<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, 2000
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OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 0-1649
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NEWPORT CORPORATION
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Nevada 94-0849175
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(State or other Jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
1791 Deere Avenue, Irvine, CA 92606
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (949) 863-3144
---------------------------
N/A
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(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, 2000, was 9,391,047
Page 1 of 15
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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, 2000 and 1999. 3
Consolidated Balance Sheet at March 31, 2000 and
December 31, 1999. 4
Consolidated Statement of Cash Flows for the
Three Months ended March 31, 2000 and 1999. 5
Notes to Condensed Consolidated Financial Statements. 6-8
Item 2: Management's Discussion and Analysis of Financial
Condition and Results of Operations. 9-12
Item 3: Quantitative and Qualitative Disclosures About Market Risk 13
PART II. OTHER INFORMATION
Item 6: Exhibits and Reports on Form 8-K. 14
SIGNATURE 14
Page 2
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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,
---------
<S> <C> <C>
2000 1999
---- ----
Net sales $45,612 $29,448
Cost of sales 25,603 16,639
------- -------
Gross profit 20,009 12,809
Selling, general and administrative expense 10,687 7,895
Research and development expense 4,533 3,006
------- -------
Income from operations 4,789 1,908
Interest expense (568) (448)
Other expense, net (37) (190)
------- -------
Income before income taxes 4,184 1,270
Income tax provision 1,172 356
------- -------
Net income $ 3,012 $ 914
======= =======
Net income per share:
Basic $0.32 $0.10
Diluted $0.30 $0.10
Number of shares used to calculate net income per share:
Basic 9,278 9,069
Diluted 10,074 9,407
Stockholders' equity, beginning of period $77,163 $70,970
Net income 3,012 914
Other comprehensive loss (1,047) (1,456)
Deferred compensation (2,017) 54
Repurchase of common stock - (143)
Issuance of common stock 5,198 1,083
------- -------
Stockholders' equity, end of period $82,309 $71,422
======= =======
</TABLE>
See accompanying notes
Page 3
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NEWPORT CORPORATION
Consolidated Balance Sheet
(In thousands, except share data)
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
---- ----
ASSETS (Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 2,812 $ 2,721
Customer receivables, net 36,334 32,239
Other receivables 1,644 684
Inventories 38,451 36,386
Deferred tax assets 2,586 2,626
Other current assets 2,923 2,484
-------- --------
Total current assets 84,750 77,140
Investments and other assets 8,785 8,461
Property, plant and equipment, at cost, net 25,549 25,738
Goodwill, net 10,424 10,914
-------- --------
$129,508 $122,253
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 9,410 $ 6,816
Accrued payroll and related expenses 4,746 5,536
Line of credit 12,000 10,000
Current portion of long-term debt 4,630 4,645
Other current liabilities 2,495 3,971
-------- --------
Total current liabilities 33,281 30,968
Long-term debt 12,511 12,715
Other liabilities 1,407 1,407
Commitments and contingencies
Stockholders' equity:
Common stock, $.35 stated value, 20,000,000 shares authorized;
9,391,000 shares issued and outstanding at March 31, 2000;
9,232,000 shares at December 31, 1999 3,287 3,231
Capital in excess of stated value 14,540 9,398
Unamortized deferred compensation (2,434) (417)
Accumulated other comprehensive loss (7,682) (6,635)
Retained earnings 74,598 71,586
-------- --------
Total stockholders' equity 82,309 77,163
-------- --------
$129,508 $122,253
======== ========
</TABLE>
See accompanying notes
Page 4
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NEWPORT CORPORATION
Consolidated Statement of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended,
March 31
---------
(In thousands) 2000 1999
------- -------
<S> <C> <C>
Operating activities:
Net income $ 3,012 $ 914
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 2,267 1,466
Increase (decrease) in provision for losses
on receivables and inventories 573 (86)
Other non-cash items, net (94) (3)
Changes in operating assets and liabilities:
Receivables (5,195) 846
Inventories (3,227) (1,962)
Other current assets (709) (244)
Other assets (102) 95
Accounts payable and other accrued expenses 980 (1,989)
------- -----
Net cash used in operating activities (2,495) (963)
------- -----
Investing activities:
Purchases of property, plant and equipment (1,633) (1,092)
Disposition of property, plant and equipment - 79
Acquisition of business, net of cash acquired (50) -
Payments for in-process technology (309) (390)
------- -------
Net cash used in investing activities (1,992) (1,403)
------- -------
Financing activities:
Increase in line of credit 2,000 -
Decrease in long-term borrowings (157) (141)
Cash dividends paid (184) (182)
Repurchase of common stock - (143)
Issuance of common stock under employee
agreements, including associated tax benefit 2,990 1,083
------- -------
Net cash provided by financing activities 4,649 617
------- -------
Effect of foreign exchange rate changes on cash (71) 41
------- -------
Net increase (decrease) in cash and cash equivalents 91 (1,708)
Cash and cash equivalents at beginning of period 2,721 5,335
------- -------
Cash and cash equivalents at end of period $ 2,812 $ 3,627
======= =======
Cash paid in the period for:
Interest $ 228 $ 85
Taxes 367 494
</TABLE>
See accompanying notes
Page 5
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NEWPORT CORPORATION
Notes to Condensed Consolidated Financial Statements
March 31, 2000
(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.
