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 June 30, 2000
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OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from ___________ to ___________
Commission File Number 0-1649
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NEWPORT CORPORATION
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(Exact name of registrant as specified in its charter)
Nevada 94-0849175
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(State or other Jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
1791 Deere Avenue, Irvine, CA 92606
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (949) 863-3144
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N/A
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(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No ___
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The number of shares outstanding of each of the issuer's classes of common stock
as of June 30, 2000, was 28,741,006.
Page 1 of 17
Exhibit Index on Sequentially Numbered Page 16
NEWPORT CORPORATION
INDEX
PART I. FINANCIAL INFORMATION Page Number
Item 1: Financial Statements:
Consolidated Income Statement and Condensed
Consolidated Statement of Stockholders' Equity for
the Three and Six Months ended June 30, 2000 and 1999. 3
Consolidated Balance Sheet at June 30, 2000 and
December 31, 1999. 4
Consolidated Statement of Cash Flows for the Six
Months ended June 30, 2000 and 1999. 5
Notes to Condensed Consolidated Financial Statements. 6-9
Item 2: Management's Discussion and Analysis of Financial
Condition and Results of Operations. 10-14
Item 3: Quantitative and Qualitative Disclosures About Market Risk 14-15
PART II. OTHER INFORMATION
Item 4: Submission of Matters to a Vote of Security Holders. 16
Item 6: Exhibits and Reports on Form 8-K. 16
SIGNATURE 16
Page 2
NEWPORT CORPORATION
Consolidated Income Statement and
Condensed Consolidated Statement of Stockholders' Equity
(Unaudited)
(In thousands, except per share amounts) Three Months Ended Six Months Ended
June 30, June 30,
-------- --------
2000 1999 2000 1999
-------- -------- ------- --------
Net sales $ 51,742 $ 35,576 $97,354 $ 65,024
Cost of sales 28,794 19,716 54,397 36,355
-------- -------- ------- --------
Gross profit 22,948 15,860 42,957 28,669
Selling, general and administrative expense 11,403 9,390 22,090 17,285
Research and development expense 5,115 3,220 9,648 6,226
-------- -------- ------- --------
Income from operations 6,430 3,250 11,219 5,158
Interest expense 611 457 1,179 905
Other income (expense), net 12 60 (25) (130)
-------- -------- ------- --------
Income before income taxes 5,831 2,853 10,015 4,123
Income tax provision 1,632 798 2,804 1,154
-------- -------- ------- --------
Net income $ 4,199 $ 2,055 $ 7,211 $ 2,969
======== ======== ======= ========
Net income per share:
Basic $ 0.15 $ 0.08 $ 0.26 $ 0.11
Diluted $ 0.14 $ 0.07 $ 0.24 $ 0.11
Number of shares used to calculate
net income per share:
Basic 28,208 27,239 27,984 27,230
Diluted 30,520 28,009 30,338 28,123
Stockholders' equity, beginning of period $ 82,309 $ 71,422 $77,163 $ 70,970
Net income 4,199 2,055 7,211 2,969
Dividends (284) (183) (284) (183)
Other comprehensive income (loss) 75 (710) (972) (2,166)
Deferred compensation 480 54 (1,537) 108
Repurchase of common stock - (855) - (998)
Issuance of common stock 4,078 76 9,276 1,159
-------- -------- ------- --------
Stockholders' equity, end of period $ 90,857 $ 71,859 $90,857 $ 71,859
======== ======== ======= ========
See accompanying notes
Page 3
NEWPORT CORPORATION
Consolidated Balance Sheet
(In thousands, except share data)
June 30, December 31,
2000 1999
---- ----
ASSETS (Unaudited)
Current assets:
Cash and cash equivalents $ 3,681 $ 2,721
Customer receivables, net 38,733 32,239
Other receivables 1,162 684
Income tax receivable 4,819 -
Inventories 44,771 36,386
Deferred tax assets 2,585 2,626
Other current assets 2,927 2,484
-------- --------
Total current assets 98,678 77,140
Investments and other assets 9,093 8,461
Property, plant and equipment, at cost, net 26,553 25,738
Goodwill, net 10,145 10,914
-------- --------
$144,469 $122,253
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 12,768 $ 6,816
Accrued payroll and related expenses 7,916 5,536
Line of credit 12,300 10,000
Current portion of long-term debt 5,644 4,645
Other current liabilities 3,733 3,971
-------- --------
Total current liabilities 42,361 30,968
