UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
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OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 0-1649
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NEWPORT CORPORATION
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(Exact name of registrant as specified in its charter)
Nevada 094-0849175
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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 (714) 863-3144
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Securities registered pursuant to Section 12(b) of the Act: None
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Securities registered pursuant to Section 12(g) of the Act:
Common Stock, Stated Value $0.35 per Share
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(Title of Class)
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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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K [_]
The aggregate market value of the voting stock held by non-affiliates of the
Registrant was $182,475,000 as of March 20, 1998.
The number of shares outstanding of each of the issuer's classes of common stock
as of March 20, 1998, was 9,073,887.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Proxy Statement for the Annual Meeting of
Stockholders to be held on May 27, 1998, are incorporated by reference into Part
III.
Page 1 of 43 Pages
Exhibit Index on Sequentially Numbered Page 20
This Annual Report on Form 10-K 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. For
this purpose, any statements contained in this Annual Report on Form 10-K 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 statements by their
nature involve substantial risks and uncertainties, certain of which are beyond
the Company's control, and actual results may differ depending on a variety of
important factors, including those described below in "Additional Factors That
May Affect Operating Results."
PART I
ITEM 1 Business
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General Description of Business
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Newport Corporation, together with its consolidated subsidiaries (the "Company"
or "Newport"), is a leading global supplier of high precision components,
instruments, micropositioning and measurement products and systems to the fiber
optics communications, computer peripherals, semiconductor equipment and
scientific research markets. The Company designs, manufactures and markets
components and systems that enhance productivity and capabilities of automated
assembly and test and measurement for high precision manufacturing and
engineering applications. With nearly thirty years experience in research
laboratory products and systems, the Company also provides sophisticated
equipment to commercial, academic and governmental research institutions
worldwide. Certain of the Company's products and systems incorporate proprietary
software developed by the Company or by third parties for the Company's use.
The trend towards miniaturization in computer, telecommunications and other
industries has placed greater demands on the manufacturing operations within
these industries. As component sizes decrease, such components are required to
be manufactured on a more precise level. In addition, customers are demanding
increasingly sophisticated product offerings. As a result, suppliers of
precision components, such as hard disk drives, semiconductor wafers and fiber
optic communications equipment, are being driven to manufacture products within
extremely narrow tolerances. This requires ultraprecise motion and vibration
control and precision measurement components and systems. The Company's products
enable manufacturers to manufacture and test sophisticated components to satisfy
the demands for reduced size and increased functionality.
For nearly three decades Newport has serviced the needs of research laboratories
for precision equipment. In 1991, the Company acquired the micro-positioning
business of Micro-Controle S.A. and commenced its evolution from a provider of
discrete components for research applications to a company that manufactures
both components and integrated systems for research and commercial applications.
The acquisition also provided the Company with a significant manufacturing and
distribution base in Europe. In February 1995, the Company acquired RAM Optical
Instrumentation, Inc. ("ROI") in order to increase its participation in the
computer peripherals and semiconductor test and measurement markets. The
acquisition of ROI also increased the Company's expertise in developing software
and manufacturing integrated systems. In March 1995, the Company acquired Light
Control Instruments, Inc. ("LCI"), a participant in the fiber optic test and
measurement market. The acquisition of LCI expanded the Company's fiber optic
product offering by adding laser diode test equipment to the Company's
internally developed product line. In January 1996, the Company acquired
MikroPrecision Instruments, Inc. ("MikroPrecision") further increasing its
participation in the semiconductor equipment and computer peripherals market. As
a result of its internal growth and strategic acquisitions, Newport is a leading
supplier of high precision optics, instruments, micro-positioning and
measurement products and systems to manufacturers of fiber optic communications
equipment, computer peripherals and semiconductor equipment worldwide. In
addition, the Company continues to focus its core strengths in research test and
Page 2
measurement equipment to provide ultra-precision motion and measurement
technologies for research applications. The Company seeks to leverage its
expertise in research laboratory equipment to continue to expand its product
offerings for commercial applications.
Markets
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Fiber Optic Communications Equipment
Traditional wireline telecommunications networks are increasingly being replaced
or supplemented by fiber optic transmission lines in order to increase network
capacity. Fiber optic technology is also being increasingly utilized in local
and wide area networks and for data communication within mainframe computers.
High volume production of optoelectronic components used in fiber optic
networks, however, has been limited by the method in which manufacturers of
these devices manipulate strands of optical fiber. Optical fibers must be
aligned within extremely narrow tolerances to allow pulses of light to be
transmitted from a laser diode source through the communications line. In order
for the light pulses to be transmitted efficiently, optical fibers must be
aligned within nanometer (40 billionths of an inch) scale tolerances. Current
manual techniques result in low production yields and inconsistent quality.
The Company believes that as network suppliers are required to increase
production and focus on technological innovations in fiber optics, they will
increasingly seek out "turn-key" assembly automation and test and measurement
systems from third party suppliers such as the Company. Newport's AutoAlign(TM),
ORION(TM) and LaserWeld(TM) systems integrate the Company's ultraprecise motion
and vibration control components with optical instrumentation to provide
software controlled turn-key systems that permit the automated alignment and
connection of optical fibers within extremely narrow tolerances and thus
substantially increase productivity.
The Company also manufactures laser diode burn-in and characterization equipment
that allows diode manufacturers to age and test laser diodes more efficiently.
These devices are the sources of light in fiber optic networks. Introduced in
1996, the Company's laser diode test equipment can burn-in and test hundreds of
laser diodes at one time.
Computer Peripherals
Manufacturers of computer hard disk drives and other peripheral equipment such
as printers and scanners are required to manufacture their products within
extremely narrow tolerances. In the hard disk drive market, the demand for test
and measurement products is being driven primarily by two factors. First,
increased requirements of data density are driving manufacturers to produce
smaller disk drives with increased storage capacity, thus heightening the need
for ultra-precise test equipment. Second, the growth in demand for data storage
devices and the increased usage of offshore production facilities has increased
the demand for high precision automated test and measurement equipment to
facilitate quality control. In addition, competitive factors within the
computer peripherals industry are causing manufacturers to provide products with
greater functionality and minimal product failure rates, thus requiring more
capable inspection equipment. Manufacturers also seek highly precise solutions
in an effort to maximize the life cycles of their products. As a result, the
Company believes that data storage manufacturers are increasing their investment
in ultraprecise automated inspection systems to test all components used in the
design and manufacture of sophisticated disk drive equipment.
The disk drive market is also being driven by the increased need for ultra
precise surfaces on the disk and disk slider in hard drives. High storage
densities in disk drives require narrower spacing between the disk drive heads
and the disk surface, thus requiring smoother surfaces on the head and disk to
prevent inadvertent contact and resultant disk failure. The Company's precision
optics, mechanical components and vibration isolation technology are integrated
into hard disk texturing machines that are used to create "landing zones" on
hard disks for disk drive heads to allow head/disk contact without such failure.
Page 3
Newport's high precision optical and mechanical components and vibration
isolation platforms as well as its precision motion sub-assemblies and
integrated systems are used by manufacturers of disk drives and other computer
peripheral devices for test, measurement, inspection and calibration
applications. The Company's Polaris(TM) system meets the automated inspection
needs and throughput requirements of disk drive head manufacturers. The Company
also has developed the LaserMAP(TM) system that combines laser and video
technology to allow for automated dimensional measurement of the suspension
system that holds the heads in the disk drive assembly. The LaserMAP system has
also been applied to critical dimensional measurement applications in the
semiconductor and medical device markets.
Semiconductor Equipment
The market for semiconductors, or computer chips, continues to grow as personal
computers, personal digital assistants and other computer equipment increasingly
penetrate the worldwide landscape. Also adding significantly to this market is
the increased demand for highly functional electronics devices that require
semiconductor technology. Increased demand for greater performance and smaller
size has driven the requirement for reduced chip size and increased
sophistication in chip design. Reduced size and increased sophistication, in
turn, has rendered semiconductors more susceptible to minute manufacturing
defects, thus resulting in increased demand for precision equipment that
improves manufacturing and quality control.
Newport provides high precision vibration isolation systems and mechanical
components to Original Equipment Manufacturers ("OEMs") and chip manufacturers
for integration into equipment that can detect and measure sub-micron defects in
semiconductors as well as perform semiconductor and thin film head profiling.
The Company's products enable manufacturers to detect and classify the defects
more accurately and thereby increase manufacturing efficiency.
Research Laboratory Equipment
The Company has been a leader in servicing the needs of the research laboratory
equipment market for nearly three decades and continues to provide precise test
and measurement equipment to commercial, academic and governmental research
institutions worldwide. The Company seeks to provide a broad portfolio of
components, instruments and systems, including vibration isolation products and
systems, mechanical components and accessories, laser-quality optics and
optomechanical components and optoelectronic instruments, that fulfill a wide
variety of research functions. The research laboratory equipment market
continues to provide the Company with a significant base of assets, technology
and employees enabling the Company to expand its presence in other markets.
Products
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The Company manufactures and distributes two major product groups, broadly
defined by the Company as Laser Electro-Optical equipment and peripherals and
Precision Systems.
Laser Electro-Optical equipment and peripherals consist of Vibration Isolation
Products, Components, Optics and Instruments and accounted for approximately 55%
of the Company's 1997 sales.
Vibration Isolation Products Laser and certain other high technology
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experiments and applications require a relatively vibration-free environment.
The Newport isolation systems provide a working surface for experiments and
applications with greatly reduced vibration environments due to noise, ground
motion and excitations caused by external forces or active components mounted
to the table itself. The Company's isolation systems provide dynamically rigid
surfaces using internally damped honeycomb tops mounted on pneumatic supports.
The Company's product line includes over 350 standard vibration isolation
systems. In addition, Newport has the capability to manufacture custom
systems. While these products are built to rigid quality standards, they are
comprised of standard materials and consequently, there are no unusual supply
requirements.
Page 4
Components Newport offers a comprehensive line of mechanical components
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compatible with, and complementary to, its vibration isolation systems. These
mechanical components include products such as mirror mounts, holders,
positioners, and other accessories which are basic building blocks for
experimental or prototype laser and optical systems. The Company has developed
and sells components for fiber optics, telecommunications and sensors
experimentation. Newport's products include a micro interferometer, laser-to-
fiber couplers and fiber optic positioners. The Company's line of fiber optic
components includes selected products manufactured by third parties.
Optics The Company manufactures and markets a line of laser-quality optics
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and optomechanical components. This product line includes lenses, mirrors,
prisms, laser beam expanders, collimators, attenuators, variable beamsplitters
and spatial filters. The Company has the capability to provide custom optical
designs and coatings for specific applications.
Instruments Newport offers several lines of electronic instruments to
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complement its other products serving optical laboratories. These products are
concentrated in the areas of light measurement and control, light sources and
holography. The Company not only designs and manufactures a majority of its
electronic products but also distributes the products of others. Examples of
the electronics instruments manufactured or distributed by the Company include
power meters, laser diode instruments, spectrum analyzers, electronic shutters
and modulators, lasers, lamps and accessories.
Precision Systems consist primarily of Motion Control Devices and Systems,
Process Automation Workstations for Photonics Packaging and Video-Based
Measurement and Inspection Systems. These products accounted for approximately
45% of the Company's 1997 sales.
