UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
***
FORM 10-Q
(Mark One)
[X} QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
-----------------------------
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to ____________
Commission File Number 0-1649
--------
NEWPORT CORPORATION
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Nevada 94-0849175
- -------------------------------------------------- -------------------
(State or other Jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
1791 Deere Avenue, Irvine, CA 92714
- -------------------------------------------------- -------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (714) 863-3144
-------------------
N/A
----------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
The number of shares outstanding of each of the issuer's classes of common stock
as of March 31, 1996, was 8,761,775.
Page 1 of 14
Exhibit Index on Sequentially Numbered Page 14
NEWPORT CORPORATION
INDEX
PART I. FINANCIAL INFORMATION Page Number
Item 1: Financial Statements:
Consolidated Statement of Income and Condensed
Consolidated Statement of Stockholders' Equity for
the Three Months ended March 31, 1996 and 1995. 3
Consolidated Balance Sheet at March 31, 1996 and
December 31, 1995. 4
Consolidated Statement of Cash Flows for the Three
Months ended March 31, 1996 and 1995. 5
Notes to Condensed Consolidated Financial Statements. 6
Item 2: Management's Discussion and Analysis of Financial
Condition and Results of Operations. 8
PART II. OTHER INFORMATION
Item 6: Exhibits and Reports on Form 8-K 12
SIGNATURE 13
Exhibit Index 14
2
NEWPORT CORPORATION
CONSOLIDATED STATEMENT OF INCOME AND
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(UNAUDITED)
(In thousands, except Three Months Ended
per share amounts) March 31,
-------------------
1996 1995
-------- -------
Net sales $27,979 $24,316
Cost of sales 15,691 13,520
-------- -------
Gross profit 12,288 10,796
Selling, general and administrative expense 8,755 8,313
Research and development expense 1,891 1,661
------- -------
Income from operations 1,642 822
Interest expense (411) (398)
Other income, net 155 786
------- -------
Income before income taxes 1,386 1,210
Income tax provision 444 382
------- -------
Net income $ 942 $ 828
======= =======
Net income per share $ 0.11 $ 0.10
======= =======
Number of shares used to calculate
net income per share 8,793 8,543
======= =======
Stockholders' equity, beginning of period $52,687 $46,651
Net income 942 828
Dividends paid (173) (141)
Unrealized translation gain (loss) (688) 1,161
Reduction in unrealized gain on marketable
securities - (135)
Unamortized deferred compensation (164) 21
Issuance of common shares 508 396
------- -------
Stockholders' equity, end of period $53,112 $48,781
======= =======
See accompanying notes
3
NEWPORT CORPORATION
CONSOLIDATED BALANCE SHEET
(Dollars in thousands, except per share amounts)
March 31, December 31,
1996 1995
----------- ------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 1,967 $ 1,524
Customer receivables, net 18,754 19,767
Other receivables 4,314 780
Inventories 25,961 22,744
Deferred tax assets 2,570 2,570
Other current assets 1,794 1,518
----------- ------------
Total current assets 55,360 48,903
Investments, notes receivable and other assets 4,647 4,557
Property, plant and equipment, at cost, net 22,951 22,327
Goodwill, net 11,628 8,161
----------- ------------
$94,586 $83,948
=========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 6,049 $ 5,054
Accrued payroll and related expenses 4,713 5,143
Taxes based on income 1,477 1,261
Current portion of long-term debt 434 5,286
Other accrued liabilities 6,368 3,586
----------- ------------
Total current liabilities 19,041 20,330
Deferred taxes 1,032 1,032
Long-term debt 21,401 9,899
Commitments
Stockholders' equity:
Common stock, $.35 stated value, 20,000,000 shares authorized;
8,762,000 shares issued and outstanding currently;
8,699,000 shares at December 31, 1995 3,066 3,045
Capital in excess of stated value 8,096 7,609
Unamortized deferred compensation (533) (369)
Unrealized translation loss (2,461) (1,773)
Retained earnings 44,944 44,175
----------- ------------
Total stockholders' equity 53,112 52,687
----------- ------------
$94,586 $83,948
=========== ============
See accompanying notes
4
NEWPORT CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