Long-term debt 9,844 12,715
Other liabilities 1,407 1,407
Commitments and contingencies
Stockholders' equity:
Common stock, $.1167 stated value, 75,000,000 shares authorized;
28,741,000 shares issued and outstanding at June 30, 2000;
27,695,000 shares at December 31, 1999 3,354 3,231
Capital in excess of stated value 18,551 9,398
Unamortized deferred compensation (1,954) (417)
Accumulated other comprehensive loss (7,607) (6,635)
Retained earnings 78,513 71,586
-------- --------
Total stockholders' equity 90,857 77,163
-------- --------
$144,469 $122,253
======== ========
See accompanying notes
Page 4
NEWPORT CORPORATION
Consolidated Statement of Cash Flows
(Unaudited)
(In thousands)
Six Months Ended
June 30
-------
2000 1999
---- ----
Operating activities:
Net income $ 7,211 $ 2,969
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 5,008 3,274
Increase in provision for losses
on receivables and inventories 1,398 274
Other non-cash items, net (89) 62
Changes in operating assets and liabilities:
Receivables (7,291) (1,350)
Inventories (10,105) (3,287)
Income tax receivable (4,819) -
Other current assets (972) (1,506)
Other assets (199) (35)
Accounts payable and other accrued expenses 8,433 (1,530)
--------
Net cash used in operating activities (1,425) (1,129)
Investing activities:
Purchases of property, plant and equipment, net (4,394) (2,205)
Disposition of property, plant and equipment, net 5 108
Acquisition of business (50) -
Payments for equity investment (1,510) -
Proceeds from sale of investment 1,430 -
Payments for in-process technology (488) (1,099)
Net cash used in investing activities (5,007) (3,196)
Financing activities:
Increase in line of credit 2,300 3,500
Decrease in long-term borrowings (1,803) (1,841)
Cash dividends paid (184) (182)
Repurchase of common stock - (998)
Issuance of common stock under employee
agreements, including associated tax benefit 7,068 1,159
-------- -------
Net cash provided by financing activities 7,381 1,638
-------- -------
Effect of foreign exchange rate changes on cash 11 38
-------- -------
Net increase (decrease) in cash and cash equivalents 960 (2,649)
Cash and cash equivalents at beginning of period 2,721 5,335
-------- -------
Cash and cash equivalents at end of period $ 3,681 $ 2,686
======== =======
Cash paid in the period for:
Interest $ 1,087 $ 909
Taxes 2,362 1,205
See accompanying notes
Page 5
NEWPORT CORPORATION
Notes to Condensed Consolidated Financial Statements
June 30, 2000
(Unaudited)
1. Interim Reporting
General
The accompanying unaudited financial statements consolidate the accounts of the
Company and its wholly owned subsidiaries and have been prepared in accordance
with generally accepted accounting principles for interim financial information.
Both the three- and six-month periods 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 that
eliminated a one-month lag in the reporting of European results. Without the
change, net sales would have been $33.1 million and $62.5 million, respectively,
for the 1999 second quarter and first half. Earnings per share were not impacted
by the change.
In the opinion of management, all adjustments necessary for a fair presentation
of the information in the unaudited condensed consolidated financial statements
have been made and consist of only normal recurring accruals. Operating results
for the six-month period ended June 30, 2000, are not necessarily indicative of
the results that may be expected for the year ending December 31, 2000. Although
the Company believes that the disclosures in these financial statements are
adequate to make the information presented not misleading, certain information
and footnotes normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to rules and regulations of the Securities and Exchange Commission, and
consequently, these statements should be read in conjunction with the Company's
consolidated financial statements and notes thereto, contained in the Company's
Annual Report on Form 10-K for the year ended December 31, 1999.
Net Income per Share
Basic net income per share is based on the weighted average number of shares of
common stock outstanding during the period, excluding restricted stock, while
diluted net income per share is based on the weighted average number of shares
of common stock outstanding during the period and the dilutive effects of common
stock equivalents (mainly stock options), determined using the treasury stock
method, outstanding during the period.
