<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 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, 1999
--------------
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 (IRS 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 (949) 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, 1999, was 9,183,773
Page 1 of 15
Exhibity Index on Sequentially Numbered Page 14
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NEWPORT CORPORATION
INDEX
PART I. FINANCIAL INFORMATION Page Number
Item 1: Financial Statements:
Consolidated Income Statement and Condensed
Consolidated Statement of Stockholders' Equity for the
Three Months ended March 31, 1999 and 1998. 3
Consolidated Balance Sheet at March 31, 1999 and
December 31, 1998. 4
Consolidated Statement of Cash Flows for the
Three Months ended March 31, 1999 and 1998. 5
Notes to Condensed Consolidated Financial Statements. 6-8
Item 2: Management's Discussion and Analysis of Financial
Condition and Results of Operations. 9-13
Item 3: Quantitative and Qualitative Disclosures About Market Risk 13-14
PART II. OTHER INFORMATION
Item 6: Exhibits and Reports on Form 8-K. 14
SIGNATURE 14
Page 2
<PAGE>
NEWPORT CORPORATION
Consolidated Income Statement and
Condensed Consolidated Statement of Stockholders' Equity
(Unaudited)
<TABLE>
<CAPTION>
(In thousands, except per share amounts) Three Months Ended
March 31,
--------------------
1999 1998
--------- --------
<S> <C> <C>
Net sales $29,448 $33,663
Cost of sales 16,639 19,183
------- -------
Gross profit 12,809 14,480
Selling, general and administrative expense 7,895 8,312
Research and development expense 3,006 2,772
------- -------
Income from operations 1,908 3,396
Interest expense (448) (508)
Other income (expense), net (190) 63
------- -------
Income before income taxes 1,270 2,951
Income tax provision 356 945
------- -------
Net income $ 914 $ 2,006
======= =======
Net income per share:
Basic $0.10 $0.22
Diluted $0.10 $0.21
Number of shares used to calculate net income per share:
Basic 9,069 8,919
Diluted 9,407 9,377
Stockholders' equity, beginning of period $70,970 $60,658
Net income 914 2,006
Unrealized translation loss (1,456) (455)
Unamortized deferred compensation 54 (207)
Repurchase of common stock (143) -
Issuance of common stock 1,083 1,734
------- -------
Stockholders' equity, end of period $71,422 $63,736
======= =======
</TABLE>
See accompanying notes
Page 3
<PAGE>
NEWPORT CORPORATION
Consolidated Balance Sheet
<TABLE>
<CAPTION>
(In thousands, except share data)
March 31, December 31,
1999 1998
----------- -------------
ASSETS (Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 3,627 $ 5,335
Customer receivables, net 24,263 25,798
Other receivables 2,494 2,367
Inventories 32,874 31,260
Deferred tax assets 2,679 2,703
Other current assets 1,748 1,643
-------- --------
Total current assets 67,685 69,106
Investments and other assets 6,881 6,451
Property, plant and equipment, at cost, net 21,941 22,696
Goodwill, net 11,609 12,220
-------- --------
$108,116 $110,473
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 5,400 $ 6,180
Accrued payroll and related expenses 4,818 5,566
Current portion of long-term debt 3,695 3,699
Other current liabilities 4,124 5,163
-------- --------
Total current liabilities 18,037 20,608
Long-term debt 17,250 17,536
Other liabilities 1,407 1,359
Commitments and contingencies
Stockholders' equity:
Common stock, $.35 stated value, 20,000,000 shares authorized;
9,184,000 shares issued and outstanding at March 31, 1999;
9,119,000 shares at December 31, 1998 3,214 3,192
Capital in excess of stated value 9,491 8,573
Unamortized deferred compensation (494) (548)
Unrealized translation loss (5,372) (3,916)
Retained earnings 64,583 63,669
-------- --------
Total stockholders' equity 71,422 70,970
-------- --------
$108,116 $110,473
======== ========
</TABLE>
See accompanying notes
Page 4
<PAGE>
NEWPORT CORPORATION
Consolidated Statement of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended,
March 31
-------------------
(In thousands) 1999 1998
-------- --------
<S> <C> <C>
Operating activities:
Net income $ 914 $ 2,006
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 1,466 1,608
Increase (decrease) in provision for losses
on receivables and inventories (86) 396
Other non-cash items, net (3) 59
Changes in operating assets and liabilities:
Receivables 846 (556)
Inventories (1,962) (1,736)
Other current assets (244) (318)
Other assets 95 360
Accounts payable and other accrued expenses (1,884) (644)
Taxes based on income (105) (515)
------- -------
Net cash provided by (used in) operating activities (963) 660
------- -------
Investing activities:
Purchases of property, plant and equipment (1,092) (1,396)
