012 and October 1, 2011, respectively. The increases in R&D expense in the current year periods compared with the prior year periods were due to the addition of R&D expense of Ophir, High Q and ILX. R&D expense for Ophir, High Q and ILX totaled $3.5 million and $11.1 million for the three and nine months ended September 29, 2012, respectively. In the prior year periods, R&D expense related to High Q totaled $0.5 million, and there was no comparable R&D expense for Ophir or ILX. The increases in R&D expense in the current year periods were offset in part by decreased spending in our PPT Division and in other parts of our Lasers Division due to reductions in headcount, suspension of work on certain projects and the completion of other projects.

We believe that the continued development and advancement of our products and technologies is critical to our success, and we intend to continue to invest in R&D initiatives, while working to ensure that our efforts are focused and the resources are deployed efficiently. In general, we expect that R&D expense as a percentage of net sales will vary in the future based on our sales level in any given period. Because of our commitment to continued product development, and because the majority of our R&D expense is fixed in the short term, changes in R&D expense will likely not be in proportion to changes in net sales.


Table of Contents

Gain on Sale of Investments

We hold equity interests in privately-held corporations, which were accounted for using the cost method. During previous years, we had reduced the carrying values of these interests to zero due to the corporations' poor financial . . .

  Add NEWP to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for NEWP - All Recent SEC Filings
Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.