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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
***
FORM 10-K
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED] For the fiscal year ended December 31, 1995
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OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from ___________________ to ______________________
Commission File Number 0-1649
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NEWPORT CORPORATION
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(Exact name of registrant as specified in its charter)
Nevada 094-0849175
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
1791 Deere Avenue, Irvine, CA 92714
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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 $76,485,105 as of March 8, 1996.
The number of shares outstanding of each of the issuer's classes of common stock
as of March 8, 1996, was 8,743,266.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Proxy Statement for the Annual Meeting of
Stockholders to be held on June 5, 1996, are incorporated by reference into Part
III.
Page 1 of 95 Pages
Exhibit Index on Sequentially Numbered Page 33
INTRODUCTORY NOTE
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. These forward-looking statements include
(i) the existence and development of the Company's technical and
manufacturing capabilities, (ii) anticipated competition, (iii) potential
future growth in revenues and income, (iv) potential future decreases in
costs, and (v) the need for, and availability of, additional financing.
The forward-looking statements included herein are based on current
expectations that involve a number of risks and uncertainties. These
forward-looking statements are based on assumptions that the Company will
not lose a significant customer or customers or experience increased
fluctuations of demand or rescheduling of purchase orders, that the
Company's markets will continue to grow, that the Company's products will
remain accepted within their respective markets and will not be replaced
by new technology, that competitive conditions within the Company's
markets will not change materially or adversely, that the Company will be
successful in integrating the operations of its RAM Optical
Instrumentation, Inc., Light Control Instruments, Inc. and MikroPrecision
Instruments, Inc. subsidiaries with the rest of the Company's operations,
that the Company will retain key technical and management personnel, that
the Company's forecasts will accurately anticipate market demand, that
there will be no material adverse change in the Company's operations or
business and that the Company will not experience significant supply
shortages with respect to purchased components, sub-systems or raw
materials. Assumptions relating to the foregoing involve judgments with
respect to, among other things, future economic, competitive and market
conditions, and future business decisions, all of which are difficult or
impossible to predict accurately and many of which are beyond the control
of the Company. Although the Company believes that the assumptions
underlying the forward-looking statements will be realized. In addition,
the business and operations of the Company are subject to substantial
risks which increase the uncertainty inherent in the forward-looking
statements. In light of the significant uncertainties inherent in the
forward-looking information included herein, the inclusion of such
information should not be regarded as a representation by the Company or
any other person that the objectives or plans of the Company will be
achieved.
PART I
ITEM 1 BUSINESS
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GENERAL DESCRIPTION OF BUSINESS
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Newport Corporation (the "Company" or "Newport") operates in one business
segment. It designs, develops, manufactures and markets on a worldwide
basis precision equipment for scientists and engineers who develop and
apply technology involving lasers, optics and integrated motion control.
The Company designs and manufactures a broad line of vibration isolation
systems, electronic and optical instruments and precision mechanical,
electronic and optical components and systems. These products are used
predominantly in research laboratories and test and measurement
applications for industrial, government and university customers,
domestically and internationally.
In June 1991, the Company acquired the micro-positioning business of
Micro-Controle S.A. ("Micro-Controle"), a privately held company
headquartered in Evry, France for a total purchase price of $43.0 million
cash financed through $23.9 million in debt and $19.1 million in cash,
and the assumption of $16.0 million of existing liabilities. The
acquisition included the purchase of the assets and liabilities
associated with the manufacture, sale, maintenance, marketing and
distribution of its high-precision mechanical components and optics,
motion devices, high stability materials and microscopy equipment.
Although Newport and Micro-Controle served similar markets, the acquired
Micro-Controle business complemented the Company's geographic strengths,
products, distribution and customer bases.
In response to the low level of sales experienced in Europe in 1993, the
Company recorded restructuring and other special charges totaling $6.3
million ($5.1 million after taxes) a majority of which was related to its
European operations. These charges included $3.3 million of non-cash
charges to revalue surplus real estate in the U.S. and Europe, $2.2
million for severance and related costs and $0.8 million for
2
equipment relocation costs, and carrying and selling costs associated
with the real estate. Cash items totaled $3.0 million of which $1.2
million and $1.3 million were expended during 1995 and 1994,
respectively, for severance and other related payroll liabilities, and
costs to close facilities. It is expected that the balance of $0.5
million will be expended by March 31, 1996.
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 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 a suburb of Minneapolis, Minnesota. The
acquisition will be accounted for as a purchase.
The Company's products are sold to thousands of companies and
institutions throughout the world and are marketed primarily by means of
a technical catalog, a technically trained marketing staff and a
worldwide network of subsidiary sales offices and sales representatives.