Motion Control Devices and Systems Newport offers an extensive line of
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manually operated and motorized positioning devices for both research and
industrial applications. These products include linear and rotational stages,
elevational devices and actuators, as well as simple and programmable motion
controllers for linear, stepping and DC motors. The Company also manufactures
a line of positioning sub-systems, for both laboratory and industrial
applications. Newport's system integration capability allows it to serve
application-specific research, test and measurement, and inspection markets
and to satisfy a wide variety of industrial process application needs.
Process Automation Workstations for Photonics Manufacturing Newport has
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developed several advanced process automation workstations for packaging and
testing of photonics devices used in communications and sensing applications.
Integrating core vibration control, motion control, and light measurement
instrumentation technologies, the Company's AutoAlign system utilizes
sophisticated control software to completely automate fiber optic alignment
and device characterization for any photonic device. The LaserWeld system adds
laser-welded attachment capability and is the industry's only industrial-class
laser welding workstation for automated pigtailing of opto-electronic
components, and features Newport's proprietary LaserHammer(TM) weld-adjustment
technology and fully automated process sequencing capabilities.
Video-Based Measurement and Inspection Systems Through the Company's wholly
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owned subsidiary, ROI, Newport offers a line of video-based measurement and
inspection systems and accessories. These products include video direct
microscopes, Sprint, OMIS II(TM) and OMIS III(TM) optical measurement
inspection systems, Polaris magnetic head pole geometry system and LaserMAP
software. The Polaris magnetic head pole geometry system is specifically
designed to measure pole geometry features on thin film disk drive sliders.
The LaserMAP software integrates video and laser technology for critical
dimensional measurement applications in the semiconductor, electronic
packaging, computer peripherals and medical device markets.
Page 5
Sales and Marketing
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The Company's products are sold to thousands of companies and institutions
throughout the world and are marketed by means of a technical catalog, a
technically trained marketing staff and a worldwide network of subsidiary sales
offices and sales representatives.
Newport's principal marketing tool for the scientific market is its
comprehensive set of product catalogs. These documents, numbering approximately
1100 pages in total, provide detailed product information as well as extensive
technical and applications data. New product brochures and customer newsletters
further augment these catalogs. These catalogs are published in the English,
French and Japanese languages and are mailed worldwide to more than 100,000
potential customers annually.
The Company also publishes brochures that target specific market segments
including fiber optic communications, computer peripherals and semiconductor
equipment. Newport advertises in journals serving many technical disciplines
within the above mentioned market segments.
Further product exposure and contact with existing and potential clients are
developed and maintained at trade shows and technical conferences.
The Company has an interactive site on the World Wide Web
(http://www.newport.com) that addresses the large Internet-savvy portion of the
Company's customer base. As the World Wide Web continues to gain acceptance
within the Company's core markets, this tool will provide even greater
advantages to the Company and its customers. Available on the Company's World
Wide Web site are the latest products, a literature and information request
format, technical/tutorial and application related material, market surveys,
sales information (including its catalogs), and comprehensive company and
financial overviews.
The Company has commenced a telemarketing initiative. This new program targets
new product brochures to potential customers, coordinates new order leads with
salesmen and utilizes focused mailing lists for selected niche markets. In
addition, the Company is focusing its advertising into market niches related to
high growth, high technology industries such as fiber optic communications for
which the Company has developed the AutoAlign and LaserWeld fiber alignment and
packaging systems.
For the Company's U.S. markets, components and systems are marketed through an
internal sales and marketing staff, a Company-employed field sales organization
and a nation-wide network of distributors and sales representatives. The Company
selects sales representatives based on their knowledge of the Company's markets
and their contacts with potential customers. As of December 31, 1997, the
Company had 20 company-employed field sales persons deployed in the United
States. The company-employed field sales force is supplemented by 48 independent
representatives and distributors who are primarily dedicated to the Company's
RAM Optical Instrumentation product line.
For its international markets, the Company's products are marketed through a
network of 26 company-employed field sales personnel based in France, Germany,
the United Kingdom, Switzerland, Italy, the Netherlands, Canada and Taiwan who
are supplemented by 36 independent representatives and distributors located in
countries where the Company does not have a direct presence. International sales
accounted for approximately 35.3%, 41.8% and 45.6% of total sales in 1997, 1996
and 1995, respectively. As a result of conducting business internationally, the
Company is subject to various risks, which include: a greater difficulty of
administering its business globally; compliance with multiple and potentially
conflicting regulatory requirements such as export requirements, tariffs and
other barriers; difficulties in staffing and managing foreign operations; longer
accounts receivable cycles; currency fluctuations; export control restrictions;
overlapping or differing tax structures; political and economic instability and
general trade restrictions. There can be no assurance that any of the foregoing
factors will not have a material adverse effect on the Company's business,
results of operations or financial condition.
Page 6
The Company's sales and marketing efforts for its larger systems are focused on
establishing and developing long-term relationships with potential customers. A
significant portion of the markets targeted by the Company for growth have been
served to date by the internal manufacturing operations of components and
systems manufacturers. The Company believes that as end-users continue to
require reduced size and increased functionality in fiber optic, computer
peripherals and semiconductor assembly and test equipment, those manufacturers
will increasingly seek outside solutions for highly precise manufacturing and
inspection applications.
Sales cycles for such system products can be lengthy, and can range up to twelve
months. Sales are typically made through standard purchase orders that can be
subject to cancellation, postponement or other types of delays. No single
unaffiliated customer accounted for more than 3% of the Company's sales in 1997.
Sales and orders for the Company's products historically have generally not been
affected by significant seasonal demand.
Competition
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The Company competes principally in several specialized market segments against
a limited number of companies, some of which are more established, enjoy higher
name recognition and possess far greater financial, technological and marketing
resources than the Company while others are relatively small and highly
specialized firms. In general, the Company currently competes on the basis of
the performance and quality of its products, including reliability, as well as
on price and timely manufacture and delivery. The Company also competes with
the internal equipment manufacturing operations of many of its potential
customers. While the Company attempts to convince such potential customers that
it would be more efficient to outsource their equipment needs, there can be no
assurance that the Company will be successful in penetrating this portion of
these markets. Further, there can be no assurance that any of such potential
customers will not market its internally manufactured equipment to third parties
and thereby compete directly with the Company. In the research laboratory
equipment market, increasing budgetary constraints are expected to give low-cost
providers a competitive advantage, notwithstanding reduced quality and
performance. In addition, because of the fragmented nature of this market,
general equipment manufacturers may gain a market presence without specifically
targeting the market.
There can be no assurance that the Company will be able to compete successfully
in the future against existing or new competitors, or that new competitors, some
of which may have substantially greater financial, technical and marketing
resources than the Company, will not seek to enter the market served by the
Company's products.
Manufacturing
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The Company assembles, tests and packages its components and systems at its
domestic manufacturing facilities located in Irvine and San Luis Obispo,
California, and Plymouth, Minnesota. The Company's international manufacturing
facilities are located in France. For information regarding the Company's
operations by geographic area, refer to Note 13 of Notes to Consolidated
Financial Statements. A portion of the Company's research and development
facilities, its corporate headquarters and other critical business operations
are located near major earthquake faults. Operating results could be materially
affected in the event of an earthquake or other natural disasters.
The Company's manufacturing processes are diverse and consist of: purchasing raw
materials, principally stainless steel, aluminum and glass; processing the raw
materials into components, subassemblies and finished products; purchasing
components, assembling and testing components and subassemblies; and, for its
larger products, assembling the subassemblies and components into integrated
systems. The Company seeks to design and manufacture components internally for
its integrated systems, although on a limited basis the Company purchases
completed products from certain suppliers and resells those products through its
distribution system. Most of these purchase-pass-through products are produced
to the Company's specifications and carry the Company's logo.
Page 7
The Company currently procures various components from single-sources due to
unique component designs as well as certain quality and performance
requirements. If single-sourced components were to become unavailable or were to
become unavailable on terms satisfactory to the Company, the Company would be
required to purchase comparable components from other sources. If for any reason
the Company could not obtain comparable replacement components from other
sources in a timely manner, the Company's business, results of operations or
financial condition could be adversely affected.
Research and Product Development
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The Company continually seeks to improve its technological position through
internal research and product development and licensing and acquisitions of
complementary technologies. Technological advances, evolving industry standards
and new product introductions and enhancements characterize the computer
peripherals, semiconductor equipment and fiber optic communications equipment
markets, as well as the other markets for the Company's products. The Company
attempts to enhance its existing products and develop and introduce innovative
new products to satisfy customer needs. As the Company's business continues to
evolve towards systems integration, the Company regularly investigates new ways
to combine components manufactured at its various operations to produce
innovative technological solutions for the markets it serves. The Company is
investing in a number of programs to develop new products and product
enhancements to complement its AutoAlign fiber alignment system for the fiber
optic communications market. During 1995 the Company developed a prototype
LaserWeld packaging system for manufacturing optoelectronic devices for the high
growth fiber optic communication industry. Products introduced by the Company in
1995 included the Polaris magnetic head pole geometry measurement system for the
disk drive industry and LaserMAP software which integrates laser metrology into
its video inspection systems for applications in the electronics packaging
industry. During 1996 it introduced the ORION packaging system, a semiautomated
single-mode fiber alignment system as well as a series of X-ray goniometers for
sale to the high energy physics research market. In 1997 the Company introduced
the DynamYX300(TM) air-bearing motion system targeted at the 300 millimeter
semiconductor wafer processing test equipment market, the ESP6000(TM), a digital
signal processor (DSP) based motion controller specifically designed for test,
measurement, inspection, and alignment applications, and the TS series of linear
motion stages designed for semiconductor and computer peripheral test and
measurement applications. In addition, the Company introduced its models 8008
and 6000 benchtop laser diode controllers as well as a number of new products
for the photonics research market and the traditional Laser Electro-Optical
market. Management is committed to continued product development and intends to
maintain R&D expenditures at a level between 7% and 9% of net sales for the
development of new products and product improvements.
There can be no assurance that the Company's research and development efforts
will be successful, that its new products will be developed on a timely basis
and will achieve customer acceptance or that its customers' products will
achieve market acceptance. Failure to develop, or introduce on a timely basis,
new products or product enhancements that achieve market acceptance could
materially adversely affect the Company's business, operating results or
financial condition.
Intellectual Property and Proprietary Rights
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The Company has a number of patents, trademarks, exclusive marketing rights and
licenses. The Company believes that its business relies primarily on its product
performance, experience and marketing skill, and is not dependent upon patent
rights. Although the Company continues to implement protective measures,
including requiring all employees and certain key suppliers and consultants to
the Company to sign nondisclosure agreements, and intends to defend its
proprietary rights, policing unauthorized use of the Company's technology or
products is difficult and there can be no assurance that these measures will be
successful. In addition, there can be no assurance that infringement,
invalidity, right to use or ownership claims by third parties will be asserted
in the future, which claims could materially adversely affect the Company's
business, operating results or financial condition, regardless of the outcome.
Page 8
Employees
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As of December 31, 1997, the Company had 775 employees worldwide. None of the
Company's employees are represented by a union. The Company believes that its
relationship with its employees is good.
Backlog
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The consolidated backlog of all the Company's products was $22.6 million, $20.7
million and $19.3 million at December 31, 1997, 1996 and 1995, respectively. The
Company manufacturers a significant portion of its products for inventory to
provide the capability to make shipments upon receipt of an order. The remainder
of the Company's products are made to order with typical lead times of three to
twelve weeks. Because of these short response times and because orders are
generally cancelable with little or no penalty, the Company does not believe
that its backlog of orders at any particular date is a meaningful indicator of
the Company's sales for any succeeding period.