(In thousands)
Three Months Ended
March 31,
------------------
1996 1995
------- -------
OPERATING ACTIVITIES:
Net income $ 942 $ 828
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 1,243 1,292
Net gain from sales of investments - (437)
Increase in provision for losses
on receivables and inventories 222 382
Realized foreign currency (gains) losses, net 94 (299)
Other non-cash income (12) (18)
Changes in operating assets and liabilities:
Receivables 2,022 978
Inventories (2,443) (61)
Other current assets (372) 44
Accounts payable and other accrued expenses (1,111) (1,656)
Taxes based on income 256 280
Translation gain (loss) related to operating activities (360) 383
------- -------
Net cash provided by operating activities 481 1,716
------- -------
INVESTING ACTIVITIES:
Purchases of property, plant and equipment, net (1,026) (642)
Acquisition of businesses, net of cash acquired (4,442) -
Proceeds from sales of investments, net - 460
------- -------
Net cash used in investing activities (5,468) (182)
FINANCING ACTIVITIES:
Repayment of long- and short-term borrowings (6,473) (3,261)
Increase in long-term borrowings 11,749 478
Cash dividends paid (173) (141)
Issuance of common stock under
employee agreements, including
associated tax benefit 299 396
------- -------
Net cash provided by (used in) financing activities 5,402 (2,528)
------- -------
Effect of foreign exchange rate changes on cash 28 (109)
------- -------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 443 (1,103)
Cash and cash equivalents at beginning of period 1,524 3,014
------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,967 $ 1,911
======= =======
CASH PAID IN THE PERIOD FOR:
Interest $ 350 $ 343
Taxes 228 137
See accompanying notes
5
NEWPORT CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996
(UNAUDITED)
1. INTERIM REPORTING
GENERAL
The accompanying unaudited financial statements consolidate the accounts of the
Company and its wholly owned subsidiaries and have been prepared in accordance
with generally accepted accounting principles for interim financial information.
The accounts of the Company's subsidiaries in Europe have been consolidated
using a one-month lag.
In the opinion of management, all adjustments necessary for a fair presentation
of the information in the unaudited condensed consolidated financial statements
have been made and consist of only normal recurring accruals. Operating results
for the three-month period ended March 31, 1996, are not necessarily indicative
of the results that may be expected for the year ending December 31, 1996.
Although the Company believes that the disclosures in these financial statements
are adequate to make the information presented not misleading, certain
information and footnotes normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to rules and regulations of the Securities and Exchange
Commission, and consequently, these statements should be read in conjunction
with the Company's consolidated financial statements and notes thereto,
contained in the Company's Annual Report on Form 10-K for the year ended
December 31, 1995.
EARNINGS PER SHARE
Earnings per share is based on the weighted average number of shares of common
stock and the dilutive effects of common stock equivalents (stock options),
determined using the treasury stock method.
FOREIGN CURRENCY
Balance sheet accounts denominated in foreign currencies are translated at
exchange rates as of the date of the balance sheet and income statement accounts
are translated at average exchange rates for the period. Translation gains and
losses are accumulated as a separate component of stockholders' equity. The
Company has adopted local currencies as the functional currencies for its
subsidiaries because their principal economic activities are most closely tied
to the respective local currencies.
The Company may enter into foreign exchange contracts as a hedge against foreign
currency denominated receivables. It does not engage in currency speculation.
Market value gains and losses on contracts are recognized currently, offsetting
gains or losses on the associated receivables. Foreign currency transaction
gains and losses are included in current earnings. Foreign exchange contracts
totaled $3.5 million at March 31, 1996. There were no foreign exchange contracts
outstanding at December 31, 1995.