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, 2000, are not necessarily indicative
of the results that may be expected for the year ending December 31, 2000.
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, 1999.
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 $3.0 million and $4.3 million at March 31, 2000, and December 31, 1999,
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) 2000 1999
---- ----
<S> <C> <C>
Customer receivables $36,768 $32,650
Less allowance for doubtful accounts 434 411
------- -------
$36,334 $32,239
======= =======
</TABLE>
Page 6
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NEWPORT CORPORATION
Notes to Condensed Consolidated Financial Statements
March 31, 2000
(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) 2000 1999
---- ----
<S> <C> <C>
Raw materials and purchased parts $12,976 $12,128
Work in process 7,680 7,391
Finished goods 17,795 16,867
------- -------
$38,451 $36,386
======= =======
4. Property, Plant and Equipment
Property plant and equipment consist of the following:
March 31, December 31,
(In thousands) 2000 1999
------- -------
Land $ 1,050 $ 1,106
Buildings 5,889 6,202
Leasehold improvements 8,751 8,455
Machinery and equipment 29,434 29,161
Office equipment 14,654 13,687
------- -------
59,778 58,611
Less accumulated depreciation 34,229 32,873
------- -------
$25,549 $25,738
======= =======
5. Other Expense, Net
Other expense, net, consists of the following:
Three Months Ended
March 31,
---------
(In thousands) 2000 1999
---- ----
Interest and dividend income $ 43 $ 49
Exchange losses, net (10) (212)
Other (70) (27)
-------
$ (37) $ (190)
</TABLE>
Page 7
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NEWPORT CORPORATION
Notes to Condensed Consolidated Financial Statements
March 31, 2000
(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) 2000 1999
---- ----
<S> <C> <C>
Net income $ 3,012 $ 914
Foreign currency translation loss (1,047) (1,456)
------- -------
$ 1,965 $ (542)
======= =======
</TABLE>
7. Segment Reporting
Selected financial information for the Company's reportable segments for the
three months ended March 31, 2000 and 1999 follows:
<TABLE>
<CAPTION>
(In thousands) Industrial
& Scientific Fiber Optics Video
Technologies & Photonics Metrology Total
------------ ------------ ---------- -------
<S> <C> <C> <C> <C>
Three Months Ended March 31, 2000:
- ---------------------------------
Sales to external customers $30,062 $13,850 $ 1,700 $45,612
Segment income (loss) 4,395 1,988 (1,594) 4,789
Three Months Ended March 31, 1999:
- ---------------------------------
Sales to external customers $20,377 $ 5,974 $ 3,097 $29,448
Segment income (loss) 1,916 284 (292) 1,908
</TABLE>
The following reconciles segment income to consolidated income before income
taxes.