The Company manufactures its products in Irvine, California and several
locations in France. With the acquisition of ROI and LCI, the Company
acquired manufacturing facilities in Huntington Beach, California and San
Luis Obispo, California.
The Company resells some components and sub-systems purchased from other
vendors. Raw materials are purchased from several sources. Certain of
such components, sub-systems and raw materials are purchased from sole
source suppliers. These and other sources are, and management believes
will continue to be, adequate to meet its currently foreseeable needs.
However, the Company does not have guaranteed supply agreements from its
sole source suppliers and there is no assurance that the Company will not
experience supply shortages for such material.
Manufacturing, sales, technical and administrative personnel employed
worldwide by Newport totaled 662 persons at December 31, 1995.
PRODUCTS
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The Company manufactures and distributes two major product groups to its
laboratory and industrial customers. These product groups are 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 account for
approximately one-half of the Company's annual 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
environment 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 also distributes active vibration isolation systems.
The Company believes that its technology and its ability to
manufacture competitively priced quality products have allowed it to
become a major supplier of isolation systems for laser research and
development and other applications requiring a high degree of
stability. The Company's product line
3
includes over 350 standard isolation systems in addition to 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.
Components. Newport offers a comprehensive line of mechanical
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components 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 others.
While the Company encounters substantial competition in the related
accessory component area, Newport is one of the leading suppliers of
such accessory components.
Optics. The Company manufactures and markets a line of laser-quality
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optics and optomechanical components. This includes lenses, mirrors,
prisms, laser beam expanders, collimators, attenuators, variable
beamsplitters and spatial filters. The Company has the capability to
provide custom coatings for specific applications.
Instruments. Newport offers several lines of electronic instruments
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to complement its other products in serving the optical laboratory.
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 these products
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 account
for approximately one-half of the Company's annual sales.
Motion Control Devices and Systems. Newport offers an extensive line
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of manually operated and motorized positioning devices serving both
the research laboratory and industrial application areas. Examples of
these products include linear and rotational stages; elevational
devices and actuators, as well as simple and programmable motion
controllers for stepping and DC motors. The Company also manufactures
a line of positioning sub-systems, serving both laboratory and
industrial application areas. 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
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has 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
AutoAlign(TM) system utilizes sophisticated control software to
completely automate fiber-optic alignment and device characterization
for any photonic device. The LaserWeld(TM) 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. With the acquisition
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of 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(TM) magnetic head pole
geometry system and LaserMAP(TM) software. The Polaris(TM) magnetic
head pole geometry system is specifically designed to measure pole
geometry features on thin film disk drive sliders. The LaserMAP(TM)
software integrates video and laser technology for electronic
packaging applications.
4
MARKETING
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Newport believes that it is one of the leading suppliers of products in
the laser research field. No single unaffiliated customer accounted for
more than 5% of the Company's sales in 1995. Approximately 42% of its
1995 sales were to domestic industrial users, 7% to educational
institutions in the United States, 5% to domestic governmental agencies
and 46% to foreign purchasers. This compares with 38%, 9%, 6% and 47%
for 1994, respectively. Foreign purchasers in 1995 were located in
France (35%), other European countries (37%), Pacific Rim (20%), and
other areas of the world (8%). This compares in 1994 with France (32%),
other European countries (34%), Pacific Rim (25%), and other areas of the
world (9%). The market focus for products manufactured in France has
been industrial, which is complementary to the United States emphasis on
the laboratory market. The Company's ability to provide customized
integrated solutions for the industrial customer augments its
capabilities in serving the general needs of the laser electro-optical
laboratory market worldwide.
Newport uses a Company-employed marketing staff domestically and
internationally in France, Germany, the United Kingdom, Switzerland,
Italy, the Netherlands, Canada and Taiwan. Elsewhere, Newport uses
approximately twenty independent sales representatives. ROI products are
distributed utilizing independent distributors throughout the United
States and other countries in the world. During 1994 the Company closed
its subsidiaries in Spain and Belgium and sold its Japanese subsidiary to
its independent sales representative in that country. The Company also
opened a branch in Taiwan at the end of 1994.
The Company's products compete with products from a large number of
companies domestically and internationally, none of which has a dominant
worldwide market position.
Sales and orders for the Company's products historically were generally
not affected by seasonal demand; however, the Company anticipates that
future patterns may experience more of a seasonal variation as a
significant portion of the Company's sales and orders now come from
Europe where business activity during the summer has traditionally been
slower than other times of the year.
Newport's principal marketing tool is its comprehensive catalog of
products. This document, numbering approximately 600 pages, provides
detailed product information as well as extensive technical and
applications data. The catalog is mailed to more than 100,000 potential
customers worldwide.