As a result of manufacturing products in advance of receiving orders, the
Company may at any given time have excess levels of inventory. Such excess
levels of inventories increase the Company's expenses and the amount of the
Company's resources invested in working capital. In addition, as the Company's
markets are characterized by rapid technological change, excess inventory levels
increase the risk of product obsolescence.
Investments
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Apart from the ownership of subsidiaries detailed in Exhibit 21 of this Form 10-
K, Newport has minority ownership interests in several domestic companies
involved in manufacturing laser-related and other high technology products.
ITEM 2 Properties
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The Company's headquarters and principal California manufacturing operations are
located at 1791 Deere Avenue, Irvine, California. The Company leases the Deere
Avenue property under a fifteen-year lease expiring in March 2007. In addition,
the Company has manufacturing operations in leased facilities at San Luis
Obispo, California and Plymouth, Minnesota and leases office space in Mountain
View, California for its Western Region sales, service and application center.
The Company leases sales and service offices in Germany, England, Switzerland,
Italy, the Netherlands, Canada and Taiwan, with leases expiring at various dates
through 2011. The Company's centralized European distribution center is located
at leased facilities in the Netherlands. The Company believes that its
facilities are adequate for its current needs and that suitable additional or
substitute space will be available in the future to accommodate expansion of the
Company's operations. The Company acquired in 1991, in connection with the
acquisition of Micro-Controle, a building and land in Garden City, New York and
several properties and buildings at various locations in France. During the
first quarter of 1995 the Company relocated its New York manufacturing
operations to Irvine, California and leased the Garden City, New York property.
Subsequent to the end of the year the Company sold this property for
approximately $2.0 million.
ITEM 3 Legal Proceedings
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The Company is not a party to any material legal proceedings other than ordinary
routine litigation incidental to its business.
Page 9
ITEM 4 Submission of Matters to a Vote of Security Holders
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No matters were submitted to a vote of security holders during the fourth
quarter of the year ended December 31, 1997.
PART II
ITEM 5 Market For the Registrant's Common Equity and Related Security Holder
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Matters
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Price Range of Common Stock
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The Company's common stock is traded on the NASDAQ National Market under NASDAQ
symbol NEWP. As of December 31, 1997, the Company had 1,513 common stockholders
of record. Refer to Note 15, Supplementary Quarterly Consolidated Financial Data
(Unaudited), of Notes to Consolidated Financial Statements on page 38 for
quarterly share price and dividend payments.
Sales of Unregistered Securities
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None.
Page 10
ITEM 6 Selected Financial Data
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The following table presents selected financial data of the Company and its
subsidiaries as of and for the years ended December 31, 1997, 1996, 1995, 1994,
and 1993, restated to include financial information of ROI and LCI which were
accounted for as poolings of interests
(In thousands, except percent, per share and employment information):
1997 1996 1995 1994 1993
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FOR THE YEAR:
Net sales $132,594 $119,910 $101,961 $94,201 $93,573
Cost of sales 74,844 67,103 55,421 51,811 51,747
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Gross profit 57,750 52,807 46,540 42,390 41,826
Selling, general and administrative 35,825 36,741 34,441 32,240 31,735
Research and development 9,490 8,204 6,765 5,371 5,219
Restructuring expense and other special charges - - - - 6,263
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Income (loss) from operations 12,435 7,862 5,334 4,779 (1,391)
Interest expense (1,992) (1,931) (1,593) (1,782) (2,321)
Other income (expense), net (349) 477 1,137 1,839 1,463
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Income (loss) before income taxes 10,094 6,408 4,878 4,836 (2,249)
Income tax provision 3,030 1,705 1,003 1,654 951
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Net income (loss) $ 7,064 $ 4,703 $ 3,875 $ 3,182 $(3,200)
======== ======== ======== ======= =======
Percent of net sales:
Gross profit 43.6% 44.0% 45.6% 45.0% 44.7%
Selling, general and administrative 27.0 30.6 33.8 34.2 33.9
Research and development 7.2 6.9 6.6 5.7 5.6
Income (loss) from operations 9.4 6.5 5.2 5.1 (1.5)
Net income (loss) 5.3 3.9 3.8 3.4 (3.4)
PER SHARE:
Net income (loss) per share (1)
Basic $ 0.80 $ 0.54 $ 0.47 $ 0.39 $ (0.39)
Diluted 0.77 0.52 0.45 0.38 (0.39)
Dividends paid per share 0.04 0.04 0.04 0.04 0.04
Equity per share (diluted) 6.61 6.39 6.18 5.57 5.31
AT YEAR END:
Cash and marketable securities $ 7,456 $ 3,375 $ 1,524 $ 3,624 $ 4,311
Customer receivables, net 23,372 23,418 20,547 18,755 16,946
Inventories 28,326 28,954 22,744 21,432 21,655
Other current assets 6,300 6,782 4,088 4,512 4,941
-------- -------- ------- ------- -------
Current assets 65,454 62,529 48,903 48,323 47,853
Investments and other assets 5,830 5,191 4,557 4,441 5,185
Property, plant and equipment 22,994 24,045 22,327 23,044 24,145
Goodwill, net 10,133 11,612 8,161 8,846 8,852
-------- -------- ------- ------- -------
Total assets $104,411 $103,377 $83,948 $84,654 $86,035
======== ======== ======= ======= =======
Current liabilities $ 21,139 $ 20,787 $20,330 $26,604 $24,085
Long-term debt 21,027 23,464 9,899 11,117 16,005
Other liabilities 1,587 1,697 1,032 282 2,302
Stockholders' equity 60,658 57,429 52,687 46,651 43,643
-------- -------- ------- ------- -------
Total liabilities and equity $104,411 $103,377 $83,948 $84,654 $86,035
======== ======== ======= ======= =======
MISCELLANEOUS STATISTICS
Working capital $ 44,315 $ 41,742 $28,573 $21,719 $23,768
Common shares outstanding 8,951 8,890 8,699 8,441 8,400
Worldwide employment at end of period 775 746 662 650 676
Sales per employee (annualized) $ 171 $ 161 $ 155 $ 142 $ 132
(1) Earnings per share for all periods prior to 1997 have been restated as
necessary to conform with the requirements of Statement of Financial
Accounting Standards No. 128, Earnings Per Share.
Page 11
ITEM 7 Management's Discussion and Analysis of Financial Condition and Results
- ------ -----------------------------------------------------------------------
of Operations
- -------------
This Item contains forward-looking statements that involve risks and
uncertainties and the Company's actual results could differ materially from
those anticipated in such statements, as a result of various factors including
those described below in "Additional Factors That May Affect Future Operating
Results."
OVERVIEW
- --------
The following is management's discussion and analysis of certain significant
factors that have affected the results of operations and financial condition of
the Company during the period included in the accompanying financial statements.
This discussion should be read in conjunction with the financial statements and
associated notes. This discussion includes the impact of the acquisition of RAM
Optical Instrumentation, Inc. ("ROI") and Light Control Instruments, Inc.
("LCI") which were accounted for using the pooling of interests method and
MikroPrecision Instruments, Inc. ("MikroPrecision") which was accounted for
using the purchase method, as described more fully in Note 2 to the financial
statements on page 29 of this Form 10-K.
RESULTS OF OPERATIONS
- ---------------------
Financial Analysis The following table sets forth, for the periods
- ------------------
indicated, certain income and expense items expressed as a percent of the
Company's net sales and as period-to-period percent increases or decreases:
Period-to-Period
Percent of Net Sales Increase (Decrease)
------------------------ ------------------
1997 1996 1995 1997 1996
------ ------ ------ -------- --------
Net sales 100.0% 100.0% 100.0% 10.6% 17.6%
Cost of sales 56.4 56.0 54.4 11.5 21.1
----- ----- -----
Gross profit 43.6 44.0 45.6 9.4 13.5
Selling, general and
administrative expense 27.0 30.6 33.8 (2.5) 6.7
Research and
development expense 7.2 6.9 6.6 15.7 21.2
----- ----- -----
Income from operations 9.4 6.5 5.2 58.2 47.4
Interest expense (1.5) (1.6) (1.5) 3.2 21.2
Other income (expense), net (0.3) 0.4 1.1 (173.2) (58.0)
----- ----- -----
Income before income taxes 7.6 5.3 4.8 57.5 31.4
Income tax provision 2.3 1.4 1.0 77.7 70.0
----- ----- -----
Net income 5.3 3.9 3.8 50.2 21.4
===== ===== =====
Net Sales For 1997, 1996 and 1995, the Company's net sales totaled $132.6
- ---------
million, $119.9 million and $102.0 million, respectively. Net sales for 1997
increased $12.7 million compared with 1996, with increases of $15.9 million in
domestic markets partially offset by a $3.2 million decrease in international
markets. Net sales for 1996 increased $17.9 million compared with 1995,
represented by increases of $14.3 million in domestic markets and $3.6 million
(net of $0.8 million unfavorable exchange rate effect) in international markets.
Domestic sales totaled $85.7 million, $69.8 million and $55.5 million for 1997,
1996 and 1995, respectively. For 1997, sales increased $15.9 million compared
with 1996. The growth is primarily attributable to a $6.6 million increase in
sales to the semiconductor equipment, fiber optic communications and computer
peripherals markets, sales growth totaling $2.1 million to research customers
and increases in
Page 12
sales to other general metrology customers. Sales for 1996 increased $14.3
million versus 1995. The increase was attributable principally to sales revenue
at MikroPrecision ($7.7 million) for which there were no comparable amounts in
1995 and increases in sales of vibration isolation and precision motion systems
to the semiconductor equipment, fiber optic communications and computer
peripherals markets.
International sales totaled $46.9 million, $50.1 million and $46.5 million for
1997, 1996 and 1995, respectively. Sales in 1997 decreased $3.2 million versus
1996 primarily due to the effect of the stronger U.S. dollar, which negatively
impacted the translation of 1997 European sales by $3.0 million when compared
with 1996, and continued softness throughout most of the year in European
research markets, particularly France and Germany. Excluding the negative
foreign exchange rate effects, European sales were approximately flat year to
year. Pacific Rim sales declined $0.5 million in 1997 versus 1996. Results in
this region were mixed with sales to the Hong Kong and Taiwan markets growing
$1.4 million while sales to Japan and the ASEAN countries declined $2.1 million.
For 1996, sales increased $3.6 million versus 1995 and was attributable
principally to increased sales into the fiber optic communication and computer
peripherals markets in Pacific Rim countries ($6.0 million), offset partially by
declines in Europe ($2.5 million), primarily France where funding for research
equipment was reduced, including the previously mentioned $0.8 million
unfavorable exchange rate effect.
The order rate in the U.S. continues to show strength in response to the
increasing sales and marketing emphasis on higher growth market niches in the
fiber optic communications, semiconductor equipment and computer peripherals
industries and on new products introduced in 1997. Management expects
improvements in sales in 1998 particularly in the United States and Europe as
the Company continues to leverage its expertise in the design, manufacture and
marketing of high precision components, instruments and integrated systems to
the fiber optic communications, semiconductor equipment, computer peripherals
and scientific research markets. However, the continued strength of the U.S.
dollar against European currencies and the economic uncertainty in Asia may
offset in part the anticipated sales growth in those markets. Overall,
management anticipates that net sales in 1998 will increase over 1997; however,
such growth is dependent on many factors and cannot be assured.
Operating Income Total costs and expenses for 1997, 1996 and 1995 were $120.2
- ----------------
million, $112.0 million and $96.7 million, respectively.
