<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 September 30, 2000
------------------------
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 September 30, 2000, was 32,242,555.
Page 1 of 19
Exhibit Index on Sequentially Numbered Page 18
<PAGE>
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 and Nine Months ended September 30, 2000 and 1999. 3
Consolidated Balance Sheet at September 30, 2000 and
December 31, 1999. 4
Consolidated Statement of Cash Flows for the Nine
Months ended September 30, 2000 and 1999. 5
Notes to Condensed Consolidated Financial Statements. 6-10
Item 2: Management's Discussion and Analysis of Financial
Condition and Results of Operations. 11-17
Item 3: Quantitative and Qualitative Disclosures About Market Risk 17-18
PART II. OTHER INFORMATION
Item 6: Exhibits and Reports on Form 8-K. 18
SIGNATURE 18
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 Nine Months Ended
September 30, September 30,
------------------ -------------------
2000 1999 2000 1999
------- ------- -------- --------
<S> <C> <C> <C> <C>
Net sales $66,594 $35,530 $166,130 $101,783
Cost of sales 37,934 20,046 93,780 57,115
------- ------- -------- --------
Gross profit 28,660 15,484 72,350 44,668
Selling, general and administrative expense 13,877 8,995 36,585 26,882
Research and development expense 5,804 3,440 15,452 9,666
------- ------- -------- --------
Income from operations 8,979 3,049 20,313 8,120
Interest expense 409 466 1,588 1,371
Interest income 3,443 17 3,537 113
Other income, net 107 321 - 115
------- ------- -------- --------
Income before income taxes 12,120 2,921 22,262 6,977
Income tax provision 3,941 907 6,745 2,061
------- ------- -------- --------
Net income $ 8,179 $ 2,014 $ 15,517 $ 4,916
======= ======= ======== ========
Net income per share:
Basic $0.26 $0.07 $0.53 $0.18
Diluted $0.25 $0.07 $0.49 $0.17
Number of shares used to calculate net income per share:
Basic 30,988 27,369 29,153 27,386
Diluted 33,301 28,358 31,600 28,311
Stockholders' equity, beginning of period $ 91,567 $72,803 $ 77,746 $71,981
Net income 8,179 2,014 15,517 4,916
Dividends - - (284) (183)
Other comprehensive income (loss) (1,827) 620 (2,799) (1,546)
Deferred compensation 479 (32) (1,058) 76
Repurchase of common stock - (587) - (1,585)
Issuance of common stock 337,731 453 347,007 1,612
-------- ------- -------- -------
Stockholders' equity, end of period $436,129 $75,271 $436,129 $75,271
======== ======= ======== =======
</TABLE>
See accompanying notes
Page 3
<PAGE>
NEWPORT CORPORATION
Consolidated Balance Sheet
<TABLE>
<CAPTION>
(In thousands, except share data)
September 30, December 31,
2000 1999
------------- -----------
<S> <C> <C>
ASSETS (Unaudited)
Current assets:
Cash and cash equivalents $ 3,431 $ 3,055
Marketable securities 311,546 -
Customer receivables, net 46,776 32,639
Income tax receivable 9,580 -
Inventories 57,480 37,696
Other current assets 7,075 5,796
-------- --------
Total current assets 435,888 79,186
Investments and other assets 9,269 8,461
Property, plant and equipment, at cost, net 29,105 26,003
Goodwill, net 9,640 10,914
-------- --------
$483,902 $124,564
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 16,975 $ 6,971
Accrued payroll and related expenses 6,897 5,549
Line of credit - 10,000
Current portion of long-term debt 5,532 4,645
Deferred revenue 2,718 1,512
Other current liabilities 4,496 3,992
-------- --------
Total current liabilities 36,618 32,669
Long-term debt 9,721 12,715
Other liabilities 1,434 1,434
Commitments and contingencies
Stockholders' equity:
Common stock, $.1167 stated value, 75,000,000 shares authorized;
32,243,000 shares issued and outstanding at September 30, 2000;
27,695,000 shares at December 31, 1999 3,763 3,231
Capital in excess of stated value 355,904 9,404
Unamortized deferred compensation (1,475) (417)
Accumulated other comprehensive loss (9,434) (6,635)
Retained earnings 87,371 72,163
-------- --------
Total stockholders' equity 436,129 77,746
-------- --------
$483,902 $124,564
======== ========
</TABLE>
See accompanying notes
Page 4
<PAGE>
NEWPORT CORPORATION
Consolidated Statement of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
(In thousands)
