<PAGE>
As filed with the Securities and Exchange Commission on July 26, 2000
Registration No. 333-40878
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------
AMENDMENT NO. 2
TO
FORM S-3
REGISTRATION STATEMENT
Under
The Securities Act of 1933
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NEWPORT CORPORATION
(Exact name of registrant as specified in its charter)
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Nevada 94-0849175
(I.R.S. Employer
(State or other jurisdiction of Identification No.)
incorporation or organization)
1791 Deere Avenue, Irvine, California 92606
(949) 863-3144
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
----------
Robert G. Deuster
Chairman and Chief Executive Officer
Newport Corporation
1791 Deere Avenue
Irvine, California 92606
(949) 863-3144
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
----------
Copies to:
William R. Rauth III, Esq. Mark J. Kelson, Esq.
K.C. Schaaf, Esq. Gregory W. Preston, Esq.
Stradling Yocca Carlson & Rauth Allen Matkins Leck
660 Newport Center Drive Gamble & Mallory LLP
Suite 1600 1999 Avenue of the Stars
Newport Beach, California 92660 Suite 1800
(949) 725-4000 Los Angeles, California 90067
(949) 553-1313
----------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
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The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the Registration Statement
shall become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
===============================================================================
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell these securities and it is not soliciting an offer to buy these +
+securities in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED JULY 26, 2000
3,100,000 Shares
[LOGO OF NEWPORT CORPORATION]
Common Stock
--------
We are selling 3,000,000 shares of common stock, and the selling stockholders
are selling 100,000 shares of common stock. We will not receive any of the
proceeds from the shares being sold by the selling stockholders.
The underwriters have an option to purchase a maximum of 465,000 additional
shares to cover over-allotments of shares.
Our common stock is quoted on The Nasdaq Stock Market's National Market under
the symbol "NEWP." On July 25, 2000, the last reported sale price for our
common stock was $122.63 per share.
Investing in our common stock involves risks. See "Risk Factors" on page 4.
<TABLE>
<CAPTION>
Underwriting
Discounts Proceeds to
Price to and Proceeds to Selling
Public Commissions Newport Stockholders
------------ ------------ ----------- ------------
<S> <C> <C> <C> <C>
Per Share.................... $ $ $ $
Total........................ $ $ $ $
</TABLE>
Delivery of the shares of common stock will be made on or about
, 2000.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.
Credit Suisse First Boston
UBS Warburg LLC
Wit SoundView
The date of this prospectus is , 2000
<PAGE>
------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page Page
---- ----
<S> <C> <C> <C>
Prospectus Summary.................. 1 Business....................... 24
Risk Factors........................ 4 Management..................... 34
Cautionary Note Regarding Forward- Principal and Selling
Looking Statements................. 11 Stockholders.................. 37
Use of Proceeds..................... 12 U.S. Federal Tax Considerations
Dividend Policy..................... 12 for Non-U.S. Holders.......... 39
Price Range of Common Stock......... 12 Underwriting................... 42
Capitalization...................... 13 Notice to Canadian Residents... 44
Selected Consolidated Financial Legal Matters.................. 45
Data............................... 14 Experts........................ 45
Management's Discussion and Analysis Where You Can Find Additional
of Financial Condition and Results Information................... 45
of Operations...................... 15 Index to Consolidated Financial
Statements.................... 46
</TABLE>
------------
You should rely only on the information contained in this document or to
which we have referred you. We have not authorized anyone to provide you with
information that is different. This document may only be used where it is legal
to sell these securities. The information in this document may only be accurate
on the date of this document.
<PAGE>
PROSPECTUS SUMMARY
This summary highlights selected information from this prospectus and does
not contain all of the information that may be important to you. To understand
the risks involved in your investment decision, you should read carefully this
entire prospectus, including the risk factors and our financial statements, and
the documents to which we refer you.
Our Business
Newport Corporation is a global supplier of high-precision test, measurement
and automation systems and subsystems. We enable manufacturers of fiber optic
components, semiconductors and other high-precision products to automate their
manufacturing processes, enhance product performance and improve manufacturing
efficiencies and yields. Our products combine our proven motion control,
vibration isolation and non-contact vision metrology technologies with advanced
software and in-depth industry and process expertise to allow manufacturers to
design and implement high-volume, high quality manufacturing and testing
processes.
Using our systems and subsystems, manufacturers of fiber optic components,
semiconductors, computer peripherals and other high precision products can
reduce the need for labor-intensive manual manufacturing tasks and implement
new technologies and designs more readily, thereby reducing manufacturing costs
and shortening time to market. We also provide sophisticated high-precision
equipment to commercial, academic and governmental research institutions
worldwide that engage in advanced research and development activities. Our
involvement in advanced research activities enables us to incorporate
technological advancements into future generations of products and to address
new market opportunities.
Growth in the fiber optic and semiconductor markets, as well as in other
markets, is creating pressure on component suppliers to rapidly introduce new
products and technologies that keep pace with industry demand and technological
innovation. RHK, Inc., a market research and consulting firm, estimates that
demand for fiber optic components will exceed $23 billion by 2003, representing
a compound annual growth rate of approximately 36% from 1999 levels. Similarly,
Dataquest estimates that worldwide semiconductor sales will reach $320 billion
by 2004, up from $169 billion in 1999.
Traditionally, companies have attempted to address technological and
production-related challenges by implementing internally designed manufacturing
systems. As demand for their products has grown, and as products become more
complex and short lived, it is becoming increasingly impractical for
established manufacturers to remain vertically integrated, applying resources
toward both product development and manufacturing process engineering. In
addition, many optical component start-ups lack the expertise and resources
required to develop automated test and assembly systems. Consequently,
established vendors and new start-ups alike are seeking third party expertise
to commercialize their products and technologies.
Our products address the exacting requirements of manufacturers in the fiber
optic component, semiconductor, computer peripheral and other industries that
incorporate advanced technologies and manufacturing processes. Leveraging our
extensive product portfolio and over 30 years experience, we collaborate with
our customers to assist them in designing efficient manufacturing, assembly and
test processes which we incorporate into flexible, automated systems and
subsystems. We deliver our products as stand-alone integrated systems, or as
value-added subsystems, which are combined with third party equipment to create
specialized systems.
We market our components and systems to our more than 4,000 customers
worldwide through our direct sales force and network of distributors and sales
representatives. Our customers include leading manufacturers and research
organizations across a number of markets including fiber optic components,
semiconductors,
1
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computer peripherals, aerospace and research, and industrial metrology.
Representative customers include: ADC Telecommunications, Alcatel, ASM
Lithography, Avanex Corporation, Beckman Coulter, Becton Dickinson, Corning,
Inc., Cymer, E-TEK Dynamics, Inc., Hewlett Packard, IBM, Infineon Technologies,
Intel, JDS Uniphase, KLA-Tencor, Lawrence Livermore National Labs, Lockheed
Martin, Lucent Technologies, NASA, New Focus, Nortel Networks, Perkin Elmer
Biosystems, Quantum Corporation, Raytheon, Read Rite Corp., SDL Incorporated,
Seagate Technology, Silicon Valley Group, Inc. and Spectra-Physics Lasers, Inc.
We commenced operations in 1969. Our offices are located at 1791 Deere
Avenue, Irvine, California 92606. Our telephone number is (949) 863-3144, and
our website is http://www.newport.com. Information contained on our website, or
other sites linked to it, does not constitute a part of this prospectus.
------------
The Offering
<TABLE>
<C> <S>
Common stock offered by Newport..................... 3,000,000 shares
Common stock offered by selling stockholders........ 100,000 shares
Common stock to be outstanding after this offering.. 31,841,006 shares
Use of proceeds..................................... For general corporate
purposes, including
working capital, research
and development,
facilities expansion,
capital improvements and
potential acquisitions.
Nasdaq National Market symbol....................... NEWP
</TABLE>
The number of shares of common stock to be outstanding after this offering
is based on the number of shares outstanding as of June 30, 2000 and excludes:
. 3,977,318 shares of common stock issuable upon exercise of options
outstanding as of June 30, 2000 at a weighted average exercise price of
$8.52 per share;
. 1,283,280 shares of common stock available for issuance at June 30, 2000
under our Stock Option Plans; and
. 620,371 additional shares of common stock available for issuance under
our Employee Stock Purchase Plan following this offering.
2
<PAGE>
Summary Consolidated Financial Information
<TABLE>
<CAPTION>
Six Months
Year Ended December 31, Ended June 30,
--------------------------------------------- ----------------
1995 1996 1997 1998 1999 1999 2000
-------- -------- -------- -------- -------- ------- -------
(In thousands, except per share data) (unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Consolidated Income Statement:
Net sales............................ $101,961 $119,910 $132,594 $134,359 $141,945 $65,024 $97,354
Cost of sales........................ 55,421 67,103 74,844 75,491 80,194 36,355 54,397
-------- -------- -------- -------- -------- ------- -------
Gross profit......................... 46,540 52,807 57,750 58,868 61,751 28,669 42,957
Selling, general and administrative.. 34,441 36,741 35,825 33,017 35,593 17,285 22,090
Research and development............. 6,765 8,204 9,490 11,738 13,300 6,226 9,648
-------- -------- -------- -------- -------- ------- -------
Income from operations............... 5,334 7,862 12,435 14,113 12,858 5,158 11,219
Interest expense..................... 1,593 1,931 1,992 1,891 1,785 905 1,179
Other income (expense), net.......... 1,137 477 (349) 121 166 (130) (25)
-------- -------- -------- -------- -------- ------- -------
Income before income taxes........... 4,878 6,408 10,094 12,343 11,239 4,123 10,015
Income tax provision................. 1,003 1,705 3,030 3,365 2,956 1,154 2,804
-------- -------- -------- -------- -------- ------- -------
Net income........................... $ 3,875 $ 4,703 $ 7,064 $ 8,978 $ 8,283 $ 2,969 $ 7,211
======== ======== ======== ======== ======== ======= =======
Net income per share(1)(2)
Basic............................... $ 0.16 $ 0.18 $ 0.27 $ 0.33 $ 0.30 $ 0.11 $ 0.26
======== ======== ======== ======== ======== ======= =======
Diluted............................. $ 0.15 $ 0.17 $ 0.26 $ 0.32 $ 0.29 $ 0.11 $ 0.24
======== ======== ======== ======== ======== ======= =======
</TABLE>
<TABLE>
<CAPTION>
June 30, 2000
-----------------------
Actual As Adjusted(3)
-------- --------------
(unaudited, in
thousands)
<S> <C> <C>
Consolidated Balance Sheet Data:
Cash and cash equivalents.............................. $ 3,681 $340,386
Working capital........................................ 56,317 405,322
Total assets........................................... 144,469 481,174
Total debt............................................. 27,788 15,488
Stockholders' equity................................... 90,857 439,862
</TABLE>
--------------------
(1) Net income per share for all periods prior to 1997 has been restated as
necessary to conform with the requirements of Statement of Financial
Accounting Standards No. 128, Earnings Per Share. See Note 1 of Notes to
Consolidated Financial Statements for an explanation of the determination
of the number of shares used in computing per share data.
(2) On May 31, 2000, we effected a three-for-one stock split of our shares of
common stock. Net income per share amounts for all periods presented have
been restated to reflect the stock split.
(3) On an adjusted basis to give effect to the sale of 3,000,000 shares of
common stock in this offering at an assumed offering price of $122.63 per
share (less estimated underwriting discounts and commissions and estimated
offering expenses), the exercise of 100,000 stock options by the selling
stockholders and the application of net proceeds.
-----------
Except as otherwise indicated, information in this prospectus assumes no
exercise of the underwriter's over-allotment option. In addition, the
information in this prospectus reflects the three-for-one split of our common
stock effected on May 31, 2000.
"Newport", our logo and some of the product names referred to in this
prospectus are our trademarks. This prospectus also includes trademarks of
other parties.
3
<PAGE>
RISK FACTORS
This offering involves a high degree of risk. We have attempted to identify
the material risks that we believe exist. You should carefully consider the
following risks, as well as all of the other information contained in this
prospectus, before purchasing any of our common stock. Any of the following
risks could materially adversely affect our business, financial condition and
operating results. If events outlined below were to occur, the trading price of
our common stock could decline, and you may lose all or part of your
investment.
Risks Relating To Our Business
Our quarterly operating results are difficult to predict, and if we fail to
meet the expectations of investors or securities analysts, the market price of
our common stock would likely decline significantly.
Our operating results in any given quarter have fluctuated and will likely
continue to fluctuate. These fluctuations are typically unpredictable and can
result from numerous factors including:
. the timing of customer orders and shipments within a given quarter;
. fluctuations in the economic conditions of the markets for our products;
. demand for our products and the products sold by our customers;
. our ability to manufacture a sufficient quantity of our products;
. variations in the mix of products we sell in each of the markets in which
we do business;
. our timing in introducing new products;
. changes in our pricing policies or in the pricing policies of our
competitors or suppliers;
. market acceptance of any new or enhanced versions of our products;
. the availability and cost of key components we use to manufacture our
products;
. fluctuations in foreign currency exchange rates;
. timing of our competitors in introducing new products; and
. our levels of expenses.
We may in the future choose to reduce prices, increase spending, or add or
eliminate products in response to actions by our competitors or as an effort to
pursue new market opportunities. These actions may also adversely affect our
business and operating results and may cause our quarterly results to be lower
than the results of previous quarters. We believe that quarter-to-quarter
comparisons of results from operations, or any other similar period-to-period
comparisons, are not meaningful and should not be construed as reliable
indicators of our future performance. In any period, our results may be below
the expectations of market analysts and investors, which would likely cause the
trading price of our common stock to drop.
We are highly dependent on the growth of the fiber optic communications
industry and on our customers who serve this industry.
A substantial portion of our current and future business comes from sales to
companies that manufacture components for fiber optic communications systems.
The fiber optics communications market is characterized by rapid technological
change, frequent product introductions, changing customer requirements and
evolving industry standards. Because our customers face uncertainties with
regard to the growth and requirements of this market, their products and
components may not achieve, or continue to achieve, anticipated levels of
market acceptance. If our customers are unable to deliver products that gain
market acceptance with fiber optic systems vendors, it is likely that these
customers will not purchase our products or will purchase smaller quantities of
our products. We often invest substantial resources in helping our customers
develop products and
4
<PAGE>
manufacturing processes in advance of significant sales of our products to such
customers. A failure on the part of our customers' products to gain market
acceptance, or a failure of the fiber optic communications market as a whole to
grow would have a significant negative effect on our business and results of
operations.
If we are unable to continue to meet the demand for our products in the fiber
optic communications market, we may not be able to sustain our growth rate.
The fiber optic communications market has experienced significant growth
over the past few years, and demand for the products we sell to companies that
manufacture components for fiber optic communications systems has increased
accordingly. If we cannot significantly increase our manufacturing capacity, we
may not be able to meet the demand for our products in the future and our
growth rate may decline.
The markets and industries that we serve are subject to rapid technological
change, and if we do not introduce new and innovative products or improve our
existing products, our business and results of operations will be negatively
affected.
Our markets are characterized by rapid technological advances, evolving
industry standards, shifting customer needs and new product introductions and
enhancements. Products in our markets often become outdated quickly and without
warning. We depend to a significant extent upon our ability to enhance our
existing products, to address the demands of the marketplace for new and
improved technology and to be price competitive. We may not be successful in
developing, manufacturing or marketing new products on a timely or cost-
effective basis. If we fail to adequately introduce new, competitive products
on a timely basis, our business and results of operations would be harmed.
We offer products for multiple industries and must face the challenges of
supporting the distinct needs of each of our markets.
We market products for the fiber optic component, semiconductor capital
equipment, industrial metrology, aerospace and research markets. Because we
operate in multiple markets, we must work constantly to understand the needs,
standards and technical requirements of several different industries and must
devote significant resources to developing different products for these
industries. Product development is costly and time consuming. Many of our
products are used by our customers to develop, manufacture and test their own
products. As a result, we must anticipate trends in our customers' industries
and develop products before our customers' products are commercialized. If we
do not accurately predict our customers' needs and future activities, we may
invest substantial resources in developing products that do not achieve broad
market acceptance. Our decision to continue to offer products to a given market
or to penetrate new markets is based in part on our judgment of the size,
growth rate and other factors that contribute to the attractiveness of a
particular market. If our product offerings in any particular market are not
competitive or our analyses of a market are incorrect, our business and results
of operations would be harmed.
Because our sales cycle is long and difficult to predict, we may experience
fluctuations in our operating results.
Many of our products are complex, and customers for these products require
substantial time to make purchase decisions. These customers often perform, or
require us to perform, elaborate testing and evaluation of our products before
committing to purchasing them. The sales cycle for our products typically
varies, is difficult to predict and can last as long as one year. Orders
expected to be shipped in any one quarter may be delayed to subsequent
quarters, which could cause our operating results to fluctuate from period to
period. These fluctuations could harm our results of operations and cause our
stock price to drop.
If we are unable to attract, retain and motivate our employees, our business
and results of operations will suffer.
Our ability to maintain and grow our business is directly related to the
service of our employees in each area of our operations. Our future performance
will be directly tied to our ability to hire, train, motivate and retain
5
<PAGE>
qualified personnel. Competition for personnel in the technology marketplace is
intense, particularly for employees with expertise in fiber optics. If we are
unable to hire sufficient numbers of employees with the experience and skills
we need or to retain our employees, our business and results of operations
would be harmed.
We face significant risks from doing business in foreign countries.
Our business is subject to risks inherent in conducting business
internationally. In 1999, 1998 and 1997, our international revenues accounted
for approximately 36.5%, 34.8% and 35.3%, respectively, of our total net sales,
with a substantial portion of sales originating in Europe. We expect that
international revenues will continue to account for a significant percentage of
our total net sales for the foreseeable future. As a result of our
international operations, we face various risks, which include:
. adverse changes in the political or economic conditions in countries or
regions where we manufacture or sell our products;
. challenges of administering our business globally;
. compliance with multiple and potentially conflicting regulatory
requirements including export requirements, tariffs and other trade
barriers;
. longer accounts receivable cycles;
. overlapping or differing tax structures;
. adverse currency fluctuations;
. differing protection of intellectual property;
. difficulties in staffing and managing each of our individual foreign
operations; and
. trade restrictions and licensing requirements.
As a result of our international operations, fluctuations in foreign
exchange rates could affect the sales price in local currencies of our products
in foreign markets, potentially making our products less competitive. In
addition, exchange rate fluctuations could increase the costs and expenses of
our foreign operations or require us to modify our current business practices.
If we experience any of the risks associated with international business, our
business and results of operations could be significantly harmed.
We face substantial competition, and if we fail to compete effectively, our
operating results will suffer.
The markets for our products are intensely competitive, and we believe that
competition from both new and existing competitors will increase in the future.
We compete in several specialized market segments, against a limited number of
companies. We also face competition in some of our markets from our existing
and potential customers who have developed or may develop products that are
competitive to ours. Many of our existing and potential competitors are more
established, enjoy better name recognition and possess greater financial,
technological and marketing resources than we do. Other competitors are small,
and highly specialized firms that are able to focus on only one aspect of a
market. We compete on the basis of product features, quality, reliability and
price and on our ability to manufacture and deliver our products on a timely
basis. We may not be able to compete successfully in the future against
existing or new competitors. In addition, competitive pressures may force us to
reduce our prices, which could negatively affect our operating results. If we
do not respond adequately to competitive challenges, our business and results
of operations would be harmed.
Acquisitions of additional business, products or technologies we may make could
negatively affect our business.
We have acquired businesses and technologies in the past and expect to
pursue acquisitions of other companies, technologies and complementary product
lines in the future. Any acquisition would involve risks to our business,
including:
. our ability to integrate the acquired business' operations, products and
personnel;
6
<PAGE>
. our ability to retain key personnel of the acquired businesses;
. our ability to manufacture and sell the products of the acquired
businesses;
. a decline in demand by our customers for the acquired business' products;
. our ability to expand our financial and management controls and reporting
systems and procedures to incorporate the acquired businesses;
. diversion of management's time and attention;
. customer dissatisfaction or performance problems with the products or
services of an acquired firm;
. assumption of unknown liabilities, or other unanticipated events or
circumstances; and
. the need to record significant one-time charges or amortize intangible
assets, which could lower our reported earnings.
We cannot assure you that any business that we may acquire will achieve
anticipated revenues and operating results, which could decrease the value of
the acquisition to us. Any of these risks could materially harm our business,
financial condition and results of operations.
If we are delayed in introducing our new products into the marketplace, or if
our new products contain defects, our operating results will suffer.
Because our products are sophisticated and complex, we may experience delays
in introducing new products or enhancements to our existing products. If we do
not introduce our new products or enhancements into the marketplace in a timely
fashion, our customers may choose to use competitors' products. Our inability
to introduce new or enhanced products in a timely manner could cause our
business and results of operations to suffer. Our products may also contain
defects or undetected errors. As a result, we could incur substantial expenses
in fixing any defects or undetected errors, which could result in damage to our
competitive position and harm our business and results of operations.
We rely on several sole-source and limited source suppliers.