Gross margin was 43.6%, 44.0% and 45.6% for 1997, 1996 and 1995, respectively.
The slight decrease in gross margin in 1997 from 1996 was attributable primarily
to the higher growth rates in sales to OEM customers in the Company's target
markets that generally have lower margins, but also lower sales and marketing
expenses. The decrease in gross margin in 1996 from 1995 was attributable
primarily to the addition of sales of products manufactured by MikroPrecision,
which typically have lower margins than the Company's other products.
Management anticipates that, despite the expectation that sales to OEM customers
in the Company's target markets will comprise an increasing proportion of the
Company's net sales, the Company's overall gross margin will increase slightly
in 1998 as a result of increased sales volume and continued manufacturing
productivity improvements Company-wide.
Selling, general and administrative (SG&A) expenses totaled $35.8 million, $36.7
million and $34.4 million for 1997, 1996 and 1995, respectively, representing
27.0%, 30.6% and 33.8% of net sales in the respective years. The $0.9 million
decrease in SG&A in 1997 resulted primarily from favorable exchange rate effects
in Europe, decreases in advertising and other controllable expenses, delayed
personnel replacement and the favorable effect on sales and marketing expenses
from the mix shift toward OEM customers. Excluding the $1.1 million benefit of
exchange rates, real SG&A expenses increased $0.2 million or less than 1% over
1996. The 1996 increase ($2.3 million) was attributable primarily to expenses
incurred at MikroPrecision for which there were no comparable expenses in 1995
($1.4 million) and to adverse determination of an appeal of litigation in France
dating prior to the acquisition of Micro Controle S.A. ($0.6 million) offset in
part by a favorable exchange rate effect in Europe of $0.2 million. Management
anticipates SG&A expenses in total will increase in 1998 but will continue to
decline as a percent of sales as a result of anticipated increased sales volume.
Page 13
Research and development (R&D) expenses totaled $9.5 million, $8.2 million and
$6.8 million for 1997, 1996 and 1995, respectively. R&D expenses represented
7.2%, 6.9% and 6.6% of net sales in 1997, 1996 and 1995, respectively. The
increases in R&D expenses in 1997 compared with 1996 and 1996 compared with
1995, were attributable primarily to increased personnel costs related to the
development of a number of new products and product enhancements some of which
were to complement the AutoAlign fiber alignment system, including the ORION
semiautomated single-mode fiber alignment system for the fiber optic
communications market, improvements to the LaserWeld packaging workstation,
development of laser diode burn-in and characterization systems and new products
and software by the Company's ROI and MikroPrecision subsidiaries. Management is
committed to continued product development and intends to maintain R&D
expenditures at a level between 7% and 9% of net sales for the development of
new products and product improvements. The Company is dependent to a
significant extent upon its ability to enhance its existing products and to
introduce innovative new products that gain market acceptance. There can be no
assurance, however, that the Company will be successful in selecting,
developing or manufacturing new products, or in enhancing its existing products
so as to achieve such market acceptance.
Operating income totaled $12.4 million, $7.9 million and $5.3 million for 1997,
1996 and 1995, respectively. Operating income represented 9.4%, 6.5% and 5.2%
of net sales in 1997, 1996 and 1995, respectively. Management anticipates that
operating income will improve in 1998, both in total and as a percentage of net
sales, primarily as a result of anticipated net sales growth exceeding expense
growth.
Interest Expense Interest expense totaled $2.0 million, $1.9 million and $1.6
- ----------------
million for 1997, 1996 and 1995, respectively. The increase in interest expense
for 1996 over 1995 was primarily the result of additional debt incurred to
finance the acquisition of MikroPrecision. The Company anticipates interest
expense for 1998 will remain approximately the same as 1997 because its long
term debt base will remain relatively constant until the 4th quarter when a $1.5
million principal payment is due, and because the majority of the Company's debt
is at fixed interest rates.
Other Income/(Expense), Net Interest and dividend income totaled $0.2
- ---------------------------
million, $0.1 million and $0.1 million for the years 1997, 1996 and 1995
respectively. Exchange losses were $0.5 million in 1997 versus exchange gains
of less than $0.1 million in both 1996 and 1995. The Company recorded
investment gains totaling $0.8 million in 1995. Minimal investment gains were
recorded in 1997 and no investment gains were recorded in 1996.
Taxes Based On Income The effective tax rates for 1997, 1996 and 1995 were
- ---------------------
30.0%, 26.6% and 20.6%, respectively. The increase in the effective tax rate
for 1997 compared with 1996 was primarily the result of higher state income
taxes, a lower utilization of foreign operating losses and no reduction in
valuation allowance which were partially offset by a benefit from higher foreign
sales corporation income. The increase in the effective tax rate for 1996
compared with 1995 was primarily the result of lower utilization of state net
operating losses ("NOLs") and foreign operating losses and a lower valuation
allowance reduction which were partially offset by a benefit from the conversion
of foreign subsidiaries to U.S. partnerships. Management anticipates that the
Company's effective tax rate in 1998 will be slightly higher than in 1997.
Employment Worldwide employment of the Company totaled 775, 746 and 662 at
- ----------
December 31, 1997, 1996 and 1995, respectively. The increase in employment at
December 31, 1996, was a result of the acquisition of MikroPrecision and
increased production to meet sales requirements. Sales per employee
approximated $171,000, $161,000 and $155,000 during 1997, 1996 and 1995,
respectively.
Stockholders' Equity Stockholders' equity increased from $52.7 million ($6.18
- --------------------
per share) as of December 31, 1995, to $57.4 million ($6.39 per share) as of
December 31, 1996 and to $60.7 million ($6.61 per share) as of December 31,
1997. The increases in 1997 and 1996 were attributable to the respective year
earnings and issuance of stock under stock option and purchase plans, offset in
part by dividend payments, unrealized translation losses and repurchase of stock
under the Company's share
Page 14
repurchase program in 1997. The Company paid dividends totaling $0.4 million,
$0.4 million, $0.3 million during each of the years 1997, 1996 and 1995,
respectively. This represents 4 cents per share for each year.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Net cash provided by operating activities of $12.3 million was primarily
attributable to the Company's operating income plus non-cash items, principally
depreciation and amortization, offset in part by changes in operating assets and
liabilities. Inventories decreased 2.2% in 1997 over 1996 levels as a result of
programs introduced in 1997 to minimize inventory levels while maintaining
competitive manufacturing lead times. The Company believes that it must maintain
certain levels of inventory in order to ensure that the lead times to its
customers remain competitive, however high levels of inventory increases the
risk that the Company will have to write down inventory in the future due to
obsolescence if the Company does not correctly anticipate market demand for
certain of its products. Customer receivables remained at approximately the
same level as in 1996, while sales grew by 10.6%. Accounts payable decreased
25.2% in 1997 compared with 1996 in part as a result of reducing inventory
levels and changes in the timing of material purchases.
Net cash used in investing activities of $6.2 million was attributable
principally to the Company's purchases of property, plant and equipment ($5.0
million) and the final payment due on the acquisition of MikroPrecision
Instruments ($0.9 million). Capital expenditures for property, plant and
equipment aggregated $5.8 million and $2.5 million for 1996 and 1995,
respectively.
Net cash used in financing activities of $2.2 million was attributable
principally to the repurchase of stock under the Company's share repurchase
program, partially offset by the issuance of common stock in connection with
stock option and purchase plans.
In February 1998, Newport's board of directors authorized the repurchase of an
additional 350,000 shares under the Company's share repurchase program which
commenced in April 1997. This brings the total number of shares authorized for
repurchase to 640,000. The originally authorized 290,000 shares were
repurchased in 1997.
At December 31, 1997, the Company had in place a $20.0 million unsecured line of
credit with interest at prime, or LIBOR plus 1.0% and an unused line fee of 25
basis points to support its domestic operation. In addition, a 10.0 million
French franc ($1.7 million) unsecured line of credit with interest at PIBOR plus
1.0% was in place to support the Company's European requirements. Both lines of
credit were scheduled to mature on December 31, 1999. At December 31, 1997,
there was no amount outstanding under the domestic unsecured line of credit with
$18.2 million available after considering outstanding letters of credit. The
amount outstanding under the Company's 10.0 million French franc ($1.7 million)
European unsecured line of credit was 1.6 million French francs ($0.3 million).
In February 1998 the Company modified its bank credit agreement increasing its
overall unsecured line of credit to $25.0 million to support the Company's
worldwide operations replacing the previous $20.0 million domestic unsecured
line of credit and 10.0 million French franc unsecured line of credit. This
modified credit agreement retains the same interest rate (prime or LIBOR plus
1.0%) while reducing the unused line fee from 25 basis points to 20 basis points
and extends the maturity of the line to December 31, 2000.
The Company believes its current working capital position together with
estimated cash flows from operations and its existing financing availability are
adequate to fund operations in the ordinary course of business at least through
1998, including anticipated capital expenditures, debt payment requirements, and
continuation of its share repurchase program.
Although the Company has no present agreements or commitments with respect to
any material
Page 15
acquisitions of other businesses, products, product rights or technologies, the
Company continues to evaluate acquisitions of products, technologies or
companies that complement the Company's business and may make such acquisitions
in the future, and there can be no assurance that the Company will not need to
obtain additional sources of capital to finance any such acquisitions.
ADDITIONAL FACTORS THAT MAY AFFECT FUTURE OPERATING RESULTS
- -----------------------------------------------------------
The Company's future operating results, and stock price, may be affected by a
number of factors that could cause actual results to differ from those stated
herein. These factors include the following:
Rapid Technological Change; New Product Development
The computer peripherals, semiconductor equipment and fiber optic communications
equipment markets, as well as the other markets for the Company's products, are
characterized by rapid technological advances, evolving industry standards and
new product introductions and enhancements. Demand for certain of the Company's
products is dependent upon the market acceptance of the products manufactured by
the Company's customers, and there can be no assurance that such market
acceptance will be achieved. The Company is also dependent to a significant
extent upon its ability to enhance its existing products, to predict the needs
of its customers and to develop and introduce innovative new products on a
timely basis that gain market acceptance. Failure to develop, or introduce on a
timely basis, new products or product enhancements that meet its customers'
needs and achieve market acceptance could materially adversely affect the
Company's business, operating results and financial condition. Although the
Company maintains an active development program to improve its product
offerings, there can be no assurance that the Company will be successful in
selecting, developing, manufacturing and marketing new products or enhancing its
existing products on a timely or cost-effective basis.
Risks of Doing Business in International Markets
In 1997, 1996 and 1995, international revenues accounted for approximately
35.3%, 41.8% and 45.6%, respectively, of the Company's net sales. The Company
expects that international revenues will continue to account for a significant
percentage of the Company's net sales for the foreseeable future. As a result
of conducting business internationally, the Company is subject to various risks,
which include: a greater difficulty of administering its business globally;
compliance with multiple and potentially conflicting regulatory requirements
such as export requirements, tariffs and other barriers; difficulties in
staffing and managing foreign operations; longer accounts receivable cycles;
currency fluctuations; export control restrictions; overlapping or differing tax
structures; political and economic instability and general trade restrictions.
In addition, due to various factors, including the difficulty of assessing the
various political and economic factors that may affect the strength of foreign
economies, it is often difficult to project demand for the Company's products in
foreign countries. There can be no assurance that any of the foregoing factors
will not have a material adverse effect on the Company's business, results of
operations or financial condition.