Nine Months Ended
September 30
--------------------
2000 1999
--------- -------
<S> <C> <C>
Operating activities:
Net income $ 15,517 $ 4,916
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 7,656 5,063
Increase in provision for losses
on receivables and inventories 2,293 391
Other non-cash items, net (272) (411)
Changes in operating assets and liabilities:
Receivables (15,883) (1,048)
Income tax receivable (9,580) -
Inventories (22,725) (5,023)
Other current assets (1,453) (1,761)
Other assets (40) (20)
Accounts payable and other accrued expenses 12,941 1,696
Deferred revenue 1,206 1,265
Other, net (60) (97)
--------- -------
Net cash provided by (used in) operating activities (10,400) 4,971
--------- -------
Investing activities:
Purchases of property, plant and equipment (8,698) (3,369)
Disposition of property, plant and equipment 22 162
Acquisition of business (50) -
Purchase of marketable securities (311,653) -
Payments for equity investment (1,510) -
Proceeds from sale of investment 1,430 1,054
Payments for software development (834) (1,553)
Net cash used in investing activities (321,293) (3,706)
Financing activities:
Increase (decrease) in line of credit (10,000) 150
Decrease in long-term borrowings (1,959) (1,972)
Cash dividends paid (468) (365)
Repurchase of common stock - (1,585)
Proceeds from sale of common stock, net 329,851 -
Issuance of common stock under employee
agreements, including associated tax benefit 14,949 1,612
--------- -------
Net cash provided by (used in) financing activities 332,373 (2,160)
--------- -------
Effect of foreign exchange rate changes on cash (304) 135
--------- -------
Net increase (decrease) in cash and cash equivalents 376 (760)
Cash and cash equivalents at beginning of period 3,055 6,135
--------- -------
Cash and cash equivalents at end of period $ 3,431 $ 5,375
========= =======
Cash paid in the period for:
Interest $ 1,397 $ 948
Taxes 3,459 4
</TABLE>
See accompanying notes
Page 5
<PAGE>
NEWPORT CORPORATION
Notes to Condensed Consolidated Financial Statements
September 30, 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 restated to reflect the
acquisition of Unique Equipment Co. (Note 2) which has been accounted for as a
pooling of interests. The unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information.
The nine-month period in 1999 includes net sales of $2.5 million representing
one extra month of sales from Newport's European operations. The additional net
sales stem from a reporting change in the second quarter of 1999 that eliminated
a one-month lag in the reporting of European results. Without the change, net
sales would have been $99.3 million for the nine-month period in 1999. Earnings
per share were not impacted by the change.
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 nine-month period ended September 30, 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 includes the dilutive effects of common stock
equivalents outstanding during the period. The dilutive effect of common stock
equivalents consists mainly of stock options and is determined using the
treasury stock method.
On May 31, 2000 the Company effected a three-for-one stock split of its shares
of common stock. Share and per share information for all periods presented have
been restated to reflect the stock split.
On July 27, 2000, the Company completed a secondary public offering of 3.0
million shares of its common stock and 0.1 million shares of common stock
offered by selling stockholders. On August 1, 2000, net proceeds of $319.2
million (after underwriting discounts and commissions) were delivered to the
Company. An additional 0.1 million shares of the Company's common stock were
issued to cover over-allotments. Net proceeds from this transaction amounted to
$10.7 million and were delivered to the Company on August 10, 2000.
Foreign Currency
Balance sheet accounts denominated in foreign currencies are translated at
exchange rates as of the date of the balance sheet. Income statement accounts
denominated in foreign currencies 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 $2.1 million and $4.3 million at September 30, 2000, and December 31,
1999, respectively.
