<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
***
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 1997
---------------------------------------------
OR
[_] 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 0-1649
----------
NEWPORT CORPORATION
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Nevada 94-0849175
- --------------------------------------------------------------------------------
(State or other Jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
1791 Deere Avenue, Irvine, CA 92606
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (714) 863-3144
------------------------------
N/A
- --------------------------------------------------------------------------------
(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 X No
----- -----
The number of shares outstanding of each of the issuer's classes of common stock
as of March 31, 1997, was 8,918,483.
Page 1 of 13
Exhibit Index on Sequentially Numbered Page 12
<PAGE>
NEWPORT CORPORATION
INDEX
<TABLE>
<CAPTION>
Page Number
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1: Financial Statements:
Consolidated Statement of Income and Condensed
Consolidated Statement of Stockholders' Equity for
the Three Months ended March 31, 1997 and 1996. 3
Consolidated Balance Sheet at March 31, 1997 and
December 31, 1996. 4
Consolidated Statement of Cash Flows for the Three
Months ended March 31, 1997 and 1996. 5
Notes to Condensed Consolidated Financial Statements. 6
Item 2: Management's Discussion and Analysis of Financial
Condition and Results of Operations. 8
PART II. OTHER INFORMATION
Item 6: Exhibits and Reports on Form 8-K. 11
SIGNATURE 11
Exhibit Index 12
</TABLE>
2
<PAGE>
NEWPORT CORPORATION
CONSOLIDATED STATEMENT OF INCOME AND
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
(In thousands, except Three Months Ended
per share amounts) March 31,
---------------------
1997 1996
------- -------
<S> <C> <C>
Net sales $31,051 $27,979
Cost of sales 17,532 15,691
------- -------
Gross profit 13,519 12,288
Selling, general and administrative expense 8,766 8,755
Research and development expense 2,124 1,891
------- -------
Income from operations 2,629 1,642
Interest expense (510) (411)
Other income (expense), net (210) 155
------- -------
Income before income taxes 1,909 1,386
Income tax provision 649 444
------- -------
Net income $ 1,260 $ 942
------- -------
Net income per share $ 0.14 $ 0.11
------- -------
Number of shares used to calculate
net income per share 9,010 8,793
------- -------
Stockholders' equity, beginning of period $57,429 $52,687
Net income 1,260 942
Dividends - (173)
Unrealized translation loss (1,541) (688)
Unamortized deferred compensation (124) (164)
Repurchase of common stock (225) -
Issuance of common stock 433 508
------- -------
Stockholders' equity, end of period $57,232 $53,112
------- -------
</TABLE>
See accompanying notes
3
<PAGE>
NEWPORT CORPORATION
CONSOLIDATED BALANCE SHEET
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
-------- ---------
ASSETS (Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,450 $ 3,375
Customer receivables, net 23,435 23,418
Other receivables 645 2,075
Inventories 28,455 28,954
Deferred tax assets 3,004 3,004
Other current assets 1,924 1,703
-------- ---------
Total current assets 58,913 62,529
Investments and other assets 4,821 5,191
Property, plant and equipment, at cost, net 23,578 24,045
Goodwill, net 10,876 11,612
-------- ---------
$ 98,188 $103,377
-------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 5,600 $ 8,128
Accrued payroll and related expenses 4,166 4,879
Taxes based on income 1,898 1,373
Current portion of long-term debt 1,624 1,236
Other accrued liabilities 3,488 5,171
-------- --------
Total current liabilities 16,776 20,787
Long-term debt 23,131 23,464
Other liabilities 1,049 1,697
Commitments and contingencies
Stockholders' equity:
Common stock, $.35 stated value, 20,000,000 shares authorized; 8,918,000
shares issued and outstanding at March 31, 1997;
8,890,000 shares at December 31, 1996 3,120 3,110
Capital in excess of stated value 9,157 8,959
Unamortized deferred compensation (672) (548)
Unrealized translation loss (3,983) (2,442)
Retained earnings 49,610 48,350
-------- --------
Total stockholders' equity 57,232 57,429
-------- --------
$ 98,188 $103,377
======== ========
</TABLE>
See accompanying notes
4
<PAGE>
NEWPORT CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
(In thousands)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-----------------------
1997 1996
------ ------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 1,260 $ 942