As a result of the Company's international sales and operations, fluctuations in
foreign exchange rates could affect the sales price in local currencies of the
Company's products in foreign markets, the U.S. dollar value of sales
denominated in foreign currencies as well as local costs and expenses of the
Company's foreign operations. The Company uses forward exchange contracts, and
other risk management techniques, to hedge its exposure to currency fluctuations
relating to its intercompany transactions; however, its international
subsidiaries remain exposed to the economic risks of foreign currency
fluctuations. There can be no assurance that such factors will not adversely
impact the Company's operations in the future or require the Company to modify
its current business practices.
Dependence on Research Budgets of Customers
A substantial amount of the Company's net sales has historically been derived
from sales of its products to
Page 16
academic and governmental research institutions in the United States and various
foreign countries, and the Company anticipates that sales to such institutions
will continue to account for a significant portion of the Company's net sales
for the foreseeable future. As such, the Company's future performance is
directly dependent in part upon the capital expenditure budgets of its research
institution customers and the continued demand of such customers for the
Company's products. Many domestic and foreign research institutions, including
certain of the Company's customers, have experienced constraints on their
capital expenditure budgets due to factors such as reduced governmental funding
of research activities and reduced defense spending. The Company's operating
results may in the future be subject to period-to-period fluctuations as a
consequence of such funding constraints, and there can be no assurance that such
constraints will not continue over time, or that they will not have a material
adverse effect on the Company's business, operating results or financial
condition.
Competition
Intense competition exists among manufacturers of precise motion, measurement
and automation products, and the Company believes that competition in the
Company's markets from both new and existing competitors will increase in the
future. The Company competes principally in several specialized market segments
against a limited number of companies, some of which are more established, enjoy
higher name recognition and possess far greater financial, technological and
marketing resources than the Company, while others are relatively small and
highly specialized firms. The Company currently competes principally on the
basis of the performance and quality of its products, including reliability, as
well as on price and timely manufacture and delivery. There can be no assurance
that the Company will be able to compete successfully in the future against
existing or new competitors, or that new competitors, some of which may have
substantially greater financial, technical and marketing resources than the
Company, will not seek to enter the markets served by the Company's products.
In addition, there can be no assurance that competitive pressures will not cause
the Company to reduce prices, which would negatively affect its gross margins.
Dependence on Component Availability and Key Suppliers
The Company's ability to meet customer demand depends in part upon its ability
to obtain adequate supplies of components from its vendors on a timely basis.
The Company currently procures various components from single-sources due to
unique component designs as well as certain quality and performance
requirements. If such single-sourced components were to become unavailable or
were to become unavailable on terms satisfactory to the Company, the Company
would be required to purchase comparable components from other sources. If for
any reason the Company could not obtain comparable replacement components from
other sources in a timely manner, the Company's business, results of operations
or financial condition could be adversely affected. In addition, certain of the
Company's suppliers require long lead-times to deliver requested quantities of
components. If the Company were unable to obtain sufficient quantities of
components used in the manufacture of its products, resulting delays or
reductions in product shipments could occur and could have a material adverse
effect on the Company's business, results of operations or financial condition.
Fluctuations in Operating Results
The Company's past operating results have been, and its future operating results
will be, subject to fluctuations resulting from a number of factors, including
the availability of government research funding; the demand for the products
sold by the Company's customers; the timing of new product introductions by the
Company or its competitors; variations in the mix of products sold by the
Company; changes in pricing policies by the Company, its competitors or
suppliers, including possible decreases in average selling prices of the
Company's products in response to competitive pressures; market acceptance of
any new or enhanced versions of the Company's products; the availability and
cost of key components; the availability of manufacturing capacity; and
fluctuations in general economic conditions. The Company's overall gross
margins may vary significantly on a period-to-period basis due to a number of
factors including variations
Page 17
in product mix. In addition, competitive pressures may adversely affect gross
margins. Accordingly, there can be no assurance that the Company will be able to
sustain satisfactory gross margins. The Company also may choose to reduce prices
or to increase spending in response to competition or to pursue new market
opportunities, all of which may adversely affect the Company's business,
operating results and financial condition. As a result, the Company believes
that period-to-period comparisons of its results of operations are not
meaningful and cannot be relied upon as indications of future performance. Due
to all of the foregoing factors, the Company's operating results may be below
the expectations of public market analysts and investors in some future
quarters, which would likely result in a decline in the trading price of the
Common Stock.
Integration of Acquisitions
The Company's recent growth primarily has been the result of strategic
acquisitions of complementary businesses. Accordingly, the Company's future
operating results will be dependent on its ability to integrate various business
operations in an effective manner. The Company intends to further broaden its
product offering by designing and marketing complete systems comprised of
components manufactured within its various operations. There can be no
assurance that the Company will be successful in managing and integrating such
business operations. In addition, the Company's acquisition-related growth will
continue to place additional demands on the Company's management and resources.
Impact of Year 2000
Certain of the Company's business operations software programs were written
using two digits rather than four to define the applicable year. As a result,
those software programs are time-sensitive and recognize a date using "00" as
the year 1900 rather than the year 2000. This could cause a system failure or
miscalculations causing disruptions of operations, including but not limited to,
a temporary inability to process transactions, send invoices, or engage in
similar normal business activities.
The Company initiated a review of its business operations software requirements
in early 1996 as part of the normal course of upgrading its systems to support
current and anticipated growth. Among the criteria for acquiring new or
upgraded software was that it be Year 2000 compliant. In 1997 the Company
acquired new operating software that is Year 2000 compliant and is currently in
the test and conversion phase, with implementation expected to be substantially
complete by December 31, 1998. Based upon the results of the work done to date,
the Company believes that the remaining work will be completed in a timely
manner and that the overall cost of such work will not be material.
Newport sells certain products that include various software applications.
Currently the Company is in the process of upgrading or otherwise ensuring that
its product software is Year 2000 compliant. The Company has also requested
assurance from its goods and services providers that they are, or have programs
in place to be, Year 2000 compliant.
While the Company currently believes that neither the software developed by it
as part of its products nor the software licensed by it for its internal use
will be materially affected by Year 2000 problems, there can be no assurance
that the Company's product software, its internal computer systems and networks
or those of its key vendors, developers and distributors will not be affected by
such Year 2000 issues, which could have a material adverse effect on the
Company's business, operating results and financial condition.
PENDING ADOPTION OF STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 131
- -----------------------------------------------------------------------
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, Disclosures about Segments of an
Enterprise and Related Information (SFAS No. 131), which is effective for years
beginning after December 15, 1997. SFAS No. 131 establishes standards for the
way that public business enterprises report information about operating segments
in annual financial statements and requires that those enterprises report
selected information about operating segments in
Page 18
interim financial reports. It also establishes standards for related disclosures
about products and services, geographic areas, and major customers. SFAS No. 131
is effective for financial statements for fiscal years beginning after December
15, 1997, and therefore the Company will adopt the new requirements effective
with the filing of its Annual Report on form 10-K for the year ended December
31, 1998. Management has not completed its review of SFAS No. 131, but does
expect that, while adoption of SFAS No. 131 may result in more reported segments
than are currently reported, it will not have an impact on the Company's results
of operations, financial position or cash flow.
ITEM 8 Financial Statements and Supplementary Data
- ------ -------------------------------------------
Consolidated financial statements of the Company as of December 31, 1997 and
1996 and for each of the three years in the period ended December 31, 1997, the
report of independent auditors thereon and the Company's unaudited quarterly
financial data for 1997 and 1996 are referenced in Item 14 herein.
ITEM 9 Changes in and Disagreements with Accountants on Accounting and Financial
- ------ -------------------------------------------------------------------------
Disclosure
- ----------
Not applicable.
PART III
ITEM 10 Directors and Executive Officers of the Registrant
- ------- --------------------------------------------------
The information required hereunder is incorporated by reference to the Company's
Proxy Statement to be filed within 120 days of December 31, 1997 in connection
with its May 27, 1998, Annual Meeting of Stockholders.
ITEM 11 Executive Compensation
- ------- ----------------------
The information required hereunder is incorporated by reference to the Company's
Proxy Statement to be filed within 120 days of December 31, 1997 in connection
with its May 27, 1998, Annual Meeting of Stockholders.
ITEM 12 Security Ownership of Certain Beneficial Owners and Management
- ------- --------------------------------------------------------------
The information required hereunder is incorporated by reference to the Company's
Proxy Statement to be filed within 120 days of December 31, 1997 in connection
with its May 27, 1998, Annual Meeting of Stockholders.
ITEM 13 Certain Relationships and Related Transactions
- ------- ----------------------------------------------
In November 1996, the Company entered into a Consulting Agreement with Richard
E. Schmidt, a director of the Company and the Company's former Chairman and
Chief Executive Officer, pursuant to which Mr. Schmidt provides consulting
services to the Company in exchange for a consulting fee equal to $100,000 per
year. Such Agreement is renewable by the Company for additional one-year terms
through December 31, 2001. In connection with such Agreement, the [Compensation
Committee of the] Board of Directors amended certain option and restricted stock
agreements with Mr. Schmidt to provide that (1) the vesting of the options be
accelerated and be exercisable during the term of the Consulting Agreement and
(2) that the restricted stock shall continue to vest in accordance with the
original time schedule.
The Company has entered into Severance Compensation Agreements with certain of
its officers. See response to Item 11 above.
Page 19
PART IV
ITEM 14 Exhibits, Financial Statement Schedules and Reports on Form 10-K
- ------- ----------------------------------------------------------------
(a) 1. Financial Statements and Financial Statement Schedules
---------------------------------------------------------
Report of Ernst & Young LLP, Independent Auditors 23
FINANCIAL STATEMENTS:
---------------------
Consolidated income statement
for the years ended December 31, 1997, 1996 and 1995 24
Consolidated balance sheet
at December 31, 1997 and 1996 25
Consolidated statement of cash flows
for the years ended December 31, 1997, 1996 and 1995 26
Consolidated statement of stockholders' equity
for the years ended December 31, 1997, 1996 and 1995 27
Notes to consolidated financial statements 28-38
FINANCIAL STATEMENT SCHEDULES:
------------------------------
II - Consolidated valuation accounts 39
All other schedules are omitted as the required information is not present
or is not present in amounts sufficient to require submission of the
schedule, or because the information required is included in the
consolidated financial statements or notes thereto.
2. Exhibits
-----------
The exhibits set forth below are filed as part of this Annual Report:
Exhibit 3.1 Restated Articles of Incorporation of Newport Corporation, a Nevada
Corporation, as amended to date (incorporated by reference to exhibit
in the Company's 1987 Proxy Statement).
Exhibit 3.2 Restated Bylaws of Newport Corporation, a Nevada Corporation, as
amended to date (incorporated by reference to Exhibit 3.2 of the
Company's Annual Report on Form 10-k for the year ended July 31, 1992).
Exhibit 10.1 Lease Agreement dated March 27, 1991, as amended, pertaining to
premises located in Irvine, California (incorporated by reference to
Exhibit 10.1 of the Company's Annual Report on Form 10-k for the year
ended July 31, 1992).
Exhibit 10.3 1992 Incentive Stock Plan (incorporated by reference to exhibit in the
Company's 1992 Proxy Statement).*
Exhibit 10.4 Employee Stock Purchase Plan, as amended.*
Exhibit 10.7 Form of Severance Compensation Agreement between Newport Corporation
and certain Executive Officers (incorporated by reference to Exhibit
10.7 of the Company's Annual Report on Form 10-k for the year ended
December 31, 1993).*
Page 20
ITEM 14 Exhibits, Financial Statement Schedules and Reports on
- ------- ------------------------------------------------------
Form 10-K (Cont'd)
------------------
Exhibit 10.8 Stock Purchase Agreement dated as of February 14, 1995, among Newport
Corporation as Purchaser, RAM Optical Instrumentation, Inc. and Mark G.
