NOTE 2 ACQUISITIONS, DIVESTITURES AND INVESTMENTS

Acquisition of Opticoat

On December 29, 2011, the Company acquired substantially all of the assets of Opticoat SRL (Opticoat) for a purchase price of $3.0 million in cash, of which $2.0 million was paid upon the closing and $1.0 million was held back to secure certain obligations of Opticoat under the acquisition agreement. In the absence of any indemnification claims, the Company will pay $850 thousand of the amount held back to Opticoat in 2012 and the remaining $150 thousand in 2013. The present value of these payments was determined to be $2.9 million. The Company 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 statements of operations. This acquisition expands the Company's capabilities and capacity in the manufacturing of precision optical components and coatings.

Acquisition of Ophir

On October 4, 2011, the Company acquired all of the outstanding capital stock of Ophir for $242.3 million in cash, of which $242.1 million was allocated to the purchase price and $0.2 million was allocated to the fair value of unearned compensation related to unvested stock options. The Company funded the purchase price with a combination of $162.8 million of cash on hand and $79.5 million of the net proceeds received from the senior secured credit facility obtained by the Company in October 2011 as described more fully in Note 8 below. After considering the cash held by Ophir as of the closing date, the net cash used by the Company for this transaction was $219.2 million. The Company incurred $4.7 million in transaction costs, which have been expensed as incurred and are included in selling, general and administrative expenses in the accompanying statements of operations. This acquisition adds precision infrared optics, laser measurement instrumentation and three-dimensional non-contact measurement equipment to the Company's product offerings.

Acquisition of High Q

On July 29, 2011, the Company acquired all of the capital stock of High Q Technologies GmbH (High Q). The total purchase price was $18.5 million, consisting of an initial purchase price of $17.2 million, $2.9 million of which was deposited into escrow until December 31, 2013 to secure representations and warranties made by the sellers, and a subsequent payment of $1.3 million, which was paid to the sellers based on a calculation of High Q's net assets at closing. After considering the cash held by High Q as of the closing date, the net cash used by the Company for this transaction was $12.5 million. 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 accompanying statements of operations. This acquisition broadens the Company's ultrafast laser capabilities, particularly for applications in the life and health sciences and industrial markets, and expands the Company's presence in European laser markets.

Prior to the closing of the acquisition, High Q sold the building that houses its corporate headquarters and its operations to a company established by the then-largest shareholder of High Q for €3.5 million ($4.5 million as of December 31, 2011), and leased the building from the purchaser for a period of at least ten years. High Q financed the purchase price of the building pursuant to a loan agreement with the purchaser that is secured by a mortgage on the building in favor of High Q. Such loan will be repaid over ten years and accrues interest at an annual rate of 2.0%. The principal balance of the loan was €3.4 million ($4.4 million) as of December 31, 2011. As of December 31, 2011, the current portion of the loan was $0.3 million and was included in prepaid expenses and other current assets and the long-term portion of the loan was $4.1 million and was included in other assets.

Purchase Price Allocation for 2011 Acquisitions

The consideration paid by the Company for its acquisitions 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 estimated fair values of intangible assets acquired were determined using an income approach. 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)	Ophir			High Q			Opticoat			Total
Assets acquired and liabilities assumed:
Cash	$	23,233		$	5,989		$	—		$	29,222
Goodwill		66,524			6,745			1,302			74,571
Developed technology		41,530			6,300			705			48,535
In-process research and development		9,560			—			—			9,560
Customer relationships		56,640			1,350			148			58,138
Other intangible assets		13,970			4,170			—			18,140
Property and equipment		41,652			1,436			917			44,005
Other assets		67,497			15,505			—			83,002
Liabilities		(76,446	)		(22,990	)		(137	)		(99,573	)
Non-controlling interests		(2,076	)		—			—			(2,076	)

	$	242,084		$	18,505		$	2,935		$	263,524

For the Company's Ophir acquisition, the $66.5 million of goodwill has been allocated to the Company's newly created Ophir Division and will not be deductible for tax purposes. For the Company's High Q acquisition, the $6.7 million of goodwill has been allocated to the Company's Lasers Division, a portion of which will be deductible for Austrian tax purposes. For the Company's Opticoat acquisition, the $1.3 million of goodwill has been allocated to the Company's Ophir Division and will not be deductible for tax purposes.

Pro Forma Results

The actual net sales and net income of Ophir, High Q and Opticoat, from the respective closing dates of the acquisitions, that were included in the Company's consolidated statements of operations for the year ended December 31, 2011 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 such periods, including the results of the acquired businesses as though each acquisition had occurred at the beginning of 2009. 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 each reporting period.