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 1,371 1,243
Increase in provision for losses
on receivables and inventories 362 222
Other non-cash items, net (4) 82
Changes in operating assets and liabilities:
Receivables (410) 2,022
Inventories (381) (2,443)
Prepaid expenses (430) (372)
Other assets 430 -
Accounts payable and other accrued expenses (2,885) (1,111)
Taxes based on income 530 256
Other, net - (360)
------- -------
Net cash provided by (used in) operating activities (157) 481
------- -------
INVESTING ACTIVITIES:
Purchases of property, plant and equipment, net (1,206) (1,026)
Acquisition of businesses, net of cash acquired (879) (4,442)
Other, net (86) -
------- -------
Net cash used in investing activities (2,171) (5,468)
------- -------
FINANCING ACTIVITIES:
Increase (decrease) in short-term borrowings 508 (6,473)
Increase (decrease) in long-term borrowings (156) 11,749
Cash dividends paid (177) (173)
Repurchase of common stock (225) -
Issuance of common stock under employee
agreements, including associated tax benefit 257 299
------- -------
Net cash provided by financing activities 207 5,402
------- -------
Effect of foreign exchange rate changes on cash 196 28
------- -------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (1,925) 443
Cash and cash equivalents at beginning of period 3,375 1,524
------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,450 $ 1,967
======= =======
CASH PAID IN THE PERIOD FOR:
Interest $ 47 $ 350
Taxes 133 228
</TABLE>
See accompanying notes
5
<PAGE>
NEWPORT CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997
(UNAUDITED)
1. INTERIM REPORTING
GENERAL
The accompanying unaudited financial statements consolidate the accounts of the
Company and its wholly-owned subsidiaries and have been prepared in accordance
with generally accepted accounting principles for interim financial information.
The accounts of the Company's subsidiaries in Europe have been consolidated
using a one-month lag.
In the opinion of management, all adjustments necessary for a fair presentation
of the information in the unaudited condensed consolidated financial statements
have been made and consist of only normal recurring accruals. Operating results
for the three-month period ended March 31, 1997, are not necessarily indicative
of the results that may be expected for the year ending December 31, 1997.
Although the Company believes that the disclosures in these financial statements
are adequate to make the information presented not misleading, certain
information and footnotes normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to rules and regulations of the Securities and Exchange
Commission, and consequently, these statements should be read in conjunction
with the Company's consolidated financial statements and notes thereto,
contained in the Company's Annual Report on Form 10-K for the year ended
December 31, 1996.
EARNINGS PER SHARE
Earnings per share is based on the weighted average number of shares of common
stock and the dilutive effects of common stock equivalents (stock options),
determined using the treasury stock method.
FOREIGN CURRENCY
Balance sheet accounts denominated in foreign currencies are translated at
exchange rates as of the date of the balance sheet and income statement accounts
are translated at average exchange rates for the period. Translation gains and
losses are accumulated as a separate component of stockholders' equity. The
Company has adopted local currencies as the functional currencies for its
subsidiaries because their principal economic activities are most closely tied
to the respective local currencies.
The Company may enter into foreign exchange contracts as a hedge against foreign
currency denominated receivables. It does not engage in currency speculation.
Market value gains and losses on contracts are recognized currently, offsetting
gains or losses on the associated receivables. Foreign currency transaction
gains and losses are included in current earnings. Foreign exchange contracts
totaled $4.8 million and $1.2 million at March 31, 1997, and December 31, 1996,
respectively.
2. CUSTOMER RECEIVABLES
Customer receivables consist of the following:
<TABLE>
<CAPTION>
March 31, December 31,
(In thousands) 1997 1996
--------- ------------
<S> <C> <C>
Customer receivables $23,925 $23,942
Less allowance for doubtful accounts 490 524
------- -------
$23,435 $23,418
======= =======
</TABLE>
The Company maintains adequate reserves for potential credit losses. Such losses
have been minimal and within management's estimates. Receivables from customers
are generally unsecured.