We obtain some of the materials used to build our systems and subsystems,
such as the sheet steel used in some of our vibration isolation tables, from
single or limited sources due to unique component designs as well as
specialized quality and performance requirements needed to manufacture our
products. If our components or raw materials are unavailable in adequate
amounts or are unavailable on satisfactory terms, we may be required to
purchase them from alternative sources, if available, which could increase our
costs and cause delays in the production and distribution of our products. If
we do not obtain comparable replacement components from other sources in a
timely manner, our business and results of operations will be harmed. Many of
our suppliers require long lead-times to deliver the quantities of components
that we need. If we fail to accurately forecast our needs, or if we fail to
obtain sufficient quantities of components that we use to manufacture our
products, then delays or reductions in production and shipment could occur,
which would harm our business and results of operations.
Natural disasters could disrupt or shut down our operations.
Our operations are susceptible to damages from earthquakes, floods, fire,
loss of power or water supplies, or other similar contingencies. A significant
portion of our facilities are located in areas with above average seismic
activity. If any of our facilities were to experience a catastrophic loss, it
could disrupt our operations, delay production, shipments and revenue, and
result in large expenses to repair or replace the facility, any of which would
harm our business, results of operations and financial condition.
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<PAGE>
Risks Relating to Our Industry
The markets for our products are cyclical, and a downturn in a market could
harm our business.
We do business in several cyclical industries, and we are susceptible to any
downturns in each. In particular, the semiconductor industry, where we do a
substantial amount of our business, is particularly prone to abrupt downward
turns, as was the case in 1998 and 1999. When the business cycle of one of
these industries is in decline, the businesses of companies that supply
equipment to that particular industry, such as our company, also generally
experience a downturn since the demand for capital equipment to manufacture the
products of that industry generally declines as well. Other industries in which
we do business can be seasonal in the demand for products. If one or more of
the industries in which we operate experiences a downturn, our business and
results of operations could be significantly harmed.
Any decline in our customers' research budgets will negatively impact our
operating results.
A significant amount of our revenues are derived from selling our products
to research institutions in the United States and various foreign countries. We
anticipate that sales to such institutions will continue to account for a
significant portion of our revenues in the foreseeable future. Thus, our future
performance is directly dependent in part upon the capital expenditure budgets
of our research institution customers and the continued demand by such
customers for our products. Domestic and foreign research institutions could
experience constraints on their capital expenditure budgets due to factors such
as reduced governmental funding of research activities, changes in research
focus or reduced defense spending. Our operating results may be subject to
fluctuations as a consequence of funding constraints. If funding constraints
are imposed and if they persist for an extended period of time, our business
and results of operations would be harmed.
If any third parties claim that we infringe upon their intellectual property
rights, we could face substantial licensing or litigation costs, or could be
forced to stop selling some of our products.
Our products are complex and include substantial amounts of technology. It
is possible that technology incorporated in our products, or the trademarks
under which they are marketed, may infringe the intellectual property rights of
others. Third parties who believe that our products or trademarks infringe upon
their intellectual property may assert such rights, which could result in
litigation. For example, we are currently engaged in litigation with a third
party that claims that our use of the "Newport" mark infringes their rights.
Any litigation over intellectual property rights, whether with or without
merit, would be time consuming, expensive and distracting to our management.
Litigation could also subject us to extensive liabilities, including monetary
damages and injunctions preventing us from selling certain of our products or
from using one or more of our trademarks. Moreover, we could be forced to enter
into licensing agreements or sell the rights to our products or technology on
unfavorable terms, in order to avoid claims of infringement. Unfavorable
outcomes regarding claims of infringement of the intellectual property rights
of third parties could harm our business, results of operation and financial
condition.
We must protect and enforce our intellectual property rights to remain
competitive.
Our success depends in part on our ability to protect our intellectual
property rights such as patents, trademarks, copyrights, trade secrets,
confidentiality agreements and license agreements. If we are unsuccessful in
protecting and enforcing our intellectual property rights, our business and
results of operations could be harmed. In addition, our pending and future
patent and trademark applications may be rejected, or our competitors may
contest the scope or validity of our applications or existing rights, which
could weaken our competitive position.
Third parties may infringe our intellectual property rights or devise
designs that circumvent our intellectual property, and we may not be able to
detect this unauthorized use or effectively enforce our rights. If any third
parties infringe our intellectual property rights, we could incur significant
costs in defending our rights. Since
8
<PAGE>
we do business in foreign countries, we face the additional challenge of
protecting and enforcing our intellectual property rights worldwide. The laws
of many foreign countries may not protect our intellectual property rights as
fully as those of the United States. Unauthorized use or misappropriation of
our intellectual property, and our ability to remedy the misuse, could
materially harm our business, results of operations and financial condition.
We are required to comply with government regulations, and we may incur
significant expenses complying with these regulations.
Many of our products are subject to government regulations on federal, state
and local levels, as well as to the government regulations of any of the
foreign countries in which we do business. In addition, our products must
comply with relevant industry standards, such as ISO 9000 and Network Equipment
Building Standards. We are required to make substantial efforts to ensure
compliance with these regulations and standards and to remedy any deficiencies.
If we fail to comply with all required government regulations, we could incur
fines or be forced to curtail segments of our business. In addition, many of
our customers operate in regulated industries, which means that we must comply
with any applicable regulations and standards within these industries. Our
failure to comply with any of the regulations and standards will likely impair
our ability to remain competitive and could harm our business and results of
operations.
If we fail to comply with the rules and regulations governing government
contracts, our business and results of operations could suffer.
We regularly enter into contracts with government agencies, or subcontracts
with government contractors, which require us to abide by the special rules and
regulations governing government contracts. We may also be required to submit
to investigations by government agencies to ensure compliance with the rules
and regulations or with the provisions of any such government contracts to
which we may be a party. If any governmental agency elected to investigate or
review our practices with respect to government contracts, we would be required
to cooperate with the investigation, which would likely result in significant
distraction for management and other key employees. If we are found to not have
been in compliance with the rules and regulations governing government
contracts or the provisions of any government contracts, our business and
results of operations could be harmed.
We may incur expenses to comply with environmental regulations.
There are aspects of our business that involve substances that could pose a
threat of contamination to the environment. We may in the future incur expenses
resulting from environmental remediation activities, or in connection with
complying with current or future environmental regulations. Environmental
remediation is costly, time consuming and could result in lengthy proceedings
that could distract our management. If we are required to remediate any
environmental hazard, our business, results of operations and financial
condition could be harmed.
Risks Relating to this Offering
The market price of our common stock fluctuates significantly, and you may not
be able to sell shares purchased in this offering at or above the public
offering price.
The public offering price will be determined through negotiations between
representatives of the underwriters and us and may not be representative of the
market price of our common stock after this offering. During the past 52 weeks,
the market price of our common stock has fluctuated from a low of $4.50 to a
high of $131.00 on July 24, 2000. The market price of our common stock could
decrease significantly after this offering in response to any of the following:
. changes in financial estimates or investment recommendations relating to
us by securities analysts;
. our quarterly operating results falling below analysts' or investors'
expectations in any given period;
9
<PAGE>
. changes in economic conditions for companies serving our markets;
. changes in market valuations of, or earnings and other announcements by,
companies serving our markets;
. declines in the market prices of stocks generally, particularly those of
technology companies;
. announcements by us or our competitors of new products, acquisitions or
strategic relationships;
. changes in business or regulatory conditions; and
. trading volume of our common stock.
Many companies' equity securities, including equity securities of technology
companies, have experienced extreme price and volume fluctuations in recent
years. Often, these fluctuations are unrelated to the companies' operating
performance. Elevated levels in market prices for securities may not be
sustainable and may not bear any relationship to operating performances. Our
common stock may not trade at the same levels as other technology stocks, and
technology stocks in general may not sustain their current market prices. In
the past, following periods of market volatility, stockholders have instituted
securities class action litigation. If we were involved in securities
litigation, it could have a substantial cost and divert resources and the
attention of executive management from our business.
Provisions of our charter and bylaws and Nevada law could deter takeover
attempts that may offer you a premium, which could adversely affect our stock
price.
Provisions of our articles of incorporation, our bylaws and Nevada law make
acquiring control of us without the support of our board of directors difficult
for a third party, even if the change of control would be beneficial to you.
The existence of these provisions may deprive you of an opportunity to sell
your shares at a premium over prevailing prices. The potential inability of our
stockholders to obtain a control premium could adversely affect the market
price for our common stock. For example, our articles of incorporation provides
that the board of directors will be divided into four classes as nearly equal
in size as possible with staggered four-year terms. This classification of the
board of directors has the effect of making it more difficult for stockholders
to change the composition of the board of directors. A special meeting of
stockholders may only be called by a majority of the board of directors or by
our president, chief executive officer or chairman. In addition, a stockholder
proposal for an annual meeting must be received within a specified period of
time to be placed on the agenda. Because stockholders do not have the ability
to require the calling of a special meeting of stockholders and are subject to
timing requirements in submitting stockholder proposals for consideration at an
annual meeting, any third-party takeover not supported by the board of
directors would be subject to significant delays and difficulties.
Management has broad discretion as to the use of the proceeds from this
offering. If we do not allocate the proceeds from this offering effectively,
our business, results of operations and financial condition could be harmed.
Except as discussed in "Use of Proceeds," we do not currently have a defined
plan for the allocation of the proceeds from this offering. Our management will
have broad discretion with respect to the use of proceeds from this offering.
You will be relying on the judgment of our management about these uses, and you
may not agree with our management's decisions. If we do not allocate the
proceeds from this offering effectively, our business, results of operations
and financial condition could be harmed.
10
<PAGE>
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus, including the sections entitled "Prospectus Summary," "Risk
Factors," "Management's Discussion and Analysis of Financial Condition and
Results of Operations," and "Business," contains forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended and
Section 21E of the Securities Exchange Act of 1934, as amended. These
statements relate to future events or our future financial performance and
involve known and unknown risks, uncertainties and other factors that may cause
our or our industry's actual results, levels of activity, performance or
achievements to be materially different from any future results, levels of
activity, performance or achievements expressed or implied by the forward-
looking statements. These risks and other factors include those listed under
"Risk Factors" and elsewhere in this prospectus. In some cases, you can
identify forward-looking statements by terminology such as "may," "will,"
"should," "expects," "plans," "anticipates," "believes," "estimates,"
"predicts," "potential," "continue" or the negative of these terms or other
comparable terminology. These statements are only predictions. In evaluating
these statements, you should specifically consider various factors, including
the risks outlined under "Risk Factors" and the other information contained in
our publicly-available filings with the Securities and Exchange Commission.
You should not place undue reliance on any forward-looking statements.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. Moreover, neither we nor any other
person assumes responsibility for the accuracy and completeness of these
forward-looking statements. Except as otherwise required by federal securities
laws, we undertake no obligation to publicly update or revise any forward-
looking statements, whether as a result of new information, future events,
changed circumstances or any other reason after the date of this prospectus.
11
<PAGE>
USE OF PROCEEDS
We expect to receive net proceeds from the sale of the 3,000,000 shares of
common stock offered by us in this offering at an assumed public offering price
of $122.63 per share, after deducting estimated underwriting discounts and
commissions and estimated offering expenses, of approximately $348.8 million
(approximately $403.0 million if the underwriters' over-allotment option is
exercised in full) and proceeds of $0.2 million from the exercise of 100,000
stock options by the selling stockholders. We will not receive any proceeds
from the sale of the 100,000 shares of common stock by the selling
stockholders.
We intend to use a portion of the net proceeds from this offering to repay
amounts outstanding under our current bank line of credit ($12.3 million at
June 30, 2000), which terminates on May 31, 2003 and which bears interest at
either the prevailing prime rate, or the prevailing London Interbank Offered
Rate plus 1.0%, at our option. We intend to use the remaining net proceeds for
general corporate purposes and working capital, including expanding our
manufacturing capacity and increasing our product development and sales and
marketing activities. The amounts that we actually expend will vary
significantly, depending on a number of factors, including future revenue
growth, if any, and the amount of cash we generate from operations. As a
result, we will retain broad discretion in the allocation of the net proceeds
of this offering. In addition, we may use a portion of the net proceeds to
acquire complementary products, technologies or businesses. Except as discussed
in "Management's Discussion and Analysis of Financial Condition and Results of
Operations--Overview," we currently have no commitments or agreements and are
not involved in any negotiations with respect to any such transactions. Pending
use of the net proceeds of this offering, we intend to invest the net proceeds
in short term, interest bearing, investment-grade securities.
DIVIDEND POLICY
Since 1978, we have paid a dividend on our common stock. The dividend is
currently $0.02 per share of common stock per year. Any future determination as
to the payment of dividends will be at the discretion of our board of
directors, and will depend on our results of operations, financial condition,
capital requirements and other factors our board of directors considers
relevant.
PRICE RANGE OF COMMON STOCK
Our common stock is traded on the Nasdaq National Market under the symbol
"NEWP." The following table shows, for the periods indicated, the high and low
closing prices of our common stock, as reported by the Nasdaq National Market.
<TABLE>
<CAPTION>
Quarter Ended High Low
------------- ------ ------
<S> <C> <C>
March 31, 1998................................................ $ 7.25 $ 4.08
June 30, 1998................................................. 7.63 5.92
September 30, 1998............................................ 6.58 3.54
December 31, 1998............................................. 5.92 2.96
March 31, 1999................................................ 6.50 4.13
June 30, 1999................................................. 5.25 3.98
September 30, 1999............................................ 6.88 4.58
December 31, 1999............................................. 15.25 5.42
March 31, 2000................................................ 59.50 14.31
June 30, 2000................................................. 110.00 29.33
September 30, 2000 (through July 25, 2000).................... 122.63 82.44
</TABLE>
On July 25, 2000, the last reported sale price of our common stock on the
Nasdaq National Market was $122.63 per share. As of June 30, 2000, there were
1,283 stockholders of record of our common stock.
12
<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of June 30, 2000:
. on an actual basis; and
. on an adjusted basis to give effect to the sale of 3,000,000 shares of
common stock in this offering at an assumed offering price of $122.63 per
share (less estimated underwriting discounts and commissions and
estimated offering expenses), the exercise of 100,000 stock options by
the selling stockholders and the application of net proceeds.
You should read this table in conjunction with our financial statements and
related notes, "Selected Financial Data" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" included elsewhere
in this prospectus.
<TABLE>
<CAPTION>
June 30, 2000
-----------------------------
Actual As Adjusted
------------ ---------------
(unaudited, in thousands)
<S> <C> <C>
Long-term obligations, less current portion....... $ 9,844 $ 9,844
------------ ------------
Stockholders' equity:
Common stock, $0.1167 stated value: 75,000,000
authorized; 28,741,006 issued and outstanding,
actual; 31,841,006 issued and outstanding, as
adjusted....................................... 3,354 3,716
Additional paid-in capital...................... 18,551 367,194
Unamortized deferred compensation............... (1,954) (1,954)
Accumulated other comprehensive loss............ (7,607) (7,607)
Retained earnings............................... 78,513 78,513
------------ ------------
Total stockholders' equity...................... 90,857 439,862
------------ ------------
Total capitalization.......................... $ 100,701 $ 449,706
============ ============
</TABLE>
The data in the table above exclude:
. 3,977,318 shares of common stock issuable upon exercise of options
outstanding as of June 30, 2000 at a weighted average exercise price of
$8.52 per share; and
. 1,283,280 shares of common stock available for issuance at June 30, 2000
under our stock option and stock purchase plans.
For additional information regarding these shares, see Note 10 of Notes to
Consolidated Financial Statements.
13
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
We derived the following income statement data for each of the three years
in the period ended December 31, 1999 and the balance sheet data as of December
31, 1998 and 1999 from our consolidated financial statements, which have been
audited by Ernst & Young LLP, independent auditors and are included in this
prospectus. We derived the income statement data for each of the two years in
the period ended December 31, 1996 and the balance sheet data as of December
31, 1995, 1996 and 1997 from our audited consolidated financial statements,
which are not included in this prospectus. We derived the statement of
operations data for the six months ended June 30, 1999 and 2000 and the balance
sheet data as of June 30, 1999 and 2000 from our unaudited consolidated
financial statements, which are not included in this prospectus. The unaudited
financial information includes adjustments (consisting only of normal recurring
adjustments) that we consider necessary for a fair presentation of this
information in accordance with generally accepted accounting principles. The
consolidated statement of operations data for the six-month period ended June
30, 2000 are not necessarily indicative of the results to be expected for the
full fiscal year ending December 31, 2000 or any future period. You should read
the following selected consolidated financial data along with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
our financial statements and the related notes, each of which is included in
this prospectus.
<TABLE>
<CAPTION>
Six Months Ended
Year Ended December 31, June 30,
--------------------------------------------- ------------------
1995 1996 1997 1998 1999 1999 2000
-------- -------- -------- -------- -------- -------- --------
(In thousands, except per share data) (unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Consolidated Income
Statement:
Net sales............... $101,961 $119,910 $132,594 $134,359 $141,945 $ 65,024 $ 97,354
Cost of sales........... 55,421 67,103 74,844 75,491 80,194 36,355 54,397
-------- -------- -------- -------- -------- -------- --------
Gross profit............ 46,540 52,807 57,750 58,868 61,751 28,669 42,957
Selling, general and
administrative......... 34,441 36,741 35,825 33,017 35,593 17,285 22,090
Research and
development............ 6,765 8,204 9,490 11,738 13,300 6,226 9,648
-------- -------- -------- -------- -------- -------- --------
Income from operations.. 5,334 7,862 12,435 14,113 12,858 5,158 11,219
Interest expense........ 1,593 1,931 1,992 1,891 1,785 905 1,179
Other income (expense),
net.................... 1,137 477 (349) 121 166 (130) (25)
-------- -------- -------- -------- -------- -------- --------
Income before income
taxes.................. 4,878 6,408 10,094 12,343 11,239 4,123 10,015
Income tax provision.... 1,003 1,705 3,030 3,365 2,956 1,154 2,804
-------- -------- -------- -------- -------- -------- --------
Net income.............. $ 3,875 $ 4,703 $ 7,064 $ 8,978 $ 8,283 $ 2,969 $ 7,211
======== ======== ======== ======== ======== ======== ========
Net income per
share(1)(2)
Basic................. $ 0.16 $ 0.18 $ 0.27 $ 0.33 $ 0.30 $ 0.11 $ 0.26
======== ======== ======== ======== ======== ======== ========
Diluted............... $ 0.15 $ 0.17 $ 0.26 $ 0.32 $ 0.29 $ 0.11 $ 0.24
======== ======== ======== ======== ======== ======== ========
<CAPTION>
December 31, June 30,
--------------------------------------------- ------------------
1995 1996 1997 1998 1999 1999 2000
-------- -------- -------- -------- -------- -------- --------
(In thousands) (unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Consolidated Balance
Sheet Data:
Cash and cash
equivalents............ $ 1,524 $ 3,375 $ 7,456 $ 5,335 $ 2,721 $ 2,686 $ 3,681
Customer receivables,
net.................... 19,767 23,418 23,372 25,798 32,239 26,338 38,733
Inventories............. 22,744 28,954 28,326 31,260 36,386 33,648 44,771
Other current assets.... 4,868 6,782 7,850 6,713 5,794 7,752 11,493
-------- -------- -------- -------- -------- -------- --------
Current assets........ 48,903 62,529 67,004 69,106 77,140 70,424 98,678
Investments and other
assets................. 4,557 5,191 5,830 6,451 8,461 7,633 9,093
Property, plant and
equipment, net......... 22,327 24,045 22,994 22,696 25,738 21,470 26,553
Goodwill, net........... 8,161 11,612 10,133 12,220 10,914 11,220 10,145
-------- -------- -------- -------- -------- -------- --------
Total assets......... $ 83,948 $103,377 $105,961 $110,473 $122,253 $110,747 $144,469
======== ======== ======== ======== ======== ======== ========
Current liabilities..... $ 20,330 $ 20,787 $ 22,689 $ 20,608 $ 30,968 $ 21,982 $ 42,361
Long-term debt.......... 9,899 23,464 21,027 17,536 12,715 15,499 9,844
Other liabilities....... 1,032 1,697 1,587 1,359 1,407 1,407 1,407
Stockholders' equity.... 52,687 57,429 60,658 70,970 77,163 71,859 90,857
-------- -------- -------- -------- -------- -------- --------
Total liabilities and
equity.............. $ 83,948 $103,377 $105,961 $110,473 $122,253 $110,747 $144,469
======== ======== ======== ======== ======== ======== ========
</TABLE>
--------------------
(1) Net income per share for all periods prior to 1997 has been restated as
necessary to conform with the requirements of Statement of Financial
Accounting Standards No. 128, Earnings Per Share. See Note 1 of Notes to
Financial Statements for an explanation of the determination of the number
of shares used in computing per share data.
(2) On May 31, 2000, we effected a three-for-one stock split of our shares of
common stock. Net income per share amounts for all periods presented have
been restated to reflect the stock split.
14
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion along with our consolidated
financial statements and the related notes included in this prospectus. The
following discussion contains forward-looking statements that involve potential
risks and uncertainties, including those discussed under "Risk Factors." Our
future results could differ materially from results discussed in, or implied
by, these forward-looking statements.