On May 31, 2000 we effected a three-for-one stock split of our shares of common
stock. Share and per share information for all periods presented have been
restated to reflect the stock split.
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 $2.3 million and $4.3 million at June 30, 2000, and December 31, 1999,
respectively.
Page 6
NEWPORT CORPORATION
Notes to Condensed Consolidated Financial Statements
June 30, 2000
(Unaudited)
2. Customer Receivables
The Company maintains reserves for potential credit losses. Such losses have
been minimal and within management's estimates. Receivables from customers are
generally unsecured.
Customer receivables consist of the following:
June 30, December 31,
(In thousands) 2000 1999
---- ----
Customer receivables $39,157 $32,650
Less allowance for doubtful accounts 424 411
------- -------
$38,733 $32,239
======= =======
3. Inventories
Inventories are stated at cost, determined on either a first-in, first-out
(FIFO) or average cost basis and do not exceed net realizable value.
Inventories consist of the following:
June 30, December 31,
(In thousands) 2000 1999
---- ----
Raw materials and purchased parts $12,638 $12,128
Work in process 11,558 7,391
Finished goods 20,575 16,867
------- -------
$44,771 $36,386
======= =======
4. Property, Plant and Equipment
Property, plant and equipment consist of the following:
June 30, December 31,
(In thousands) 2000 1999
---- ----
Land $ 1,048 $ 1,106
Buildings 5,881 6,202
Leasehold improvements 9,217 8,455
Machinery and equipment 29,908 29,161
Office equipment 16,035 13,687
------- -------
62,089 58,611
Less accumulated depreciation 35,536 32,873
------- -------
$26,553 $25,738
======= =======
Page 7
NEWPORT CORPORATION
Notes to Condensed Consolidated Financial Statements
June 30, 2000
(Unaudited)
5. Other Income (Expense), Net
Other income (expense), net, consists of the following:
Three Months Ended Six Months Ended
June 30, June 30,
-------- --------
(In thousands) 2000 1999 2000 1999
---- ---- ---- ----
Interest and dividend income $ 39 $ 22 $ 82 $ 71
Exchange gains (losses), net (34) 15 (45) (197)
Other 7 23 (62) (4)
----- ----- ----- -----
$ 12 $ 60 $ (25) $(130)
===== ===== ===== =====
6. Comprehensive Income
The components of comprehensive income, net of related tax, are as follows:
Three Months Ended Six Months Ended
June 30, June 30,
-------- -------
(In thousands) 2000 1999 2000 1999
---- ---- ---- ----
Net income $4,199 $2,055 $7,211 $ 2,969
Foreign currency translation gain (loss) 75 (710) (972) (2,166)
------ ------ ------ -------
$4,274 $1,345 $6,239 $ 803
====== ====== ====== =======
Page 8
NEWPORT CORPORATION
Notes to Condensed Consolidated Financial Statements
June 30, 2000
(Unaudited)
7. Segment Reporting
Selected financial information for the Company's reportable segments for the
three- and six-months ended June 30, 2000 and 1999 follows:
(In thousands) Industrial
& Scientific Fiber Optics Video
Technologies & Photonics Metrology Total
------------ ------------ ---------- --------
Three Months Ended June 30, 2000:
- ---------------------------------
Sales to external customers $33,002 $16,904 $ 1,836 $51,742
Segment income (loss) 5,889 2,219 (1,678) 6,430
Three Months Ended June 30, 1999:
- ---------------------------------
Sales to external customers $24,097 $ 8,954 $ 2,525 $35,576
Segment income (loss) 2,755 898 (403) 3,250
Six Months Ended June 30, 2000:
- -------------------------------
Sales to external customers $63,064 $30,754 $ 3,536 $97,354
Segment income (loss) 10,284 4,207 (3,272) 11,219
Six Months Ended June 30, 1999:
- -------------------------------
Sales to external customers $44,474 $14,928 $ 5,622 $65,024
Segment income (loss) 4,671 1,182 (695) 5,158
The following reconciles segment income to consolidated income before income
taxes.