2. ACQUISITIONS
On January 2, 1996, the Company acquired, for cash plus additional cash
consideration based upon future operating profit, substantially all the assets
and selected liabilities of MikroPrecision Instruments, Inc. ("MikroPrecision"),
a manufacturer of precision equipment for high technology industries such as
semiconductor and disk drive markets. The company is located in a suburb of
Minneapolis, Minnesota. The acquisition was accounted for as a purchase.
6
NEWPORT CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
MARCH 31, 1996
(UNAUDITED)
3. CUSTOMER RECEIVABLES
Customer receivables consist of the following:
March 31, December 31,
(In thousands) 1996 1995
------------ ------------
Customer receivables $19,268 $20,304
Less allowance for doubtful accounts 514 537
------------ ------------
$18,754 $19,767
============ ============
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.
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:
March 31, December 31,
(In thousands) 1996 1995
------------ ------------
Raw materials and purchased $ 6,482 $ 6,027
parts
Work in process 4,151 4,103
Finished goods 15,328 12,614
------------ ------------
$25,961 $22,744
============ ============
5. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist
of the following:
March 31, December 31,
(In thousands) 1996 1995
------------ ------------
Land $ 2,199 $ 2,238
Buildings 13,145 13,366
Leasehold improvements 7,624 7,500
Machinery and equipment 20,782 19,510
Office equipment 9,303 8,865
------------ ------------
53,053 51,479
Less accumulated depreciation 30,102 29,152
------------ ------------
$22,951 $22,327
============ ============
7
NEWPORT CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1996 AND MARCH 31, 1995
INTRODUCTORY NOTE
This Form 10-Q contains certain forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934 and the Company intends that such forward-looking
statements be subject to the safe harbors created thereby. These forward-
looking statements include (i) the existence and development of the Company's
technical and manufacturing capabilities, (ii) anticipated competition, (iii)
potential future growth in revenues and income, (iv) potential future decreases
in costs, and (v) the need for, and availability of, additional financing.
The forward-looking statements included herein are based on current expectations
that involve a number of risks and uncertainties. These forward-looking
statements are based on assumptions that the Company will not lose a significant
customer or customers or experience increased fluctuations of demand or
rescheduling of purchase orders, that the Company's markets will continue to
grow, that the Company's products will remain accepted within their respective
markets and will not be replaced by new technology, that competitive conditions
within the Company's markets will not change materially or adversely, that the
Company will be successful in integrating the operations of its RAM Optical
Instrumentation, Inc., Light Control Instruments, Inc. and MikroPrecision
Instruments, Inc. subsidiaries with the rest of the Company's operations, that
the Company will retain key technical and management personnel, that the
Company's forecasts will accurately anticipate market demand, that there will be
no material adverse change in the Company's operations or business and that the
Company will not experience significant supply shortages with respect to
purchased components, sub-systems or raw materials. Assumptions relating to the
foregoing involve judgments with respect to, among other things, future
economic, competitive and market conditions, and future business decisions, all
of which are difficult or impossible to predict accurately and many of which are
beyond the control of the Company. Although, the Company believes that the
assumptions underlying the forward-looking statements will be realized. In
addition, the business and operations of the Company are subject to substantial
risks which increase the uncertainty inherent in the forward-looking statements.
In light of the significant uncertainties inherent in the forward-looking
information included herein, the inclusion of such information should not be
regarded as a representation by the Company or any other person that the
objectives or plans of the Company will be achieved.
The following is management's discussion and analysis of certain significant
factors which have affected the earnings and financial position of the Company
during the period included in the accompanying financial statements. This
discussion compares the three-month period ended March 31, 1996, with the three-
month period ended March 31, 1995. This discussion should be read in
conjunction with the financial statements and associated notes.
ACQUISITION
On January 2, 1996, the Company acquired, for cash plus additional cash
consideration based upon future operating profit, substantially all the assets
and selected liabilities of MikroPrecision Instruments, Inc. ("MikroPrecision"),
a manufacturer of precision equipment for high technology industries such as
semiconductor and disk drive markets. The company is located in a suburb of
Minneapolis, Minnesota. The acquisition was accounted for as a purchase.