Overview
Newport Corporation is a global supplier of high precision test, measurement
and automation systems which enable our customers in the fiber optic
components, semiconductor capital equipment, industrial metrology, aerospace
and research markets to improve process efficiencies, yields, time to market
and increase functional capacity. Our products enhance the productivity and
capabilities of automated assembly and test and measurement functions in high
precision manufacturing and engineering applications. We also provide
sophisticated equipment to commercial, academic and governmental research
institutions worldwide.
In October 1998, we acquired Environmental Optical Sensors, Inc., a provider
of high precision assembly and test equipment for the fiber optic
communications market. In October 1999, we acquired the west coast commercial
optics operation of Corning OCA Corporation, a subsidiary of Corning
Incorporated, which manufactures specialized precision optical products and
systems. We renamed the company Newport Precision Optics Corporation after the
acquisition was completed. These acquisitions were accounted for using the
purchase method. This discussion includes the effect of our acquisition of
Environmental Optical Sensors, Inc. for 1999 and 1998, and the effect of our
acquisition of Newport Precision Optics Corporation for 1999.
In June 2000, we executed a letter of intent to acquire International
Metrology Systems, Ltd., a United Kingdom-based supplier of coordinate
measurement systems and advanced metrology solutions. Consummation of the
acquisition is subject to negotiation and execution of definitive agreements
and to customary conditions, including receipt of all required regulatory
approvals. We anticipate that we will complete this acquisition in the third
quarter of 2000 and will account for the transaction as a purchase.
We record sales upon customer acceptance after all significant obligations
have been met, collectability is probable and title has passed to our customer.
Our customers have 30 days from the original invoice date (60 days for
international customers) to return a catalog product purchase to us for
exchange or credit. The catalog product must be returned in its original
condition and meet certain other criteria. Product returns of catalog items
have historically been immaterial. Custom configured and other products as
defined in our Customer Satisfaction and Product Guarantee Policy cannot be
returned. Unless otherwise stated in our product literature, we provide a one-
year warranty from the original invoice date on all product material and
workmanship. We either repair or replace defective products meeting certain
criteria, at our option.
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.
15
<PAGE>
Results of Operations
<TABLE>
<CAPTION>
Period-to-Period
Percentage of Net Sales Increase (Decrease)
--------------------------------- --------------------------
Six Months Six Months
Year Ended Ended Year Ended Ended June
December 31, June 30, December 31, 30,
------------------- ------------ -------------- ----------
1997 1998 1999 1999 2000 1998 1999 2000
----- ----- ----- ----- ----- ------ ------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Sales............... 100.0% 100.0% 100.0% 100.0% 100.0% 1.3% 5.6% 49.7%
Cost of Sales........... 56.4 56.2 56.5 55.9 55.9 0.9 6.2 49.6
----- ----- ----- ----- ----- ------ ------ -----
Gross Profit.......... 43.6 43.8 43.5 44.1 44.1 1.9 4.9 49.8
Selling, general and
administrative ........ 27.0 24.6 25.1 26.6 22.7 (7.8) 7.8 27.8
Research and
development............ 7.2 8.7 9.4 9.6 9.9 23.7 13.3 55.0
----- ----- ----- ----- ----- ------ ------ -----
Income from
operations........... 9.4 10.5 9.1 7.9 11.5 13.5 (8.9) 117.5
Interest expense........ 1.5 1.4 1.3 1.4 1.2 5.1 5.6 30.3
Other income (expense),
net.................... (0.3) 0.1 0.1 (0.2) (0.0) 134.7 37.2 (80.8)
----- ----- ----- ----- ----- ------ ------ -----
Income before income
taxes................ 7.6 9.2 7.9 6.3 10.3 22.3 (8.9) 142.9
Income tax provision.... 2.3 2.5 2.1 1.7 2.9 11.1 (12.2) 143.0
----- ----- ----- ----- ----- ------ ------ -----
Net income............ 5.3% 6.7% 5.8% 4.6% 7.4% 27.1% (7.7)% 142.9%
===== ===== ===== ===== ===== ====== ====== =====
</TABLE>
Six Months Ended June 30, 2000 and 1999
Net Sales
Net sales for the six-month period ended June 30, 2000 were $97.4 million
compared with $65.0 million for the six-month period ended June 30, 1999, an
increase of $32.4 million, or 49.7%. The increase in net sales 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 six-
month period in 1999 includes net sales of $2.5 million representing one extra
month of sales from our European operations, resulting 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
$62.5 million for the 1999 first half.
First half 2000 sales to the fiber optic communications market were $38.3
million, an increase of $24.9 million, or 185.9%, compared with the prior year
first half. Sales to the industrial metrology markets, comprised of the
semiconductor equipment, computer peripherals and general metrology markets, in
the first half of 2000 were $39.0 million, an increase of $7.3 million, or
22.9%, compared with 1999's first half. Sales to the aerospace and research
market were $20.0 million in the six-month period ended June 30, 2000, an
increase of $0.1 million, or 0.6%, compared with the prior year first half.
Domestic sales totaled $66.4 million for the six-month period ended June 30,
2000, compared with $38.5 million for the corresponding period in 1999. This
increase of $27.9 million, or 72.5%, was due primarily to sales increases in
the fiber optic communications, semiconductor, aerospace and research, and
general metrology markets of $18.6 million, or 255.3%; $7.6 million, or 197.8%;
$1.7 million, or 16.4%, and $1.4 million, or 11.1%, respectively, offset
partially by a decrease of $1.4 million, or 28.1%, in sales to the computer
peripherals market.
International sales totaled $31.0 million for the six-month period ended
June 30, 2000, compared with $26.5 million for the corresponding prior year
period, an increase of $4.5 million or 16.7%. European sales in the first half
of 1999 reflect a $2.5 million favorable impact from the reporting change
discussed above. Excluding that impact, international sales increased $7.0
million, or 28.9% versus the prior year first half. The increase was due
primarily to an increase of $6.3 million, or 103.2%, in sales to international
fiber optic
16
<PAGE>
communications customers and an increase of $0.2 million, or 15.3%, in
international sales to the semiconductor market, offset in part by a decline in
sales to international aerospace and research customers of $1.5 million, or
16.1% and a decline in sales of metrology products of $0.5 million, or 6.0%.
European, Canadian and Pacific Rim sales in the first half of 2000 increased
$0.2 million, or 1.0%, $2.7 million, or 78.9% and $1.8 million, or 31.2%,
respectively, over the prior year first half. The increase in European sales
was reduced by $1.8 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 unchanged at 44.1% for the six-month periods ending June
30, 2000 and 1999, respectively. 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.
Selling, General and Administrative Expenses
SG&A expenses totaled $22.1 million and $17.3 million for the six-month
periods ending June 30, 2000 and 1999, respectively, representing 22.7% and
26.6% of net sales in the respective periods. Our SG&A expenses in the first
half of 2000 increased $4.8 million, or 27.8%, versus the first half of the
prior year, due in part to higher expenses for compensation and incentive plans
that are based on sales and profit performance, higher personnel costs, higher
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 half. The inclusion of an additional month of expenses
from the reporting change discussed above increased 1999 first half SG&A
expenses by $0.9 million. Absent this change, SG&A expenses increased $5.7
million, or 34.7%, for the first half of 2000 versus the comparable prior year
period.
Research and Development Expenses
R&D expenses totaled $9.6 million and $6.2 million for the six-month periods
ending June 30, 2000 and 1999, respectively, representing 9.9% and 9.6% of net
sales in the respective periods. Our R&D expenses in the first half of 2000
increased $3.4 million, or 55.0%, compared with the prior year first half. 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. The inclusion of an additional month of expenses from the
change in European reporting increased 1999 first half R&D expenses by $0.2
million. Absent this change, R&D expenses increased $3.6 million, or 59.4% for
the first half of 2000 versus the comparable prior year period.
Interest Expense
Our interest expense totaled $1.2 million and $0.9 million for the six-month
periods ending June 30, 2000 and 1999, respectively. The increase was due
primarily to higher utilization of our line of credit in the first half of 2000
versus the prior year first half.
Income Taxes
The effective tax rate in each of the six-month periods ended June 30, 2000
and 1999 was 28.0%.
17
<PAGE>
Years Ended December 31, 1999, 1998 and 1997
Net Sales
For 1999, 1998 and 1997, our net sales totaled $141.9 million, $134.4
million and $132.6 million, respectively. Net sales for 1999 increased $7.5
million, or 5.6%, compared with 1998, due primarily to sales increases in the
fiber optic communications and semiconductor markets, offset partially by
decreases in sales to the computer peripherals and aerospace and research
markets. Net sales for 1998 increased $1.8 million, or 1.3%, compared with
1997, due primarily to sales increases in the fiber optic communications and
research markets, offset in part by declines in sales to the semiconductor and
computer peripherals markets.
Our sales to the fiber optic communications market segment in 1999 were
$34.3 million, an increase of $13.3 million, or 63.0%, compared with 1998. Our
sales to the industrial metrology market in 1999 were $67.4 million, an
increase of $1.1 million, or 1.8%, compared with the prior year. Our 1999 sales
to the aerospace and research market were $40.2 million, a decrease of $6.9
million, or 14.6%, compared with 1998. In 1998, our sales to the fiber optic
communications market were $21.0 million, an increase of $7.2 million, or
52.3%, over 1997. Our 1998 sales to the industrial metrology market segment
were $66.3 million, a decrease of $5.8 million, or 8.2%, versus 1997. Our 1998
sales to the aerospace and research market were $47.1 million, an increase of
$0.4 million, or 1.0%, over 1997.
For 1999, 1998 and 1997, domestic sales were $90.2 million, $87.6 million
and $85.7 million, respectively. Domestic sales in 1999 increased $2.6 million,
or 3.0%, versus 1998, due primarily to increases in sales to the fiber optic
communications and semiconductor markets of $10.5 million, or 89.6%, and
$1.5 million, or 16.4%, respectively, offset partially by a decrease of $4.6
million, or 35.6%, in sales to the computer peripherals market and a decrease
of $4.5 million, or 16.4%, in sales to the aerospace and research market.
Domestic sales in 1998 increased $1.9 million, or 2.1%, compared with 1997, due
principally to sales increases of $5.4 million, or 86.0%, and $2.1 million, or
8.4%, to the fiber optic communications and aerospace and research markets,
respectively, offset partially by sales declines in the semiconductor and
computer peripherals markets of $3.6 million, or 27.8%, and $2.1 million, or
13.9%, respectively. The domestic semiconductor and computer peripherals
markets were negatively impacted by the economic situation in Asia and
overcapacity throughout much of 1998, both of which resulted in lower demand
for the capital equipment we supply to these markets.
International sales totaled $51.7 million, $46.8 million and $46.9 million
for 1999, 1998 and 1997, respectively. For 1999, international sales increased
$4.9 million, or 10.7%, versus 1998. International sales in 1999 included net
sales of $2.5 million representing one extra month of sales from our European
operations due to a reporting change in the second quarter of 1999 that
eliminated a one-month lag in the reporting of European results. Without such
change, 1999 international sales would have been $49.2 million. The increase in
international sales in 1999 compared with 1998 was due primarily to an increase
of $2.8 million, or 29.9%, in sales to international fiber optic communications
customers, an increase of $4.3 million, or 31.9%, in sales of metrology
products to international life and health science OEM customers, and an
increase in international sales to the semiconductor market of $0.3 million, or
12.2%, offset in part by a decline in sales to international aerospace and
research customers of $2.4 million, or 12.1%. Geographically, European,
Canadian and Pacific Rim sales in 1999 increased $2.2 million, or 7.1%, $2.5
million, or 65.3%, and $1.5 million, or 16.2%, respectively, over 1998, while
sales to Latin American customers decreased $1.2 million, or 53.1%.
International sales in 1998 decreased $0.1 million versus 1997. Sales in 1998
to European markets, reflecting our efforts to expand commercial market
penetration, grew $2.7 million, or 10%, over 1997, with sales in France,
Germany, the Netherlands, the United Kingdom and Switzerland accounting for
most of the increase. Negative foreign exchange rate effects on European sales
in 1998 totaled $0.7 million. Sales to Asian markets in 1998 declined $5.5
million, or 37%, compared with 1997, with Hong Kong, Korea, Taiwan and the
ASEAN countries accounting for most of the decrease and sales into Japan
increasing $0.7 million. Sales into Canada and Latin America grew $2.7 million,
or 82%, over 1997. Canada and Latin America sales were also negatively impacted
by a foreign exchange rate effect, which totaled $0.2 million.
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Gross Margin
Gross margin was 43.5%, 43.8% and 43.6% for 1999, 1998 and 1997,
respectively, and remained essentially unchanged for all three years. A mix
shift in sales towards our photonics product lines, which generally have higher
margins, have been offset primarily by higher growth rates in sales to OEM
customers, which generally have lower margins, and lower sales and marketing
expenses.
Selling, General and Administrative Expenses
SG&A expenses totaled $35.6 million, $33.0 million and $35.8 million for
1999, 1998 and 1997, respectively, representing 25.1%, 24.6% and 27.0% of net
sales in the respective years. Our SG&A expenses in 1999 increased
$2.6 million, or 7.8%, versus 1998, due in part to the inclusion of an
additional month of expenses from the change in European reporting, which added
$0.9 million of expenses in 1999, and to the inclusion of Environmental Optical
Sensors, Inc. for a full year in 1999 and the acquisition of Newport Precision
Optics Corporation, which collectively added $0.6 million of expenses in 1999
for which there were no comparable expenses in 1998. Finally, higher
international trade show activity and increased sales commissions also
contributed to the increase in expenses versus 1998. SG&A expenses in 1998
decreased by $2.8 million, or 7.8% versus 1997, due primarily to decreased
costs for incentive compensation programs, lower advertising expenses, reduced
sales and marketing expenses in Europe that resulted from changes made in 1997
to the European sales organization and to a favorable exchange rate effect in
Europe of $0.3 million.
Research and Development Expenses
R&D expenses totaled $13.3 million, $11.7 million and $9.5 million for 1999,
1998 and 1997, respectively. R&D expenses represented 9.4%, 8.7% and 7.2% of
net sales in 1999, 1998 and 1997, respectively. Our R&D expenses in 1999
increased $1.6 million, or 13.3%, and our R&D expenses in 1998 increased $2.2
million, or 23.7%, compared with 1997. The increases in both years were
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.
Interest Expense
Our interest expense totaled $1.8 million, $1.9 million and $2.0 million for
1999, 1998 and 1997, respectively.
Income Taxes
The effective tax rates for 1999, 1998 and 1997 were 26.3%, 27.3% and 30.0%,
respectively. The decrease in the effective tax rate for 1999 compared with
1998 and 1998 compared with 1997 was primarily the result of improved
profitability at our European operations resulting in the increased utilization
of foreign tax loss carryforwards.
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Quarterly Results
The following table presents our operating results for each of the ten
quarters in the period ending June 30, 2000, as well as the percentage of our
total revenues represented by each item. The information for each of these
quarters is unaudited and has been prepared on the same basis as our audited
financial statements appearing elsewhere in this prospectus. In the opinion of
management, all necessary adjustments, consisting only of normal recurring
adjustments, have been included to present fairly the unaudited quarterly
results when read in conjunction with our audited financial statements and
related notes. We have experienced, and expect to continue to experience,
fluctuations in operating results from quarter to quarter. Historical operating
results are not necessarily indicative of the results that may be expected for
any future period.
<TABLE>
<CAPTION>
Quarter Ended
-------------------------------------------------------------------------------------------------
June
March 31, June 30, Sep. 30, Dec. 31, March 31, June 30, Sep. 30, Dec. 31, March 31, 30,
1998 1998 1998 1998 1999 1999 1999 1999 2000 2000
--------- -------- -------- -------- --------- -------- -------- -------- --------- -------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Net sales............... $33,663 $33,833 $33,456 $33,407 $29,448 $35,576 $35,427 $41,494 $45,612 $51,742
Cost of sales........... 19,183 18,670 18,939 18,699 16,639 19,716 19,939 23,900 25,603 28,794
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Gross profit........... 14,480 15,163 14,517 14,708 12,809 15,860 15,488 17,594 20,009 22,948
Selling, general and
administrative......... 8,312 8,419 7,931 8,355 7,895 9,390 8,673 9,635 10,687 11,403
Research and
development............ 2,772 3,180 3,061 2,725 3,006 3,220 3,440 3,634 4,533 5,115
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Income from
operations............ 3,396 3,564 3,525 3,628 1,908 3,250 3,375 4,325 4,789 6,430
Interest expense........ 508 485 446 452 448 457 466 414 568 611
Other income (expense),
net.................... 63 139 46 (127) (190) 60 330 (34) (37) 12
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Income before income
taxes................. 2,951 3,218 3,125 3,049 1,270 2,853 3,239 3,877 4,184 5,831
Income tax provision.... 945 1,029 907 484 356 798 907 895 1,172 1,632
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Net income............. $ 2,006 $ 2,189 $ 2,218 $ 2,565 $ 914 $ 2,055 $ 2,332 $ 2,982 $ 3,012 $ 4,199
======= ======= ======= ======= ======= ======= ======= ======= ======= =======
As a Percent of Net
Sales:
Net sales............... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales........... 57.0 55.2 56.6 56.0 56.5 55.4 56.3 57.6 56.1 55.6
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Gross profit........... 43.0 44.8 43.4 44.0 43.5 44.6 43.7 42.4 43.9 44.4
Selling, general and
administrative......... 24.7 24.9 23.7 25.0 26.8 26.4 24.5 23.2 23.4 22.1
Research and
development............ 8.2 9.4 9.2 8.2 10.2 9.1 9.7 8.8 9.9 9.9
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Income from
operations............ 10.1 10.5 10.5 10.8 6.5 9.1 9.5 10.4 10.5 12.4
Interest expense........ 1.5 1.4 1.3 1.4 1.5 1.3 1.3 1.0 1.2 1.2
Other income (expense),
net.................... 0.2 0.4 0.1 (0.4) (0.7) 0.2 0.9 (0.1) (0.1) 0.1
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Income before income
taxes................. 8.8 9.5 9.3 9.0 4.3 8.0 9.1 9.3 9.2 11.3
Income tax provision.... 2.8 3.0 2.7 1.4 1.2 2.2 2.5 2.2 2.6 3.2
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Net income............. 6.0% 6.5% 6.6% 7.6% 3.1% 5.8% 6.6% 7.1% 6.6% 8.1%
======= ======= ======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
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<PAGE>
Liquidity and Capital Resources
Net cash used in our operating activities of $1.4 million for the six-month
period ended June 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 and non-cash items, principally depreciation
and amortization and increases in our provisions for losses. Our customer
receivables increased by $6.5 million, or 20.1%, from the fourth quarter of
1999, which was proportionate with the increase in quarterly sales between the
two periods. Our inventories increased 23.0% in the second 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 $6.0 million, or 87.3%, in 2000's second quarter
compared with the fourth quarter of 1999 due primarily to higher inventory
procurement activity.
Net cash provided by our operating activities in 1999 of $3.7 million was
primarily attributable to our operating income plus non-cash items, principally
depreciation and amortization, offset in part by changes in operating assets
and liabilities. Our customer receivables increased by $6.4 million, or 25.0%,
in 1999, while our sales grew by 5.6% during the same period. Substantially all
of this sales growth occurred in the fourth quarter of 1999, thus resulting in
a disproportionate increase in customer receivables relative to sales. Our
inventories increased 16.4% in 1999 over 1998 levels, due primarily to
production planning associated with our goal of maintaining competitive
manufacturing lead times, maintaining higher levels of certain inventory items
in conjunction with our Year 2000 preparation, and to the inclusion of
inventory from Newport Precision Optics Corporation in 1999 for which there was
no comparable inventory in 1998. We believe that we must maintain certain
levels of inventory in order to ensure that the lead times to our customers
remain competitive. Our accounts payable increased $0.6 million, or 10.3%, in
1999 compared with 1998, primarily as a result of higher inventory levels.
Net cash used in investing activities of $5.0 million for the six-month
period ended June 30, 2000, was principally attributable to our purchases of
property, plant and equipment ($4.4 million), payment for an equity investment
($1.5 million) and expenditures for software development ($0.5 million),
partially offset by the net proceeds on the sale of an equity investment and
other property ($1.4 million).
Net cash used in investing activities in 1999 of $13.4 million was
principally attributable to our purchases of property, plant and equipment
($4.8 million), costs associated with our acquisitions of businesses
($6.6 million), payments for an equity investment ($1.1 million) and
capitalization of software development costs ($2.3 million), partially offset
by the net proceeds on the sale of an equity investment ($1.3 million).
Net cash provided by financing activities of $7.4 million for the six-month
period ended June 30, 2000, was principally attributable 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.
Net cash provided by financing activities in 1999 of $6.9 million was
principally attributable 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 repurchase of stock under our share repurchase program.
During 1999, we repurchased 333,000 shares under our share repurchase program
for an aggregate purchase price of $1.6 million. We do not currently anticipate
repurchasing additional shares under this share repurchase program in the
foreseeable future.
At June 30, 1999, 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 June 30, 1999, there was $12.3 million
outstanding under the three year line of credit, with $27.1 million available
under the combined lines, after considering outstanding letters of credit.