	Year Ended
(Unaudited, in thousands)	December 31, 2011			January 1, 2011		January 2, 2010
Actual:
Net sales	$	43,108		$	—	$	—
Net loss attibuatable to Newport Corporation	$	(5,265	)	$	—	$	—
Supplemental pro forma information:
Net sales	$	661,308		$	601,855	$	478,776
Net income (loss) attibuatable to Newport Corporation	$	71,397		$	36,909	$	(31,992	)

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 excludes historical intangible asset amortization of $4.6 million in 2011 and replaces it with amortization of acquired identifiable intangible assets of $12.9 million, $12.7 million and $16.4 million for 2011, 2010 and 2009, respectively. In addition, $4.2 million in charges to cost of sales related to inventory that was marked up to fair value for purchase accounting were added back to 2011 pro forma net income and subtracted from 2009 pro forma net income. Transaction costs totaling $5.2 million, which were incurred prior to the closing of each acquisition, are also excluded from pro forma net income.

Divestiture of Hilger Crystals Limited

On July 19, 2010, the Company sold all of the outstanding capital stock of its Hilger Crystals Limited subsidiary. The Company received $4.0 million in cash as consideration for the sale. In addition, if Hilger Crystals Limited achieves certain specified revenue targets in the 18-month period following the closing date, the Company could receive up to an additional $0.75 million in cash. The achievement of such revenue targets is expected to be determined in the second quarter of 2012.

The Company recognized a net loss of $0.5 million related to this transaction in 2010. The net asset value of Hilger Crystals Limited at the time of the sale was $2.5 million, including $0.6 million of goodwill allocated to the business, and the Company incurred charges totaling $1.4 million related to the pension plan associated with the business (see Note 14 for additional detail), a charge of $0.4 million to write off an inter-company receivable that will not be repaid by the new owner and $0.2 million in legal and consulting fees related to this transaction. Such net loss has been included in loss on sale of assets and related costs in the accompanying consolidated statements of operations. In addition, the Company recognized $0.6 million in previously unrealized foreign currency losses as a non-operating expense upon the disposition of this business, which are included in interest and other expense, net in the accompanying consolidated statements of operations.

The assets of the Hilger Crystals business had previously been included in the Company's PPT Division. Below is a summary of the assets and liabilities disposed of:


(In thousands)
Assets and liabilities disposed of:
Current assets	$	1,714
Other assets		1,775
Current liabilities		(1,020	)

	$	2,469

Acquisition of New Focus and Divestiture of Diode Laser Operations

On July 4, 2009, the Company completed an asset exchange transaction with Oclaro, Inc. (Oclaro), pursuant to which the Company acquired certain assets and assumed certain liabilities related to Oclaro's New Focus™ business, and sold certain assets and transferred certain liabilities related to its diode laser operations based in Tucson, Arizona to Oclaro. The acquisition of the New Focus business expanded the Company's product offerings to include a number of new high-performance products, including opto-electronics, high-resolution actuators, high-speed detectors and modulators, opto-mechanics, tunable lasers, and custom-engineered solutions designed for OEM customers.

The fair value of the New Focus business on the acquisition date was $14.1 million, and the purchase price was paid by the transfer to Oclaro of the Company's diode laser assets and liabilities, which had a fair value of $11.1 million, and the payment of $3.0 million in cash. The Company incurred $0.2 million in acquisition related expenses, which have been expensed as incurred and are included in selling, general and administrative expenses in the accompanying statements of operations.

Below is a summary of the purchase price, assets acquired and liabilities assumed:


(In thousands)
Assets acquired and liabilities assumed:
Current assets	$	8,930
Goodwill		1,392
Purchased intangible assets		4,830
Other assets		1,247
Current liabilities		(2,299	)

	$	14,100

The $1.4 million of goodwill has been allocated to the Company's PPT Division and will be deductible for tax purposes, as this was an asset acquisition.

The Company's diode laser assets had a net book value of $14.9 million, which resulted in a loss of $4.4 million after considering the fair value of these assets of $11.1 million and selling costs of $0.6 million. This loss has been included in loss on sale of assets and related costs in the Company's consolidated statements of operations. These assets had previously been included in the Company's Lasers Division. Below is a summary of the assets and liabilities disposed of:


(In thousands)
Assets and liabilities disposed of:
Current assets	$	11,043
Other assets		5,106
Current liabilities		(1,284	)

	$	14,865