<TABLE>
<CAPTION>
Three Months Ended
March 31,
---------
(In thousands) 2000 1999
---- ----
<S> <C> <C>
Segment income $4,789 $1,908
Interest expense (568) (448)
Other expense ( 37) (190)
------ ------
Income before income taxes $4,184 $1,270
====== ======
</TABLE>
Page 8
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NEWPORT CORPORATION
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Three Months Ended March 31, 2000 and 1999
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 we intend 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 our 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 we will not lose a significant customer
or customers or experience increased fluctuations of demand or rescheduling of
purchase orders, that our markets will continue to grow, that our products will
remain accepted within their respective markets and will not be replaced by new
technology, that competitive conditions within our markets will not change
materially or adversely, that we will retain key technical and management
personnel, that our forecasts will accurately anticipate market demand, that
there will be no material adverse change in our operations or business, that
fluctuations in foreign currency exchange rates do not have a material adverse
impact on our competitive position in international markets and that we 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 our Annual Report on Form 10-K
for the year ended December 31, 1999. 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
our control. Although, we believe 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 our objectives or plans will be achieved. We
undertake 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 our 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, 2000, with the three-month
period ended March 31, 1999. This discussion should be read in conjunction with
the financial statements and associated notes.
ACQUISITIONS
In connection with our 1998 purchase of Environmental Optical Sensors, Inc.,
during the three-month period ended March 31, 2000 we paid $50,000 to the
sellers for achieving certain milestones which has been recorded as additional
goodwill.
In connection with our 1999 purchase of the west coast commercial optics
subsidiary of Corning OCA Corporation, a subsidiary of Corning Incorporated,
during the three-month period ended March 31, 2000 Corning agreed to refund $0.2
million of the purchase price as a result of contractual settlement adjustments.
The final purchase price was $6.1 million.
Page 9
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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, 2000 and 1999
<TABLE>
<CAPTION>
RESULTS OF OPERATIONS
Period-to-Period
FINANCIAL ANALYSIS Percentage of Net Sales Increase (decrease)
----------------------- -------------------
Three Months Ended March 31, Three Months Ended March 31,
2000 1999 2000
----- ----- -----
<S> <C> <C> <C>
Net sales 100.0% 100.0% 54.9%
Cost of sales 56.2 56.5 53.9
----- -----
Gross profit 43.8 43.5 56.1
Selling, general and
administrative expense 23.4 26.8 35.2
Research and
development expense 9.9 10.2 50.8
----- -----
Income from operations 10.5 6.5 151.0
Interest expense (1.2) (1.5) 26.8
Other income (expense), net (0.1) (0.7) (80.5)
----- -----
Income before income taxes 9.2 4.3 229.4
Income tax provision 2.6 1.2 229.2
----- -----
Net income 6.6 3.1 229.5
===== =====
</TABLE>
Net Sales Net sales for the three-month period ended March 31, 2000 were $45.6
million compared with $29.4 million for the three-month period ended March 31,
1999, an increase of $16.2 million, or 54.9%. This increase was due primarily
to sales increases in the fiber optic communications, semiconductor equipment,
aerospace and research and general metrology markets, offset partially by a
decrease in sales to the computer peripherals market.
First quarter 2000 sales to the fiber optic communications market were $16.7
million, an increase of $11.2 million, or 201.3%, compared with the prior year
quarter. Sales to the industrial metrology markets (comprised of the
semiconductor equipment, computer peripherals and general metrology markets) in
the first quarter of 2000 were $18.5 million, an increase of $4.2 million, or
29.4%, compared with 1999's first quarter. Sales to the aerospace and research
market were $10.4 million in the quarter ended March 31, 2000, an increase of
$0.8 million, or 8.3%, compared with the prior year quarter.
Domestic sales totaled $31.6 million for the three-month period ended March 31,
2000, compared with $17.9 million for the corresponding period in 1999. This
increase of $13.7 million, or 76.7%, was due primarily to sales increases in the
fiber optic communications, semiconductor, aerospace and research, and general
metrology markets of $9.1 million, or 319.7%; $3.0 million, or 182.6%; $1.6
million, or 33.0%; $0.9 million, or 15.4%, respectively, offset partially by a
decrease of $0.9 million, or 32.5%, in sales to the computer peripherals market.
International sales totaled $14.0 million for the three-month period ended March
31, 2000, compared with $11.5 million for the corresponding prior year period,
an increase of $2.5 million or 21.1%. The increase was due primarily to an
increase of $2.1 million, or 76.8%, in sales to international fiber optic
communications customers, an increase of $0.4 million, or 61.9%, in
international sales to the semiconductor market and an increase in sales of
metrology products to international life and health science OEM customers of
$0.7 million, or 21.5%, offset in part by a decline in sales to international
aerospace and research customers of $0.8 million, or 16.2%. European and
Canadian sales in the first quarter of 2000 increased $1.9 million, or 30.0%,
and $0.5 million, or 36.1%, respectively, over the prior year quarter, while
first quarter 2000 Pacific Rim sales were comparable in both periods. The
increase in European sales was reduced by $0.8 million because of a negative
foreign exchange rate impact due to the strength of the U.S. dollar versus the
euro in the current year period.