8
NEWPORT CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONT'D)
THREE MONTHS ENDED MARCH 31, 1996 AND MARCH 31, 1995
RESULTS OF OPERATIONS
Period-to-Period
FINANCIAL ANALYSIS Percentage of Net Sales Increase (Decrease)
------------------------------ -----------------------------
Three months ended March 31, Three months ended March 31,
1996 1995 1996
------------ ------------ -----------------------------
Net sales 100.0% 100.0% 15.1%
Cost of sales 56.1 55.6 16.1
------------ ------------
Gross margin 43.9 44.4 13.8
Selling, general and
administrative expense 31.3 34.2 5.3
Research and
development expense 6.7 6.8 13.8
------------ ------------
Income from operations 5.9 3.4 99.8
Interest expense (1.5) (1.6) 3.3
Other income, net 0.6 3.2 (80.3)
Income taxes (1.6) (1.6) 16.2
------------ ------------
Net income 3.4 3.4 13.8
============ ============
NET SALES
Net sales for the three-month period ended March 31, 1996, were $28.0 million,
compared with $24.3 million for the three-month period ended March 31, 1995, an
increase of 15.1%. The increase is principally attributable to the impact of
the MikroPrecision acquisition ($1.5 million) and sales growth in other
U.S. domestic markets ($1.5 million).
The Company's domestic sales totaled $15.8 million for the three-month period
ended March 31, 1996, compared with $12.9 million for the three months ended
March 31, 1995, an increase of 22.5%. The increase is principally attributable
to the impact of the MikroPrecision acquisition ($1.5 million) and sales growth
contributed by RAM Optical Instrumentation, Inc. ($0.6 million) and other core
product lines.
International sales of the Company were $12.2 million for the three-month period
ended March 31, 1996, compared with $11.4 million for the three months ended
March 31, 1995, an increase of 7.0%. The increase resulted from an increase in
sales in the major markets of the Pacific Rim offset in part by declines in
Europe, primarily in France.
The order rates in the U.S. and Pacific Rim show moderate strength, however, the
order rate in Europe is not showing strength. Overall, management anticipates
continued sales growth through 1996 from its MikroPrecision and RAM Optical
Instrumentation, Inc. subsidiaries, improving U.S. and Pacific Rim economies
and increased sales of ultrahigh precision positioning products.
GROSS PROFIT
Gross profit increased 13.8% on a sales increase of 15.1% for the three-month
period ended March 31, 1996, compared with the three-month period ended March
31, 1995. However, the margin decreased 0.5% to 43.9% for the three-month period
ended March 31, 1996, compared with 44.4% for the three-month period ended March
31, 1995 principally attributable to unfavorable production variances
attributable in part to lower sales experienced in France, foreign exchange
impact on certain purchased parts and sales mix. The Company believes that the
decrease in sales in France is principally attributable to budgetary constraints
on certain French government agencies which historically have accounted for a
significant portion of the Company's French sales. The Company also believes
that if such budgetary contraints are removed, sales in France may increase,
improving the Company's gross margin.
9
NEWPORT CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONT'D)
THREE MONTHS ENDED MARCH 31, 1996 AND MARCH 31, 1995
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative (SG&A) expenses for the three-month period
ended March 31, 1996, increased 5.3% compared with the three-month period ended
March 31, 1995. The SG&A expenses when stated as a percentage of sales were
31.3%, compared with 34.2% for the prior year period. Although SG&A expenses
increased during the quarter due in large part to SG&A expenses at
MikroPrecision for which there were no comparable amounts in the 1995 quarter,
they decreased as a percentage of sales due to the increase in sales volume.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses for the three-month period ended March 31,
1996, increased 13.8% compared with the three-month period ended March 31, 1995.
This increase is principally attributable to costs associated with the continued
development of new systems for the fiber optic communications market, including
the ORION(TM), AutoAlign(TM) and LaserWeld(TM) systems. These expenses when
stated as a percentage of sales were 6.7%, compared with 6.8% for the prior year
period. Management is committed to continued product development and intends to
increase R&D spending by approximately one million dollars in 1996 over 1995 for
development of new products and product improvements.