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<PAGE>
We believe our current capital resources together with the estimated net
proceeds from this offering are adequate to fund operations for at least the
next 12 months. Except as discussed in "--Overview" above, we have no present
agreements or commitments with respect to any acquisitions of other businesses,
products, product rights or technologies. However, 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, we cannot assure you that we will not need to obtain
additional sources of capital to finance any acquisitions that we may make.
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.
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 we are exposed is 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 7% of our 1999
consolidated operating profit. 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 hedging transactions 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 our 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.
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<PAGE>
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 the Consolidated Statement of Comprehensive Income
in the Consolidated Financial Statements included in this prospectus.
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.
23
<PAGE>
BUSINESS
Newport Corporation is a global supplier of high-precision test, measurement
and automation systems and subsystems. Our products enable manufacturers of
fiber optic components, semiconductor capital equipment, industrial metrology,
aerospace and other high-precision products to automate their manufacturing
processes, enhance product performance, and improve manufacturing efficiencies
and yields. Manufacturers of high-precision products increasingly require third
party expertise to develop, engineer and build automated systems and subsystems
to produce, assemble and test their products to address changing product
specifications and competitive pressures. Our products enhance the productivity
and capabilities of assembly, test and measurement functions by leveraging our
expertise in high precision automated positioning, vibration isolation
technology and high resolution non-contact visual measurement and inspection.
By combining our proven technology with advanced software, imaging technology
and our in-depth industry and process expertise, we are able to offer
comprehensive, integrated solutions to manufacturers of fiber optic components.
In the semiconductor capital equipment market we supply high-performance value-
added subsystems that enhance the performance of our customers' products. We
also provide sophisticated high-precision equipment to commercial, academic and
governmental research institutions worldwide that engage in advanced research
and development activities.
Industry Background
Drivers of Technological Innovation
Growth in the use of the Internet and the proliferation of high bandwidth
communication services has resulted in a worldwide expansion of the
telecommunications and data communications infrastructure. This build-out has
supported rapid growth in several segments of the technology industry,
particularly the fiber optic and semiconductor markets. According to RHK, Inc.,
a market research and consulting firm, industry demand for fiber optic
components will exceed $23 billion in the year 2003, up from $6.7 billion in
1999, a compound annual growth rate of approximately 36%. Similarly, Dataquest
estimates that, despite year to year fluctuations, worldwide semiconductor
sales will increase from approximately $169 billion in 1999 to approximately
$320 billion in 2004, a compound annual growth rate of approximately 13.6%. In
response to this increased demand, there has been significant growth in the
number of companies engaged in the design and manufacture of highly complex
products for these markets. In turn, this increased demand for fiber optic
components and semiconductors has created a growing need for the systems and
subsystems used to manufacture, assemble and test these products.
Challenges of High Precision Manufacturing
Growth in the fiber optic and semiconductor markets, as well as in other
markets, is creating pressure on component suppliers to rapidly introduce new
products and technologies that keep pace with both demand and technological
innovation. However, new technologies increasingly rely upon designs that
require more exacting tolerances, greater product complexity and numerous
highly precise, repetitive manufacturing steps. For example, to manufacture
components for the optical networking equipment market, optical fibers must be
aligned within extremely narrow tolerances to allow laser light pulses to be
transmitted efficiently and accurately. To transmit laser light pulses
efficiently, optical fibers, whose dimensions are roughly the size of a human
hair, must be aligned precisely in front of the laser light source to within a
tolerance of approximately one hundred nanometers (four millionths of an inch).
Similarly, to increase the power and capabilities of a semiconductor while
decreasing the chip's size, semiconductor designers are implementing new design
and manufacturing techniques that reduce the size of a feature on a chip from
0.5 micron to as small as 0.13 micron.
Need for Automation
In addition to the technical challenges of high-precision manufacturing,
suppliers of fiber optic components and semiconductors must address a number of
additional challenges in order to scale their
24
<PAGE>
manufacturing capabilities to meet growing market demand. For example, when
manufacturing processes were less complicated, product tolerances were less
stringent and manufacturing volume requirements were lower, many manufacturers
of optical components could rely on labor-intensive manual processes to
assemble, test and package devices. However, manual processes are increasingly
becoming inadequate to meet market demand for higher unit volumes of these
high-precision products delivered at lower costs.
The semiconductor industry is continually implementing advanced automation
and process technologies to improve efficiencies. However, rapid technological
innovation presents ongoing challenges such as the transition to larger wafer
sizes and increasingly complex circuit designs. To remain competitive,
manufacturers must implement technological advancements while improving yields,
lowering costs, and shortening time to market. Accordingly, manufacturers of
semiconductor capital equipment for chip manufacturers are increasingly turning
to third party suppliers to provide value-added subsystems for their products
that provide increased capabilities to their fabrication and test systems.
Third party suppliers address such challenges as vibration reduction and high
resolution wafer positioning, all of which are instrumental in achieving these
goals.
Growing Importance of Third Party Process Expertise
Companies have traditionally attempted to address technological and
production-related challenges by implementing internally designed manufacturing
systems. As demand for their products has grown and as products have become
more complex and short-lived, it is becoming increasingly impractical for
established manufacturers to remain vertically integrated, applying resources
toward both product development and manufacturing process engineering. The
expense, time and effort needed to undertake manufacturing process development
in parallel with product development are forcing many manufacturers of advanced
high-precision components and subassemblies to seek ways to rapidly scale their
operations while allowing them to remain focused on their core competency--
product innovation. In addition, many optical component start-ups lack the
manufacturing expertise and resources required to develop automated assembly
and test systems and thus require experienced third party assistance to
commercialize their products and technologies.
Both established and emerging manufacturers of high-precision products
increasingly require the expertise of third parties to design, develop,
engineer and build high-precision test, measurement and automation systems and
subsystems. To design automated systems that are capable of producing
commercial volumes of products that meet the precise tolerances required, third
party systems and subsystems manufacturers must have significant expertise and
product portfolios in a broad range of technologies, including high-precision
motion control, vibration isolation and non-contact measurement and inspection.
Historically, third party providers have typically possessed expertise in
only a few of these categories and have been unable to deliver integrated
solutions. As a result, vertically integrated product manufacturers have been
forced to act as system integrators, choosing and integrating components from
numerous suppliers to construct their manufacturing systems. As product
complexity increases, and time to market pressures become more acute,
manufacturers increasingly require third party suppliers who are capable of
combining advanced technology with process expertise to produce flexible,
integrated systems and subsystems.
Our Solution
We deliver a broad range of value-added systems and subsystems that enable
manufacturers of high-precision products to increase productivity, shorten time
to market, lower costs and improve product quality. Our products address the
exacting requirements of manufacturers in the fiber optic component,
semiconductor, computer peripheral and other industries that incorporate
advanced technologies and manufacturing processes. We collaborate with our
customers to assist them in designing efficient manufacturing processes which
we incorporate into flexible, automated systems that leverage our extensive
product portfolio and process expertise in the following areas:
. High-precision micro positioning systems and subsystems that enable the
alignment and manipulation of components with sub-micron level
precision;
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<PAGE>
. High resolution, non-contact visual measurement and inspection of
devices to ensure conformity with product specifications;
. Advanced vibration isolation systems that minimize the impact of errors
induced by external forces;
. Process control software that facilitates automation of complex, high-
precision manufacturing and test procedures within manufacturing cycles;
. Software that enables the collection, storage and management of
component-specific assembly and test data to provide records required to
meet industry-specific certification standards such as
Telcordia/Bellcore and NEBS; and
. Systems and process level expertise to assist customers in designing
efficient, flexible manufacturing systems.
We believe that our extensive process expertise and our large product
portfolio differentiate us from other vendors that possess more limited
capabilities. In addition, our involvement with advanced research and product
development organizations provides us with an understanding of next generation
technologies, which we incorporate into future products and services.
Our Strategy
Our goal is to become the leading provider of high-precision integrated
systems and subsystems to enhance the productivity of test, measurement and
assembly functions in commercial applications. Key elements of our strategy to
achieve this goal include:
Pursue High Growth Market Opportunities. We will continue to apply our
diverse process expertise and product portfolio to create solutions for
strategic, high-growth markets where companies must manufacture commercial
volumes of complex products within extremely narrow tolerances at
competitive costs. In particular, we will aggressively pursue the fiber
optic market by extending our ability to provide manufacturing and test
solutions capable of automating the entire component assembly and test
process.
Expand Our Process Expertise. We will leverage our close collaboration
with our customers to expand our understanding of complex industries, such
as fiber optics and semiconductors and to improve our ability to deliver
solutions that enable the automation of high-volume manufacturing. We also
intend to seek applications for our process expertise in other high growth
markets, such as biotechnology, where there is a need for the automation of
high-precision processes.
Leverage Technology Base to Enhance Products and Develop New
Applications. We believe that our expertise in a broad range of
technologies, such as motion control, vibration isolation, high-precision
positioning, non-contact metrology and optics, provides us with a platform
from which we can rapidly develop or enhance our integrated solutions to
address new markets and applications. We plan to apply this expertise to
develop new products and enhance our existing products.
Promote Outsourcing of Process Development. By working closely with our
customers from the initial stages of product development, we are able to
design and build integrated manufacturing and test solutions to meet their
specific requirements. In so doing, we enable our customers to focus their
resources on product development. By helping our customers achieve higher
manufacturing quality and yields, we intend to position ourselves as an
integral part of their manufacturing processes.
Capitalize on Presence in Research Market. Our over 30 years of
experience in providing high-precision products and systems to research
markets enables us to become involved in the development of a wide array of
new technologies. We will continue to leverage this involvement into our
future commercial products and systems to increase the value of our
products to customers and improve our competitive advantages.
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<PAGE>
Pursue Acquisitions. In addition to our internal research and development
efforts, we continually evaluate acquisitions of companies that could
extend our product offerings, our technology base or our industry and
process knowledge. Since 1995, we have made five acquisitions and have
announced our intent to make a sixth acquisition. These acquisitions extend
our capabilities in fiber optic device testing, video metrology, precision
motion and precision optics. We intend to pursue additional acquisitions in
the future.
Products and Services
We develop and sell a broad range of components, instruments, subsystems and
systems to markets where high-precision manufacturing, test and assembly is
critical. Our products are used in mission-critical applications in industries
including fiber optic device manufacturing, semiconductor and computer
peripheral manufacturing and life and health sciences. We develop, manufacture
and market our products within three distinct business units, organized around
customer and manufacturing requirements. This structure enables us to quickly
incorporate customer feedback into new products and to respond rapidly to
changing market requirements.
Fiber Optics and Photonics
Our fiber optics and photonics division offers a broad line of automated
manufacturing systems. These products address a wide spectrum of applications
in the fiber optic component manufacturing process, from pre-test to assembly
and packaging to final device testing and burn-in. Our integrated systems
enable component manufacturers to significantly increase the productivity and
capacity of their manufacturing operations. In addition, we provide our
customers with value-added product and process engineering services, and offer
outsourced device manufacturing and packaging services.
Pre-Test
Our pre-test products automate the verification of devices used in fiber
optic components, such as laser diodes, to ensure their integrity prior to the
start of the assembly process. We offer a range of products that increase the
efficiency of the pre-test process, including:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------
Product Application
<C> <S>
Broad Area Test Stations Automated testing and
validation of devices on
semiconductor wafers
------------------------------------------------------------------------------
AutoBar Test and Characterization System Automated test and
characterization of
unmounted laser diode
chips, laser bars, chip on
carrier (COC) and other
devices
------------------------------------------------------------------------------
AutoAlign(TM) Characterization Workstations Automated alignment, test
and characterization of
laser diodes and planar
waveguides
------------------------------------------------------------------------------
Chameleon Nano Vision Micromeasurement System Non-contact dimensional and
defect analysis of V-
grooves, fibers and fiber
arrays, MEMS devices,
laser diodes and
waveguides
------------------------------------------------------------------------------
</TABLE>
27
<PAGE>
Assembly and Packaging
The assembly and packaging of fiber optic devices requires a high degree of
precision. Manufacturers have traditionally used manual assembly techniques for
fiber optic components, which are costly, result in low production yields and
produce inconsistent quality. We offer a line of integrated assembly and
packaging systems which automate these processes and help reduce manufacturing
times, increase yields and enhance quality. Our assembly and packaging products
include:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------
Product Application
------------------------------------------------------------------------------
<C> <S>
AutoAlign Assembly Workstations Automated assembly of
waveguides, laser diodes, MEMS
devices and fiber arrays using
soldering and adhesive
techniques
------------------------------------------------------------------------------
LaserWeld Automated Packaging Workstations High-precision automated
assembly of optoelectronic
components using laser welding
processes
------------------------------------------------------------------------------
ULTRAlign Optical Component Positioning Positioning systems for manual
System alignment of optical fibers and
devices
------------------------------------------------------------------------------
ORION Semi-automated Fiber Alignment System High-precision fiber-to-fiber
and fiber-to-device alignment
systems for low-volume
applications
------------------------------------------------------------------------------
</TABLE>
Final Device Testing and Burn-In
Fiber optic devices must meet rigorous reliability and performance
specifications, including a requirement for 20 to 30 year life cycles and the
ability to perform in harsh weather conditions or even under water. These
performance standards require manufacturers to perform extensive testing of the
completed devices. We offer standardized systems which automate the burn-in and
test process, including:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------
Product Application
------------------------------------------------------------------------------
<C> <S>
Butterfly Module Test Station High-precision characterization
of performance data of
butterfly modules during the
manufacturing process and
final Quality Assurance checks
-----------------------------------------------------------------------------
Chip-on-Carrier and Coaxial Burn-in and High volume precision burn-in
Test Systems and testing of COC and coaxial
devices
-----------------------------------------------------------------------------
Butterfly Module Burn-in and Testing Racks High volume precision control
and monitoring of long-term
burn-in and life testing of
butterfly modules
-----------------------------------------------------------------------------
Module 8800 Photonics Test System Modular instrumentation
platforms for testing and
qualification of optical
fibers and passive fiber optic
components
------------------------------------------------------------------------------
</TABLE>
Instruments
We offer several lines of instrumentation that are integral or complementary
to the development of fiber optic components, including:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------
Product Application
-----------------------------------------------------------------------------
<C> <S>
Power Meters Measure optical power for free
space and fiber directed laser
light
-----------------------------------------------------------------------------
Laser Diode Instruments Temperature and current
controllers for maintaining
stability of laser diodes
-----------------------------------------------------------------------------
Tunable Laser Sources DWDM and Optical Spectrum
Analyzer calibration, testing
of Erbium Doped Fiber
Amplifiers
-----------------------------------------------------------------------------
Optical Spectrum Analyzers Characterization of light
emitted by laser diodes, ion
lasers and solid state lasers
-----------------------------------------------------------------------------
</TABLE>
28
<PAGE>
Engineering and Manufacturing Services
Our experience in fiber optic device assembly, packaging and testing
technology has helped us develop a deep knowledge base and expertise in the
processes and technologies necessary to build high-precision fiber optic
components. We apply our expertise to assist our customers in designing device
packaging, developing manufacturing processes, developing and producing tooling
and programming customized process automation software. These services help our
customers significantly reduce the development cycle for their products and
improve the productivity, yields and quality of their manufacturing processes.
In addition to helping our customers become more productive, our services
assist us in establishing a long-term relationship with our customers and allow
us to identify additional opportunities for new products. We also offer device
manufacturing and packaging services on an outsourced basis to enable customers
to design and test new products.
Video Metrology
Our Video Metrology systems and subsystems provide a broad range of non-
contact video-based measurement and inspection products for a number of
industrial markets, including the computer peripherals and life and health
sciences markets. Our Video Metrology systems and subsystems incorporate our
experience and expertise in core technologies such as precision motion,
vibration control and measurement. Our Video Metrology product line includes:
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------
Product Application Markets
---------------------------------------------------------------------------------------------------------
<C> <S> <C>
Polaris Dimensional Measurement . Computer Peripherals
of disk drive heads
---------------------------------------------------------------------------------------------------------
DataStar/Galaxy Automated Measurement Systems High-precision . Fiber Optic Components
dimensional . Industrial Manufacturing
measurements to verify . Life and Health Sciences
manufacturing . Semiconductors
tolerances . Transportation
---------------------------------------------------------------------------------------------------------
Sprint and Mini/AutoMap Manual Inspection Systems High-precision manual . Fiber Optic Components
dimensional . Industrial Manufacturing
measurements to verify . Life and Health Sciences
manufacturing . Semiconductors
tolerances . Transportation
---------------------------------------------------------------------------------------------------------
Video Direct Microscopes High magnification for . Fiber Optic Components
visual/video inspection . Industrial Manufacturing
and assembly of small . Life and Health Sciences
parts . Semiconductors
. Transportation
. Research
---------------------------------------------------------------------------------------------------------
Automatic Stent Inspection System Non-contact dimensional . Life and Health Sciences
inspection and defect
analysis of cardiac
stents
---------------------------------------------------------------------------------------------------------
</TABLE>
29
<PAGE>
Industrial and Scientific Technologies
Our Industrial and Scientific Technologies division products are used across
a wide range of industrial markets for applications that range from basic
research and development activities to high-precision, low-volume
manufacturing. In addition, we sell systems and subsystems to third parties
that will integrate our products into larger systems, particularly for
semiconductor manufacturing. Our industrial and scientific products address a
wide range of markets, including fiber optics, semiconductors, computer
peripherals, life sciences, analytical instruments, aerospace and research.
These products and technologies form the foundation of our integrated,
automated systems that we sell in our other divisions. We believe that our
Industrial and Scientific Technologies customers develop an appreciation for
the quality of our products which makes them more likely to buy integrated,
automated systems from us as their need for production and test systems grows.
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------
Category Products Applications
----------------------------------------------------------------------------------------------
<C> <S> <C>
Motion Control Linear and rotational stages . High-precision positioning and
Devices and Elevational devices motion control apparatus for
Systems and Actuators manufacturing and test
Subsystems Simple and programmable motion applications
controllers . Precision alignment in fiber
for linear stepping and DC motors optic, telecommunication and laser
Motion systems devices assembly
. Precision positioning of
semiconductor wafers for defect
detection
. Sample sorting and sequencing for
DNA research
----------------------------------------------------------------------------------------------
Vibration Optical benches and support systems . Reduction of impact of external
Isolation Workstations forces on high-precision research,
Systems and Active and passive isolation systems manufacturing test and assembly
Subsystems Honeycomb, granite and rigid systems
structures . Structures for optical fiber
Elastomeric mounts fabrication
. Scanning Electron
Microscope/Atomic Force Microscope
base isolation
. Wire bonding equipment base
isolation
. Isolated floor for Wafer Stepper
equipment
----------------------------------------------------------------------------------------------
Manual Fiber optic components manufactured . Manual, high-precision alignment of
Positioning by third parties optical instruments
Components Optical mounts . Manual assembly of fiber optic
Bases and brackets device production
Posts and rod systems . Subsystems used for high-speed
Translation and rotation stages cell sorting for genomic research
Micro interferometer . Semiconductor reticule inspection
Laser-to-fiber couplers equipment
Manual fiber optic positioners
Educational kits
----------------------------------------------------------------------------------------------
Optics Lenses . Components for research and product
Optical systems development activities
Mirrors . Deep UV illumination optics for
Prisms and windows semiconductor lithography
Filters and attenuators . Thin film measurement of
Collimators semiconductor wafers for defect
Ultrafast laser optics inspection
Beamsplitters and polarization
optics
</TABLE>
30
<PAGE>
We also offer subassemblies that are manufactured by providing a value-added
combination of standard and custom products drawn from our components, optics,
motion control and vibration isolation product lines. We combine these items
with additional engineering to create more highly integrated products to meet
customer needs. These products are often subsystems of our OEM customer's
products. This product line offers a strategic competitive advantage allowing
us to differentiate ourselves from competitors that only offer a limited
product selection.
Customers
We sell our products to more than 4,000 companies and institutions
throughout the world. Our top 15 customers in each of our primary markets (in
alphabetical order) are as follows:
<TABLE>
<CAPTION>
Aerospace and Computer Industrial
Fiber Optics Semiconductor Research Peripherals Metrology
<S> <C> <C> <C> <C>
ADC ADE Corporation Commissariat a Candela Agie S.A.
Telecommunications l'Energie Instruments
Inc. Atomique
Alcatel Applied Centre National Hewlett-Packard Beckman Coulter,
Materials, Inc. pour la Company Inc.
Recherche
Scientifique
Avanex ASM Lithography Corning OCA Hutchinson Becton,
Corporation Corporation Technology Dickinson and
Incorporated Company
Bookham August Lawrence IBM Corporation Carl Zeiss Jena
Technology Plc Technology Livermore GmbH
Corporation National Labs
Corning, Inc. Cymer, Inc. Lockheed Martin Microphysics Coherent Inc.
Corporation
E-TEK Dynamics, Electro Los Alamos Nimbus Cytomation, Inc.
Inc. Scientific National Communications
Industries, Inc. Laboratories International
Ltd.
JDS Uniphase Infineon Massachusetts Phase Metrics, Eastman Kodak
Corporation Technologies Institute of Inc. Company
GmbH Technology
Lightwave Intel Corp. Max Plank Philips L M S Essilor
Microsystems Institute
Lucent J.A. Woollam NASA Printrak Inc. Fischer Imaging
Technologies Co., Inc. Corporation
Inc.