Three Months Ended Six Months Ended
June 30, June 30,
------- -------
(In thousands) 2000 1999 2000 1999
------- ------- ------- -------
Segment income $ 6,430 $ 3,250 $11,219 $ 5,158
Interest expense 611 457 1,179 905
Other income (expense) 12 60 (25) (130)
------- ------- ------- -------
Income before income taxes $ 5,831 $ 2,853 $10,015 $ 4,123
======= ======= ======= =======
Page 9
NEWPORT CORPORATION
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Three and Six Months Ended June 30, 2000 and 1999
INTRODUCTORY NOTE
This Quarterly Report on Form 10-Q contains certain forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934 and we intend that such forward-looking
statements be subject to the safe harbors created thereby. For this purpose,
any statements contained in this Form 10-Q except for historical information may
be deemed to be forward-looking statements. Without limiting the generality of
the foregoing, words such as "may," "will," "expect," "believe," "anticipate,"
"intend," "could," "estimate," or "continue" or the negative or other variations
thereof or comparable terminology are intended to identify forward-looking
statements. These forward-looking statements include (i) the existence and
development of our technical and manufacturing capabilities and product
offerings, (ii) anticipated competition, (iii) potential future growth in
revenues and income, (iv) potential future decreases in costs, and (v) the need
for, and availability of, additional financing.
The forward-looking statements included herein are based on current expectations
that involve a number of risks and uncertainties. These forward-looking
statements are based on assumptions that we will not lose a significant customer
or customers or experience increased fluctuations of demand or rescheduling of
purchase orders, that our markets will continue to grow, that our products will
remain accepted within their respective markets and will not be replaced by new
technology, that competitive conditions within our markets will not change
materially or adversely, that we will retain key technical and management
personnel, that our forecasts will accurately anticipate market demand, that
there will be no material adverse change in our operations or business, that
fluctuations in foreign currency exchange rates do not have a material adverse
impact on our competitive position in international markets and that we will not
experience significant supply shortages with respect to purchased components,
sub-systems or raw materials. Additional factors that may affect future
operating results are discussed in more detail in our Annual Report on Form 10-K
for the year ended December 31, 1999. Assumptions relating to the foregoing
involve judgments with respect to, among other things, future economic,
competitive and market conditions, including those in Europe and Asia and those
related to its strategic markets, and future business decisions, all of which
are difficult or impossible to predict accurately and many of which are beyond
our control. Although, we believe that the assumptions underlying the forward-
looking statements will be realized. In addition, the business and operations
of the Company are subject to substantial risks that increase the uncertainty
inherent in the forward-looking statements. In light of the significant
uncertainties inherent in the forward-looking information included herein, the
inclusion of such information should not be regarded as a representation by the
Company or any other person that our objectives or plans will be achieved. We
undertake no obligation to revise the forward-looking statements contained
herein to reflect events or circumstances after the date hereof or to reflect
the occurrence of unanticipated events.
The following is our discussion and analysis of certain significant factors that
have affected the earnings and financial position of the Company during the
period included in the accompanying financial statements. This discussion
compares the three- and six-month periods ended June 30, 2000, with the three-
and six-month periods ended June 30, 1999. This discussion should be read in
conjunction with the financial statements and associated notes.
ACQUISITIONS
In June 2000 we signed a letter of intent to acquire International Metrology
Systems (IMS), a United Kingdom-based, global supplier of coordinate measurement
systems and advanced metrology solutions. Consummation of the transaction is
subject to negotiation and execution of definitive agreements and to customary
conditions, including receipt of all required regulatory approval. The
transaction is targeted for completion in August 2000.
THREE-FOR-ONE STOCK SPLIT
On May 31, 2000 we effected a three-for-one stock split of our shares of common
stock. Share and per share information for all periods presented have been
restated to reflect the stock split.