Page 6
<PAGE>
NEWPORT CORPORATION
Notes to Condensed Consolidated Financial Statements
September 30, 2000
(Unaudited)
2. Acquisitions
Unique Equipment Co.
On August 31, 2000, the Company acquired Unique Equipment Co. ("Unique"), based
in Chandler, Arizona. Unique is a privately held systems integrator
specializing in the use of robotics for the fiber optics and semiconductor
industries. As consideration for the acquisition, the Company issued 165,000
shares of common stock in exchange for all of the outstanding shares of common
stock of Unique. The transaction was accounted for as a pooling of interests,
and accordingly, the accompanying unaudited condensed consolidated financial
statements have been restated to incorporate the results of operations,
financial position and cash flows of Unique, the effects of which are immaterial
to all periods presented. Unique's results are included in our Fiber Optics &
Photonics reportable segment in Note 9. Costs associated with this acquisition
of $0.5 million were charged to operations in the third quarter of 2000.
Net sales and net income (loss) of Newport and Unique were the following:
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
------------------------
<S> <C> <C>
(In thousands, except per share amounts) 2000 1999
-------- --------
Net sales:
Newport $162,701 $100,451
Unique 3,429 1,332
-------- --------
Combined $166,130 $101,783
======== ========
Net income (loss):
Newport $ 15,486 $ 5,301
Unique 31 (385)
-------- --------
Combined $ 15,517 $ 4,916
======== ========
Net income (loss) per share:
Basic
Newport $ 0.53 $ 0.19
Unique - (0.01)
-------- --------
Combined $ 0.53 $ 0.18
======== ========
Diluted
Newport $ 0.49 $ 0.18
Unique - (0.01)
-------- --------
Combined $ 0.49 $ 0.17
======== ========
Number of shares used to calculate net income
(loss) per share:
Basic 29,153 27,386
Diluted 31,600 28,311
</TABLE>
International Metrology Systems
In June 2000 the Company signed a letter of intent to acquire International
Metrology Systems, a United Kingdom-based, global supplier of coordinate
measurement systems and advanced metrology solutions. On October 17, 2000,
negotiations were terminated.
Page 7
<PAGE>
NEWPORT CORPORATION
Notes to Condensed Consolidated Financial Statements
September 30, 2000
(Unaudited)
3. Marketable Securities
Marketable securities consist of money market funds, certificates of deposit,
commercial paper and funding agreements, U.S. agency notes, corporate notes and
bonds and asset-backed securities. These securities are stated at current fair
market value. The excess of fair market value over book value is included as a
component of comprehensive income (see Note 8).
4. Customer Receivables
The Company maintains 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>
September 30, December 31,
(In thousands) 2000 1999
------- -------
<S> <C> <C>
Customer receivables $47,195 $33,050
Less allowance for doubtful accounts 419 411
------- -------
$46,776 $32,639
======= =======
</TABLE>
5. 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>
September 30, December 31,
(In thousands) 2000 1999
------- -------
<S> <C> <C>
Raw materials and purchased parts $18,815 $12,128
Work in process 13,590 8,701
Finished goods 25,075 16,867
------- -------
$57,480 $37,696
======= =======
</TABLE>
6. Property, Plant and Equipment
Property, plant and equipment consist of the following:
<TABLE>
<CAPTION>
September 30, December 31,
(In thousands) 2000 1999
------- -------
<S> <C> <C>
Land $ 968 $ 1,106
Buildings 5,431 6,202
Leasehold improvements 10,319 8,457
Machinery and equipment 31,075 29,727
Office equipment 17,445 13,840
------- -------
65,238 59,332
Less accumulated depreciation 36,133 33,329
------- -------
$29,105 $26,003
======= =======
</TABLE>
Page 8
<PAGE>
NEWPORT CORPORATION
Notes to Condensed Consolidated Financial Statements
September 30, 2000
(Unaudited)
7. Other Income, Net
Other income, net, consists of the following:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------- ------------------