Molex Inc. KLA-Tencor National Quantum Minnesota Mining
Corporation Institute of Corporation and
Standards & Manufacturing
Technology (3M)
Nortel Networks Molecular Raytheon Company Read Rite Corp. New Focus, Inc.
Dynamics Inc.
OptoPower Semiconductor Sandia National Robotic Perkin Elmer
Corporation Diagnostics, Labs Development Biosystems
Inc.
Pirelli Silicon Valley Stanford Seagate Positive Light
Group, Inc. University Technology, Inc.
SDL, Inc. Therma-Wave, TRW, Inc. Veeco Spectra-Physics
Inc. Instruments, Lasers, Inc.
Inc.
Tyco VTI Inc. University of Zygo Corporation Wats
International California International,
Ltd. Inc.
</TABLE>
Sales and Marketing
We market our components and systems through our direct sales force,
international network of distributors and sales representatives, technical
catalogs and website.
As of June 30, 2000, we employed 24 field sales people and had 40
independent representatives and distributors that market our products in the
United States. We operate a direct sales organization internationally with a
local presence in France, Germany, the United Kingdom, Switzerland, Italy, the
Netherlands, Canada and Taiwan. Our international sales force at June 30, 2000
consisted of 25 field sales people supported by 35 independent
31
<PAGE>
representatives and distributors located in countries in which we do not have a
direct presence. We have written agreements with each of our representatives
and distributors. In some cases we have granted representatives and
distributors exclusive authorization to sell certain of our products to a
specific geographic area. These agreements generally have terms of one year and
are renewable on an annual basis.
In addition to our sales representatives and distributors, we also market
our standard products through our product catalogs and our website. Our
principal marketing tool for the scientific market is our comprehensive set of
product catalogs. These documents provide detailed product information and
extensive technical and applications data. We publish these catalogs in
English, French, German and Japanese. Our website provides our customers with
access to our latest products, a literature and information request form,
technical/tutorial and application related material, market surveys, sales
information and the ability to purchase a majority of our standard products.
Research and Product Development
We continually seek to improve our technological position through internal
research, product development and licensing and acquisitions of complementary
technologies. As of June 30, 2000 we had 180 employees engaged in research and
development, including 78 engineers with advanced degrees. We continually work
to enhance our existing products and to develop and introduce innovative new
products to satisfy the needs of our customers. Our research and development
expenses for the six months ended June 30, 2000 and for the year ended December
31, 1999 were $9.6 million and $13.3 million, respectively.
Competition
The markets for our products are intensely competitive and characterized by
rapidly changing technology. We believe that the primary competitive factors in
our markets are:
. product features and performance;
. quality and reliability;
. customer relationships;
. ability to manufacture and deliver products on a timely basis;
. pricing; and
. ability to customize products to customer specifications.
We believe that we currently compete effectively with respect to each of the
factors above. We compete in our various markets against a number of companies,
some of whom have longer operating histories, greater name recognition and
significantly greater technical, financial, manufacturing and marketing
resources then we do. In addition, some of these companies have long
established relationships with our customers and potential customers in our
markets. In the fiber optic communications market, our primary competition
currently comes from some of our existing and potential customers, who have
developed or may develop their own manufacturing and test equipment.
Intellectual Property and Proprietary Rights
Our success and competitiveness depends to an extent on our technology and
other intellectual property such as trademarks. We protect our technology
through the use of patents, trademark registrations, exclusive marketing rights
and licenses. We have been granted 28 U.S. patents, and have been granted three
patents in foreign jurisdictions. We currently have eight trademarks registered
in the U.S. We actively pursue applications for new patents and trademarks as
the need arises.
32
<PAGE>
We generally control access to our proprietary information, and maintain
confidentiality agreements with our employees and consultants, as well as
licensing agreements with our corporate partners. It is possible that, despite
our efforts, other parties may use, obtain or try to copy our products and
technology. Policing unauthorized use of our products and technology is
difficult and time consuming. We cannot guarantee you that the steps we take to
protect our rights will prevent any misappropriation of our products or
technology. This is particularly the case in foreign jurisdictions, where the
intellectual property laws may not afford our intellectual property rights the
same protection as the laws of the United States.
Employees
As of June 30, 2000, we had 1,038 employees worldwide. None of our employees
is represented by a union, and we have never experienced a work stoppage. We
believe that our relationship with our employees is good.
Properties
Our headquarters and principal California manufacturing operations are
located in Irvine, California. We lease this facility under a 15-year lease
expiring in March 2007. In addition, we have manufacturing operations in
facilities that we own at Beaune la Rolande and La Boulonnie, France and in
leased facilities at Garden Grove, California, San Luis Obispo, California,
Longmont, Colorado and Plymouth, Minnesota. We lease office space in Santa
Clara, California for our Western Region sales, service and application center.
We own a sales and administration office in Evry, France and lease sales and
service offices in Germany, England, Switzerland, Italy, the Netherlands,
Canada and Taiwan, with leases expiring at various dates through 2011.
We believe that these facilities are adequate for our current needs, but plan
to expand our Irvine, Beaune la Rolande and San Luis Obispo manufacturing
operations to meet our anticipated future needs. We believe that suitable
additional or substitute space will be available to accommodate this expansion,
as well as future expansion of our operations.
Legal Proceedings
In August 1999, Newport Electronics, Inc., a manufacturer of electronic
devices, filed suit against us in the Federal District Court in Connecticut,
claiming that our use of the "Newport" trademark infringes their rights with
respect to such mark. We have filed a counterclaim, and have filed an
opposition to their trademark before the Trademark Trial and Appeal Board. We
intend to vigorously defend these cases, however, because discovery only
recently commenced, we are unable to predict their outcome. This litigation, if
adversely determined, could have material adverse effects on our business. For
example, we could be liable for monetary damages and may be prohibited from
using our "Newport" trademark in conjunction with certain classes of our
products.
Other than the foregoing, we are not a party to any material litigation.
33
<PAGE>
MANAGEMENT
Executive Officers, Directors and Key Employees
The following table contains information with respect to our executive
officers, directors and key employees as of June 30, 2000:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<C> <C> <S>
Robert G. Deuster........ 50 Chairman of the Board, President and Chief
Executive Officer
Alain Danielo............ 54 Vice President and General Manager, Industrial
and Scientific Technologies Division, European
Operations
Mark V. Edwards.......... 38 Vice President and General Manager, Video
Metrology Division
Robert C. Hewitt......... 54 Vice President and Chief Financial Officer
Dan Petrescu............. 49 Vice President and General Manager, Fiber
Optics and Photonics Division
Robert J. Phillippy...... 40 Vice President and General Manager, Industrial
and Scientific Technologies Division, U.S.
Operations
Gary J. Spiegel.......... 49 Vice President, Sales
R. Jack Aplin(2)......... 69 Director
Robert L. Guyett(1)...... 63 Director
C. Kumar N. Patel(1)..... 62 Director
Kenneth F. Potashner(2).. 42 Director
Richard E. Schmidt....... 68 Director
John T. Subak(1)(2)...... 71 Director
</TABLE>
-----------------------
(1) Member of the Audit Committee
(2) Member of the Compensation Committee
Robert G. Deuster joined us as President and Chief Executive Officer in May
1996 and, in June 1997, became Chairman of the Board. From 1985 to 1996 he
served in various senior management positions at Applied Power, Inc., an
international manufacturer of electrical and hydraulic products, serving as
Senior Vice President of the Distributed Products Group from 1994 to 1996,
President of the Barry Controls Division from 1989 to 1994, President of the
APITECH Division from 1986 to 1989 and Vice President of Sales and Marketing of
the Enerpac Division from 1985 to 1986. From 1975 to 1985, he held engineering
and marketing management positions at General Electric Company's Medical
Systems Group.
Alain Danielo joined us in January 1995 as President and General Manager of
our French subsidiary, Micro-Controle S.A. In November 1995 he was elected Vice
President with responsibility for our Europe Operations. In August 1999 he was
appointed to the position of Vice President and General Manager, Industrial and
Scientific Technologies Division, European Operations. Prior to joining us, Mr.
Danielo was Managing Director of the Electronics Division of Valeo S.A., an
automobile parts company, from 1989 to 1995. From 1985 to 1989 he was General
Manager of Molex France S.A.R.L., a manufacturer of electronic components.
Mark V. Edwards joined us in February 2000 as Vice President and General
Manager of our Vision Metrology Division. Prior to joining us, from 1997 to
2000, Mr. Edwards was director of the Controls, Measurement and Sensing
Division of Giddings & Lewis, a manufacturer of metrology equipment. Prior to
joining Giddings & Lewis he was a Vice President with Professional
Manufacturing, Inc., a manufacturer of protective headgear, from 1995 to 1997.
From 1990 to 1995 he was Vice President of Plastic Trim, Inc., an automotive
parts supplier. From 1986 to 1990 he held various positions at Koch Protective
Treatments, Inc., an automotive specialty chemicals supplier.
Robert C. Hewitt joined us in January 1987 as Vice President with
responsibility for finance. In February 1987, he was elected to the additional
positions of Secretary and Treasurer and in January 1989 he was elected
34
<PAGE>
Senior Vice President. In February 1995 he was elected to the position of Vice
President and Chief Financial Officer. From February 1987 to November 1991 and
from February 1994 to November 1996 he served as Treasurer. Prior to joining
us, Mr. Hewitt held various financial management positions with General
Electric Company, an international industrial and consumer products company. In
February 2000, Mr. Hewitt announced his plan to elect early retirement later in
the year. We are actively seeking a replacement for Mr. Hewitt, and Mr. Hewitt
has agreed to remain in his current position through the transition.
Dan Petrescu joined us in February 2000 as Vice President and General
Manager of our Fiber Optics and Photonics Division. Prior to joining us, Mr.
Petrescu was director of manufacturing operations for Nortel Networks
Corporation, a global leader in telephony, data, eBusiness, and wireless
solutions for the Internet. He joined Nortel in 1985 and held various
management positions at that company until his promotion to manufacturing
operations director in June 1999.
Robert J. Phillippy joined us in April 1996 as Vice President and General
Manager of our Science and Laboratory Products Division. In August 1999, he was
appointed to the position of Vice President and General Manager, Industrial and
Scientific Technologies, U.S. Operations. Prior to joining us, Mr. Phillippy
was Vice President of Channel Marketing at Square D Company, an electrical
equipment manufacturer, from 1994 to 1996. He joined Square D Company in 1984
as a sales engineer and held various sales and marketing management positions
with that company prior to his election as Vice President in 1994.
Gary J. Spiegel joined us in June 1991 as Vice President, with
responsibility for sales and marketing, of our Klinger Scientific Corporation
subsidiary upon its acquisition by us. In June 1992, he was appointed a Vice
President of Newport with responsibility for domestic sales. During 1997, he
was assigned additional responsibility for export sales as well as for sales of
MikroPrecision Instruments, Inc. Mr. Spiegel joined Klinger Scientific
Corporation in 1972 and held various sales and marketing positions with that
company prior to its acquisition.
R. Jack Aplin has been one of our Directors since 1989. He has been an
independent investor from 1989 to the present. He was Chairman of the Board,
President and Chief Executive Officer of Spectramed, Inc., an international
medical products company, from 1986 to 1989.
Robert L. Guyett has been one of our Directors since 1990. He has been
President and Chief Executive Officer of Crescent Management Enterprises, LLC,
a financial management and investment advisory services firm, since April 1996.
From May 1995 to December 1996, he was a consultant to Engelhard Corporation,
an international specialty chemical and precious metals company. Between
September 1991 and May 1995, Mr. Guyett served as Senior Vice President and
Chief Financial Officer and a member of the Board of Directors of Engelhard
Corporation. From January 1987 to September 1991 he was the Senior Vice
President and Chief Financial Officer and a member of the Board of Directors of
Fluor Corporation, an international engineering and construction firm. Mr.
Guyett also currently serves as Treasurer and a Director of the Christopher
Reeve Paralysis Foundation.
C. Kumar N. Patel has been one of our Directors since 1986. He was Vice
Chancellor-Research at the University of California at Los Angeles from 1993 to
1999, and in January 2000 he was appointed to the position of Professor of
Physics. From 1961 to 1993, Dr. Patel was employed by AT&T Bell Laboratories, a
telecommunications corporation, in various positions, including Executive
Director--Research, Materials Science, Engineering and Academic Affairs
Division from 1987 to 1993 and Executive Director, Physics and Academic Affairs
Division from 1981 to 1987.
Kenneth F. Potashner has been one of our Directors since 1998. He has been
President, Chief Executive Officer and Chairman of S3 Incorporated, a supplier
of multimedia acceleration hardware and associated software, since November
1998. Mr. Potashner is also Chairman of the Board of Directors of Maxwell
Technologies, Inc., a manufacturer of pulsed power based systems and
components. From 1996 to October 1998 he was also President and Chief Executive
Officer of Maxwell Technologies. Mr. Potashner was Executive Vice President and
General Manager of Disk Drive Operations for Conner Peripherals, a storage
35
<PAGE>
system corporation, from 1994 to 1996. From 1991 to 1994, he was Vice
President, Worldwide Product Engineering for Quantum Corporation, a disk drive
corporation. From 1981 to 1991, he held various engineering management
positions with Digital Equipment Corporation, a computer corporation,
culminating of Vice President of Worldwide Product Engineering in 1991.
Richard E. Schmidt has been one of our Directors since 1991. Mr. Schmidt
joined Newport as Chairman and Chief Executive Officer in September 1991. From
August 1993 until February 1995 and from November 1995 until May 1996, he held
the additional position of President. Mr. Schmidt retired from the positions of
President and Chief Executive Officer in May 1996 and from the position of
Chairman in June 1997. In September 1984, he left Warner-Lambert Company, an
international medical and consumer products company, to become President and
Chief Executive Officer of Milton Roy Company, an international manufacturer of
measuring instruments and systems and, in 1986, he became Chairman. He held
that position until December 1990 when Milton Roy was acquired by Sundstrand
Corporation, an aerospace and power transmission corporation. Prior to joining
us he served as a consultant to Sundstrand Corporation.
John T. Subak has been one of our Directors since 1992. He has served as
Counsel for Dechert Price & Rhoads, a national law firm, since January 1994.
From 1976 to 1994 Mr. Subak was Director, Group Vice President and General
Counsel for Rohm and Haas Company, an international chemical products company.
36
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table contains information regarding the beneficial ownership
of our common stock as of June 30, 2000, and as adjusted to reflect the sale of
our common stock in this offering, by:
. each person or group of affiliated persons known by us to beneficially
own more than 5% of the outstanding shares of our common stock;
. each stockholder selling common stock in this offering;
. each of our directors;
. each executive officer named in the compensation table contained in our
most recent Proxy Statement; and
. all of our directors and executive officers as a group.
As of June 30, 2000, there were 28,741,006 shares of our common stock
outstanding. Except as otherwise indicated, we believe that the beneficial
owners of the common stock listed below, on the information furnished by such
owners, have sole voting power and investment power with respect to such
shares. Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. In computing the number of shares
beneficially owned by a person and the percent ownership of that person, shares
of common stock subject to options or warrants held by that person that are
currently exercisable or will become exercisable within 60 days after June 30,
2000 are deemed outstanding, while such shares are not deemed outstanding for
purposes of computing percent ownership of any other person. Unless otherwise
indicated in the footnotes below, the persons and entities named in the table
have sole voting and investment power with respect to all shares beneficially
owned, subject to community property laws where applicable.
<TABLE>
<CAPTION>
Shares Shares
Beneficially Owned Number of Beneficially Owned
Before Offering Shares After Offering
Name and Address of ------------------------ Being --------------------------
Beneficial Owners Number Percent Offered Number Percent
------------------------ ----------- ------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Bowman Capital
Management LLC
1875 South Grant Street,
Suite 600
San Mateo, CA 94402..... 1,695,000 (1) 5.90 1,695,000 5.32
Franklin Resources, Inc.
777 Mariners Island
Boulevard
San Mateo, CA 94403-
7777.................... 1,612,842 (1) 5.61 1,612,842 5.07
R. Jack Aplin........... 39,000 (2) * 39,000 *
Alain Danielo........... 115,500 (3) * 115,500 *
Robert G. Deuster....... 603,450 (4) 2.06 603,450 1.87
Robert L. Guyett........ 117,000 (5) * 117,000 *
Robert C. Hewitt........ 247,713 (6) * 247,713 *
C. Kumar N. Patel....... 125,949 (7) * 125,949 *
Robert J. Phillippy..... 85,328 (8) * 85,328 *
Kenneth F. Potashner.... 18,426 * 18,426 *
Richard E. Schmidt...... 423,762 (9) 1.46 70,000 353,762 1.10
Gary J. Spiegel......... 88,244 (10) * 88,244 *
John T. Subak........... 95,700 (11) * 30,000 65,700 *
All 13 directors and
executive officers of
the Company as a
group.................. 2,020,072 (12) 6.74 1,920,072 (13) 6.03
</TABLE>
-----------------------
* Less than one percent.
37
<PAGE>
(1) The information is based upon data provided to the Company including
filings made with the Securities and Exchange Commission on Schedules 13D
or 13G.
(2) Consists of 39,000 shares for options exercisable within 60 days of June
30, 2000.
(3) Includes 85,500 shares for options exercisable within 60 days of June 30,
2000.
(4) Includes 483,750 shares for options exercisable within 60 days of June 30,
2000.
(5) Includes 99,000 shares for options exercisable within 60 days of June 30,
2000.
(6) Includes 79,500 shares for options exercisable within 60 days of June 30,
2000.
(7) Includes 84,000 shares for options exercisable within 60 days of June 30,
2000.
(8) Includes 33,750 shares for options exercisable within 60 days of June 30,
2000.
(9) Includes 246,000 shares for options exercisable within 60 days of June 30,
2000.
(10) Includes 22,750 shares for options exercisable within 60 days of June 30,
2000.
(11) Includes 72,000 shares for options exercisable within 60 days of June 30,
2000.
(12) Includes 1,255,250 shares for options exercisable within 60 days of June
30, 2000.
(13) Includes 1,155,250 shares for options exercisable within 60 days of June
30, 2000.
38
<PAGE>
U.S. FEDERAL TAX CONSIDERATIONS FOR NON-U.S. HOLDERS
The following is a general discussion of the principal U.S. federal income
and estate tax consequences of the ownership and disposition of our common
stock by a Non-U.S. Holder. As used in this prospectus, the term "Non-U.S.
Holder" is a person that is not:
. a citizen or individual resident of the United States for U.S. federal
income tax purposes;
. a corporation or other entity taxable as a corporation created or
organized in or under the laws of the United States or of any political
subdivision of the United States;
. an estate whose income is includible in gross income for U.S. federal
income tax purposes regardless of its source; or
. a trust, in general, if it is subject to the primary supervision of a
court within the United States and the control of one or more U.S.
persons.
An individual may, subject to certain exceptions, be treated as a resident
of the United States for U.S. federal income tax purposes, instead of a
nonresident, by, among other things, being present in the United States for at
least 31 days in the calendar year and for an aggregate of at least 183 days
during a three-year period ending in the current calendar year--counting for
these purposes all of the days present in the current year, one-third of the
days present in the immediately preceding year and one-sixth of the days
present in the second preceding year. Residents are subject to U.S. federal
taxes as if they were U.S. citizens.
This discussion does not consider:
. U.S. state and local or non-U.S. tax consequences;
. specific facts and circumstances that may be relevant to a particular
Non-U.S. Holder's tax position, including, if the Non-U.S. Holder is a
partnership, that the U.S. tax consequences of holding and disposing of
our common stock may be affected by certain determinations made at the
partner level;
. the tax consequences for the shareholders, partners or beneficiaries of a
Non-U.S. Holder;
. special tax rules that may apply to certain Non-U.S. Holders, including
without limitation, banks, insurance companies, dealers in securities and
traders in securities; or
. special tax rules that may apply to a Non-U.S. Holder that holds our
common stock as part of a "straddle," "hedge" or "conversion
transaction."
The following discussion is based on provisions of the U.S. Internal Revenue
Code of 1986, applicable Treasury regulations, and administrative and judicial
interpretations, all as of the date of this prospectus, and all of which may
change, retroactively or prospectively. The following summary is for general
information. Accordingly, each Non-U.S. Holder should consult a tax advisor
regarding the U.S. federal, state, local and non-U.S. income and other tax
consequences of acquiring, holding and disposing of shares of our common stock.
Dividends
We currently pay cash dividends of $0.02 per share per year on our common
stock. Dividends paid to a Non-U.S. Holder of common stock generally will be
subject to withholding of U.S. federal income tax at a 30% rate, or a lower
rate as may be provided by an applicable income tax treaty. Canadian holders of
the common stock, for example, will generally be subject to a reduced rate of
15% under the Canada-U.S. Income Tax Treaty. Non-U.S. Holders should consult
their tax advisors regarding their entitlement to benefits under a relevant
income tax treaty.