Gross Margin Gross margin was 43.8% and 43.5% for the three-month periods
ending March 31, 2000 and March 31, 1999, respectively. Our gross margin
remained essentially unchanged for each of the periods. A shift in our sales
mix towards our photonics product lines, which generally have higher margins,
was offset primarily by higher growth rates in sales to OEM customers, which
generally have lower margins. We anticipate that these offsetting trends are
likely to continue in future periods.
Page 10
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NEWPORT CORPORATION
Managment's Discussion and Analysis of
Financial Condition and Results of Operations (Cont'd)
Three Months Ended March 31, 2000 and 1999
Selling, General and Administrative (SG&A) Expense SG&A expenses totaled $10.7
million and $7.9 million for the three-month periods ending March 31, 2000 and
March 31, 1999, respectively, representing 23.4% and 26.8% of net sales in the
respective periods. Our SG&A expenses in the first quarter of 2000 increased
$2.8 million, or 35.4%, versus the prior year quarter, due in part to higher
expenses for compensation and incentive plans that are tied to sales and profit
performance, higher personnel costs and expenses related to trade show activity
and the inclusion of expenses for Newport Precision Optics Corporation for which
there were no comparable expenses in 1999's first quarter.
Research and Development (R&D) Expense R&D expenses totaled $4.5 million and
$3.0 million for the three-month periods ending March 31, 2000 and March 31,
1999, respectively, representing 9.9% and 10.2% of net sales in the respective
periods. Our R&D expenses in the first quarter of 2000 increased $1.5 million,
or 50.8%, compared with the prior year quarter. The increase was attributable
primarily to increased personnel costs related to the development of a number of
new products and product enhancements including extending the range of our
automated packaging and test equipment product lines for the fiber optic
communications market, technology enhancements to the LaserWeld and AutoAlign
packaging workstation, development of laser diode burn-in and characterization
systems and new products and software for our Video Metrology Division. We are
committed to continued product development and expect that R&D expenditures will
increase in absolute dollars in future periods.
Interest Expense and Other Expense, Net Our interest expense totaled $0.6
million and $0.4 million for the three-month periods ending March 31, 2000 and
March 31, 1999, respectively. The increase was due primarily to utilization of
our line of credit in the current year quarter that did not occur in the prior
year quarter.
Income Taxes The effective tax rate in each of the quarters ended March 31,
2000 and March 31, 1999 was 28.0%.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in our operating activities of $2.5 million for the three-month
period ended March 31, 2000 was primarily attributable to changes in our
operating assets and liabilities, offset in part by our operating income plus
non-cash items, principally depreciation and amortization. Our customer
receivables increased by $4.1 million, or 12.7%, from the fourth quarter of
1999, which was proportionate with the increase in sales over the same period.
Our inventories increased 5.7% in the first quarter of 2000 compared with the
fourth quarter of 1999 due primarily to production planning associated with our
goal of maintaining competitive manufacturing lead times. Our accounts payable
increased $2.6 million, or 38.1%, in 2000's first quarter compared with the
fourth quarter of 1999.
Net cash used in investing activities of $2.0 million for the three-month period
ended March 31, 2000, was principally attributable to our purchases of property,
plant and equipment ($1.6 million) and the capitalization of software
development costs ($0.3 million).
Net cash provided by financing activities of $4.6 million for the three-month
period ended March 31, 2000, was attributable principally to an increase in the
utilization of our line of credit and the issuance of common stock in connection
with stock option and purchase plans. This increase was offset in part by a
decrease in long-term borrowings and the payment of cash dividends.
We believe our current working capital position together with estimated cash
flows from operations and existing credit availability are adequate to fund
operations in the ordinary course of business, anticipated capital expenditures,
debt payment requirements, and continuation of the share repurchase program over
at least the next year.
Although we have no present agreements or commitments with respect to any
material acquisitions of other businesses, products, product rights or
technologies, we continue to evaluate acquisitions of products, technologies or
companies that complement our business and may make such acquisitions in the
future. Accordingly, there can be no assurance that we will not need to obtain
additional sources of capital to finance any such acquisitions.