<S> <C> <C> <C> <C>
(In thousands) 2000 1999 2000 1999
------- ------ ------- -------
Exchange gains (losses), net $ 215 $ 36 $ 170 $ (161)
Gains (losses) on investments, net (8) 142 (8) 298
Other (100) 143 (162) (22)
------- ------ ------- ------
$ 107 $ 321 $ - $ 115
======= ====== ======= ======
</TABLE>
8. Comprehensive Income
The components of comprehensive income, net of related tax, are as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------- -------------------
(In thousands) 2000 1999 2000 1999
------- ------ ------- -------
<S> <C> <C> <C> <C>
Net income $ 8,179 $2,014 $15,517 $ 4,916
Foreign currency translation gain (loss) (1,720) 620 (2,692) (1,546)
Unrealized loss on marketable securities (107) - (107) -
------- ------ ------- -------
$ 6,352 $2,634 $12,718 $ 3,370
======= ====== ======= =======
</TABLE>
Page 9
<PAGE>
NEWPORT CORPORATION
Notes to Condensed Consolidated Financial Statements
September 30, 2000
(Unaudited)
9. Segment Reporting
The Company operates in three reportable segments, Industrial & Scientific
Technologies, Fiber Optics & Photonics (which includes the operations of Unique)
and Video Metrology. Selected financial information for these segments for the
three- and nine-months ended September 30, 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 September 30, 2000:
--------------------------------------
Sales to external customers $ 40,445 $24,542 $ 1,607 $ 66,594
Segment income (loss) 8,244 2,497 (1,762) 8,979
Three Months Ended September 30, 1999:
--------------------------------------
Sales to external customers $ 23,757 $10,055 $ 1,718 $ 35,530
Segment income (loss) 3,617 726 (1,294) 3,049
Nine Months Ended September 30, 2000:
-------------------------------------
Sales to external customers $103,509 $57,478 $ 5,143 $166,130
Segment income (loss) 18,528 6,819 (5,034) 20,313
Nine Months Ended September 30, 1999:
-------------------------------------
Sales to external customers $ 69,279 $25,164 $ 7,340 $101,783
Segment income (loss) 8,874 1,235 (1,989) 8,120
The following reconciles segment income to consolidated income before income taxes.
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------- -------------------
(In thousands) 2000 1999 2000 1999
-------- ------- ------- --------
<S> <C> <C> <C> <C>
Segment income $ 8,979 $ 3,049 $20,313 $ 8,120
Interest expense 409 466 1,588 1,371
Interest income 3,443 17 3,537 113
Other income, net 107 321 - 115
-------- ------- ------- --------
Income before income taxes $ 12,120 $ 2,921 $22,262 $ 6,977
======== ======= ======= ========
</TABLE>
Page 10
<PAGE>
NEWPORT CORPORATION
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Three and Nine Months Ended September 30, 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 our strategic markets, whether our products, particularly those
targeting our strategic markets, will continue to achieve customer acceptance,
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- and nine-month periods ended September 30, 2000, with the
three- and nine-month periods ended September 30, 1999. This discussion should
be read in conjunction with the financial statements and associated notes.
ACQUISITIONS
Unique Equipment Co.
On August 31, 2000, we acquired Unique Equipment Co. ("Unique"), based in
Chandler, Arizona. Unique is a privately held systems integrator specializing
in the use of robotics for the fiber optics and semiconductor industries. As
consideration for the acquisition, we issued 165,000 shares of common stock in
exchange for all of the outstanding shares of common stock of Unique. The
transaction was accounted for as a pooling of interests, and accordingly, the
accompanying unaudited condensed consolidated financial statements have been
restated to incorporate the results of operations, financial position and cash
flows of Unique, the effects of which are immaterial to all periods presented.
Costs associated with this acquisition of $0.5 million were charged to
operations in the third quarter of 2000.