Dividends that are effectively connected with a Non-U.S. Holder's conduct of
a trade or business in the United States or, if an income tax treaty applies,
attributable to a permanent establishment, or in the case of an
39
<PAGE>
individual, a "fixed base," in the United States, as provided in that treaty
("U.S. trade or business income"), are generally subject to U.S. federal income
tax on a net income basis at regular graduated rates, but are not generally
subject to the 30% withholding tax if the Non-U.S. Holder files the appropriate
U.S. Internal Revenue Service form with the payor. Any U.S. trade or business
income received by a Non-U.S. Holder that is a corporation may also, under
certain circumstances, be subject to an additional "branch profits tax" at a
30% rate or a lower rate as specified by an applicable income tax treaty.
Dividends paid prior to 2001 to an address in a foreign country are
presumed, absent actual knowledge to the contrary, to be paid to a resident of
that country for purposes of the withholding discussed above and for purposes
of determining the applicability of a tax treaty rate. For dividends paid after
December 31, 2000:
. a Non-U.S. Holder of common stock who claims the benefit of an applicable
income tax treaty rate generally will be required to satisfy applicable
certification and other requirements;
. in the case of common stock held by a foreign partnership, the
certification requirement will generally be applied to the partners of
the partnership and the partnership will be required to provide certain
information, including a U.S. taxpayer identification number; and
. look-through rules will apply for tiered partnerships.
A Non-U.S. Holder of common stock that is eligible for a reduced rate of
U.S. withholding tax under an income tax treaty may obtain a refund or credit
of any excess amounts withheld by filing an appropriate claim for a refund with
the IRS.
Gain on Disposition of Common Stock
A Non-U.S. Holder generally will not be subject to U.S. federal income tax
in respect of gain recognized on a disposition of common stock unless:
. the gain is U.S. trade or business income, in which case, the branch
profits tax described above may also apply to a corporate Non-U.S.
Holder;
. the Non-U.S. Holder is an individual who holds the common stock as a
capital asset within the meaning of Section 1221 of the Internal Revenue
Code, is present in the United States for more than 182 days in the
taxable year of the disposition and meets other requirements;
. the Non-U.S. Holder is subject to tax pursuant to the provisions of the
U.S. tax law applicable to some U.S. expatriates; or
. we are or have been a "U.S. real property holding corporation" for U.S.
federal income tax purposes at any time during the shorter of the five-
year period ending on the date of disposition or the period that the Non-
U.S. Holder held our common stock.
Generally, a corporation is a "U.S. real property holding corporation" if
the fair market value of its "U.S. real property interests" equals or exceeds
50% of the sum of the fair market value of its worldwide real property
interests plus its other assets used or held for use in trade or business. We
believe that we have not been, are not currently, and do not anticipate
becoming, a "U.S. real property holding corporation," and thus we believe that
the effects which could arise if we were ever a "U.S. real property holding
corporation" will not apply to a Non-U.S. Holder whose holdings, direct and
indirect, at all times during the applicable period, constituted 5% or less of
our common stock, provided that our common stock was regularly traded on an
established securities market.
Federal Estate Tax
Common stock owned or treated as owned by an individual who is a Non-U.S.
Holder at the time of death will be included in the individual's gross estate
for U.S. federal estate tax purposes, and, therefore, may be subject to U.S.
federal estate tax, unless an applicable estate tax or other treaty provides
otherwise.
40
<PAGE>
Information Reporting and Backup Withholding Tax
We must report annually to the IRS and to each Non-U.S. Holder the amount of
dividends paid to that holder and the tax withheld with respect to those
dividends. Copies of the information returns reporting those dividends and
withholding may also be made available to the tax authorities in the country in
which the Non-U.S. Holder is a resident under the provisions of an applicable
income tax treaty or agreement.
Under some circumstances, U.S. Treasury Regulations require information
reporting and backup withholding at a rate of 31% on certain payments on common
stock. Under currently applicable law, Non-U.S. Holders of common stock
generally will be exempt from these information reporting requirements and from
backup withholding on dividends prior to 2001 to an address outside the United
States, although such Non-U.S. Holder may be subject to withholding as
discussed above under "Dividends." For dividends paid after December 31, 2000,
however, a Non-U.S. Holder of common stock that fails to certify its Non-U.S.
Holder status in accordance with applicable U.S. Treasury Regulations may be
subject to backup withholding at a rate of 31% on payments of dividends.
The payment of the proceeds of the disposition of common stock by a holder
to or through the U.S. office of a broker or through a non-U.S. branch of a
U.S. broker generally will be subject to information reporting and backup
withholding at a rate of 31% unless the holder either certifies its status as a
Non-U.S. Holder under penalties of perjury or otherwise establishes an
exemption. The payment of the proceeds of the disposition by a Non-U.S. Holder
of common stock to or through a non-U.S. office of non-U.S. broker will not be
subject to backup withholding or information reporting unless the non-U.S.
broker is a "U.S. related person." In the case of the payment of proceeds from
the disposition of common stock by or through a non-U.S. office of a broker
that is a U.S. person or a "U.S. related person," information reporting, but
currently not backup withholding, on the payment applies unless the broker
receives a statement from the owner, signed under penalty of perjury,
certifying its non-U.S. status or the broker has documentary evidence in its
files that the holder is a Non-U.S. Holder and the broker has no actual
knowledge to the contrary. For this purpose, a "U.S. related person" is:
. a "controlled foreign corporation" for U.S. federal income tax purposes;
. a foreign person, 50% or more of whose gross income from all sources for
the three-year period ending with the close of its taxable year preceding
the payment, or for such part of the period that the broker has been in
existence, is derived from activities that are effectively connected with
the conduct of a U.S. trade or business; or
. effective after December 31, 2000, a foreign partnership if, at any time
during the taxable year, (A) at least 50% of the capital or profits
interest in the partnership is owned by U.S. persons or (B) the
partnership is engaged in a U.S. trade or business.
Effective after December 31, 2000, backup withholding may apply to the
payment of disposition proceeds by or through a non-U.S. office of a broker
that is a U.S. person or a "U.S. related person" unless certification
requirements are satisfied or an exemption is otherwise established and the
broker has no actual knowledge that the holder is a U.S. person. Non-U.S.
Holders should consult their own tax advisors regarding the application of the
information reporting and backup withholding rules to them, including changes
to these rules that will become effective after December 31, 2000.
Any amounts withheld under the backup withholding rules from a payment to a
Non-U.S. Holder will be refunded, or credited against the holder's U.S. federal
income tax liability, if any, provided that the required information is
furnished to the IRS.
41
<PAGE>
UNDERWRITING
Under the terms and subject to the conditions contained in an underwriting
agreement dated , 2000 we and the selling stockholders have agreed
to sell to the underwriters named below, for whom Credit Suisse First Boston
Corporation, UBS Warburg LLC and Wit SoundView Corporation are acting as
representatives, the following respective numbers of shares of common stock:
<TABLE>
<CAPTION>
Number
Underwriter of Shares
----------- ---------
<S> <C>
Credit Suisse First Boston Corporation.............................
UBS Warburg LLC....................................................
Wit SoundView Corporation..........................................
----
Total...........................................................
====
</TABLE>
The underwriting agreement provides that the underwriters are obligated to
purchase all the shares of common stock in the offering if any are purchased,
other than those shares covered by the over-allotment option described below.
The underwriting agreement also provides that if an underwriter defaults, the
purchase commitments of non-defaulting underwriters may be increased or the
offering of common stock may be terminated.
We have granted to the underwriters a 30-day option to purchase on a pro
rata basis up to 465,000 additional shares at the initial public offering price
less the underwriting discounts and commissions. The option may be exercised
only to cover any over-allotments of common stock.
The underwriters propose to offer the shares of common stock initially at
the public offering price on the cover page of this prospectus and to selling
group members at that price less a concession of $ per share. The
underwriters and selling group members may allow a discount of $ per share
on sales to other broker/dealers. After the initial public offering, the public
offering price and concession and discount to broker/dealers may be changed by
the representatives.
The following table summarizes the compensation and estimated expenses we
and the selling stockholders will pay.
<TABLE>
<CAPTION>
Per Share Total
----------------------------- -----------------------------
Without With Without With
Over-allotment Over-allotment Over-allotment Over-allotment
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Underwriting Discounts
and Commissions paid by
us..................... $ $ $ $
Expenses payable by us.. $ $ $ $
Underwriting Discounts
and Commissions paid by
the selling
stockholders........... $ $ $ $
Expenses payable by the
selling stockholders... $ $ $ $
</TABLE>
The underwriters have informed us that they do not expect discretionary
sales to exceed 5% of the shares of common stock being offered.
We have agreed that we will not offer, sell, contract to sell, pledge or
otherwise dispose of, directly or indirectly, or file with the Securities and
Exchange Commission a registration statement under the Securities Act of 1933,
as amended, relating to, any shares of our common stock or securities
convertible into or exchangeable or exercisable for any shares of our common
stock, or publicly disclose the intention to make any such offer, sale, pledge,
disposition or filing, without the prior written consent of Credit Suisse First
Boston Corporation for a period of 90 days after the date of this prospectus,
except issuances pursuant to the exercise of employee stock options outstanding
on the date hereof.
Our officers and directors have agreed that they will not offer, sell,
contract to sell, pledge or otherwise dispose of, directly or indirectly, any
shares of our common stock or securities convertible into or exchangeable
42
<PAGE>
or exercisable for any shares of our common stock, enter into a transaction
which would have the same effect, or enter into any swap, hedge or other
arrangement that transfers, in whole or in part, any of the economic
consequences of ownership of our common stock, whether any such aforementioned
transaction is to be settled by delivery of our common stock or such other
securities, in cash or otherwise, or publicly disclose the intention to make
any such offer, sale, pledge or disposition, or to enter into any such
transaction, swap, hedge or other arrangement, without, in each case, the prior
written consent of Credit Suisse First Boston Corporation for a period of 90
days after the date of this prospectus.
We and the selling stockholders have agreed to indemnify the underwriters
against liabilities under the Securities Act, or contribute to payments which
the underwriters may be required to make in that respect.
The representatives may engage in over-allotment, stabilizing transactions,
syndicate covering transactions, penalty bids and passive market making in
accordance with Regulation M under the Exchange Act.
. Over-allotment involves syndicate sales in excess of the offering size,
which creates a syndicate short position.
. Stabilizing transactions permit bids to purchase the underlying security
so long as the stabilizing bids do not exceed a specified maximum.
. Syndicate covering transactions involve purchases of the common stock in
the open market after the distribution has been completed in order to
cover syndicate short positions.
. Penalty bids permit the representatives to reclaim a selling concession
from a syndicate member when the common stock originally sold by the
syndicate member is purchased in a syndicate covering transaction to
cover syndicate short positions.
. In passive market making, market makers in the common stock who are
underwriters or prospective underwriters may, subject to limitations,
make bids for or purchases of the common stock until the time, if any, at
which a stabilizing bid is made.
These stabilizing transactions, syndicate covering transactions and penalty
bids may cause the price of the common stock to be higher than it would
otherwise be in the absence of these transactions. These transactions may be
effected on the Nasdaq National Market or otherwise and, if commenced, may be
discontinued at any time.
A prospectus in electronic format will be made available on the websites
maintained by one or more of the underwriters or their affiliates participating
in this offering. The representatives may agree to allocate a number of shares
to underwriters for sale to their online brokerage account holders. Internet
distributions will be allocated by the underwriters that will make Internet
distributions on the same basis as other allocations. Wit SoundView Corporation
intends to allocate shares of common stock for Internet distribution through
its affiliate, Wit Capital Corporation, an online broker/dealer.
43
<PAGE>
NOTICE TO CANADIAN RESIDENTS
Resale Restrictions
The distribution of the common stock in Canada is being made only on a
private placement basis exempt from the requirement that we and the selling
stockholders prepare and file a prospectus with the securities regulatory
authorities in each province where trades of common stock are effected.
Accordingly, any resale of the common stock in Canada must be made in
accordance with applicable securities laws which will vary depending on the
relevant jurisdiction, and which may require resales to be made in accordance
with available statutory exemptions or pursuant to a discretionary exemption
granted by the applicable Canadian securities regulatory authority. Purchasers
are advised to seek legal advice prior to any resale of the common stock.
Representations of Purchasers
Each purchaser of the common stock in Canada who receives a purchase
confirmation will be deemed to represent to us, the selling stockholders and
the dealer from whom such purchase confirmation is received that (i) such
purchaser is entitled under applicable provincial securities laws to purchase
such common stock without the benefit of a prospectus qualified under such
securities laws, (ii) where required by law, such purchaser is purchasing as
principal and not as agent, and (iii) such purchaser has reviewed the text
above under "Resale Restrictions."
Rights of Action (Ontario Purchasers)
The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
Ontario securities law. As a result, Ontario purchasers must rely on other
remedies that may be available, including common law rights of action for
damages or rescission or rights of action under the civil liability provisions
of the U.S. federal securities laws.
Enforcement of Legal Rights
All of the issuer's directors and officers as well as the experts named
herein and the selling stockholders may be located outside of Canada and, as a
result, it may not be possible for Canadian purchasers to effect service of
process within Canada upon the issuer or such persons. All or a substantial
portion of the assets of the issuer and such persons may be located outside of
Canada and, as a result, it may not be possible to satisfy a judgment against
the issuer or such persons in Canada or to enforce a judgment obtained in
Canadian courts against such issuer or persons outside of Canada.
Notice to British Columbia Residents
A purchaser of common stock to whom the Securities Act (British Columbia)
applies is advised that such purchaser is required to file with the British
Columbia Securities Commission a report within ten days of the sale of any
common stock acquired by such purchaser pursuant to this offering. Such report
must be in the form attached to British Columbia Securities Commission Blanket
Order BOR #95/17, a copy of which may be obtained from us. Only one such report
must be filed in respect of shares of our common stock acquired on the same
date and under the same prospectus exemption.
Taxation and Eligibility for Investment
Canadian purchasers of the common stock should consult their own legal and
tax advisors about the tax consequences of an investment in the common stock in
their particular circumstances and about the eligibility of the common stock
for investment by the purchaser under relevant Canadian legislation.
44
<PAGE>
LEGAL MATTERS
The validity of the common stock offered hereby will be passed upon for us
by Stradling Yocca Carlson & Rauth, a Professional Corporation, Newport Beach,
California. Legal matters will be passed upon for the underwriters by Allen
Matkins Leck Gamble & Mallory LLP, Los Angeles, California.
EXPERTS
The consolidated financial statements of Newport Corporation at December 31,
1999 and 1998 and for each of the three years in the period ended December 31,
1999, appearing in this Prospectus and Registration Statement have been audited
by Ernst & Young LLP, independent auditors, as set forth in their report
thereon appearing elsewhere herein, and are included in reliance upon such
report given on the authority of such firm as experts in accounting and
auditing.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We file reports, proxy statements and other information with the Commission,
in accordance with the Securities Exchange Act of 1934. You may read and copy
our reports, proxy statements and other information filed by us at the public
reference facilities of the Commission in Washington, D.C., New York, New York
and Chicago, Illinois. Please call the Commission at 1-800-SEC-0330 for further
information about the public reference rooms. Our reports, proxy statements and
other information filed with the Commission are available to the public over
the Internet at the Commission's World Wide Web site at http://www.sec.gov.
We have filed a registration statement on Form S-3 under the Securities Act
of 1933 with respect to our common stock. This prospectus, which forms a part
of the registration statement, does not contain all of the information included
in the registration statement. Some information is omitted and you should refer
to the registration statement and its exhibits.
The Commission allows us to "incorporate by reference" the information we
filed with them, which means that we can disclose important information by
referring you to those documents. The information incorporated by reference is
considered to be part of this prospectus, and information that we file later
with the Commission will automatically update and supersede this information.
We incorporate by reference the documents listed below and any future filings
made by us with the Commission under Sections 13(a), 13(c), 14 or 15(d) of the
Exchange Act until our offering is complete:
. Our Annual Report on Form 10-K for the fiscal year ended December 31,
1999;
. Our Quarterly Reports on Form 10-Q for the quarters ended March 31, 2000
and June 30, 2000; and
. Our Proxy Statement dated April 14, 2000, relating to the Annual Meeting
of Stockholders held on May 17, 2000.
You may request a copy of these filings, at no cost, by writing or calling
us at the following address:
Karina Page
Vice President and Treasurer
Newport Corporation
1791 Deere Avenue
Irvine, California 92606
(949) 253-1677
45
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Auditors.............................................. F-1
Financial Statements
Consolidated income statement............................................. F-2
Consolidated balance sheet................................................ F-3
Consolidated statement of cash flows...................................... F-4
Consolidated statement of stockholders' equity............................ F-5
Consolidated statement of comprehensive income............................ F-5
Notes to consolidated financial statements................................ F-6
</TABLE>
46
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Newport Corporation
We have audited the accompanying consolidated balance sheet of Newport
Corporation as of December 31, 1999 and 1998, and the related consolidated
statements of income, comprehensive income, stockholders' equity and cash flows
for each of the three years in the period ended December 31, 1999. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Newport
Corporation at December 31, 1999 and 1998, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1999, in conformity with accounting principles generally accepted
in the United States.
/s/ Ernst & Young LLP
Orange County, California
January 25, 2000, except for Note 15,
as to which the date is May 17, 2000
F-1
<PAGE>
NEWPORT CORPORATION
CONSOLIDATED INCOME STATEMENT
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------
1999 1998 1997
-------- -------- --------
(In thousands, except per
share amounts)
<S> <C> <C> <C>
Net sales....................................... $141,945 $134,359 $132,594
Cost of sales................................... 80,194 75,491 74,844
-------- -------- --------
Gross profit.................................... 61,751 58,868 57,750
Selling, general and administrative expense..... 35,593 33,017 35,825
Research and development expense................ 13,300 11,738 9,490
-------- -------- --------
Income from operations.......................... 12,858 14,113 12,435
Interest expense................................ (1,785) (1,891) (1,992)
Other income (expense), net..................... 166 121 (349)
-------- -------- --------
Income before income taxes...................... 11,239 12,343 10,094
Income tax provision............................ 2,956 3,365 3,030
-------- -------- --------
Net income...................................... $ 8,283 $ 8,978 $ 7,064
======== ======== ========
Net income per share
Basic......................................... $0.30 $0.33 $0.27
Diluted....................................... $0.29 $0.32 $0.26
Number of shares used to calculate net income
per share
Basic......................................... 27,249 26,967 26,595
Diluted....................................... 28,383 28,152 27,537
Dividends per share............................. $ 0.0133 $ 0.0133 $ 0.0133
</TABLE>
See accompanying notes.
F-2
<PAGE>
NEWPORT CORPORATION
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
December 31,
------------------
1999 1998
-------- --------
(In thousands,
except share
data)
ASSETS
------
<S> <C> <C>
Current assets:
Cash and cash equivalents................................ $ 2,721 $ 5,335
Customer receivables, net................................ 32,239 25,798
Other receivables........................................ 684 2,367
Inventories.............................................. 36,386 31,260
Deferred tax assets...................................... 2,626 2,703
Other current assets..................................... 2,484 1,643
-------- --------
Total current assets................................... 77,140 69,106
Investments and other assets............................... 8,461 6,451
Property, plant and equipment, at cost, net................ 25,738 22,696
Goodwill, net.............................................. 10,914 12,220
-------- --------
$122,253 $110,473
======== ========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<S> <C> <C>
Current liabilities:
Accounts payable......................................... $ 6,816 $ 6,180
Accrued payroll and related expenses..................... 5,536 5,566
Taxes based on income.................................... 1,235 95
Line of credit........................................... 10,000 --
Current portion of long-term debt........................ 4,645 3,699
Other current liabilities................................ 2,736 5,068
-------- --------
Total current liabilities.............................. 30,968 20,608
Long-term debt............................................. 12,715 17,536
Deferred tax liabilities................................... 1,407 1,359
Commitments and contingencies
Stockholders' equity:
Common stock, $0.1167 stated value, 75,000,000 shares
authorized; 27,696,000 shares issued and outstanding at
December 31, 1999; 27,357,000 shares at December 31,
1998.................................................... 3,231 3,192
Capital in excess of stated value........................ 9,398 8,573
Unamortized deferred compensation........................ (417) (548)
Accumulated other comprehensive loss..................... (6,635) (3,916)
Retained earnings........................................ 71,586 63,669
-------- --------
Total stockholders' equity............................. 77,163 70,970
-------- --------
$122,253 $110,473
======== ========
</TABLE>
See accompanying notes.