Arenal, Harry J. Brown, The Harry & Patricia Brown Living Trust 1994,
John G. Hartwell, and The John G. Hartwell Family Trust Established
1/3/90 as Sellers (incorporated by reference to Exhibit 2.1 of the
Company's Form 8-K filed March 15, 1995).*
Exhibit 10.10 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 of the Company's Form 10-Q for the quarter ended March
31, 1996).
Exhibit 10.12 Severance Compensation Agreement dated as of April 8, 1996, between
Newport Corporation, a Nevada Corporation, and Robert J. Phillippy,
Vice President and General Manager (incorporated by reference to
Exhibit 10.2 of the Company's Form 10-Q for the quarter ended September
30, 1996).*
Exhibit 10.13 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 of the Company's Form 10-Q for the quarter ended September
30, 1996).*
Exhibit 10.14 Consulting Agreement dated November 7, 1997 between Newport
Corporation, a Nevada Corporation, and Richard E. Schmidt, a director
of the Company.
Exhibit 10.15 Credit Agreement dated as of February 26, 1998 between Newport
Corporation and ABN AMRO Bank N.V., Los Angeles International Branch.
Exhibit 21 Subsidiaries of Registrant
Exhibit 23 Consent of Ernst & Young LLP, Independent Auditors
Exhibit 27 Financial Data Schedule (Article 5 of Regulation S-X)
_____________
* Required to be filed pursuant to Item 14(a)(3) of Form 10-K
(b) Reports on Form 8-K
-------------------
The Company filed no Reports on Form 8-K during the quarter ended December 31,
1997.
Page 21
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this amendment to be signed on its
behalf by the undersigned, thereunto duly authorized.
NEWPORT CORPORATION
/S/ROBERT G. DEUSTER March 25, 1998
- --------------------------------------------------------------------------------
Robert G. Deuster, President and Chief Executive Officer Date
(Principal Executive Officer)
/S/ROBERT C. HEWITT March 25, 1998
- --------------------------------------------------------------------------------
Robert C. Hewitt, Vice President, Chief Financial Officer Date
and Secretary
(Chief Financial Officer)
/S/WILLIAM R. ABBOTT March 25, 1998
- --------------------------------------------------------------------------------
William R. Abbott, Corporate Controller Date
(Principal Accounting Officer)
POWER OF ATTORNEY
The undersigned directors and officers of Newport Corporation constitutes and
appoints Robert G. Deuster and Robert C. Hewitt, or either of them, as their
true and lawful attorney and agent with power of substitution, to do any and all
acts and things in our name and behalf in our capacities as directors and
officers and to execute any and all instruments for us and in our names in the
capacities indicated below, which said attorney and agent may deem necessary or
advisable to enable said corporation to comply with the Securities Exchange Act
of 1934, as amended, and any rules, regulations and requirements of the
Securities and Exchange Commission, in connection with this Annual Report on
Form 10-K, including specifically but without limitation, power and authority to
sign for us or any of us in our names in the capacities indicated below, any and
all amendments (including post-effective amendments) hereto; and we do hereby
ratify and confirm all that said attorney and agent shall do or cause to be done
by virtue hereof. Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed below by the following persons on behalf of
the Registrant and in the capacities and on the dates indicated.
/S/R. JACK APLIN March 25, 1998
- --------------------------------------------------------------------------------
R. Jack Aplin, Member of the Board Date
/S/ROBERT L. GUYETT March 25, 1998
- --------------------------------------------------------------------------------
Robert L. Guyett, Member of the Board Date
/S/LOUIS B. HORWITZ March 25, 1998
- --------------------------------------------------------------------------------
Louis B. Horwitz, Member of the Board Date
/S/DAN L. MCGURK March 25, 1998
- --------------------------------------------------------------------------------
Dan L. McGurk, Member of the Board Date
/S/C. KUMAR N. PATEL March 25, 1998
- --------------------------------------------------------------------------------
C. Kumar N. Patel, Member of the Board Date
/S/RICHARD E. SCHMIDT March 25, 1998
- --------------------------------------------------------------------------------
Richard E. Schmidt, Member of the Board Date
/S/JOHN T. SUBAK March 25, 1998
- --------------------------------------------------------------------------------
John T. Subak, Member of the Board Date
Page 22
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, 1997 and 1996, and the related consolidated
statements of income, stockholders' equity and cash flows for each of the three
years in the period ended December 31, 1997. Our audits also included the
financial statement schedule listed in the Index at Item 14(a). These financial
statements and schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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 consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Newport
Corporation at December 31, 1997 and 1996, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1997, in conformity with generally accepted accounting principles.
Also, in our opinion, the related financial statement schedule, when considered
in relation to the basic financial statements taken as a whole, presents fairly
in all material respects the information set forth therein.
ERNST & YOUNG LLP
Orange County, California
January 30, 1998, except
for Note 8, as to which the
date is February 26, 1998
Page 23
NEWPORT CORPORATION
Consolidated Income Statement
(In thousands, except per share amounts)
Years Ended December 31,
------------------------
1997 1996 1995
---- ---- ----
Net sales $132,594 $119,910 $101,961
Cost of sales 74,844 67,103 55,421
-------- -------- --------
Gross profit 57,750 52,807 46,540
Selling, general and administrative expense 35,825 36,741 34,441
Research and development expense 9,490 8,204 6,765
-------- -------- --------
Income from operations 12,435 7,862 5,334
Interest expense (1,992) (1,931) (1,593)
Other income (expense), net (349) 477 1,137
-------- -------- --------
Income before income taxes 10,094 6,408 4,878
Income tax provision 3,030 1,705 1,003
-------- -------- --------
Net income $ 7,064 $ 4,703 $ 3,875
======== ======== ========
Net income per share (1)
Basic $ 0.80 $ 0.54 $ 0.47
Diluted $ 0.77 $ 0.52 $ 0.45
Number of shares used to calculate net income
per share
Basic 8,865 8,700 8,270
Diluted 9,179 8,984 8,521
Dividends per share $ 0.04 $ 0.04 $ 0.04
(1) Earnings per share for all periods prior to 1997 have been restated as
necessary to conform with the requirements of SFAS No. 128, Earnings Per Share.
See accompanying notes.
Page 24
NEWPORT CORPORATION
Consolidated Balance Sheet
(In thousands, except share data)
December 31,
---------------------
1997 1996
-------- --------
ASSETS
Current assets:
Cash and cash equivalents $ 7,456 $ 3,375
Customer receivables, net 23,372 23,418
Other receivables 979 2,075
Inventories 28,326 28,954
Deferred tax assets 3,256 3,004
Other current assets 2,065 1,703
-------- --------
Total current assets 65,454 62,529
Investments and other assets 5,830 5,191
Property, plant and equipment, at cost, net 22,994 24,045
Goodwill, net 10,133 11,612
-------- --------
$104,411 $103,377
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 6,082 $ 8,128
Accrued payroll and related expenses 5,855 4,879
Taxes based on income 2,056 1,373
Current portion of long-term debt 2,380 1,236
Other current liabilities 4,766 5,171
-------- --------
Total current liabilities 21,139 20,787
Long-term debt 21,027 23,464
Other liabilities 1,587 1,697
Commitments (Note 9)
Stockholders' equity:
Common stock, $0.35 stated value, 20,000,000 shares authorized;
8,951,000 shares issued and outstanding at December 31, 1997;
8,890,000 shares at December 31, 1996 3,132 3,110
Capital in excess of stated value 8,026 8,959
Unamortized deferred compensation (519) (548)
Unrealized translation loss (5,036) (2,442)
Retained earnings 55,055 48,350
-------- --------
Total stockholders' equity 60,658 57,429
-------- --------
$104,411 $103,377
======== ========
See accompanying notes.
Page 25
NEWPORT CORPORATION
Consolidated Statement of Cash Flows
(In thousands)
Years Ended December 31,
------------------------------
1997 1996 1995
------- -------- -------
Operating activities:
Net income $ 7,064 $ 4,703 $ 3,875
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 5,830 6,062 4,940
Net gains from sales of investments -- -- (832)
Increase in provision for losses on
receivables, inventories and investments 1,906 1,226 1,940
Deferred income taxes 194 (215) (889)
Other non-cash items, net 345 (84) (94)
Changes in operating assets and liabilities:
Receivables (1,269) (2,841) 561
Inventories (2,051) (6,596) (2,492)
Other current assets (1,261) (979) 232
Other assets (78) -- --
Accounts payable and other accrued expenses 925 2,106 (2,488)
Taxes based on income 691 112 (50)
Other, net 1 (108) 995
------- -------- -------
Net cash provided by operating activities 12,297 3,386 5,698
------- -------- -------
Investing activities:
Purchases of property, plant and equipment (5,034) (5,844) (2,513)
Disposition of property, plant and equipment 396 201 50
Acquisition of business, net of cash acquired (879) (4,442) --
Proceeds from sales of investments
and marketable securities -- -- 1,319
Other, net (728) (436) 97
------- -------- -------
Net cash used in investing activities (6,245) (10,521) (1,047)
------- -------- -------
Financing activities:
Proceeds from debt placement -- 21,605 --
Decrease in long-term borrowings (790) (13,237) (7,371)
Cash dividends paid (357) (351) (312)
Repurchase of common stock (3,996) -- --
Issuance of common stock under employee
agreements including associated tax benefit 2,910 1,013 1,675
------- -------- -------
Net cash provided by (used in) financing activities (2,233) 9,030 (6,008)
------- -------- -------
Effect of foreign exchange rate changes on cash 262 (44) (133)
------- -------- -------
Increase in cash and cash equivalents 4,081 1,851 1,490
Cash and cash equivalents at beginning of year 3,375 1,524 3,014
------- -------- -------
Cash and cash equivalents at end of year $ 7,456 $ 3,375 $ 1,524
======= ======== =======
See accompanying notes.
Page 26
NEWPORT CORPORATION
Consolidated Statement of Stockholders' Equity
(In thousands)
Years Ended December 31,
------------------------
1997 1996 1995
------- ------- -------
Common shares:
Shares outstanding at beginning of year 8,890 8,699 8,441
Issuance of common shares 351 191 258
Repurchase of common shares (290) -- --
------- ------- -------
Shares outstanding at end of year 8,951 8,890 8,699
======= ======= =======
Common stock:
Balance at beginning of year $ 3,110 $ 3,045 $ 2,954
Issuance of common stock 117 49 80
Grants of restricted stock, net 7 16 11
Repurchase of common stock (102) -- --
------- ------- -------
Balance at end of year 3,132 3,110 3,045
======= ======= =======
Capital in excess of stated value:
Balance at beginning of year 8,959 7,609 5,771
Issuance of common stock 2,793 964 1,595
Grants of restricted stock, net 168 386 243
Repurchase of common stock (3,894) -- --
------- ------- -------
Balance at end of year 8,026 8,959 7,609
======= ======= =======
Unamortized deferred compensation:
Balance at beginning of year (548) (369) (251)
Grants of restricted stock, net (175) (402) (254)
Amortization of deferred compensation 204 223 136
------- ------- -------
Balance at end of year (519) (548) (369)
======= ======= =======
Unrealized gain on marketable securities:
Balance at beginning of year -- -- 343
Change in unrealized gain -- -- (343)
------- ------- -------
Balance at end of year -- -- --
======= ======= =======
Unrealized translation loss:
Balance at beginning of year (2,442) (1,773) (2,778)
Unrealized translation gain (loss) (2,594) (669) 1,005
------- ------- -------
Balance at end of year (5,036) (2,442) (1,773)
======= ======= =======
Retained earnings:
Balance at beginning of year 48,350 44,175 40,612
Dividends (359) (528) (312)
Net income 7,064 4,703 3,875
------- ------- -------
Balance at end of year 55,055 48,350 44,175
======= ======= =======
Total stockholders' equity $60,658 $57,429 $52,687
======= ======= =======
See accompanying notes.