Page 11
<PAGE>
NEWPORT CORPORATION
Management's Discussion and Analysis of
Financial Condition and Results of Operations (Cont'd)
Three and Nine Months Ended September 30, 2000 and 1999
International Metrology Systems
In June 2000 we signed a letter of intent to acquire International Metrology
Systems, a United Kingdom-based, global supplier of coordinate measurement
systems and advanced metrology solutions. On October 17, 2000, negotiations
were terminated.
THREE-FOR-ONE STOCK SPLIT
On May 31, 2000 we effected a three-for-one stock split of our outstanding
common stock. Share and per share information for all periods presented have
been restated to reflect the stock split.
SECONDARY PUBLIC OFFERING
On July 27, 2000, we completed a secondary public offering of 3.0 million shares
of our common stock and 0.1 million shares of common stock offered by selling
stockholders. On August 1, 2000, net proceeds of $319.2 million (after
underwriting discounts and commissions) were received. An additional 0.1
million shares of our common stock were subsequently issued to cover over-
allotments. Net proceeds from this transaction amounted to $10.7 million and
were received on August 10, 2000.
Page 12
<PAGE>
NEWPORT CORPORATION
Management's Discussion and Analysis of
Financial Condition and Results of Operations (Cont'd)
Three and Nine Months Ended September 30, 2000 and 1999
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
FINANCIAL ANALYSIS Period-to-Period
Increase (Decrease)
-------------------
Percentage of Net Sales Three Nine
----------------------- Months Months
Three Months Ended Nine Months Ended Ended Ended
September 30, September 30, September 30,
2000 1999 2000 1999 2000 2000
----- ----- ----- ----- ------- ------
<S> <C> <C> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0% 87.4% 63.2%
Cost of sales 57.0 56.4 56.4 56.1 89.2 64.2
----- ----- ----- -----
Gross profit 43.0 43.6 43.6 43.9 85.1 62.0
Selling, general and
administrative expense 20.8 25.3 22.1 26.4 54.3 36.1
Research and
development expense 8.7 9.7 9.3 9.5 68.7 59.9
----- ----- ----- -----
Income from operations 13.5 8.6 12.2 8.0 194.5 150.2
Interest expense 0.6 1.3 0.9 1.3 (12.2) 15.8
Interest income 5.2 - 2.1 0.1 NM NM
Other income, net 0.1 0.9 - 0.1 (66.7) (100.0)
----- ----- ----- -----
Income before income taxes 18.2 8.2 13.4 6.9 314.9 219.1
Income taxes 5.9 2.5 4.1 2.1 334.5 227.3
----- ----- ----- -----
Net income 12.3 5.7 9.3 4.8 306.1 215.6
===== ===== ===== =====
</TABLE>
NM = not meaningful
Net Sales Net sales for the three- and nine-month periods ended September 30,
2000 were $66.6 million and $166.1 million, respectively, compared with $35.5
million and $101.8 million, respectively, for the three- and nine-month periods
ended September 30, 1999, increases of 87.4% and 63.2%. The sales increase for
the three-month period was due primarily to sales increases in the fiber optic
communications and semiconductor equipment markets. We also experienced
increases in sales to the computer peripherals, aerospace and research, and
general metrology markets in the three-month period. The sales increase for the
nine-month period 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 markets. The nine-month period in 1999 includes net sales of $2.5
million representing one extra month of sales from our European operations. The
additional net sales stem from a reporting change in the second quarter of 1999
that eliminated a one-month lag in the reporting of European results. Without
the change, net sales for the 1999 nine-month period would have been $99.3
million.