F-3
<PAGE>
NEWPORT CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------
1999 1998 1997
-------- -------- --------
(In thousands)
<S> <C> <C> <C>
Operating activities:
Net income..................................... $ 8,283 $ 8,978 $ 7,064
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization................ 7,011 6,075 5,830
Increase in provision for losses on
receivables, inventories and investments.... 1,260 1,073 1,906
Deferred income taxes........................ 251 704 87
Other non-cash items, net.................... (489) (481) 345
Changes in operating assets and liabilities:
Receivables................................. (6,007) (1,532) (1,269)
Inventories................................. (5,027) (3,472) (2,051)
Other current assets........................ (1,532) (196) (1,261)
Other assets................................ 327 280 (78)
Accounts payable and other accrued
expenses................................... (1,530) (2,107) 925
Taxes based on income....................... 1,126 (2,283) 798
Other, net.................................. -- (1) 1
-------- -------- --------
Net cash provided by operating activities........ 3,673 7,038 12,297
-------- -------- --------
Investing activities:
Purchases of property, plant and equipment..... (4,799) (5,378) (5,034)
Disposition of property, plant and equipment... 201 2,323 396
Acquisition of business, net of cash acquired.. (6,559) (3,561) (879)
Payments for equity investment................. (1,074) -- --
Proceeds from sales of investments and
marketable securities......................... 1,054 720 --
Software development costs..................... (2,261) (779) (728)
-------- -------- --------
Net cash used in investing activities............ (13,438) (6,675) (6,245)
-------- -------- --------
Financing activities:
Increase in credit line........................ 10,000 -- --
Decrease in long-term borrowings............... (3,632) (2,360) (790)
Cash dividends paid............................ (366) (362) (357)
Repurchase of common stock..................... (1,589) (2,879) (3,996)
Issuance of common stock under employee
agreements including associated tax benefit... 2,453 3,218 2,910
-------- -------- --------
Net cash provided by (used in) financing
activities...................................... 6,866 (2,383) (2,233)
-------- -------- --------
Effect of foreign exchange rate changes on cash.. 285 (101) 262
-------- -------- --------
Increase (decrease) in cash and cash
equivalents..................................... (2,614) (2,121) 4,081
Cash and cash equivalents at beginning of year... 5,335 7,456 3,375
-------- -------- --------
Cash and cash equivalents at end of year......... $ 2,721 $ 5,335 $ 7,456
======== ======== ========
</TABLE>
See accompanying notes.
F-4
<PAGE>
NEWPORT CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Common shares:
Shares outstanding at beginning of year......... 27,357 26,853 26,670
Issuance of common shares....................... 672 1,020 1,053
Repurchase of common shares..................... (333) (516) (870)
-------- -------- --------
Shares outstanding at end of year............. 27,696 27,357 26,853
======== ======== ========
Common stock:
Balance at beginning of year.................... $ 3,192 $ 3,132 $ 3,110
Issuance of common stock........................ 75 113 117
Grants of restricted stock, net................. -- 7 7
Repurchase of common stock...................... (36) (60) (102)
-------- -------- --------
Balance at end of year........................ 3,231 3,192 3,132
======== ======== ========
Capital in excess of stated value:
Balance at beginning of year.................... 8,573 8,026 8,959
Issuance of common stock........................ 2,378 3,105 2,793
Grants of restricted stock, net................. -- 261 168
Repurchase of common stock...................... (1,553) (2,819) (3,894)
-------- -------- --------
Balance at end of year........................ 9,398 8,573 8,026
======== ======== ========
Unamortized deferred compensation:
Balance at beginning of year.................... (548) (519) (548)
Grants of restricted stock, net................. -- (268) (175)
Amortization of deferred compensation........... 131 239 204
-------- -------- --------
Balance at end of year........................ (417) (548) (519)
======== ======== ========
Accumulated other comprehensive loss:
Balance at beginning of year.................... (3,916) (5,036) (2,442)
Unrealized translation gain (loss).............. (2,719) 1,120 (2,594)
-------- -------- --------
Balance at end of year........................ (6,635) (3,916) (5,036)
======== ======== ========
Retained earnings:
Balance at beginning of year.................... 63,669 55,055 48,350
Dividends....................................... (366) (364) (359)
Net income...................................... 8,283 8,978 7,064
-------- -------- --------
Balance at end of year........................ 71,586 63,669 55,055
======== ======== ========
Total stockholders' equity.................. $ 77,163 $ 70,970 $ 60,658
======== ======== ========
</TABLE>
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------
1999 1998 1997
-------- -------- --------
(In thousands)
<S> <C> <C> <C>
Net income......................................... $ 8,283 $ 8,978 $ 7,064
Unrealized translation gain (loss)................. (2,719) 1,120 (2,594)
-------- -------- --------
Comprehensive income............................... $ 5,564 $ 10,098 $ 4,470
======== ======== ========
</TABLE>
See accompanying notes.
F-5
<PAGE>
NEWPORT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1--Summary of Significant Accounting Policies
Organization. Newport Corporation designs, manufactures and markets high
precision components, instruments and integrated systems for the fiber optic
communications, semiconductor equipment, computer peripherals and scientific
research markets. The Company's high precision products enhance productivity
and capabilities of test and measurement and automated assembly for precision
manufacturing, engineering and research applications.
Consolidation. The accompanying financial statements consolidate the
accounts of the Company and its wholly owned subsidiaries. All significant
intercompany transactions and balances have been eliminated. Certain
reclassifications have been made to prior year amounts to conform to current
year presentation. Amounts in 1999 include 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, 1999 net sales would have been $139.4 million, while net income
would not have been materially different. Earnings per share were not impacted
by the change.
Use of Estimates. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements
and accompanying notes. Actual results could differ from those estimates.
Significant estimates made in preparing the consolidated financial statements
include the allowance for doubtful accounts, inventory obsolescence reserves,
income tax valuation and warranty reserves.
Sales. A sale is recorded upon customer acceptance after all significant
obligations have been met, collectibility is probable and title has passed to
the customer. Customers have 30 days from the original invoice date (60 days
for international customers) to return a catalog product purchase for exchange
or credit. The catalog product must be returned in its original condition and
meet certain other criteria. Product returns of catalog items have historically
been immaterial. Custom configured and certain other products as defined in the
Company's Customer Satisfaction and Product Guarantee Policy cannot be
returned. Unless otherwise stated in its product literature, the Company
provides a one-year warranty from the original invoice date on all product
material and workmanship. Defective products will be either repaired or
replaced, at the Company's option, upon meeting certain criteria.
Income Taxes. The Company recognizes the amount of current and deferred
taxes payable or refundable at the date of the financial statements as a result
of all events that have been recognized in the financial statements and as
measured by the provisions of enacted laws.
Depreciation and Amortization. Property, plant and equipment is depreciated
on a straight line basis over estimated useful lives of the assets ranging from
three to thirty one years. In 1997 the Company changed the depreciation method
for certain machinery and equipment from an accelerated method based on a
declining balance formula to a straight line method to conform with the method
used to depreciate its other machinery and equipment. The effect of this change
on the Company's 1997 financial position, results of operations and cash flow
was not material nor does the Company expect this change to have a material
impact on future periods. Leasehold improvements are generally amortized over
the term of the lease.
Advertising. The Company expenses the costs of advertising as incurred,
except for direct-response advertising, which is capitalized and amortized over
its expected period of future benefits. Direct-response advertising consists
primarily of product catalogs. The Company uses these product catalogs as its
principal marketing tools for the scientific market. Sales to this market
approximate 28% of the Company's annual revenues. The catalogs provide detailed
product information as well as extensive technical and applications data. The
catalogs are published in English, French, German and Japanese languages and
are mailed worldwide to more than 100,000 potential customers.
F-6
<PAGE>
NEWPORT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Company believes that after a period of generally 12 to 18 months, no
future benefit can be realized from these catalogs due to price changes,
technological enhancements to existing products and new product releases. As
such, the Company has established benefit periods for its various catalogs
ranging from 12 to 18 months and amortizes catalog costs over this timeframe.
Advertising materials of $0.8 million and $0.2 million were reported as assets
at December 31, 1999 and 1998, respectively. Advertising expense was $1.5
million, $1.4 million and $1.6 million for 1999, 1998 and 1997, respectively.
Net Income per Share. Basic net income per share is computed using the
weighted average number of shares of common stock outstanding during the
periods, excluding restricted stock. Diluted net income per share is computed
using the weighted average number of shares of common stock outstanding during
the periods, including restricted stock, and the dilutive effects of common
stock equivalents (stock options), determined using the treasury stock method,
outstanding during the periods (see Note 12).
Cash and Cash Equivalents. Cash and cash equivalents consist of cash-on-
hand, short-term certificates of deposit and other securities readily
convertible to cash with original maturities of less than three months.
Fair Values of Financial Instruments. Fair values of cash and cash
equivalents, short-term borrowings and the current portion of long-term debt
approximate the carrying value because of the short period of time to maturity.
The fair value of long-term debt approximates its carrying value because their
rates of interest approximate current market rates. The carrying amounts of the
foreign exchange contracts, if any, equal fair value and are adjusted each
balance sheet date for changes in exchange rates.
Investments. Nonmarketable investments are stated at cost, adjusted for the
Company's proportionate share of undistributed earnings.
Intangible Assets. Goodwill, representing the excess of the purchase price
over the fair value of the net assets of acquired entities, is amortized on a
straight-line basis over its estimated useful life of fifteen to twenty years.
Patents are amortized using the straight-line method over the lives of the
patents. Licenses are amortized on a straight-line basis over the estimated
economic lives of the related assets. Accumulated amortization of intangible
assets, principally goodwill, totaled $5.2 million and $4.5 million at December
31, 1999 and 1998, respectively.
The Company examines the carrying value of goodwill and other intangible
assets to determine whether there are any impairment losses. If indicators of
impairment were present in intangible assets used in operations, and future
cash flows were not expected to be sufficient to recover the assets' carrying
amount, an impairment loss would be charged to expense in the period
identified. No event has been identified that would indicate an impairment of
the value of material intangible assets recorded in the accompanying
consolidated financial statements.
Foreign Currency. Balance sheet accounts denominated in foreign currency 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 (Note
11). Foreign exchange contracts totaled $4.3 million and $4.2 million at
December 31, 1999 and 1998, respectively.
Stock-Based Compensation. The Company accounts for stock-based employee
compensation arrangements in accordance with Accounting Principles Board
Opinion No. 25, Accounting for Stock-Issued to
F-7
<PAGE>
NEWPORT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Employees (APB No. 25), and complies with the disclosures provisions of
Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based
Compensation. Under APB No. 25, compensation cost is recognized based on the
difference, if any, on the date of the grant between the fair value of the
Company's stock and the amount the employee must pay to acquire the stock.
Comprehensive Income. The only item of accumulated other comprehensive
income is a cumulative foreign currency translation adjustment.
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 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, 2001. 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.
Note 2--Acquisitions
On October 13, 1998, the Company acquired, for $3.5 million in cash plus
additional consideration based upon achievement of future milestones, all the
outstanding capital stock of EOSI, a manufacturer of tunable external cavity
diode laser systems and other components. The company is located in Longmont,
Colorado. The acquisition was accounted for as a purchase. In 1999, the Company
paid the sellers an additional $0.2 million for achieving certain milestones
which has been recorded as additional goodwill. In connection with this
acquisition the Company recorded goodwill totaling $2.8 million.
In October 1999, the Company entered into a stock purchase agreement
providing for the acquisition of the west coast commercial optics subsidiary of
Corning OCA Corporation, a subsidiary of Corning Incorporated, based in Garden
Grove, California. The transaction, completed on October 21, 1999, was
accounted for as a purchase and the commercial optics subsidiary (renamed
Newport Precision Optics Corporation), a manufacturer of specialized precision
optical products and systems, became a wholly owned subsidiary of Newport. In
connection with this acquisition the Company paid $6.3 million in cash, subject
to final settlement adjustment.
Pro-forma information for these acquisitions is not presented as neither are
material to the Company's consolidated sales or net income.
Note 3--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>
December 31,
---------------
1999 1998
------- -------
(In thousands)
<S> <C> <C>
Customer receivables........................................ $32,650 $26,077
Less allowance for doubtful accounts........................ 411 279
------- -------
$32,239 $25,798
======= =======
</TABLE>
F-8
<PAGE>
NEWPORT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 4--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>
December 31,
---------------
1999 1998
------- -------
(In thousands)
<S> <C> <C>
Raw materials and purchased parts........................... $12,128 $12,412
Work in process............................................. 7,391 5,301
Finished goods.............................................. 16,867 13,547
------- -------
$36,386 $31,260
======= =======
</TABLE>
Note 5--Income Taxes
The provision for taxes based on income consists of the following:
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------
1999 1998 1997
-------- -------- --------
(In thousands)
<S> <C> <C> <C>
Current:
Federal....................................... $ 2,038 $ 1,999 $ 2,329
State......................................... 340 225 321
Foreign....................................... 327 437 293
Deferred:
Federal....................................... 262 674 48
State......................................... (16) 35 39
Foreign....................................... 5 (5) --
-------- -------- --------
$2,956 $ 3,365 $ 3,030
======== ======== ========
</TABLE>
The provision for taxes based on income differs from the amount obtained by
applying the statutory tax rate as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------
1999 1998 1997
-------- -------- --------
(In thousands)
<S> <C> <C> <C>
Income tax provision at statutory rate........... $ 3,834 $ 4,220 $ 3,432
Increase (decrease) in taxes resulting from:
Non deductible goodwill amortization........... 250 142 153
Foreign losses not benefited................... - 2 107
State income taxes, net of federal income tax
benefit....................................... 214 171 238
Utilization of foreign losses.................. (314) (21) (57)
Reduction in valuation allowance............... (607) (237) --
Tax credits.................................... (240) (490) --
Foreign sales corporation income............... (370) (516) (734)
Other, net..................................... 189 94 (109)
-------- -------- --------
$2,956 $ 3,365 $ 3,030
======== ======== ========
</TABLE>
F-9
<PAGE>
NEWPORT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Deferred tax assets and liabilities determined in accordance with Statement
of Financial Accounting Standards No. 109, Accounting for Income Taxes, reflect
the impact of temporary differences between amounts of assets and liabilities
for tax and financial reporting purposes. Such amounts are measured by tax laws
and the expected future tax consequences of net operating loss carryforwards.
In 1999 the Company reduced the valuation allowance applicable to foreign
net operating loss carryforwards by approximately $1,012,000, of which $405,000
was allocated to goodwill, because of improvements in earnings of certain of
its European subsidiaries.
Temporary differences and net operating loss carryforwards, which give rise
to deferred tax assets and liabilities recognized in the balance sheet, are as
follows:
<TABLE>
<CAPTION>
December 31,
----------------
1999 1998
------- -------
(In thousands)
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards................................... $ 8,449 $ 9,336
Accruals not currently deductible for tax purposes and other....... 1,609 1,811
Valuation allowance................................................ (7,432) (8,444)
------- -------
Total deferred tax asset......................................... 2,626 2,703
------- -------
Deferred tax liabilities:
Accelerated depreciation methods used for tax purposes............. 977 854
Other.............................................................. 430 505
------- -------
Total deferred tax liability..................................... 1,407 1,359
------- -------
Net deferred tax asset............................................... $ 1,219 $ 1,344
======= =======
</TABLE>
The Company has foreign net operating loss carryforwards totaling
approximately $23.4 million at December 31, 1999, principally expiring in the
years 2007 through 2012. For financial reporting purposes, a valuation
allowance has been recorded primarily to offset the deferred tax asset related
to foreign net operating loss carryforwards. Approximately $2.1 million of the
valuation allowance will be allocated to reduce goodwill when realized.
Approximately $0.4 million and $0.2 million of the valuation allowance realized
was allocated to goodwill for 1999 and 1998, respectively. As the Company's net
operating loss carryforwards and valuation allowance are largely denominated in
foreign currencies, they are subject to foreign currency translation
adjustments as described in Note 1 above and to the risks associated therewith.
(See also Item 7A, Quantitative and Qualitative Disclosures About Market Risk,
on Page 21 for further discussion of exchange rate risk.) The exchange loss
related to gross net operating loss carryforwards is largely offset by a
corresponding exchange fluctuation in the valuation allowance. Accordingly, the
net effect of currency fluctuations on the net operating loss carryforwards,
net of valuation allowance, is not material.
Net income taxes paid for 1999, 1998 and 1997 totaled $2.8 million, $4.3
million and $2.0 million, respectively.
F-10
<PAGE>
NEWPORT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 6--Property, Plant and Equipment
Property, plant and equipment, at cost, including capitalized lease assets,
consists of the following:
<TABLE>
<CAPTION>
December 31,
---------------
1999 1998
------- -------
(In thousands)
<S> <C> <C>
Land........................................................ $ 1,106 $ 1,287
Buildings................................................... 6,202 7,218
Leasehold improvements...................................... 8,455 8,715
Machinery and equipment..................................... 29,161 24,063
Office equipment............................................ 13,687 11,715
------- -------
58,611 52,998
Less accumulated depreciation............................... 32,873 30,302
------- -------
$25,738 $22,696
======= =======
</TABLE>
Note 7--Investments and Other Assets
Investments and other assets consist of the following:
<TABLE>
<CAPTION>
December 31,
---------------
1999 1998
------- -------
(In thousands)
<S> <C> <C>
Nonmarketable investments................................... $ 4,015 $ 3,661
Other assets................................................ 4,446 2,790
------- -------
$8,461 $ 6,451
======= =======
</TABLE>
Nonmarketable investments consist primarily of investments in private
companies, including a $1.4 million investment in a U.S. supplier, a $1.4
million investment in a company active in laser and electro-optical technology
and a $1.1 million investment in a photonics manufacturer. The Company made
purchases of approximately $3.8 million, $4.3 million and $4.3 million from the
U.S. supplier during 1999, 1998 and 1997, respectively.
Other assets consist primarily of capitalized software, patents and license
agreements.
F-11
<PAGE>
NEWPORT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 8--Long-Term Debt
Long-term debt consists of the following:
<TABLE>
<CAPTION>
December 31,
---------------
1999 1998
------- -------
(In thousands)
<S> <C> <C>
Revolving credit agreements:
$15.0 million, expiring October 2002........................ $10,037 $ --
$10.0 million, expiring October 2000........................ -- --
Term notes:
8.25% senior notes, maturing May 2004....................... 15,500 18,500
Capitalized lease obligations, payable in installments to
2005, in French francs....................................... 1,224 1,783
Equipment loans............................................... 599 952
------- -------
27,360 21,235
Less current portion.......................................... 14,645 3,699
------- -------
$12,715 $17,536
======= =======
</TABLE>
During May 1996, the Company obtained $20.0 million of long-term financing
from an insurance company. These senior notes, sold at par, are unsecured,
carry an 8.25% annual coupon and mature in May 2004. Interest is payable
semiannually and semiannual principal payments commenced during November 1998.
To support its worldwide operations, at December 31, 1999, the Company had
in place a $15.0 million unsecured line of credit expiring October 29, 2002 and
a $10.0 million unsecured line of credit expiring October 27, 2000. Both lines
bear interest at either the prevailing prime rate, or the prevailing London
Interbank Offered Rate plus 1.0%, at the Company's option, plus an unused line
fee of 0.2% per year. At December 31, 1999, there was $10.0 million outstanding
under the $15.0 million line of credit, with $14.4 million available under the
combined lines, after considering outstanding letters of credit.
Capitalized lease obligations of 8.0 million French francs (approximately
$1.2 million) relate to real estate and equipment located in France. The
original cost of assets under capital leases at December 31, 1999 and 1998, was
19.1 million French francs (approximately $2.9 million at December 31, 1999).
Accumulated amortization totaled 11.1 million French francs (approximately $1.7
million) and 9.2 million French francs (approximately $1.6 million) at December
31, 1999 and 1998, respectively. Required annual payments are as follows:
<TABLE>
<CAPTION>
Capitalized Borrowings
Lease and Term
Obligations Notes
----------- ----------
(In thousands)
<S> <C> <C>
For years ending December 31,
2000.................................................. $ 340 $14,473
2001.................................................. 299 5,163
2002.................................................. 304 3,500
2003.................................................. 269 2,000
2004.................................................. 194 1,000
Thereafter............................................ 83 --
------ -------
1,489
Less interest......................................... 265
------ -------
$1,224 $26,136
====== =======
</TABLE>
Interest paid totaled $1.9 million for each of the 1999, 1998 and 1997
years.
F-12
<PAGE>
NEWPORT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 9--Commitments and Contingencies
The Company leases certain of its manufacturing and office facilities and
equipment under non-cancelable operating leases. Minimum rental commitments
under terms of these leases are as follows for years ending December 31:
<TABLE>
<CAPTION>
(In thousands)
<S> <C>
2000.......................................................... $3,019
2001.......................................................... 2,958
2002.......................................................... 2,181
2003.......................................................... 2,016
2004.......................................................... 1,967
Thereafter.................................................... 3,974
</TABLE>
The principal lease expires in 2007. Rental expense under all leases totaled
$2.8 million, $2.6 million and $2.6 million for 1999, 1998 and 1997,
respectively.
The Company is involved in various pending litigation arising out of the
normal conduct of business. In the opinion of management, the final outcome of
these matters will not have a material adverse effect on the Company's
financial position, results of operations, or cash flows.
Note 10--Stock Option Plans
The Company's 1992 Stock Incentive Plan provides that the number of shares
available for issuance as either stock options or restricted stock increases on
the last day of each fiscal year by an amount equal to 2% of the then
outstanding shares. Options have been granted to directors, officers and key
employees at a price not less than fair market value at the dates of grants for
terms of not more than ten years. Accordingly, no charges have been made to
income in accounting for these options. The tax benefits, if any, resulting
from the exercise of options are credited to capital in excess of stated value.
The fair market value of restricted stock at date of grant is amortized to
expense over the vesting period of five years.