Page 10
NEWPORT CORPORATION
Management's Discussion and Analysis of
Financial Condition and Results of Operations (Cont'd)
Three and Six Months Ended June 30, 2000 and 1999
RESULTS OF OPERATIONS
FINANCIAL ANALYSIS Period-to-Period
Increase (Decrease)
------------------
Three Six
Percentage of Net Sales Months Months
-----------------------
Three Months Ended Six Months Ended Ended Ended
June 30, June 30, June 30, June 30, June 30,
2000 1999 2000 1999 2000 2000
---- ---- ---- ---- ---- ----
Net sales 100.0% 100.0% 100.0% 100.0% 45.4% 49.7%
Cost of sales 55.6 55.4 55.9 55.9 46.0 49.6
----- ----- ----- -----
Gross profit 44.4 44.6 44.1 44.1 44.7 49.8
Selling, general and
administrative expense 22.1 26.4 22.7 26.6 21.4 27.8
Research and
development expense 9.9 9.1 9.9 9.6 58.9 55.0
----- ----- ----- -----
Income from operations 12.4 9.1 11.5 7.9 97.8 117.5
Interest expense 1.2 1.3 1.2 1.4 33.7 30.3
Other income (expense), net 0.1 0.2 - (0.2) NM NM
----- ----- ----- -----
Income before income taxes 11.3 8.0 10.3 6.3 104.4 142.9
Income taxes 3.2 2.2 2.9 1.7 104.5 143.0
----- ----- ----- -----
Net income 8.1 5.8 7.4 4.6 104.3 142.9
===== ===== ===== =====
NM = not meaningful
Net Sales Net sales for the three- and six-month periods ended June 30, 2000
were $51.7 million and $97.4 million, respectively, compared with $35.6 million
and $65.0 million, respectively, for the three- and six-month periods ended June
30, 1999, increases of 45.4% and 49.7%. The sales increase for the three-month
period was due primarily to sales increases in the fiber optic communications
and semiconductor equipment markets, offset partially by a decrease in sales to
the computer peripherals, aerospace and research, and general metrology markets.
The sales increase for the six-month period was due primarily to sales increases
in the fiber optic communications, semiconductor equipment, aerospace and
research, and general metrology markets, offset partially by a decrease in sales
to the computer peripherals markets. The three- and six-month periods in 1999
include net sales of $2.5 million representing one extra month of sales from our
European operations. The additional net sales stem from a reporting change in
the second quarter of 1999 that eliminated a one-month lag in the reporting of
European results. Without the change, net sales for the 1999 three- and six-
month periods would have been $33.1 million and $62.5 million, respectively.
Three and six-month 2000 sales to the fiber optic communications market were
$21.6 million and $38.3 million, respectively, increases of $13.8 million, or
175.0%, and $24.9 million, or 185.9%, respectively, compared with the
corresponding prior year periods. Sales to the industrial metrology markets,
comprised of the semiconductor equipment, computer peripherals and general
metrology markets, for the three- and six-month periods ended June 30, 2000 were
$20.5 million and $39.0 million, respectively, increases of $3.1 million, or
17.6%, and $7.3 million, or 22.9%, compared with 1999's three- and six month
periods. Sales to the aerospace and research market were $9.6 million and $20.0
million for the three- and six-months ended June 30, 2000, a decrease of $0.7
million, or 6.5%, for the quarter, but an increase of $0.1 million, or 0.6%, for
the first half, compared with the prior year periods.
Domestic sales totaled $34.7 million and $66.4 million, respectively, for the
three- and six-month periods ended June 30, 2000, compared with $20.6 and $38.5
million for the corresponding periods in 1999. The increase for the quarter of
$14.1 million, or 68.8%, was due primarily to sales increases in the fiber optic
communications, semiconductor equipment and general metrology markets of $9.6
million, or 218.7%; $4.5 million, or 209.5%; and $0.5 million, or 7.0%,
respectively, offset partially by a decrease of $0.5 million, or 24.8%, in sales
to the computer
Page 11
NEWPORT CORPORATION
Management's Discussion and Analysis of
Financial Condition and Results of Operations (Cont'd)
Three and Six Months Ended June 30, 2000 and 1999
peripherals market. The increase for the six-months ended June 30, 2000 of $27.9
million, or 72.5%, was due primarily to sales increases in the fiber optic
communications, semiconductor equipment, 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 $17.0 million and $31.0 million, respectively, for
the three- and six-month periods ended June 30, 2000, compared with $15.0
million and $26.5 million for the corresponding prior year periods, increases of
13.4% and 16.7%, respectively. European sales for both the three- and six-month
periods in 1999 reflect a $2.5 million favorable impact from the reporting
change discussed above. Excluding that impact, international sales increased
$4.5 million, or 36.1%, and $7.0 million, or 28.9%, respectively, versus the
corresponding prior year periods. The second quarter increase was due primarily
to an increase of $4.1 million, or 119.1%, in sales to international fiber optic
communications customers, offset in part by declines in international sales to
the semiconductor equipment, aerospace and research, and general metrology
markets of $0.2 million, or 21.6%; $0.7 million, or 15.0%, and $1.2 million, or
21.1%, respectively, versus the corresponding period in 1999. The first half
increase was due primarily to an increase of $6.3 million, or 103.2%, in sales
to international fiber optic 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%. Canadian and Pacific Rim sales in the second quarter of 2000
increased $2.1 million, or 113.2%, and $1.8 million, or 68.7%, respectively,
versus the prior year quarter, while European sales decreased $1.8 million, or
17.5% from 1999's second quarter. 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.