Three- and nine-month 2000 sales to the fiber optic communications market were
$31.3 million and $69.6 million, respectively, increases of $22.2 million, or
243.4%, and $47.1 million, or 209.1%, respectively, compared with the
corresponding prior year periods. Sales to the semiconductor equipment market
totaled $10.1 million and $24.4 million, respectively, for the three- and nine-
month periods ended September 30, 2000, increases of $6.3 million, or 163.4%,
and $14.9 million, or 157.1%, respectively, compared with the corresponding
periods in 1999. Sales to computer peripherals market customers were $2.4
million and $7.0 million, respectively, for the three- and nine-month periods
ended September 30, 2000, an increase of $0.3 million, or 14.4% for the quarter,
but a decrease of $1.3 million, or 15.6% for the nine-month period, compared
with the prior year periods. Three- and nine-month 2000 sales to the general
metrology market grew to $12.6 million and $34.5 million, respectively,
increases of $1.2 million, or 11.0%, and $2.0 million, or 6.3%, compared with
1999's three- and nine-month periods. Sales to the aerospace and research
market were $10.2 million and $30.6 million for the three- and nine-months ended
September 30, 2000, increases of $1.1 million, or 11.9%, and $1.6 million, or
5.6%, compared with 1999's three- and nine-month periods.
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<PAGE>
NEWPORT CORPORATION
Management's Discussion and Analysis of
Financial Condition and Results of Operations (Cont'd)
Three and Nine Months Ended September 30, 2000 and 1999
Domestic sales totaled $45.7 million and $114.0 million, respectively, for the
three- and nine-month periods ended September 30, 2000, compared with $23.4
million and $62.8 million for the corresponding periods in 1999. The increase
for the quarter of $22.3 million, or 95.1%, was due primarily to sales increases
in the fiber optic communications, semiconductor equipment, computer peripherals
and general metrology markets of $14.3 million, or 227.8%; $6.4 million, or
205.1%; $0.3 million, or 15.4%; and $1.8 million, or 29.4%, respectively, offset
partially by a decrease of $0.5 million, or 8.8%, in sales to the aerospace and
research market. The increase for the nine-months ended September 30, 2000 of
$51.2 million, or 81.4%, was due primarily to sales increases in the fiber optic
communications, semiconductor equipment, aerospace and research, and general
metrology markets of $32.8 million, or 240.6%; $14.8 million, or 201.8%; $1.6
million, or 9.8%; and $3.2 million, or 16.9%, respectively, offset partially by
a decrease of $1.2 million, or 17.7%, in sales to the computer peripherals
market.
International sales totaled $20.9 million and $52.1 million, respectively, for
the three- and nine-month periods ended September 30, 2000, compared with $12.1
million and $39.0 million for the corresponding prior year periods, increases of
72.7% and 33.9%, respectively. European sales for the nine-month period in 1999
reflect a $2.5 million favorable impact from the reporting change discussed
above. Excluding that impact, international sales increased $15.7 million, or
43.1%, versus the corresponding nine-month prior year period. The third quarter
increase was due to an increase in sales to the international fiber optic
communications and aerospace and research markets of $7.8 million, or 278.0%,
and $1.6 million, or 53.3%, respectively, offset in part by a decrease of $0.6
million, or 11.2% in international sales to the general metrology market.
International sales to the semiconductor and computer peripherals markets for
the third quarter were comparable to the corresponding prior year period. The
increase for the nine-month period was due primarily to an increase of $14.3
million, or 160.8%, in sales to international fiber optic communications offset
in part by a decline in sales to the general metrology market of $1.2 million,
or 8.2%. International sales to the semiconductor, computer peripherals, and
aerospace and research markets were comparable to the nine-month period in 1999.
Canadian and Pacific Rim sales in the third quarter of 2000 increased $2.9
million, or 193.9%, and $3.0 million, or 111.8%, respectively, versus the prior
year quarter, while European sales increased $2.8 million, or 36.6% from 1999's
third quarter. European, Canadian and Pacific Rim sales in the first nine
months of 2000 increased $2.9 million, or 12.3%, $5.5 million, or 113.8%, and
$4.7 million, or 54.6%, respectively, over the prior year period. European
sales for the three- and nine- month periods were reduced by $0.9 million and
$2.7 million, respectively, compared with the same periods in 1999, because of a
negative foreign exchange rate impact due to the strength of the U.S. dollar
versus the euro in the current year periods.