Disposition of property, plant and equipment 79 1,857
Other, net (390) 12
------- -------
Net cash provided by (used in) investing activities (1,403) 473
------- -------
Financing activities:
Increase in short-term borrowings - 651
Decrease in long-term borrowings (141) (157)
Cash dividends paid (182) (180)
Repurchase of common stock (143) -
Issuance of common stock under employee
agreements, including associated tax benefit 1,083 1,467
------- -------
Net cash provided by financing activities 617 1,781
------- -------
Effect of foreign exchange rate changes on cash 41 (1)
------- -------
Net increase (decrease) in cash and cash equivalents (1,708) 2,913
Cash and cash equivalents at beginning of period 5,335 7,456
------- -------
Cash and cash equivalents at end of period $ 3,627 $10,369
======= =======
Cash paid in the period for:
Interest $ 85 $ 51
Taxes 494 1,103
</TABLE>
See accompanying notes
Page 5
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NEWPORT CORPORATION
Notes to condensed Consolidated Financial Statements
March 31, 1999
(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, 1999, are not necessarily indicative
of the results that may be expected for the year ending December 31, 1999.
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, 1998.
Net Income per Share
Basic net income per share is based on the weighted average number of shares of
common stock outstanding during the period, excluding restricted stock, while
diluted net income per share is based on the weighted average number of shares
of common stock outstanding during the period and the dilutive effects of common
stock equivalents (mainly stock options), determined using the treasury stock
method, outstanding during the period.
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 $4.5 million and $4.2 million at March 31, 1999, and December 31, 1998,
respectively.
2. Customer Receivables
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.
Customer receivables consist of the following:
<TABLE>
<CAPTION>
March 31, December 31,
(In thousands) 1999 1998
--------- ------------
<S> <C> <C>
Customer receivables $24,532 $26,077
Less allowance for doubtful accounts 269 279
------- -------
$24,263 $25,798
======= =======
</TABLE>
Page 6
<PAGE>
NEWPORT CORPORATION
Notes to condensed Consolidated Financial Statements
March 31, 1999
(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) 1999 1998
---------- -------------
<S> <C> <C>
Raw materials and purchased parts $11,303 $12,412
Work in process 6,705 5,301
Finished goods 14,866 13,547
------- -------
$32,874 $31,260
======= =======
</TABLE>
4. Property, Plant and Equipment
Property plant and equipment consist of the following:
<TABLE>
<CAPTION>
March 31, December 31,
(In thousands) 1999 1998
--------- ------------
<S> <C> <C>
Land $ 1,183 $ 1,287
Buildings 6,634 7,218
Leasehold improvements 8,552 8,715
Machinery and equipment 23,915 24,063
Office equipment 11,808 11,715
------- -------
52,092 52,998
Less accumulated depreciation 30,151 30,302
------- -------
$21,941 $22,696
======= =======
</TABLE>
5. Other Income (Expense), Net
Other income (expense), net, consists of the following:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-----------------------
(In thousands) 1999 1998
------- -------
<S> <C> <C>
Interest and dividend income $ 49 $ 86
Exchange losses, net (212) (44)
Other (27) 21
------- -------
$ (190) $ 63
======= =======
</TABLE>
Page 7
<PAGE>
NEWPORT CORPORATION
Notes to condensed Consolidated Financial Statements
March 31, 1999
(Unaudited)
6. Comprehensive Income (Loss)
The components of comprehensive income (loss), net of related tax, are as
follows:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
---------
(In thousands) 1999 1998
-------- ----------
<S> <C> <C>
Net income $ 914 $2,006
Unrealized translation loss (1,456) (455)
------- ------
$ (542) $1,551
======= ======
</TABLE>
7. Segment Reporting
Selected financial information for the Company's reportable segments for the
three months ended March 31, 1999 and 1998 follows:
<TABLE>
<CAPTION>
(In thousands) Components Instruments
and and
Subassemblies Systems Europe Total
------------- ------------ ------- -------
<S> <C> <C> <C> <C>
Three Months Ended March 31, 1999:
- ----------------------------------
Sales to external customers $ 9,540 $12,366 $6,132 $28,038
Intersegment sales 1,330 1,928 1,716 4,974
Segment income (loss) 2,543 (656) (49) 1,838
Three Months Ended March 31, 1998:
- ----------------------------------
Sales to external customers $11,209 $14,904 $6,936 $33,049
Intersegment sales 1,559 1,438 1,681 4,678
Segment income (loss) 3,282 475 (227) 3,530
</TABLE>
The following reconciles segment income to consolidated income before income
taxes.
