ACQUISITION OF FEMTOLASERS

9 Months Ended

Oct. 03, 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.  The Company has estimated a 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 currently under negotiation between the Company and the FEMTOLASERS selling shareholders.  Of the initial purchase price, €2.3 million was deposited at closing into escrow until 30 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 expense 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.   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.

	October 3, 2015 Purchase Price Allocation
Assets acquired and liabilities assumed:
Cash	$	78
Accounts receivable	1,968
Inventories	2,759
Deferred tax assets	1,019
Other assets	2,015
Goodwill	6,681
Developed technology	1,811
In-process research and development	1,721
Other intangible assets	543
Accounts payable	(3,417		)
Debt	(4,021		)
Deferred tax liabilities	(1,019		)
Other liabilities	(2,195		)
	$	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 income (loss) of FEMTOLASERS from February 11, 2015, the closing date of the acquisition, were included in the Company’s consolidated statements of income and comprehensive income for the three and nine months ended October 3, 2015, and 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 nine months ended October 3, 2015 and September 27, 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				Nine Months Ended
	October 3,		September 27,		October 3,			September 27,
(Unaudited, in thousands)	2015		2014		2015			2014
Actual:
Net sales	$	2,166	$	—	$	4,489		$	—
Net income (loss) attributable to Newport Corporation	$	339	$	—	$	(1,480	)	$	—
Supplemental pro forma information:
Net sales	$	147,560	$	148,057	$	452,461		$	453,786
Net income attributable to Newport Corporation	$	7,121	$	9,025	$	21,926		$	25,624
Net income per share
Basic	$	0.18	$	0.23	$	0.56		$	0.64
Diluted	$	0.18	$	0.22	$	0.55		$	0.63

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 $0.4 million for the three and nine months ended September 27, 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.