ACQUISITION OF FEMTOLASERS

6 Months Ended

Jul. 04, 2015

ACQUISITION OF FEMTOLASERS

ACQUISITION OF FEMTOLASERS

NOTE 3ACQUISITION OF FEMTOLASERS

On February 11, 2015, the Company acquired all of the capital stock of FEMTOLASERS Produktions GmbH (FEMTOLASERS).  The initial purchase price of €9.1 million was paid in cash at closing and is subject to a net asset adjustment.  Based on the preliminary financial information provided by FEMTOLASERS, the Company estimated an initial net asset adjustment to the purchase price of approximately €1.6 million during the first quarter of 2015.  Based on additional information obtained during the second quarter, the Company estimated a revised net asset adjustment of €2.1 million, resulting in a purchase price of €7.0 million (approximately $7.9 million).  The final amount of this net asset adjustment is subject to agreement between the Company and the FEMTOLASERS selling shareholders, which the Company expects to finalize during the second half of 2015.  Of the initial purchase price, €2.3 million was deposited at closing into escrow until thirty months after closing, to secure certain obligations of the FEMTOLASERS selling shareholders under the share purchase agreement, including the net asset adjustment.  The Company incurred $0.4 million in transaction costs, which have been expensed as incurred and are included in selling, general and administrative expenses in the statements of income and comprehensive income.  FEMTOLASERS expands the Company’s offering of ultrafast laser products and enhances its technology base in this area.  The results of FEMTOLASERS have been included in the results of the Company’s Lasers Group as of the acquisition date.Immediately following the closing of the acquisition, the Company repaid €3.6 million (approximately $4.0 million) of FEMTOLASERS’ outstanding loans that were assumed as part of the acquisition.

The consideration paid by the Company for the acquisition of FEMTOLASERS 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.   The Company had made an estimated allocation of the purchase price in the first quarter of 2015.  Based on additional information obtained during the second quarter of 2015, the Company refined the values assigned to assets, liabilities and the amount of goodwill.  The second quarter adjustments in the table below were not material and therefore, they were recorded in the second quarter rather than retroactively.  As discussed above, the Company has not yet finalized the purchase price.  Any changes during the measurement period may have a further impact on goodwill.

(In thousands)	Estimated Allocation at April 4, 2015			Second Quarter Adjustments			Current Purchase Price Allocation
Assets acquired and liabilities assumed:
Cash	$	78		$	—		$	78
Accounts receivable	2,007			(39		)	1,968
Inventories	2,315			444			2,759
Deferred tax assets	596			423			1,019
Other assets	2,057			(42		)	2,015
Goodwill	7,841			(1,160		)	6,681
Developed technology	1,811			—			1,811
In-process research and development	1,664			57			1,721
Other intangible assets	543			—			543
Accounts payable	(3,417		)	—			(3,417		)
Debt	(4,021		)	—			(4,021		)
Deferred tax liabilities	(1,005		)	(14		)	(1,019		)
Other liabilities	(1,974		)	(221		)	(2,195		)
	$	8,495		$	(552	)	$	7,943

The goodwill related to the acquisition of FEMTOLASERS has been allocated to the Company’s Lasers Group and will not be deductible for tax purposes.

The actual net sales and net loss of FEMTOLASERS from February 11, 2015, the closing date of the acquisition, that were included in the Company’s consolidated statements of income and comprehensive income for the three and six months ended July 4, 2015, are set forth in the table below.  Also set forth in the table below are the pro forma net sales and net income of the Company during the three and six months ended July 4, 2015 and June 28, 2014, including the results of FEMTOLASERS as though the acquisition had occurred at the beginning of 2014.  This supplemental pro forma financial information is presented for information purposes only and is not necessarily indicative of the results of operations that would have been achieved if the acquisition had occurred as of the beginning of 2014.

	Three Months Ended					Six Months Ended
	July 4,			June 28,		July 4,			June 28,
(Unaudited, in thousands)	2015			2014		2015			2014
Actual:
Net sales	$	1,973		$	—	$	2,323		$	—
Net loss attributable to Newport Corporation	$	(1,359	)	$	—	$	(1,819	)	$	—
Supplemental pro forma information:
Net sales	$	147,977		$	156,571	$	304,901		$	305,678
Net income attributable to Newport Corporation	$	6,146		$	8,865	$	14,806		$	16,599

For the purposes of determining pro forma net income, adjustments were made to actual net income of the Company for all periods presented in the table above.  The pro forma net income assumes that amortization of acquired intangible assets began at the beginning of 2014 rather than on February 11, 2015.  The result is a net increase in amortization expense of $0.1 million and $0.2 million for the three and six months ended June 28, 2014, respectively.  Transaction costs totaling $0.4 million, which were incurred prior to the closing of the acquisition, are excluded from pro forma net income.