<TABLE>
<CAPTION>
Three Months Ended
March 31,
---------
(In thousands) 1999 1998
------- ----------
<S> <C> <C>
Segment income (loss) $1,838 $3,530
Income from non reportable segments 152 16
Unallocated corporate and other operating expense (82) (150)
Interest expense (448) (508)
Other income (expense) (190) 63
------ ------
Income before income taxes $1,270 $2,951
====== ======
</TABLE>
Page 8
<PAGE>
NEWPORT CORPORATION
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Three Months Ended March 31, 1999 and 1998
INTRODUCTORY NOTE
This Quarterly Report on 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. For
this purpose, any statements contained in this Form 10-Q except for historical
information may be deemed to be forward-looking statements. Without limiting
the generality of the foregoing, words such as "may," "will," "expect,"
"believe," "anticipate," "intend," "could," "estimate," or "continue" or the
negative or other variations thereof or comparable terminology are intended to
identify forward-looking statements. These forward-looking statements include
(i) the existence and development of the Company's technical and manufacturing
capabilities and product offerings, (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 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, 1998. Assumptions
relating to the foregoing involve judgments with respect to, among other things,
future economic, competitive and market conditions, including those in Europe
and Asia and those related to its strategic markets, 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 that 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 Company
undertakes no obligation to revise the forward-looking statements contained
herein to reflect events or circumstances after the date hereof or to reflect
the occurrence of unanticipated events.
The following is management's discussion and analysis of certain significant
factors that 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, 1999, with the three-
month period ended March 31, 1998. This discussion should be read in
conjunction with the financial statements and associated notes.
Page 9
<PAGE>
NEWPORT CORPORATION
Management's Discussion and Analysis of
Financial Condition and Results of Operations (Cont'd)
Three Months Ended March 31, 1999 and 1998
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,
1999 1998 1998
----- ----- ------
<S> <C> <C> <C>
Net sales 100.0% 100.0% (12.5)%
Cost of sales 56.5 57.0 (13.3)
----- -----
Gross margin 43.5 43.0 (11.5)
Selling, general and
administrative expense 26.8 24.7 (5.0)
Research and
development expense 10.2 8.2 8.4
----- -----
Income from operations 6.5 10.1 (43.8)
Interest expense (1.5) (1.5) (11.8)
Other income (expense), net (0.7) 0.2 NM
Income taxes (1.2) (2.8) (62.3)
----- -----
Net income 3.1 6.0 (54.4)
===== =====
</TABLE>
NM = not meaningful
NET SALES
Net sales for the three-month period ended March 31, 1999 were $29.4 million
compared with $33.7 million for the three-month period ended March 31, 1998, a
decrease of 12.5% versus the prior year period. The sales decrease versus the
prior year quarter was primarily attributable to declines in sales to the
semiconductor equipment, computer peripherals, research and general metrology
markets of 40.9%, 19.0%, 17.5% and 13.8%, respectively. Partially offsetting
this decline was growth in sales to the fiber optic communications market of
38.3% compared with 1998's first quarter.
The Company's domestic sales totaled $17.9 million for the three-month period
ended March 31, 1999, compared with $21.9 million for the corresponding period
in 1998, a decrease of 18.3%. The decrease in domestic sales for the quarter
was evident in all of the Company's market segments, with the exception of the
fiber optic communications market. Lower sales in the semiconductor equipment
market was primarily caused by continued overcapacity and the resultant
reduction in demand for capital equipment, while a delay in the introduction of
the Company's new vision products constrained sales to the general metrology
market.
The Company's international sales totaled $11.5 million for the three-month
period ended March 31, 1999, compared with $11.8 million for the corresponding
prior year period, a decrease of 1.7%. European sales were down $1.2 million
for the quarter, a 16.0% decrease versus the respective prior year period.