Page 11
<PAGE>
NEWPORT CORPORATION
Managment's Discussion and Analysis of
Financial Condition and Results of Operations (Cont'd)
Three Months Ended March 31, 2000 and 1999
ADDITIONAL FACTORS THAT MAY AFFECT FUTURE OPERATING RESULTS
Impact of Year 2000
In prior quarters, we have discussed the nature and progress of our plans to
become Year 2000 ready. In late 1999, we completed our remediation and testing
of systems. As a result of those planning and implementation efforts, we
experienced no significant disruptions in mission critical information
technology and non-information technology systems and believe that those systems
successfully responded to the Year 2000 date change. Our remediation efforts
consisted primarily of upgrading the hardware and software of its primary
enterprise systems and were accomplished as part of the normal course of
upgrading its systems to support current and anticipated growth. Accordingly,
the $1.5 million cost of acquiring the upgraded computer hardware and software
has been capitalized. We are not aware of any material problems resulting from
Year 2000 issues, either with our products, our internal systems, or the
products and services of third parties. We will continue to monitor our mission
critical computer applications and those of our suppliers and vendors throughout
the year 2000 to ensure that any residual Year 2000 matters that may arise are
addressed promptly.
European Economic and Monetary Union (EMU) - New European Currency
On January 1, 1999, 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. Our operating subsidiaries
affected by the euro conversion have implemented and are implementing 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, we anticipate that the euro conversion will not have a material
adverse impact on our financial condition or results of operations, there can be
no assurance that our key vendors, customers and distributors will not be
affected by such euro currency issues, which could have an adverse effect on our
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 our 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,
2000, and therefore we will adopt the new requirements effective with the filing
of our Quarterly Report on Form 10-Q for the quarter ended March 31, 2001. We
do not anticipate that the adoption of SFAS No. 133 will have a significant
impact on our results of operations, financial position or cash flow.
Page 12
<PAGE>
NEWPORT CORPORATION
Management's Discussion and Analysis of
Financial Condition and Results of Operations (Cont'd)
Three Months Ended March 31, 2000 and 1999
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The principal market risks (i.e., the risk of loss arising from adverse changes
in market rates and prices) to which we are exposed are foreign exchange rates
which may generate translation and transaction gains and losses and interest
rate risk.
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 our operating results 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
us to adjust our financing and operating strategies. Consequently, isolating
the effect of changes in currency does not incorporate these other important
economic factors.
International operations constituted approximately 17% of our consolidated
operating profit the three-months ended March 31, 2000. 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. We
do not generally hedge translation risks because cash flows from international
operations are generally reinvested locally. We do not enter into hedges to
minimize volatility of reported earnings because we do not believe it is
justified by the exposure or the cost.
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. We estimate that a 10% change in
foreign exchange rates would not have a material impact on reported operating
profit. We believe 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 our 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
Our exposure to interest rate risk is limited to our unsecured lines of credit
which bear interest at either the prevailing prime rate, or the prevailing
London Interbank Offered Rate plus 1.0%, at our option. Our long term debt
instruments carry fixed interest rates. We estimate that a 10% change in
interest rates would not have a material impact on our reported operating
profit.
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.
Page 13
<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
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 4, 2000
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, 2000.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 2,812
<SECURITIES> 0
<RECEIVABLES> 36,768
<ALLOWANCES> 434
<INVENTORY> 38,451
<CURRENT-ASSETS> 84,750
<PP&E> 59,778
<DEPRECIATION> 34,229
<TOTAL-ASSETS> 129,508
<CURRENT-LIABILITIES> 33,281
<BONDS> 12,511
0
0
<COMMON> 3,287
<OTHER-SE> 79,022
<TOTAL-LIABILITY-AND-EQUITY> 129,508
<SALES> 45,612
<TOTAL-REVENUES> 45,612
<CGS> 25,603
<TOTAL-COSTS> 25,603
<OTHER-EXPENSES> 15,196
<LOSS-PROVISION> 61
<INTEREST-EXPENSE> 568
<INCOME-PRETAX> 4,184
<INCOME-TAX> 1,172
<INCOME-CONTINUING> 3,012
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,012
<EPS-BASIC> 0.32
<EPS-DILUTED> 0.30
</TABLE>