European sales for the three- and six- month periods were reduced by $1.0
million and $1.8 million, respectively, because of a negative foreign exchange
rate impact due to the strength of the U.S. dollar versus the euro in the
current year periods.
Gross Margin Gross margins of 44.4% and 44.1% for the three- and six-month
periods ending June 30, 2000, respectively, did not vary significantly from the
44.6% and 44.1% gross margins realized in the comparable 1999 periods. For both
the three- and six-month periods, a shift in our sales mix towards our photonics
product lines, which generally have higher margins, were offset primarily by
higher growth rates in sales to OEM customers, which generally have lower
margins.
Selling, General and Administrative (SG&A) Expense SG&A expenses totaled $11.4
million and $22.1 million, respectively, for the three- and six-month periods
ending June 30, 2000 compared with $9.4 million and $17.3 million, respectively,
for the corresponding prior year periods, increases of 21.4% and 27.8%,
respectively, versus the same periods in 1999. SG&A expenses as a percent of net
sales were 22.0% and 22.7% for the three- and six-month periods ended June 30,
2000, respectively, compared with 26.4% and 26.6% of net sales in the
corresponding prior year periods. The increases in our SG&A expenses for both
the three- and six-month periods in 2000 versus the prior year periods were due
in part to higher expenses for compensation and incentive plans that are tied to
sales and profit performance, higher personnel 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 the 1999 periods. The
inclusion of an additional month of expenses from the reporting change discussed
above increased 1999 three- and six-month SG&A expenses by $0.9 million. Absent
this change, SG&A expenses increased $2.9 million, or 34.0%; and $5.7 million,
or 34.7%, respectively, for the second quarter and first half of 2000 versus the
comparable prior year periods.
Research and Development (R&D) Expense R&D expenses totaled $5.1 million and
$9.6 million for the three- and six-month periods ending June 30, 2000,
respectively, representing 9.9% of net sales in each period, versus expenses of
$3.2 million and $6.2 million for the three- and six-month periods ending June
30, 1999, respectively, representing 9.1% and 9.6% of net sales in the
respective periods. Our R&D expenses in the 2000 periods increased $1.9
million, or 59%, and $3.4 million, or 55.0% compared with the prior year quarter
and first half. The increase for both periods was attributable primarily to
increased personnel costs related to the development of a number of new products
and product enhancements including extending the range of our automated
packaging and test equipment product lines for the fiber optic communications
market, technology enhancements to the LaserWeld and
Page 12
NEWPORT CORPORATION
Management's Discussion and Analysis of
Financial Condition and Results of Operations (Cont'd)
Three and Six Months Ended June 30, 2000 and 1999
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 second quarter and first half R&D expenses by
$0.2 million. Absent this change, R&D expenses increased $2.1 million, or 67.8%,
and $3.6 million, or 59.4%, respectively, for the second quarter and first half
of 2000 compared with the comparable prior year periods. We are committed to
continued product development and expect that R&D expenditures will increase in
absolute dollars in future periods.
Interest Expense Our interest expense totaled $0.6 million and $1.2 million for
the three- and six-month periods ending June 30, 2000, compared with $0.5
million and $0.9 million for the three- and six-month periods ending June 30,
1999. The increase for both the three- and six-month periods in 2000 versus the
prior year periods was due primarily to higher utilization of our line of
credit.