Sales in France, Germany and the United Kingdom combined dropped $1.5 million
versus 1998's first quarter, while sales to Netherlands based customers grew
$0.4 million over the prior year quarter. Foreign exchange rate effects on
European sales were not significant for the quarter. Canadian sales for the
three-month period, reflecting the strength of the fiber optic communications
market, totaled $1.5 million, an increase of $1.0 million or 173.2% versus the
prior year quarter. Sales to the Asian markets increased 3.7% to $3.1 million
for the quarter, which is notable as this reverses a downward trend of the last
four quarters. Providing the quarterly growth versus prior year were Korea and
Australia with increases of $0.5 million and $0.2 million, respectively,
partially offset by sales declines in the ASEAN countries and Japan of $0.4
million and $0.2 million, respectively.
Order rates for the first quarter were 18.9% below the prior year period as
increases of 17.7% in the fiber optic communications market and 6.0% in the
general metrology market were offset by declines of 71.4%, 48.7% and 11.2% in
the semiconductor, computer peripherals and research markets, respectively.
Semiconductor equipment market orders in the first quarter 1998 included an
individual $4.0 million order. Excluding that order, the quarterly decline for
the semiconductor equipment market is approximately 18.1%.
Page 10
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NEWPORT CORPORATION
Management's Discussion and Analysis of
Financial Condition and Results of Operations (Cont'd)
Three Months Ended March 31, 1999 and 1998
Overall, management anticipates that net sales in 1999 will increase over 1998;
however, such growth may be affected by many factors, and cannot be assured.
GROSS PROFIT
Gross margin (gross profit as a percentage of sales) increased to 43.5% of sales
for the three-month period ended March 31, 1999, compared with 43.0% in the
comparable 1998 period. This increase in gross margin percentage reflects a
greater proportion of higher margin photonics product sales during the quarter.
Management anticipates that the Company's overall gross margin will improve in
1999 as a result of this product mix effect and continued productivity
improvements Company-wide.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative (SG&A) expenses for the three-month period
ended March 31, 1999, decreased 5.0% compared with the three-month period ended
March 31, 1998. The decrease in SG&A expenses is primarily a result of lower
costs for certain compensation and incentive plans that are tied to sales and
profit performance. SG&A expenses when stated as a percentage of sales were
26.8% compared with 24.7% for the prior year period.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development (R&D) expenses for the three-month period ended March
31, 1999, increased $0.2 million or 8.4% compared with the three-month period
ended March 31, 1998. As a percentage of sales, R&D expenses were 10.2% versus
8.2% for the prior year period. The increase in expenses is in line with
management's commitment to continued product development and enhancement of
existing products.
INTEREST EXPENSE AND OTHER INCOME (EXPENSE), NET
Interest expense totaled $0.4 million for the three-month period ended March 31,
1999 versus $0.5 million for the three-month period ended March 31, 1998. Other
income (expense), net was ($0.2 million) for the three-month period ended March
31, 1999 versus $0.1 million for the 1998 first quarter. The decline versus the
prior year quarter is primarily attributable to higher foreign exchange losses
related to the recent strengthening of the U.S. dollar against the euro.
PROVISION FOR TAXES
The effective annual tax rates for the three-month periods ended March 31, 1999
and March 31, 1998 were 28.0% and 32.0%, respectively. The lower 1999 first
quarter tax rate, compared with the 1998 first quarter tax rate, is primarily
the result of increased utilization of foreign tax loss carryforwards.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operating activities of $1.0 million for the three-month period
ended March 31, 1999 was principally attributable to payments on accounts
payable and other accrued expenses ($1.9 million) and increases in certain other
operating assets, principally inventories ($1.7 million). Partially offsetting
these amounts were the Company's net income ($0.9 million) and depreciation and
amortization ($1.5 million). Current assets totaled $67.7 million at March 31,
1999 and exceeded current liabilities ($18.0 million) at that date.
Net cash used in investing activities of $1.4 million for the three-month period
ended March 31, 1999, was principally attributable to the Company's purchases of
property, plant and equipment and the capitalization of certain software
development costs.