Page 27
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization Newport Corporation is a global leader in the design, manufacture
and marketing of 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. The accounts of the Company's
subsidiaries in Europe have been consolidated using a one-month lag. All
significant intercompany transactions and balances have been eliminated. Certain
reclassifications have been made to prior year amounts to conform to current
year presentation.
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 allowance, investment reserves, litigation settlement costs
and future undiscounted cash flows used in the analysis of the impairment of
long-lived assets.
Sales A sale is recorded when title passes to customers.
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 sales brochures and catalogs. The capitalized costs are amortized
over estimated future benefit periods ranging from three months to two years.
Advertising materials of $0.6 million and $0.5 million were reported as assets
at December 31, 1997 and 1996, respectively. Advertising expense was $1.6
million, $1.7 million and $1.6 million for 1997, 1996 and 1995, respectively.
Net Income per Share The Company has adopted Statement of Financial Accounting
Standards No. 128, Earnings Per Share (SFAS No. 128), which replaces the
presentation of primary and fully diluted net income per share with basic and
diluted net income per share. Basic net income per share is based on the
weighted average number of shares of common stock outstanding during the
periods, excluding restricted stock, while diluted net income per share is based
on the weighted average number of shares of common stock outstanding during the
periods and the dilutive effects of common stock equivalents (stock options),
determined using the treasury stock method, outstanding during the periods. All
prior periods' earnings per share calculations have been restated in accordance
with SFAS No. 128 (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 less than three months.
Page 28
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 forward
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. At December 31, 1997, accumulated
amortization of intangible assets, principally goodwill, aggregated $3.5
million.
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 $5.6 million and $1.2 million at December 31, 1997 and
December 31, 1996, respectively.
Stock Option Plans Effective January 1, 1996, the Company adopted the
disclosure-only provision of Statement of Financial Accounting Standards No.
123, Accounting for Stock-Based Compensation (SFAS No. 123), and accordingly is
continuing to account for its plans under previous accounting standards.
Consequently, SFAS No. 123 did not have an impact on the Company's consolidated
results of operations or financial position.
Pending Adoption of Statement of Financial Accounting Standards No. 131 In
June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, Disclosures about Segments of an
Enterprise and Related Information (SFAS No. 131), which is effective for years
beginning after December 15, 1997. SFAS No. 131 establishes standards for the
way that public business enterprises report information about operating segments
in annual financial statements and requires that those enterprises report
selected information about operating segments in interim financial reports. It
also establishes standards for related disclosures about products and services,
geographic areas, and major customers. SFAS No. 131 is effective for financial
statements for fiscal years beginning after December 15, 1997, and therefore the
Company will adopt the new requirements effective with the filing of its Annual
Report on Form 10-K for the year ended December 31, 1998. Management has not
completed its review of SFAS No. 131, but does expect that, while adoption of
SFAS No. 131 may result in more reported segments than are currently reported,
it will not have an impact on the Company's results of operations, financial
position or cash flow
NOTE 2 ACQUISITIONS
In February 1995, the Company acquired all the outstanding capital stock of RAM
Optical Instrumentation, Inc. ("ROI"), a manufacturer of video inspection
systems, in exchange for 1,251,000 shares of its common stock. Additionally, an
option to purchase ROI common shares was exchanged for an option to purchase
72,975 shares of the Company's common stock. In March 1995, the Company
acquired all the outstanding stock of Light Control Instruments, Inc. ("LCI"), a
manufacturer of laser-diode instruments, in exchange
Page 29
for 128,000 shares of the Company's common stock. These transactions have been
accounted for as poolings of interests. Costs associated with these acquisitions
totaling $0.1 million were charged to operations in the first quarter of 1995.
On January 2, 1996, the Company acquired, for cash plus additional 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 Plymouth,
Minnesota, a suburb of Minneapolis, Minnesota. The acquisition was accounted
for as a purchase. In 1997, the Company paid the seller $879,000 for total
amounts due as additional consideration which has been recorded as additional
goodwill. In connection with this acquisition the Company recorded goodwill
totaling $4.7 million.
NOTE 3 CUSTOMER RECEIVABLES
Customer receivables consist of the following:
(In thousands) December 31,
-----------------
1997 1996
------- -------
Customer receivables $23,857 $23,942
Less allowance for doubtful accounts 485 524
------- -------
$23,372 $23,418
======= =======
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.
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:
(In thousands) December 31,
----------------------
1997 1996
------- -------
Raw materials and purchased parts $10,161 $10,705
Work in process 5,236 4,998
Finished goods 12,929 13,251
------- -------
$28,326 $28,954
======= =======
NOTE 5 INCOME TAXES
The provision for taxes based on income consists of the following:
(In thousands) Years ended December 31,
-------------------------
1997 1996 1995
------ ------ ------
Current:
Federal $2,329 $1,541 $ 935
State 321 200 85
Foreign 293 179 303
Deferred:
Federal 48 (214) 74
State 39 5 14
Foreign -- (6) (408)
------ ------ ------
$3,030 $1,705 $1,003
====== ====== ======
Page 30
The provision for taxes based on income differs from the amount obtained by
applying the statutory tax rate as follows:
(In thousands) Years Ended December 31,
--------------------------
1997 1996 1995
------ ------ ------
Income tax provision at statutory rate $3,432 $2,179 $1,658
Increase (decrease) in taxes resulting from:
Non deductible goodwill amortization 153 201 191
Foreign losses not benefited 107 167 90
State income taxes, net of federal income tax benefit 238 136 135
Utilization of foreign losses (57) (151) (290)
Reduction in valuation allowance -- (217) (408)
Conversion of foreign subsidiaries to U.S. Partnerships -- (276) --
Foreign Sales Corporation income (734) (283) (156)
Utilization of state NOL, net of federal income tax benefit -- -- (105)
Other, net (109) (51) (112)
------ ------ ------
$3,030 $1,705 $1,003
====== ====== ======
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 1996 and 1995, the Company reduced the valuation allowance applicable to
foreign net operating loss carryforwards by approximately $217,000 and $408,000,
respectively, 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:
(In thousands) December 31,
------------------
1997 1996
------- -------
Deferred tax assets:
Net operating loss carryforwards $ 9,629 $ 9,440
Accruals not currently deductible for tax purposes 2,658 2,080
Other (172) 154
Valuation allowance (8,859) (8,670)
------- -------
Total deferred tax asset 3,256 3,004
------- -------
Deferred tax liabilities:
Accelerated depreciation methods used for tax purposes 796 851
Other 791 196
------- -------
Total deferred tax liability 1,587 1,047
------- -------
Net deferred tax asset $ 1,669 $ 1,957
======= =======
The Company has foreign net operating loss carryforwards totaling approximately
$26.1 million at December 31, 1997, principally expiring in the years 2007
through 2011. 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 $2.4 million of the valuation
allowance will be allocated to reduce goodwill when realized. Approximately
$0.1 million and $0.3 million of the valuation allowance realized was allocated
to goodwill for 1996 and 1995, respectively. Net income taxes paid for 1997,
1996 and 1995 totaled $2.0 million, $1.8 million and $1.0 million, respectively.
Page 31
NOTE 6 PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment, at cost, including capitalized lease assets,
consists of the following:
(In thousands) December 31,
-------------------
1997 1996
------- -------
Land $ 1,954 $ 2,155
Buildings 12,069 12,896
Leasehold improvements 8,381 8,462
Machinery and equipment 20,620 22,643
Office equipment 10,074 9,734
------- -------
53,098 55,890
Less accumulated depreciation 30,104 31,845
------- -------
$22,994 $24,045
======= =======
NOTE 7 INVESTMENTS AND OTHER ASSETS
Investments and other assets consist of the following:
(In thousands) December 31,
---------------
1997 1996
------ ------
Nonmarketable investments $4,169 $4,114
Other assets 1,661 1,077
------ ------
$5,830 $5,191
====== ======
Nonmarketable investments consist primarily of investments in private companies,
including a 25% interest in a U.S. supplier and a 29% interest in a company
active in laser and electro-optical technology, stated at cost, adjusted for the
Company's proportionate share of undistributed earnings. The Company made
purchases of approximately $4.3 million, $4.5 million and $3.8 million from the
U.S. supplier during 1997, 1996 and 1995, respectively.
Other assets consist primarily of capitalized software, patents and license
agreements.
NOTE 8 LONG-TERM DEBT
Long-term debt consists of the following:
(Dollar amounts in thousands) December 31,
-----------------
1997 1996
------- -------
Credit agreements:
Prime, maturing December 1999 $ -- $ 400
PIBOR + 1.00%, maturing December 1999 258 213
Term notes:
8.25% senior notes, maturing May 2004 20,000 20,000
Capitalized lease obligations, payable in installments to 2005,
in French francs 1,938 2,552
Equipment loans 1,211 1,535
------- -------
23,407 24,700
Less current portion 2,380 1,236
------- -------
$21,027 $23,464
======= =======
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 principal payments commence during November 1998.
Page 32
At December 31, 1997, the Company had in place a $20.0 million unsecured line of
credit with interest at prime, or LIBOR (London Interbank Offered Rate) plus
1.0% and an unused line fee of 25 basis points to support its domestic
operation. In addition, a 10.0 million French franc ($1.7 million) unsecured
line of credit with interest at PIBOR (Paris Interbank Offered Rate) plus 1.0%
was in place to support the Company's European requirements. Both lines of
credit were scheduled to mature on December 31, 1999. At December 31, 1997,
there was no amount outstanding under the domestic unsecured line of credit with
$18.2 million available after considering outstanding letters of credit. The
amount outstanding under the Company's 10.0 million French franc ($1.7 million)
European unsecured line of credit was 1.6 million French francs ($0.3 million).
In February 1998 the Company modified its bank credit agreement increasing its
overall unsecured line of credit to $25.0 million to support the Company's
worldwide operations replacing the previous $20.0 million domestic unsecured
line of credit and 10.0 million French franc unsecured line of credit. This
modified credit agreement retains the same interest rate (prime or LIBOR plus
1.0%) while reducing the unused line fee from 25 basis points to 20 basis points
and extends the maturity of the line to December 31, 2000.
Capitalized lease obligations of 11.7 million French francs (approximately $1.9
million) relate to real estate and equipment located in France. The original
cost of assets under capital leases at December 31, 1997 and 1996, was 19.1
million French francs (approximately $3.2 million at December 31, 1997).
Accumulated amortization totaled 8.3 million French francs (approximately $1.4
million) and 7.5 million French francs (approximately $1.4 million) at December
31, 1997 and 1996, respectively. Required annual payments are as follows (In
thousands):
Capitalized
Lease Borrowings and
For years ending December 31, Obligations Term Notes
----------- --------------
1998 $ 430 $ 2,102
1999 433 3,340
2000 378 4,368
2001 324 5,162
2002 329 3,500
Thereafter 614 2,997
------ -------
2,508
Less interest 570
------
$1,938 $21,469
====== =======
Interest paid for 1997, 1996 and 1995, totaled $1.9 million, $1.6 million and
$1.4 million, respectively.