INTEREST EXPENSE AND OTHER INCOME
Interest expense for each of the three-month periods ended March 31, 1996
and 1995, was $0.4 million. Management anticipates that interest expense
will be comparable in future 1996 quarters.
Other income, consisting of interest, dividends and other income was $0.2
million for the three-month period ended March 31, 1996, compared with $0.8
million for the three-month period ended March 31, 1995. The $0.6 million
decrease in other income for the 1996 quarter was principally attributable to
non-recurring gains on the sale of investments totaling $0.4 million ($0.3
million net of taxes, or 3 cents per share) recorded in the 1995 first quarter.
PROVISION FOR TAXES
The tax provision for each of the quarters ended March 31, 1996 and 1995, was
$0.4 million, principally for federal and state taxes on domestic taxable
income. Foreign net operating losses that occurred during the periods have not
been currently benefited in accordance with Statement of Financial Accounting
Standards No. 109.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities of $0.5 million for the three-month
period ended March 31, 1996, was principally attributable to the Company's
operating income, non-cash items (principally depreciation and amortization),
and changes in operating assets and liabilities.
Net cash used in investing activities of $5.5 million for the three-month period
ended March 31, 1996, was principally attributable to the Company's acquisition
of businesses and purchases of property, plant and equipment.
Net cash provided by financing activities of $5.4 million for the three-month
period ended March 31, 1996, was principally attributable to the increase in
long-term borrowings, partially offset by the repayment of long- and short-term
borrowings.
The Company has a credit agreement with a U.S. bank for a $15.0 million
unsecured line of credit to support the Company's domestic operations and a $2.0
million unsecured line of credit to support the Company's European requirements,
with interest at prime plus 0.5%, or LIBOR plus 2.0%. At March 31, 1996, the
amount outstanding
10
NEWPORT CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONT'D)
THREE MONTHS ENDED MARCH 31, 1996 AND MARCH 31, 1995
under this line of credit was $12.8 million with the remaining $4.0 million
available after taking into account outstanding letters of credit.
Subsequent to the end of the first quarter of 1996, the Company obtained $20.0
million of long-term financing from an insurance company which was used to
refinance a significant portion of its outstanding debt during the second
quarter of 1996 and should reduce its after-tax cost of borrowing. In
anticipation of this agreement, during March 1996, the Company borrowed $6.0
million from its U.S. bank under the same terms as its credit agreement. These
funds were used primarily to repay its French subsidiary's term debt. This
borrowing was repaid with proceeds from the $20.0 million financing.
During the quarter, total debt and cash balances increased by approximately $6.7
million and $0.4 million, respectively. The increase in total debt was
principally attributable to the acquisition of MikroPrecision.
The Company believes its current working capital position together with
estimated cash flows from operations, its existing credit availability and
recent refinancing are adequate for operations in the ordinary course of
business, anticipated capital expenditures and debt repayment requirements over
the next year.
11
NEWPORT CORPORATION
PART II. OTHER INFORMATION
Item 6. Exhibits and reports on Form 8-K.
(a) Exhibits
Exhibit 10.1 Note Agreement dated as of May 2, 1996
between Newport Corporation and The
Prudential Insurance Company of America
Exhibit 27 Financial Data Schedule
(b) Reports on Form 8-K
None
12
NEWPORT CORPORATION
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NEWPORT CORPORATION
(Registrant)
Dated: May 15, 1996
By: /s/ ROBERT C. HEWITT
-----------------------------------
Robert C. Hewitt, Principal Financial
Officer, duly authorized to sign on
behalf of the Registrant
13
NEWPORT CORPORATION
FORM 10-Q
Exhibit Index
-------------
Sequential
Page Number
-----------
Exhibit 10.1 Note Agreement dated as of May 2, 1996 15
between Newport Corporation and The
Prudential Insurance Company of America
Exhibit 27 Financial Data Schedule 60
14