Net cash provided by financing activities of $0.6 million for the three-month
period ended March 31, 1999, was primarily due to the issuance of common stock
under employee agreements, partially offset by the repurchase of common stock
under the Company's share repurchase program, cash dividend payments and
payments on borrowings.
Page 11
<PAGE>
NEWPORT CORPORATION
Management's Discussion and Analysis of
Financial Condition and Results of Operations (Cont'd)
Three Months Ended March 31, 1999 and 1998
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.
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
and for the foreseeable future.
ADDITIONAL FACTORS THAT MAY AFFECT FUTURE OPERATING RESULTS
Impact of Year 2000
Certain business operations software programs were written using two digits
rather than four to define the applicable year. As a result, those software
programs are time-sensitive and recognize a date using "00" as the year 1900
rather than the year 2000. This could cause a system failure or miscalculations
causing disruptions of operations, including but not limited to, a temporary
inability to process transactions, send invoices, or engage in similar normal
business activities.
The Company initiated a review of its business operations software requirements
in early 1996 as part of the normal course of upgrading its systems to support
current and anticipated growth. Among the criteria for acquiring new or
upgraded software was that it be Year 2000 compliant. In 1997 the Company
acquired new operating software that is Year 2000 compliant. Testing and
implementation occurred throughout 1998 with final conversion at year-end. Cost
of acquiring the upgraded computer hardware and software was approximately $1.2
million and has been capitalized.
Newport sells certain products that include various software applications. The
Company has determined that, since January 1, 1996, its product software has
been Year 2000 compliant. The Company has also requested assurance from its
goods and services providers that they are, or have programs in place to be,
Year 2000 compliant.
The Company established an Information Technology Steering Committee, which
reports directly to the President and Chief Executive Officer. The committee
members include executive management and employees with expertise from various
disciplines including, but not limited to, information technology, engineering,
finance, customer service, communications, facilities, procurement and human
resources. The committee is responsible for addressing Year 2000 issues
associated with the Company's (1) business application systems including, but
not limited to, the Company's customer service, operations and financial systems
and end-user applications; (2) embedded systems, including equipment that
operates such items as the Company's telecommunications and facilities; (3)
software applications embedded in certain of the Company's products; (4) vendor
and supplier relationships; and (5) contingency planning.
While the Company anticipates no major interruption of its business activities,
that will be dependent in part, upon the ability of third parties to be Year
2000 compliant. The Company's most likely potential risk is the inability of
some customers to order and/or pay on a timely basis and/or the inability of
some suppliers to receive orders and/or deliver on a timely basis. Although the
Company has implemented the actions described above to address third party
issues, it has no direct ability to influence the compliance actions by such
parties. Accordingly, while the Company believes its actions in this regard
should reduce Year 2000 risks, it is unable to eliminate them or to estimate the
ultimate effect Year 2000 risks may have.
Page 12
<PAGE>
NEWPORT CORPORATION
Management's Discussion and Analysis of
Financial Condition and Results of Operations (Cont'd)
Three Months Ended March 31, 1999 and 1998
While the Company currently believes that neither the software developed by it
as part of its products nor the software licensed by it for its internal use
will be materially affected by Year 2000 problems, there can be no assurance
that the Company's product software, its internal computer systems and networks
or those of its key vendors, developers, distributors and customers will not be
affected by such Year 2000 issues, which could have a material adverse effect on
the Company's business, operating results and financial condition.
European Economic and Monetary Union (EMU) New European Currency
On January 1, 1999, eleven of the fifteen member countries of the European
Economic and Monetary Union established fixed conversion rates between their
existing national currencies and one common currency-the euro. The euro trades
on currency exchanges and, during a three-year dual-currency transition period,
either the euro or the national currencies may be used in business transactions.
Beginning in January 2002, new euro-denominated bills and coins will be issued,
and the national currencies will be withdrawn from circulation. The Company's
operating subsidiaries affected by the euro conversion have established plans to
address the systems and business issues raised by the euro currency conversion.
These issues include, among others, (1) the need to adapt computer and other
business systems and equipment to accommodate euro-denominated transactions; and
(2) the competitive impact of cross-border price transparency, which may make it
more difficult for businesses to charge different prices for the same products
on a country-by-country basis, particularly once the euro currency is issued in
2002. While, the Company anticipates that the euro conversion will not have a
material adverse impact on its financial condition or results of operations,
there can be no assurance that the Company's key vendors, customers and
distributors will not be affected by such euro currency issues, which could have
an adverse effect on the Company's business, operating results and financial
condition. Further, there can be no assurance that the currency market
volatility will not increase, which could have an adverse effect on the
Company's euro exposures.