6
<PAGE>
NEWPORT CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
MARCH 31, 1997
(UNAUDITED)
3. INVENTORIES
Inventories are stated at cost, determined on either a first-in, first-out
(FIFO) or average cost basis and do not exceed net realizable value.
Inventories consist of the following:
<TABLE>
<CAPTION>
March 31, December 31,
(In thousands) 1997 1996
--------- ------------
<S> <C> <C>
Raw materials and purchased parts $10,944 $10,705
Work in process 4,238 4,998
Finished goods 13,273 13,251
------- -------
$28,455 $28,954
======= =======
</TABLE>
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
<TABLE>
<CAPTION>
March 31, December 31,
(In thousands) 1997 1996
--------- ------------
<S> <C> <C>
Land $ 2,041 $ 2,155
Buildings 12,251 12,896
Leasehold improvements 8,398 8,462
Machinery and equipment 22,749 22,643
Office equipment 9,783 9,734
------- -------
55,222 55,890
Less accumulated depreciation 31,644 31,845
------- -------
$23,578 $24,045
======= =======
</TABLE>
5. OTHER INCOME (EXPENSE), NET
Other income (expense), net, consists of the following:
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
(In thousands) 1997 1996
--------- -------
<S> <C> <C>
Interest and dividend income $ 44 $ 10
Exchange gains (losses), net (293) 89
Other 39 56
------- -------
$ (210) $ 155
======= =======
</TABLE>
7
<PAGE>
NEWPORT CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1997 AND MARCH 31, 1996
INTRODUCTORY NOTE
This Form 10-Q contains certain forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934 and the Company intends that such forward-looking
statements be subject to the safe harbors created thereby. These forward-looking
statements include (i) the existence and development of the Company's technical
and manufacturing capabilities, (ii) anticipated competition, (iii) potential
future growth in revenues and income, (iv) potential future decreases in costs,
and (v) the need for, and availability of, additional financing.
The forward-looking statements included herein are based on current expectations
that involve a number of risks and uncertainties. These forward-looking
statements are based on assumptions that the Company will not lose a significant
customer or customers or experience increased fluctuations of demand or
rescheduling of purchase orders, that the Company's markets will continue to
grow, that the Company's products will remain accepted within their respective
markets and will not be replaced by new technology, that competitive conditions
within the Company's markets will not change materially or adversely, that the
Company will be successful in integrating the operations of its MikroPrecision
Instruments, Inc. subsidiary with the rest of the Company's operations, that the
Company will retain key technical and management personnel, that the Company's
forecasts will accurately anticipate market demand, that there will be no
material adverse change in the Company's operations or business, that
fluctuations in foreign currency exchange rates do not have a material adverse
impact on the Company's competitive position in international markets and that
the Company will not experience significant supply shortages with respect to
purchased components, sub-systems or raw materials. Additional factors that may
affect future operating results are discussed in more detail in the Company's
Annual Report on Form 10-K for the year ended December 31, 1996. Assumptions
relating to the foregoing involve judgments with respect to, among other things,
future economic, competitive and market conditions, and future business
decisions, all of which are difficult or impossible to predict accurately and
many of which are beyond the control of the Company. Although, the Company
believes that the assumptions underlying the forward-looking statements will be
realized. In addition, the business and operations of the Company are subject to
substantial risks which increase the uncertainty inherent in the forward-looking
statements. In light of the significant uncertainties inherent in the
forward-looking information included herein, the inclusion of such information
should not be regarded as a representation by the Company or any other person
that the objectives or plans of the Company will be achieved.
The following is management's discussion and analysis of certain significant
factors which have affected the earnings and financial position of the Company
during the period included in the accompanying financial statements. This
discussion compares the three-month period ended March 31, 1997, with the
three-month period ended March 31, 1996. This discussion should be read in
conjunction with the financial statements and associated notes.