Gross Margin Gross margins of 43.0% and 43.6% for the three- and nine-month
periods ending September 30, 2000, respectively, decreased slightly from the
43.6% and 43.9% gross margins realized in the comparable 1999 periods. For both
the three- and nine-month periods, the decrease in gross margins was due
primarily to higher growth rates in sales to OEM customers, which generally have
lower margins, as well as the delivery of several low margin orders from Unique
and the establishment of a separate service organization within the Fiber Optics
and Photonics business segment, offset in part by a shift in our sales mix
towards the product lines in the Fiber Optics and Photonics business segment,
which generally have higher margins.
Selling, General and Administrative (SG&A) Expense SG&A expenses for the three-
and nine-month periods ending September 30, 2000 totaled $13.9 million and $36.6
million, respectively, compared with $9.0 million and $26.9 million,
respectively, for the corresponding prior year periods, increases of 54.3% and
36.1%, respectively. SG&A expenses as a percent of net sales were 20.8% and
22.1% for the three- and nine-month periods ended September 30, 2000,
respectively, compared with 25.3% and 26.4% of net sales in the corresponding
prior year periods. The increases in our SG&A expenses for both the three- and
nine-month periods in 2000 versus the prior year periods were due in part to
higher expenses for compensation and incentive plans that are tied to sales and
profit performance, higher personnel and travel costs. Additionally, costs of
$0.5 million associated with the Unique acquisition were charged in the third
quarter of 2000. The inclusion of an additional month of expenses from the
reporting change discussed above increased 1999 nine-month SG&A expenses by $0.9
million. Absent this change, SG&A expenses increased $10.6 million, or 40.7%
for the nine-month period ended September 30, 2000 versus the comparable prior
year period.
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NEWPORT CORPORATION
Management's Discussion and Analysis of
Financial Condition and Results of Operations (Cont'd)
Three and Nine Months Ended September 30, 2000 and 1999
Research and Development (R&D) Expense R&D expenses totaled $5.8 million, or
8.7% of net sales, and $15.4 million, or 9.3% of net sales, for the three- and
nine-month periods ending September 30, 2000, respectively, versus expenses of
$3.4 million and $9.7 million for the three- and nine-month periods ending
September 30, 1999. Our R&D expenses in the 2000 periods increased $2.4
million, or 68.7%, and $5.7 million, or 59.9% compared with the prior year
periods. The increase for both periods 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. The inclusion of an additional
month of expenses from the change in European reporting increased 1999 nine-
month R&D expenses by $0.2 million. Absent this change, R&D expenses increased
$6.0 million, or 62.8% for the nine-month period ended September 30, 2000 versus
the comparable prior year period. We are committed to continued product
development and expect that R&D expenditures will increase in absolute dollars
in future periods.
Interest Expense and Interest Income Our interest expense totaled $0.4 million
and $1.6 million for the three- and nine-month periods ending September 30,
2000, compared with $0.5 million and $1.4 million for the three- and nine-month
periods ending September 30, 1999. Interest income totaled $3.4 million and
$3.5 million for the three- and nine-month periods ending September 30, 2000,
compared with $17,000 and $0.1 million in the corresponding prior year periods.
The increase in the interest income is attributable to the investment of the
proceeds of the secondary offering.
Income Taxes The effective tax rate for the three- and nine-month periods ended
September 30, 2000, was 32.5% and 30.3% versus 31.1% and 29.5%, respectively,
for the corresponding prior year periods. The higher rates in 2000 result
primarily from higher interest income, which is subject to tax at a higher
marginal rate than the effective tax rate of operating income.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in our operating activities of $10.4 million for the nine-month
period ended September 30, 2000 was primarily attributable to increases in our
receivables and inventories resulting from our increased sales levels, offset in
part by our operating income plus non-cash items, principally depreciation and
amortization and increases in our provisions for losses. Our customer
receivables increased by $14.1 million, or 43.3%, from the fourth quarter of
1999, which was proportionate with the increase in quarterly sales between the
two periods. Our inventories increased $19.8 million, or 52.5%, in the third
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 and to meet requirements of existing customer orders.
Our accounts payable increased $10.0 million, or 143.5%, in 2000's third quarter
compared with the fourth quarter of 1999 due primarily to higher inventory
procurement activity.