NOTE 9 COMMITMENTS
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 (In
thousands):
1998 $2,418
1999 2,215
2000 2,057
2001 1,967
2002 1,953
Thereafter 7,289
The principal lease expires in 2007. Rental expense under all leases totaled
$2.6 million for each of the 1997, 1996 and 1995 years.
Page 33
NOTE 10 STOCK OPTION PLANS
The Company's stock option 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.
The following table summarizes option plan and restricted stock activity for the
years ended December 31, 1997, 1996 and 1995:
Under Plan Weighted Average
Available ------------------------------------ Exercise Price
for Option Restricted of Option Shares
or Award Stock Options Total Under Plan
---------- ---------- --------- --------- ----------------
Balance, December 31, 1994 568,973 50,750 1,002,756 1,053,506 $7.13
Authorized 175,246 -- -- -- --
Granted (361,475) 41,000 320,475 361,475 6.52
Exercised -- (10,000) (155,520) (165,520) 6.93
Forfeited 157,446 (8,250) (149,196) (157,446) 7.73
-------- ------- --------- ---------
Balance, December 31, 1995 540,190 73,500 1,018,515 1,092,015 $6.93
Authorized 177,793 -- -- -- --
Granted (376,000) 55,500 320,500 376,000 8.71
Exercised -- (22,250) (64,585) (86,835) 5.35
Forfeited 120,939 (10,000) (110,939) (120,939) 8.24
-------- ------- --------- ---------
Balance, December 31, 1996 462,922 96,750 1,163,491 1,260,241 7.37
Authorized 179,027 -- -- -- --
Granted (222,000) 20,500 201,500 222,000 8.90
Exercised -- (16,000) (243,536) (259,536) 7.35
Forfeited 78,316 -- (78,316) (78,316) 7.07
-------- ------- --------- ---------
Balance, December 31, 1997 498,265 101,250 1,061,959 1,163,209 $7.69
======== ======= ========= =========
The weighted average per share fair value of restricted stock granted during
1997 and 1996 was $8.76 and $8.59, respectively.
At December 31, 1996, options on 681,311 shares were exercisable with a weighted
average exercise price of $6.86 per share. The following table summarizes
information concerning options outstanding and exercisable at December 31, 1997
(Contractual life in years):
Options Outstanding Options Exercisable
------------------------------------------ ----------------------
Weighted Average Weighted Weighted
Remaining Average Average
Range of Number Contractual Exercise Number Exercise
Exercise Prices Outstanding Life Price Exercisable Price
- ------------------ ----------- ---------------- --------- ----------- --------
$2.40 - 5.75 206,725 4.0 4.65 198,975 4.61
6.06 - 15.25 855,234 6.7 8.43 438,126 8.09
--------- -------
1,061,959 637,101
========= =======
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 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
Page 34
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:
1997 1996
------ ------
Net income - reported $7,064 $4,703
Net income - pro forma $6,707 $4,332
Diluted earnings per share - reported $ 0.77 $ 0.52
Diluted earnings per share - pro forma $ 0.73 $ 0.49
The fair value of each option grant in 1996 and 1997 was estimated on the date
of the grant using the Black-Scholes option-pricing model with the following
weighted-average assumptions: dividend yield of 0.33%; expected annual
volatility of 34.00%; risk-free interest rate of 6.36%; expected lives of 5
years; and expected turnover rate of 12.90%. The weighted average per share
fair value of options granted in 1997 and 1996 was $3.56 and $4.26,
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 650,000 shares of common stock is
available for purchase under the Purchase Plan. There were 87,662 and 79,869
shares issued under the Purchase Plan during 1997 and 1996, respectively.
NOTE 11 OTHER INCOME (EXPENSE), NET
Other income (expense), net, consisted of the following:
(In thousands) Years ended December 31,
------------------------
1997 1996 1995
----- ---- ------
Interest and dividend income $ 210 $105 $ 95
Exchange gains/(losses), net (497) 27 8
Gains on sale of investments, net 14 -- 832
Other (76) 345 202
----- ---- ------
$(349) $477 $1,137
===== ==== ======
Marketable securities, which consisted of a publicly traded company's stock,
were sold in 1995. Gross sale proceeds were $0.9 million in 1995. Realized
gains and losses on sale of these securities are based on the difference between
the selling price and historical cost. Realized gains of $0.8 million for 1995
are reflected in gains on sale of investments.
Page 35
NOTE 12 EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per
share under SFAS No. 128:
(In thousands, except per share amounts) Years ended December 31,
------------------------
1997 1996 1995
---- ---- ----
Numerator:
Net income $7,064 $4,703 $3,875
Denominator:
Denominator for basic earnings per
share - weighted-average shares 8,865 8,700 8,270
Effect of dilutive securities:
Employee stock options 252 225 198
Restricted stock 62 59 53
------ ------ ------
Dilutive potential common shares 314 284 251
Denominator for diluted earnings per
share - adjusted weighted-average
shares and assumed conversions 9,179 8,984 8,521
====== ====== ======
Basic earnings per share $ 0.80 $ 0.54 $ 0.47
Diluted earnings per share $ 0.77 $ 0.52 $ 0.45
Page 36
NOTE 13 BUSINESS SEGMENT INFORMATION
The Company operates in one business segment. It designs, manufactures and
markets on a worldwide basis high precision components, instruments and
integrated systems which enhance customer productivity and capabilities of test
and measurement and automated assembly for precision manufacturing, engineering
and research activities. The Company's high precision products are sold to the
fiber optic communications, semiconductor equipment, computer peripherals and
scientific research markets.
Information concerning the Company's operations by geographic segment is as
follows:
(In thousands) Years Ended December 31,
--------------------------------
1997 1996 1995
-------- -------- --------
Sales to unaffiliated customers:
United States $103,066 $ 86,217 $ 64,769
Europe 26,983 31,700 35,087
Other areas 2,545 1,993 2,105
-------- -------- --------
$132,594 $119,910 $101,961
======== ======== ========
Sales between geographic areas (based on invoiced prices):
United States $ 10,890 $ 8,428 $ 7,233
Europe 7,014 7,960 11,489
Intercompany eliminations (17,904) (16,388) (18,722)
-------- -------- --------
$ -- $ -- $ --
======== ======== ========
Income (loss) before taxes:
United States $ 11,814 $ 6,960 $ 4,215
Europe (1,643) (540) 735
Other areas 267 (52) (46)
Intercompany eliminations (344) 40 (26)
-------- -------- --------
$ 10,094 $ 6,408 $ 4,878
======== ======== ========
Assets:
United States $129,183 $116,428 $ 94,376
Europe 33,260 37,958 40,160
Other areas 1,108 978 770
Intercompany eliminations (59,140) (51,987) (51,358)
-------- -------- --------
$104,411 $103,377 $ 83,948
======== ======== ========
The Company's manufacturing facilities are located in the United States and
France. United States revenues include exports to unaffiliated customers
totaling $17.1 million, $16.4 million and $9.3 million for 1997, 1996 and 1995,
respectively.
NOTE 14 DEFINED CONTRIBUTION PLAN
The Company sponsors a defined contribution plan. Generally, all U.S. employees
are eligible to participate and contribute in this plan. Contributions to the
plan are determined based on a percentage of contributing employees'
compensation.
Expense recognized for the plan totaled $1.0 million, $0.9 million and $0.8
million for 1997, 1996 and 1995, respectively.
Page 37
NOTE 15 SUPPLEMENTARY QUARTERLY CONSOLIDATED FINANCIAL DATA (UNAUDITED)
(In thousands, except per share amounts)
Diluted Net Dividends High Low
Net Gross Net Income Per Per Share Share
Three months ended Sales Profit Income Share (1) Share Price Price
- ------------------------- ------- ------- ------ ----------- --------- ------- ---------
December 31, 1997 $36,983 $16,325 $2,570 $0.28 $0.02 $17 1/2 $13 13/16
September 30, 1997 32,699 13,965 1,769 0.19 -- 16 11 1/8
June 30, 1997 31,861 13,941 1,465 0.16 0.02 12 1/4 8 1/4
March 31, 1997 31,051 13,519 1,260 0.14 -- 9 1/2 8 1/2
December 31, 1996 $32,580 $14,794 $1,669 $0.19 $0.02 $ 9 3/8 $ 8
September 30, 1996 29,235 12,708 1,116 0.12 -- 9 7/8 7 3/8
June 30, 1996 30,116 13,017 976 0.11 0.02 10 1/2 8 3/4
March 31, 1996 27,979 12,288 942 0.11 -- 9 1/4 7 1/2
(1) Diluted net income per share is computed independently for each of the
quarters presented and the summation of quarterly amounts may not equal the
total net income per share reported for the year. Earnings per share for all
periods prior to 1997 have been restated as necessary to conform with the
requirements of SFAS No. 128, Earnings Per Share.
Page 38
NEWPORT CORPORATION
Schedule II
Consolidated Valuation Accounts
(In thousands)
Balance at Additions Balance
Beginning Charged to Costs Other Charges at End
Description of Period and Expenses Write-Offs (1) Add (Deduct) (2) of Period
- ------------------------------------- ---------- ---------------- -------------- ---------------- ---------
Year ended December 31, 1997:
Deducted from asset accounts:
Allowance for doubtful accounts $ 524 $ 134 $ (122) $ (51) $ 485
Reserve for inventory obsolescence 4,065 1,772 (1,401) (317) 4,119
Reserve on investments 380 -- -- -- 380
------ ------ ------- ----- ------
Total $4,969 $1,906 $(1,523) $(368) $4,984
====== ====== ======= ===== ======
Year ended December 31, 1996:
Deducted from asset accounts:
Allowance for doubtful accounts $ 537 $ 62 $ (59) $ (16) $ 524
Reserve for inventory obsolescence 3,295 1,164 (290) (104) 4,065
Reserve on investments 457 -- (77) -- 380
------ ------ ------- ----- ------
Total $4,289 $1,226 $ (426) $(120) $4,969
====== ====== ======= ===== ======
Year ended December 31, 1995:
Deducted from asset accounts:
Allowance for doubtful accounts $ 460 $ 190 $ (138) $ 25 $ 537
Reserve for inventory obsolescence 3,380 1,750 (1,984) 149 3,295
Reserve on investments 457 -- -- -- 457
------ ------ ------- ----- ------
Total $4,297 $1,940 $(2,122) $ 174 $4,289
====== ====== ======= ===== ======
(1) Amounts are net of recoveries.
(2) Amounts reflect the effect of exchange rate changes on translating
valuation accounts of foreign subsidiaries in accordance with Statement of
Financial Accounting Standards No. 52, Foreign Currency Translation, and
certain reclassifications between balance sheet accounts.
Page 39
NEWPORT CORPORATION
FORM 10-K
Exhibit Index
Exhibit 10.4 Employee Stock Purchase Plan As Amended
Exhibit 10.14 Consulting Agreement with Richard E. Schmidt
Exhibit 10.15 Credit Agreement dated February 26, 1998
Exhibit 21 Subsidiaries of Registrant
Exhibit 23 Consent of Ernst & Young LLP, Independent Auditors
Exhibit 27 Financial Data Schedule (Article 5 of Regulation S-X)
Page 40