Income Taxes The effective tax rate in each of the three- and six-month periods
ended June 30, 2000 and 1999 was 28.0%.
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 plus 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 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), payments 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 ($1.4 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.
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.
We believe our current capital resources together with estimated cash flows from
operations and our existing credit availability are adequate to fund operations
for at least the next 12 months. Except as discussed in "Acquisitions" above,
we have no present agreements or commitments with respect to any material
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.
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NEWPORT CORPORATION
Management's Discussion and Analysis of
Financial Condition and Results of Operations (Cont'd)
Three and Six Months Ended June 30, 2000 and 1999
ADDITIONAL FACTORS THAT MAY AFFECT FUTURE OPERATING RESULTS
Impact of Year 2000
In prior quarters, we have discussed the nature and progress of our plans to
become Year 2000 ready. In late 1999, we completed our remediation and testing
of systems. As a result of those planning and implementation efforts, we
experienced no significant disruptions in mission critical information
technology and non-information technology systems and believe that those systems
successfully responded to the Year 2000 date change. Our remediation efforts
consisted primarily of upgrading the hardware and software of our primary
enterprise systems and were accomplished as part of the normal course of
upgrading our systems to support current and anticipated growth. Accordingly,
the $1.5 million cost of acquiring the upgraded computer hardware and software
has been capitalized. We are not aware of any material problems resulting from
Year 2000 issues, either with our products, our internal systems, or the
products and services of third parties. We will continue to monitor our mission
critical computer applications and those of our suppliers and vendors throughout
the year 2000 to ensure that any residual Year 2000 matters that may arise are
addressed promptly.
European Economic and Monetary Union (EMU) - New European Currency
On January 1, 1999, member countries of the European Economic and Monetary Union
established fixed conversion rates between their existing national currencies
and one common currency - the euro. The euro trades on currency exchanges and,
during a three-year dual-currency transition period, either the euro or the
national currencies may be used in business transactions. Beginning in January
2002, new euro-denominated bills and coins will be issued, and the national
currencies will be withdrawn from circulation. Our operating subsidiaries
affected by the euro conversion have implemented and are implementing plans to
address the systems and business issues raised by the euro currency conversion.
These issues include, among others, (1) the need to adapt computer and other
business systems and equipment to accommodate euro-denominated transactions; and
(2) the competitive impact of cross-border price transparency, which may make it
more difficult for businesses to charge different prices for the same products
on a country-by-country basis, particularly once the euro currency is issued in
2002. While, we anticipate that the euro conversion will not have a material
adverse impact on our financial condition or results of operations, there can be
no assurance that our key vendors, customers and distributors will not be
affected by such euro currency issues, which could have an adverse effect on our
business, operating results and financial condition. Further, there can be no
assurance that the currency market volatility will not increase, which could
have an adverse effect on our euro exposures.
Pending Adoption of Statement of Financial Accounting Standards No. 133
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, Accounting for Derivative Instruments
and Hedging Activities (SFAS No. 133). SFAS No. 133 establishes new standards
for recording derivatives in interim and annual financial reports requiring that
all derivative instruments be recorded as assets or liabilities, measured at
fair value. SFAS No. 133 is effective for fiscal years beginning after June 15,
2000, and therefore we will adopt the new requirements effective with the filing
of our Quarterly Report on Form 10-Q for the quarter ended March 31, 2001. We
do not anticipate that the adoption of SFAS No. 133 will have a significant
impact on our results of operations, financial position or cash flow.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The principal market risks (i.e., the risk of loss arising from adverse changes
in market rates and prices) to which we are exposed are foreign exchange rates
which may generate translation and transaction gains and losses and interest
rate risk.
Foreign Currency Risk
Operating in international markets sometimes involves exposure to volatile
movements in currency exchange rates. The economic impact of currency exchange
rate movements on our operating results is complex because such
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NEWPORT CORPORATION
Management's Discussion and Analysis of
Financial Condition and Results of Operations (Cont'd)
Three and Six Months Ended June 30, 2000 and 1999
changes are often linked to variability in real growth, inflation, interest
rates, governmental actions and other factors. These changes, if material, may
cause us to adjust our financing and operating strategies. Consequently,
isolating the effect of changes in currency does not incorporate these other
important economic factors.