8
<PAGE>
NEWPORT CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
MARCH 31, 1997
(UNAUDITED)
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
Period-to-Period
FINANCIAL ANALYSIS Percentage of Net Sales Increase (Decrease)
---------------------------- ----------------------------
Three months ended March 31, Three months ended March 31,
1997 1996 1997
----- ---- ----
<S> <C> <C> <C>
Net sales 100.0% 100.0% 11 .0 %
Cost of sales 56.5 56.1 11 .7
----- -----
Gross profit 43.5 43.9 10 .0
Selling, general and
administrative expense 28.2 31.3 0 .1
Research and
development expense 6.8 6.7 12 .3
----- -----
Income from operations 8.5 5.9 60.1
Interest expense (1.6) (1.5) 24.1
Other income (expense), net (0.7) 0.6 (235.5)
Income taxes (2.1) (1.6) 46.2
----- -----
Net income 4.1 3.4 33.8
===== =====
</TABLE>
NET SALES
Net sales for the three-month period ended March 31, 1997, were $31.1 million,
compared with $28.0 million for the three-month period ended March 31, 1996, an
increase of 11.0%. The increase is principally attributable to sales growth
totaling $3.3 million in the U.S. primarily in the Company's targeted market
segments, specifically fiber optic communications, semiconductor test equipment
and computer peripherals.
The Company's domestic sales totaled $19.1 million for the three-month period
ended March 31, 1997, compared with $15.8 million for the three months ended
March 31, 1996, an increase of 20.9%. The increase is principally attributable
to an 89.7% revenue increase ($1.3 million) at MikroPrecision and overall sales
growth of 11.9% in other product lines.
International sales of the Company were $12.0 million for the three-month period
ended March 31, 1997, compared with $12.2 million for the three months ended
March 31, 1996, a decrease of 1.6%. The decrease from the prior year results
from a negative exchange rate effect ($0.6 million) and lower volume in France
($0.3 million) which more than offset growth in the German and United Kingdom
markets ($0.8 million). Sales to the Pacific Rim region were essentially equal
to those in the corresponding 1996 period.
The order rates for the U.S.and the Pacific Rim region remain moderately strong,
however, the order rate in Europe continues to be sluggish. Overall, management
anticipates additional sales growth in 1997 from increased sales to the
Company's three strategic markets: fiber optic communications, semiconductor
test equipment and computer peripherals.
GROSS PROFIT
Gross profit increased 10.0% on a sales increase of 11.0% for the three-month
period ended March 31, 1997, compared with the three-month period ended March
31, 1996. However, the margin decreased 0.4% to 43.5% for the three-month period
ended March 31, 1997, compared with 43.9% for the three-month period ended March
31, 1996. This decrease is attributable primarily to the high growth in sales of
products manufactured by MikroPrecision, which typically have lower margins than
the Company's other products. Management anticipates that, despite the fact that
MikroPrecision's lower margin products are expected to comprise an increasing
proportion of the Company's net sales, the Company's overall gross margin will
improve in 1997 as a result of increased sales volume and continued productivity
improvements Company-wide.
9
<PAGE>
NEWPORT CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONT'D)
THREE MONTHS ENDED MARCH 31, 1997 AND MARCH 31, 1996
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative (SG&A) expenses for the three-month period
ended March 31, 1997, increased a nominal 0.1% compared with the three-month
period ended March 31, 1996. The SG&A expenses when stated as a percentage of
sales were 28.2%, compared with 31.3% for the prior year period. SG&A expenses
were maintained at prior year levels in part because of a favorable exchange
rate effect and cost control actions.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses for the three-month period ended March 31,
1997, increased 12.3% compared with the three-month period ended March 31, 1996.
This increase is principally attributable to costs associated with the continued
development of new products for the Company's targeted strategic markets as well
as for the research market. As a percentage of sales R&D expenses were slightly
higher at 6.8% versus 6.7% for the prior year period. The Company intends to
increase R&D spending by approximately $1.5 million in 1997 over 1996 reflecting
its commitment to continued product development and enhancement of existing
products.
INTEREST EXPENSE AND OTHER INCOME (EXPENSE), NET
Interest expense totaled $0.5 million and $0.4 million for the three-month
periods ended March 31, 1997 and 1996, respectively. Management anticipates that
interest expense will remain at a comparable level in subsequent 1997 quarters.