Effective November 18, 1999, the Company's Board of Directors adopted the
Newport Corporation 1999 Stock Incentive Plan to enhance the Company's ability
to attract and retain qualified managers (excluding Board members, officers and
key employees) and to align their interests with stockholders. The Plan
authorizes the granting of non-incentive stock options and restricted stock up
to an aggregate of 900,000 shares, of which 181,500 shares were granted in
1999. The term of the Plan is 10 years.
F-13
<PAGE>
NEWPORT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The following table summarizes option plan and restricted stock activity for
the years ended December 31, 1999, 1998 and 1997:
<TABLE>
<CAPTION>
Under Plan Weighted Average
Available for ------------------------------- Exercise Price
Option Grant Restricted of Option Shares
or Award Stock Options Total Under Plan
------------- ---------- --------- --------- ----------------
<S> <C> <C> <C> <C> <C>
Balance, December 31,
1996................... 1,388,766 290,250 3,490,473 3,780,723 $2.46
Authorized.............. 537,081 -- -- -- --
Granted................. (666,000) 61,500 604,500 666,000 2.97
Exercised............... -- (48,000) (673,848) (721,848) 2.45
Forfeited............... 234,948 -- (234,948) (234,948) 2.36
---------- ------- --------- --------- -----
Balance, December 31,
1997................... 1,494,795 303,750 3,186,177 3,489,927 2.56
Authorized.............. 547,164 -- -- -- --
Granted................. (1,468,800) 60,000 1,408,800 1,468,800 4.50
Exercised............... -- (73,875) (688,200) (762,075) 2.19
Forfeited............... 95,700 -- (95,700) (95,700) 3.50
---------- ------- --------- --------- -----
Balance, December 31,
1998................... 668,859 289,875 3,811,077 4,100,952 3.32
Authorized.............. 1,453,893 -- -- -- --
Granted................. (725,100) -- 725,100 725,100 7.10
Exercised............... -- (89,250) (401,025) (490,275) 3.12
Forfeited............... 173,928 -- (173,928) (173,928) 4.57
---------- ------- --------- --------- -----
Balance, December 31,
1999................... 1,571,580 200,625 3,961,224 4,161,849 $3.99
========== ======= ========= ========= =====
</TABLE>
There were no grants of restricted stock in 1999. The weighted average per
share fair value of restricted stock granted during 1998 and 1997 was $4.46 and
$2.92, respectively.
At December 31, 1999, options on 2,017,452 shares were exercisable with a
weighted average exercise price of $2.88 per share. The following table
summarizes information concerning options outstanding and exercisable at
December 31, 1999 (Contractual life in years):
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
--------------------------------------------- ----------------------------
Range of Weighted Average
Exercise Number Remaining Weighted Average Number Weighted Average
Prices Outstanding Contractual Life Exercise Price Exercisable Exercise Price
------------ ----------- ---------------- ---------------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
$1.67--3.33 2,100,426 4.4 2.66 1,716,786 2.59
4.17--7.00 1,679,298 8.3 4.94 300,666 4.56
--------- ---------
3,779,724 2,017,452
========= =========
</TABLE>
F-14
<PAGE>
NEWPORT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Company applies Accounting Principles Board Opinion No. 25, Accounting
for Stock Issued to Employees, and related interpretations in accounting for
its plans. Accordingly, no compensation expense has been recognized for its
stock-based compensation plans other than for restricted stock awards. Had
compensation cost for the Company's stock option and employee stock purchase
plans been determined based upon the fair value at the grant date for awards
under these plans consistent with the methodology prescribed under Statement of
Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation
(SFAS No. 123), the Company's net income and earnings per share would have been
reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1999 1998 1997
------ ------ ------
(In thousands)
<S> <C> <C> <C>
Net income--reported................................... $8,283 $8,978 $7,064
Net income--pro forma.................................. $6,659 $7,524 $6,707
Diluted earnings per share--reported................... $ 0.29 $ 0.32 $ 0.26
Diluted earnings per share--pro forma.................. $ 0.23 $ 0.27 $ 0.24
</TABLE>
The fair value of each option grant in 1999 was estimated on the date of the
grant using the Black-Scholes option-pricing model with the following weighted-
average assumptions: dividend yield of 0.23%; expected annual volatility of
50.5%; risk-free interest rate of 4.93%; expected lives of 5 years; and
expected turnover rate of 12.90%. The fair value of each option grant in 1998
and 1997 was estimated on the date of the grant using the following weighted-
average assumptions: dividend yield of 0.33%; expected annual volatility of
41.01% and 34.00%, respectively, risk-free interest rates of 5.44% and 6.36%,
respectively, expected lives of 5 years and expected turnover rate of 12.90%.
The weighted average per share fair value of options granted in 1999, 1998, and
1997 was $2.89, $1.94 and $1.19, respectively. The pro forma amounts shown for
the impact of SFAS No. 123 are not necessarily indicative of future results
because of the phase in rules and differences in number of grants, stock price
and assumptions for future years.
Effective January 1, 1995 the Company adopted an Employee Stock Purchase
Plan (the "Purchase Plan") to provide employees of the Company and selected
subsidiaries with an opportunity to purchase common stock through payroll
deductions. The purchase price is the lower of 85% of the fair market value of
the stock on the first or last day of each quarter. The Purchase Plan expires
on December 31, 2005. An aggregate of 1,950,000 shares of common stock is
available for purchase under the Purchase Plan. There were 297,408, 246,603,
and 262,986 shares issued under the Purchase plan during 1999, 1998, and 1997,
respectively. The amounts included in the pro forma net income disclosures
related to the impact of the Purchase Plan totaled $0.2 million, $0.2 million
and $0.1 million for the years 1999, 1998, and 1997, respectively.
Note 11--Other Income (Expense), Net
Other income (expense), net, consisted of the following:
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------
1999 1998 1997
-------- -------- --------
(In thousands)
<S> <C> <C> <C>
Interest and dividend income.................. $ 102 $ 458 $ 210
Exchange losses, net.......................... (226) (261) (497)
Gains on sale of investments, net............. 275 134 14
Other......................................... 15 (210) (76)
-------- -------- --------
$ 166 $ 121 $ (349)
======== ======== ========
</TABLE>
F-15
<PAGE>
NEWPORT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 12--Earnings Per Share
The following table sets forth the computation of basic and diluted
earnings per share under SFAS No. 128:
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------
1999 1998 1997
-------- -------- --------
(In thousands, except per
share amounts)
<S> <C> <C> <C>
Numerator:
Net income........................................ $ 8,283 $ 8,978 $ 7,064
Denominator:
Denominator for basic earnings per share--
weighted-average shares.......................... 27,249 26,967 26,595
Effect of dilutive securities:
Employee stock options.......................... 1,014 1,011 756
Restricted stock................................ 120 174 186
-------- -------- --------
Dilutive potential common shares.................. 1,134 1,185 942
Denominator for diluted earnings per share--
adjusted weighted-average shares and assumed
conversions.................................... 28,383 28,152 27,537
======== ======== ========
Basic earnings per share............................ $ 0.30 $ 0.33 $ 0.27
Diluted earnings per share.......................... $ 0.29 $ 0.32 $ 0.26
</TABLE>
Note 13--Business Segment Information
The Company operates in three reportable segments, Industrial & Scientific
Technologies, Fiber Optics & Photonics and Video Metrology. The accounting
policies of the reportable segments are the same as those described in the
summary of significant accounting policies except that certain expenses, such
as interest are not allocated to the segments. In addition, certain assets,
including cash and cash equivalents, deferred taxes and certain long-lived and
intangible assets are not allocated to the segments.
The Industrial and Scientific Technologies segment consists primarily of
Motion Control Devices and Systems, Vibration Isolation Products, Optics,
Mechanical Components, Instruments and Subassemblies. The Fiber Optics and
Photonics segment consists primarily of Device Testing and Characterization
Systems and Process Automation Workstations for Fiber Optic and Photonics
manufacturing. The Video Metrology segment consists primarily of Video-Based
Measurement and Inspection Systems.
F-16
<PAGE>
NEWPORT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Selected financial information for the Company's reportable segments for the
years ended December 31, 1999, 1998 and 1997 follows:
<TABLE>
<CAPTION>
Industrial & Fiber
Scientific Optics & Video
Technologies Photonics Metrology Total
------------ --------- --------- --------
(In thousands)
<S> <C> <C> <C> <C>
Year Ended December 31, 1999:
Sales to external customers.......... $ 96,578 $35,450 $ 9,917 $141,945
Depreciation and amortization........ 4,011 827 484 5,322
Segment income (loss)................ 12,418 3,805 (3,365) 12,858
Segment assets....................... 77,110 23,192 10,897 111,199
Expenditures for long-lived assets... 2,558 629 304 3,491
Year Ended December 31, 1998:
Sales to external customers.......... $ 97,792 $24,079 $12,488 $134,359
Depreciation and amortization........ 4,034 383 258 4,675
Segment income (loss)................ 14,667 1,639 (2,193) 14,113
Segment assets....................... 68,143 15,555 9,445 93,143
Expenditures for long-lived assets... 3,231 457 615 4,303
Year Ended December 31, 1997:
Sales to external customers.......... $100,102 $16,099 $16,393 $132,594
Depreciation and amortization........ 3,891 353 228 4,472
Segment income (loss)................ 12,274 (1,232) 1,393 12,435
Segment assets....................... 67,358 8,558 7,957 83,873
Expenditures for long-lived assets... 2,196 150 422 2,768
</TABLE>
The following reconciles segment income to consolidated income before income
taxes and segment assets and depreciation and amortization to consolidated
assets and consolidated depreciation and amortization.
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
(In thousands)
<S> <C> <C> <C>
Income:
Segment income................................. $ 12,858 $ 14,113 $ 12,435
Unallocated amounts:
Interest expense............................. (1,785) (1,891) (1,992)
Other income (expense)....................... 166 121 (349)
-------- -------- --------
Income before income taxes................... $ 11,239 $ 12,343 $ 10,094
======== ======== ========
Assets:
Assets for reportable segments................. $111,199 $ 93,143 $ 83,873
Assets held at corporate....................... 11,054 17,330 22,088
-------- -------- --------
Total assets................................. $122,253 $110,473 $105,961
======== ======== ========
Expenditures for long-lived assets for reportable
segments........................................ $ 3,491 $ 4,303 $ 2,768
Expenditures for long-lived assets held at
corporate....................................... 1,308 1,075 2,266
-------- -------- --------
Total expenditures for long-lived assets..... $ 4,799 $ 5,378 $ 5,034
======== ======== ========
Depreciation and amortization:
Depreciation and amortization for reportable
segments...................................... $ 5,322 $ 4,675 $ 4,472
Depreciation and amortization for assets held
at corporate.................................. 1,689 1,400 1,358
-------- -------- --------
Total depreciation and amortization.......... $ 7,011 $ 6,075 $ 5,830
======== ======== ========
</TABLE>
F-17
<PAGE>
NEWPORT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Selected financial information for the Company's operations by geographic
segment is as follows:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Geographic area revenue:
United States..................................... $ 90,153 $ 87,561 $ 85,749
Europe (1)........................................ 32,516 30,358 27,659
Pacific Rim....................................... 11,006 9,468 14,974
Other............................................. 8,270 6,972 4,212
-------- -------- --------
$141,945 $134,359 $132,594
======== ======== ========
Geographic area long-lived assets:
United States..................................... $ 19,022 $ 14,094 $ 14,855
Europe............................................ 6,634 8,508 8,074
Other............................................. 82 94 65
-------- -------- --------
$ 25,738 $ 22,696 $ 22,994
======== ======== ========
</TABLE>
-----------------------
(1) Europe revenues disclosed in the geographic segment include all revenues
from sales to European-based customers whereas Europe segment revenues are
comprised of sales from the Company's Europe operations.
Note 14--Defined Contribution Plan
The Company sponsors a defined contribution plan. Generally, all U.S.
employees are eligible to participate in and contribute to this plan. Company
contributions to the plan are determined based on a percentage of contributing
employees' compensation. Expense recognized for the plan totaled $1.3 million,
$1.3 million and $1.0 million for 1999, 1998 and 1997, respectively.
Note 15--Subsequent Events
On May 17, 2000, stockholders approved an amendment to the Company's
articles of incorporation that increased the number of authorized common shares
to 75 million, and the Company announced a 3-for-1 stock split effective May
31, 2000. All share and per share information in the accompanying financial
statements has been restated to reflect the increase in the authorized common
shares and the stock split.
Note 16--Supplementary Quarterly Consolidated Financial Data (unaudited)
<TABLE>
<CAPTION>
Diluted Net High Low
Net Gross Net Income Per Dividends Share Share
Three months ended Sales Profit Income Share Per Share Price Price
------------------ ------- ------- ------ ----------- --------- ------ -----
(In thousands, except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C>
December 31, 1999.... $41,494 $17,594 $2,982 $0.10 $0.01 $15.25 $5.42
September 30, 1999... 35,427 15,488 2,332 0.08 -- 6.88 4.58
June 30, 1999........ 35,576 15,860 2,055 0.07 0.01 5.25 3.98
March 31, 1999....... 29,448 12,809 914 0.03 -- 6.50 4.13
December 31, 1998.... $33,407 $14,708 $2,565 $0.09 $0.01 $ 5.92 $2.96
September 30, 1998... 33,456 14,517 2,218 0.08 -- 6.58 3.54
June 30, 1998........ 33,833 15,163 2,189 0.08 0.01 7.63 5.92
March 31, 1998....... 33,663 14,480 2,006 0.07 -- 7.25 4.08
</TABLE>
F-18
<PAGE>
[LOGO OF NEWPORT CORPORATION]
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
Set forth below is an estimate (except as indicated) of the approximate
amount of fees and expenses (other than underwriting commissions and discounts)
payable by the registrant in connection with the issuance and distribution of
the common stock pursuant to the prospectus contained in this registration
statement. Registrant will pay all of these expenses.
<TABLE>
<S> <C>
SEC registration fee............................................... $ 90,469
NASD filing fee.................................................... 30,500
Nasdaq National Market application fee............................. 30,000
Printing expenses.................................................. 150,000
Legal fees and expenses (other than Blue Sky)...................... 200,000
Accounting fees and expenses....................................... 100,000
Blue sky fees and expenses......................................... 15,000
Miscellaneous...................................................... 59,031
--------
Total.......................................................... $675,000
========
</TABLE>
Item 15. Indemnification of Directors and Officers.
The registrant's articles of incorporation provides that the registrant
shall indemnify its directors to the full extent permitted by the General
Corporation Law of the State of Nevada and may indemnify its officers and
employees to such extent, except that the registrant shall not be obligated to
indemnify any such person (1) with respect to proceedings, claims or actions
initiated or brought voluntarily by any such person and not by way of defense,
or (2) for any amounts paid in settlement of an action indemnified against by
the registrant without the prior written consent of the registrant. The
registrant has entered into indemnity agreements with each of its directors and
executive officers. These agreements may require the registrant, among other
things, to indemnify such directors or executive officers against certain
liabilities that may arise by reason of their status or service as directors or
executive officers, to advance expenses to them as they are incurred, provided
that they undertake to repay the amount advanced if it is ultimately determined
by a court that they are not entitled to indemnification, and to obtain
directors' and officers' liability insurance if available on reasonable terms.
The registrant will obtain directors' and officers' liability insurance prior
to consummation of this offering.
In addition, the registrant's articles of incorporation provides that a
director of the registrant shall not be personally liable to the registrant or
its stockholders for monetary damages for breach of his or her fiduciary duty
as a director, except for liability (1) for any breach of the director's duty
of loyalty to the registrant or its stockholders, (2) for acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation of
law, (3) for willful or negligent conduct in paying dividends or repurchasing
stock out of other than lawfully available funds or (4) for any transaction
from which the director derives an improper personal benefit.
Reference is made to Section 78.751 of the General Corporation Law of the
State of Nevada which provides for indemnification of directors and officers in
certain circumstances.
Under the terms of the underwriting agreement, the underwriters have agreed
to indemnify, under certain conditions, the registrant, its directors, certain
of its officers and persons who control the registrant within the meaning of
the Securities Act of 1933.
II-1
<PAGE>
Item 16. Exhibits and Financial Statement Schedules.
(a) Exhibits.
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
1.1 Form of Underwriting Agreement
3.1 Restated Articles of Incorporation of Newport Corporation, a Nevada
Corporation (incorporated by reference to exhibit in the Company's
1987 Proxy Statement).
3.2 Certificate of Amendment to Articles of Incorporation, as filed May
30, 2000+
3.3 Restated Bylaws of Newport Corporation, a Nevada Corporation, as
amended to date (incorporated by reference to Exhibit 3.2 to the
Company's Annual Report on Form 10-K for the year ended July 31,
1992).
5.1 Opinion of Stradling Yocca Carlson & Rauth, a professional corporation
10.1 1992 Incentive Stock Plan (incorporated by reference to exhibit in the
Company's 1992 Proxy Statement).
10.2 Employee Stock Purchase Plan, as amended (incorporated by reference to
Exhibit 10.4 of the Company's Annual Report on Form 10-K for the year
ended December 31, 1997).
10.3 1999 Stock Incentive Plan (incorporated by reference to Exhibit 10.11
to the Company's Annual Report on Form 10-K for the year ended
December 31, 1999).
10.4 Amendment to 1999 Stock Incentive Plan+
10.5 Form of Severance Compensation Agreement between Newport Corporation
and certain Executive Officers (incorporated by reference to Exhibit
10.7 to the Company's Annual Report on Form 10-K for the year ended
December 31, 1993).
10.6 Severance Compensation Agreement dated as of April 8, 1996, between
Newport Corporation, a Nevada Corporation, and Robert J. Phillippy, a
Vice President and General Manager (incorporated by reference to
Exhibit 10.2 to the Company's Form 10-Q for the quarter ended
September 30, 1996).
10.7 Severance Compensation Agreement dated as of May 1, 1996, between
Newport Corporation, a Nevada Corporation, and Robert G. Deuster,
President and Chief Executive Officer (incorporated by reference to
Exhibit 10.3 to the Company's Form 10-Q for the quarter ended
September 30, 1996).
10.8 Note Agreement dated as of May 2, 1996 between Newport Corporation and
the Prudential Insurance Company of America (incorporated by reference
to Exhibit 10.8 to the Company's Form 10-Q for the quarter ended March
31, 1996).
10.9 364-Day $10,000,000 Credit Agreement dated as of October 29, 1999
between Newport Corporation and ABN AMRO Bank, N.V. (incorporated by
reference to Exhibit 10.9 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1999).
10.10 Amendment to 364-Day $10,000,000 Revolving Credit Agreement, dated as
of May 31, 2000, between Newport Corporation and ABN AMRO Bank, N.V.+
10.11 3-Year $15,000,000 Credit Agreement dated as of October 29, 1999
between Newport Corporation and ABN AMRO Bank, N.V. (incorporated by
reference to Exhibit 10.10 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1999).
10.12 Amendment to 3-Year $15,000,000 Revolving Credit Agreement, dated as
of May 31, 2000, between Newport Corporation and ABN AMRO Bank, N.V.+
10.13 Lease Agreement dated March 27, 1991, as amended, pertaining to
premises located in Irvine, California (incorporated by reference to
Exhibit 10.1 to the Company's Annual Report on Form 10-K for the year
ended July 31, 1992).
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
23.1 Consent of Independent Auditors
23.2 Consent of Stradling Yocca Carlson & Rauth (included in Exhibit 5.1)
27 Financial Data Schedule (Article 5 of Regulation S-X)+
</TABLE>
-----------------------
+ Previously filed
Item 17. Undertakings.
(1) To provide to the underwriters at the closing specified in the
underwriting agreement, certificates in such denominations and registered
in such names as required by the underwriters to permit prompt delivery to
each purchaser.
(2) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or
otherwise, the registrant has been advised that, in the opinion of the
Securities and Exchange Commission, such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the registrant of expenses incurred or paid by a
director, officer or controlling person of the registrant in the successful
defense of any action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue.
(3) For purposes of determining any liability under the Securities Act,
(i) the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective and (ii)
each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing a Form S-3 and has duly caused this
Amendment No. 2 to Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Irvine, State of
California, on the 25th day of July, 2000.
Newport Corporation
/s/ Robert G. Deuster
By: _________________________________
Robert G. Deuster
Chairman of the Board, President
and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment No. 2 to Registration Statement has been signed below by the
following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Robert G. Deuster Chairman of the Board, President July 25, 2000
____________________________________ and Chief Executive Officer
Robert G. Deuster (Principal Executive Officer)
/s/ Robert C. Hewitt Vice President, Chief Financial July 25, 2000
____________________________________ Officer and Secretary (Principal
Robert C. Hewitt Financial Officer)
/s/ William R. Abbott Vice President and Corporate July 25, 2000
____________________________________ Controller (Principal Accounting
William R. Abbott Officer)
* Director July 25, 2000
____________________________________
R. Jack Aplin
* Director July 25, 2000
____________________________________
Robert L. Guyett
* Director July 25, 2000
____________________________________
C. Kumar N. Patel
* Director July 25, 2000
____________________________________
Kenneth F. Potashner
* Director July 25, 2000
____________________________________
Richard E. Schmidt
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
* Director July 25, 2000
____________________________________
John T. Subak
</TABLE>
/s/ Robert G. Deuster
*By: __________________________
Robert G. Deuster,
Attorney-in-fact
II-5