Pending Adoption of Statement of Financial Accounting Standards No. 133
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, Accounting for Derivative Instruments
and Hedging Activities (SFAS No. 133). SFAS No. 133 establishes new standards
for recording derivatives in interim and annual financial reports requiring that
all derivative instruments be recorded as assets or liabilities, measured at
fair value. SFAS No. 133 is effective for fiscal years beginning after June 15,
1999, and therefore the Company will adopt the new requirements effective with
the filing of its Quarterly Report on Form 10-Q for the quarter ended March 31,
2000. Management does not anticipate that the adoption of SFAS No. 133 will
have a significant impact on the Company's results of operations, financial
position or cash flow.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The principal market risk (i.e., the risk of loss arising from adverse changes
in market rates and prices) to which the Company is exposed is foreign exchange
rates which may generate translation and transaction gains and losses.
Foreign Currency Risk
Operating in international markets sometimes involves exposure to volatile
movements in currency exchange rates. The economic impact of currency exchange
rate movements on the Company is complex because such changes are often linked
to variability in real growth, inflation, interest rates, governmental actions
and other factors. These changes, if material, may cause the Company to adjust
its financing and operating strategies. Consequently, isolating the effect of
changes in currency does not incorporate these other important economic factors.
International operations constituted approximately 5.4% of the Company's
consolidated operating profit for the three-months ended March 31, 1999. As
currency exchange rates change, translation of the income statements of
international operations into U.S. dollars affects year-over-year comparability
of operating results. The Company does not generally hedge translation risks
because cash flows from international operations are generally reinvested
locally. The Company does not enter into hedges to minimize volatility of
reported earnings because it does not believe it is justified by the exposure or
the cost.
Page 13
<PAGE>
NEWPORT CORPORATION
Quantitative and Qualitative Disclosures
About Market Risk (Cont'd)
Three Months Ended March 31, 1999 and 1998
Changes in currency exchange rates that would have the largest impact on
translating future international operating profit include the euro, British
pound, Canadian dollar and Swiss franc. The Company estimates that a 10% change
in foreign exchange rates would not have a material impact on reported operating
profit. The Company believes that this quantitative measure has inherent
limitations because, as discussed in the first paragraph of this section, it
does not take into account any governmental actions or changes in either
customer purchasing patterns or financing and operating strategies.
Transaction gains and losses arise from monetary assets and liabilities
denominated in currencies other than a subsidiary's functional currency. Net
foreign exchange gains and losses were not material to the Company's earnings
for the last three years. The impact of unrealized foreign exchange translation
gains and losses is disclosed in Note 6 - Comprehensive Income (Loss) on page 8.
Interest Rate Risk
The Company has no significant exposure to interest rate risk as its primary
debt instruments carry fixed interest rates.
The sensitivity analyses presented in the interest rate and foreign exchange
discussions above disregard the possibility that rates can move in opposite
directions and that gains from one category may or may not be offset by losses
from another category and vice versa.
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
None
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 13, 1999
By: /S/ ROBERT C. HEWITT
------------------------------------------------
Robert C. Hewitt, Principal Financial Officer,
duly authorized to sign on behalf of the Registrant
Page 14
<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, 1999.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 3,627
<SECURITIES> 0
<RECEIVABLES> 24,532
<ALLOWANCES> 269
<INVENTORY> 32,874
<CURRENT-ASSETS> 67,685
<PP&E> 52,092
<DEPRECIATION> 30,151
<TOTAL-ASSETS> 108,116
<CURRENT-LIABILITIES> 18,037
<BONDS> 17,250
0
0
<COMMON> 3,214
<OTHER-SE> 68,208
<TOTAL-LIABILITY-AND-EQUITY> 108,116
<SALES> 29,448
<TOTAL-REVENUES> 29,448
<CGS> 16,639
<TOTAL-COSTS> 16,639
<OTHER-EXPENSES> 11,077
<LOSS-PROVISION> 14
<INTEREST-EXPENSE> 448
<INCOME-PRETAX> 1,270
<INCOME-TAX> 356
<INCOME-CONTINUING> 914
<DISCONTINUED> 0
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