International operations constituted approximately 17% of our consolidated
operating profit for both the three- and six-months ended June 30, 2000. As
currency exchange rates change, translation of the income statements of
international operations into U.S. dollars affects year-over-year comparability
of operating results. We do not generally hedge translation risks because cash
flows from international operations are generally reinvested locally. We do not
enter into hedges to minimize volatility of reported earnings because we do not
believe it is justified by the exposure or the cost.
Changes in currency exchange rates that would have the largest impact on
translating future international operating profit include the euro, British
pound, Canadian dollar and Swiss franc. We estimate that a 10% change in
foreign exchange rates would not have a material impact on reported operating
profit. We believe that this quantitative measure has inherent limitations
because, as discussed in the first paragraph of this section, it does not take
into account any governmental actions or changes in either customer purchasing
patterns or financing and operating strategies.
Transaction gains and losses arise from monetary assets and liabilities
denominated in currencies other than a subsidiary's functional currency. Net
foreign exchange gains and losses were not material to our earnings for the last
three years. The impact of unrealized foreign exchange translation gains and
losses is disclosed in Note 6 - Comprehensive Income on page 8.
Interest Rate Risk
Our exposure to interest rate risk is limited to our unsecured lines of credit
which bear interest at either the prevailing prime rate, or the prevailing
London Interbank Offered Rate plus 1.0%, at our option. Our long term debt
instruments carry fixed interest rates. We estimate that a 10% change in
interest rates would not have a material impact on our reported operating
profit.
The sensitivity analyses presented in the interest rate and foreign exchange
discussions above disregard the possibility that rates can move in opposite
directions and that gains from one category may or may not be offset by losses
from another category and vice versa.
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NEWPORT CORPORATION
PART II. OTHER INFORMATION
Item 4: Submission of Matters to a Vote of Security Holders.
(a) The Annual Meeting of Stockholders was held on May 17, 2000. The
tabulation of votes for each of the proposals detailed below have not
been restated to reflect the 3-for-1 stock split we effected on May
31, 2000.
(1) Proposal One to elect R. Jack Aplin and Richard E. Schmidt as
Class IV directors of the Company:
Number of
Number of Number of Number of Broker
Name Votes "For" Votes "Against" Votes "Withheld" "Non-Votes"
---- ----------- --------------- ---------------- -----------
R. Jack Aplin 7,538,994 0 358,962 1,493,091
Richard E. Schmidt 7,539,099 0 358,858 1,493,090
(2) Proposal Two to amend the Company's Articles of Incorporation to
increase the number of authorized common shares from twenty
million (20,000,000) to seventy-five million (75,000,000):
Number of
Number of Number of Number of Broker
Votes "For" Votes "Against" Votes "Abstain" "Non-Votes"
------------ --------------- --------------- -----------
7,261,103 629,871 6,982 1,493,091
(3) Proposal Three to appoint Ernst & Young LLP as the Company's
independent auditors for the fiscal year ending December 31, 2000:
Number of
Number of Number of Number of Broker
Votes "For" Votes "Against" Votes "Abstain" "Non-Votes"
------------- --------------- --------------- ------------
7,887,317 4,698 5,941 1,493,091
Item 6. Exhibits and reports on Form 8-K.
(a) Exhibits
Exhibit 3.1 Certificate of Amendment to Articles of
Incorporation, as filed May 30, 2000 (incorporated by
reference to Exhibit 3.2 to the Company's
Registration Statement on Form S-3, No. 333-40878
(the "Form S-3"))
Exhibit 10.1 Amendment to 1999 Stock Incentive Plan (incorporated
by reference to Exhibit 10.4 to the Company's
Form S-3)
Exhibit 10.2 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. (incorporated by
reference to Exhibit 10.10 to the Company's Form S-3)
Exhibit 10.3 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. (incorporated by
reference to Exhibit 10.12 to the Company's Form S-3)
Exhibit 27 Financial Data Schedule
(b) Reports on Form 8-K
None
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NEWPORT CORPORATION
(Registrant)
Dated: July 17, 2000
By: /s/ ROBERT C. HEWITT
------------------------------------
Robert C. Hewitt, Principal Financial
Officer, duly authorized to sign on
behalf of the Registrant
Page 16