Other income (expense), net was a $0.2 million loss for the three-month period
ended March 31, 1997, versus a $0.2 million gain for the corresponding 1996
period. This change was primarily attributable to foreign exchange losses
totaling $0.3 million in the first three months of 1997 compared with a $0.1
million foreign exchange gain in the prior year period.
PROVISION FOR TAXES
The effective tax rates for the quarters ended March 31, 1997 and 1996, were
34% and 32% respectively.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operating activities totaled $0.2 million for the three-month
period ended March 31, 1997. Cash utilized by changes in operating assets and
liabilities exceeded amounts provided by the Company's operating income and
non-cash items (principally, depreciation and amortization).
Net cash used in investing activities of $2.2 million for the three-month period
ended March 31, 1997, was principally attributable to the Company's purchases of
property, plant and equipment and acquisition of businesses.
Net cash provided by financing activities of $0.2 million for the three-month
period ended March 31, 1997, was principally attributable to the increase in
borrowings and issuance of common stock under the employee stock purchase plan,
partially offset by repurchase of common stock and dividend payments.
The Company believes its current working capital position together with
estimated cash flows from operations and its existing credit availability are
adequate to fund operations in the ordinary course of business, anticipated
capital expenditures and debt repayment requirements over at least the next
year.
Although the Company has no present agreements or commitments with respect to
any material acquisitions of other businesses, products, product rights or
technologies, the Company continues to evaluate acquisitions of products,
technologies or companies that complement the Company's business and may make
such acquisitions in the future, and there can be no assurance that the Company
will not need to obtain additional sources of capital to finance any such
acquisitions.
10
<PAGE>
NEWPORT CORPORATION
PART II. OTHER INFORMATION
Item 6. Exhibits and reports on Form 8-K.
(a) Exhibits
Exhibit 27 Financial Data Schedule
(b) Reports on Form 8-K
Current report on Form 8-K filed with the commission April 2,
1997, reporting pursuant to Item 5 that the Company's Board of
Directors had approved the repurchase of up to 90,000 shares of
the Company's common stock.
SIGNATURE
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.
NEWPORT CORPORATION
(Registrant)
Dated: May 5, 1997
By: /s/ ROBERT C. HEWITT
-------------------------------------
Robert C. Hewitt, Principal Financial
Officer, duly authorized to sign on
behalf of the Registrant
11
<PAGE>
NEWPORT CORPORATION
EXHIBIT INDEX
-------------
<TABLE>
<CAPTION>
Sequential
Page Number
-----------
<S> <C> <C>
Exhibit 27 Financial Data Schedule 13
</TABLE>
12
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONSOLIDATED STATEMENTS OF INCOME, CONSOLIDATED BALANCE SHEETS AND
CONSOLIDATED STATEMENTS OF CASH FLOWS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS CONTAINED WITHIN THE COMPANY'S FORM
10-Q FOR THE PERIOD ENDED MARCH 31, 1997.
</LEGEND>
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<EXCHANGE-RATE> 1,000
<CASH> 1,450
<SECURITIES> 0
<RECEIVABLES> 23,925
<ALLOWANCES> 490
<INVENTORY> 28,455
<CURRENT-ASSETS> 58,913
<PP&E> 55,222
<DEPRECIATION> 31,644
<TOTAL-ASSETS> 98,188
<CURRENT-LIABILITIES> 16,776
<BONDS> 23,131
0
0
<COMMON> 3,120
<OTHER-SE> 54,112
<TOTAL-LIABILITY-AND-EQUITY> 98,188
<SALES> 31,051
<TOTAL-REVENUES> 31,051
<CGS> 17,532
<TOTAL-COSTS> 17,532
<OTHER-EXPENSES> 10,890
<LOSS-PROVISION> 210
<INTEREST-EXPENSE> 510
<INCOME-PRETAX> 1,909
<INCOME-TAX> 649
<INCOME-CONTINUING> 1,260
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,260
<EPS-PRIMARY> 0.14
<EPS-DILUTED> 0.14
</TABLE>