Net cash used in investing activities of $321.3 million for the nine-month
period ended September 30, 2000, was principally attributable to the purchase of
marketable securities ($311.7 million) and our purchases of property, plant and
equipment ($8.7 million), payments for an equity investment ($1.5 million) and
expenditures for software development ($0.8 million), partially offset by the
net proceeds on the sale of an equity investment ($1.4 million).
Net cash provided by financing activities of $332.4 million for the nine-month
period ended September 30, 2000, was principally attributable to proceeds
derived from our secondary offering of common stock ($329.9 million) and the
issuance of common stock in connection with stock option and purchase plans.
This increase was offset in part by the paydown of our line of credit, decrease
in long-term borrowings and the payment of cash dividends.
At September 30, 2000, we had in place a $20.0 million unsecured line of credit
expiring May 31, 2003 and a $20.0 million unsecured line of credit expiring May
31, 2001. Both lines bear interest at either the prevailing prime rate, or the
prevailing London Interbank Offered Rate plus 1.0%, at our option, plus an
unused line fee of 0.2% per year. At September 30, 2000, there were no balances
outstanding under the lines of credit, with $39.4 million available under the
combined lines, after considering outstanding letters of credit.
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NEWPORT CORPORATION
Management's Discussion and Analysis of
Financial Condition and Results of Operations (Cont'd)
Three and Nine Months Ended September 30, 2000 and 1999
We believe our current capital resources together with estimated cash flows from
operations and our existing credit availability are adequate to fund operations
for at least the next 12 months. We continue to evaluate acquisitions of
products, technologies or companies that complement our business and may make
acquisitions in the future which could require us to use cash. Accordingly,
additional sources of capital may be required to finance any acquisitions that
we may make.
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 our primary
enterprise systems and were accomplished as part of the normal course of
upgrading our 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.
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NEWPORT CORPORATION
Management's Discussion and Analysis of
Financial Condition and Results of Operations (Cont'd)
Three and Nine Months Ended September 30, 2000 and 1999
Pending Adoption of Staff Accounting Bulletin No. 101
In December 1999, the Securities and Exchange Commission ("SEC") issued Staff
Accounting Bulletin No. 101, Revenue Recognition in Financial Statements (SAB
No. 101). SAB No. 101 summarizes the SEC staff's views in applying generally
accepted accounting principles to revenue recognition in financial statements.
We review our sales contracts on an ongoing basis to ensure our compliance with
SAB No. 101. We do not anticipate that adoption of SAB No. 101 will have a
material impact on previously reported or future results of operations,
financial position or cash flow.
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 32% and 24% of our
consolidated operating profit for the three- and nine-months ended September 30,
2000, respectively. 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 have resulted in an after tax decline in our net
income of $0.2 million and $0.5 million, respectively, for the three- and nine-
month periods ended September 30, 2000. 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 8 - Comprehensive Income on page 9.
Interest Rate Risk
The interest rates we pay on certain of our debt instruments are subject to
interest rate risk. Our unsecured lines of credit 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% increase in interest rates on our unsecured lines of
credit would not have a material impact on our reported net income.
Our investments in marketable securities, which totals $311.5 million at
September 30, 2000, are sensitive to changes in the general level of U.S.
interest rates. We estimate that a 10% decline in the interest earned on our
investment portfolio would have resulted in an after tax decline in our net
income of $0.2 million for both the three- and nine-month periods ended
September 30, 2000.
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NEWPORT CORPORATION
Management's Discussion and Analysis of
Financial Condition and Results of Operations (Cont'd)
Three and Nine Months Ended September 30, 2000 and 1999
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
The Company filed a Report on Form 8-K on August 31, 2000, regarding the
acquisition of the issued and outstanding capital stock of Unique
Equipment Co. (Unique).
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: October 24, 2000
By: /s/ CHARLES F. CARGILE
---------------------------------------
Charles F. Cargile, Principal Financial
Officer, duly authorized to sign on
behalf of the Registrant
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