The Company also publishes separate short-form catalogs that emphasize
product and market areas, such as comprehensive German- and Japanese-
language catalogs, a newly issued photonics catalog, optics catalogs and
components catalogs. These materials are further augmented by new
product brochures and customer newsletters. Newport advertises in
technical journals serving many technical disciplines. Selected product
literature is published in Chinese, French, German and Japanese. Further
product exposure and contact with existing and potential clients are
developed and maintained at trade shows and technical conferences.
The Company has initiated a number of new marketing efforts aimed both
inside and outside the traditional laboratory market. One such
initiative is 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 new
market niches related to high growth, high technology industries such as
fiber optic communications for which the Company has developed the
AutoAlign(TM) and LaserWeld(TM) fiber alignment and packaging systems.
The Company has also initialized an interactive homepage within the World
Wide Web (http://www.newport.com). This marketing venture specifically
addresses the large Internet-savvy portion of the Company's customer base
- those in academia and research. As the World Wide Web gains acceptance
within our other core markets, this tool will provide even greater
advantages to the Company and our customers. Available on the Company's
World Wide Web page are the latest products, a literature and information
request format, technical/tutorial and application related material,
market surveys, sales information and comprehensive company and financial
overviews.
5
RESEARCH AND PRODUCT DEVELOPMENT
--------------------------------
The Company is developing a number of 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(TM) packaging system for manufacturing optoelectronic
devices for the high growth fiber optic communication industry. The
Company's ROI subsidiary introduced the PolarisTM 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. The
Company also introduced a series of X-ray goniometers for sale to the
high energy physics research market. In addition, during 1995 the
Company introduced 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 increase R&D
spending by approximately one million dollars in 1996 over 1995 for
development of new products and product improvements.
PATENTS
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The Company has a number of patents, trademarks, exclusive marketing
rights and licenses. Although these rights are considered to have value
and the Company intends to defend such rights vigorously, the Company
believes that its business relies primarily on its product performance,
experience and marketing skill, and is not dependent upon patent rights.
BACKLOG
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The consolidated backlog of all the Company's products was $19.3 million,
$16.7 million and $14.6 million at December 31, 1995, 1994 and 1993,
respectively. Approximately 31% of the consolidated backlog at December
31, 1995 was attributable to products manufactured in France.
A significant portion of the products manufactured by the Company are
manufactured for inventory with the goal of being able 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 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.
OPERATIONS BY GEOGRAPHIC AREA
-----------------------------
Upon the acquisition of the micro-positioning business of Micro-Controle
in 1991, the existing Company European operations were supplemented by
the Micro-Controle manufacturing operations in France and sales offices
in France, Germany, the United Kingdom, Belgium, Italy and Spain. The
Company closed its Spanish subsidiary and began distributing its products
in Spain through a distributor during the fourth quarter of 1994. The
Company also closed its subsidiary in Belgium during the fourth quarter
of 1994 and is serving those customers with its sales personnel in the
Netherlands and France. During the fourth quarter of 1994 the Company
opened a branch office in Taiwan.
The Newport European Distribution Company ("NEDCO") was established in
the Netherlands in May 1991 to serve as a centralized distribution
service for customers in Europe. In addition, the Company has a
subsidiary in Canada, which operates primarily as a sales office. The
Company reached an agreement with Hakuto Company, Limited, for the
distribution of its products in Japan and as a consequence, the Company
closed its sales office in Japan during the second quarter of 1994.
In the United States the Company has manufacturing operations in
Huntington Beach, Irvine and San Luis Obispo, California. Subsequent to
the end of 1995 the Company acquired MikroPrecision with its
manufacturing operations in a suburb of Minneapolis, Minnesota. The
Company intends to relocate the ROI Huntington Beach operation into its
Irvine, California facility during the second quarter of 1996.
6
For information regarding the Company's operations by geographic area
refer to Note 14 of Notes to Consolidated Financial Statements on page
30.
INVESTMENTS
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Marketable securities at December 31, 1994 and 1993 consisted of shares
of common stock of publicly traded companies which were sold during 1995
and/or 1994. The shares were stated at fair market value in accordance
with Statement of Financial Accounting Standards 115, Accounting for
Certain Investments in Debt and Equity Securities (refer to Note 8 of
Notes to Consolidated Financial Statements on page 26). 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 entered into a fifteen-year lease for the Deere Avenue property
commencing in March 1992. In addition, the Company has manufacturing
operations in leased facilities at Huntington Beach and San Luis Obispo,
California 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 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 has leased the Garden City, New York property.
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.
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, 1995.
PART II
ITEM 5 MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SECURITY
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HOLDER 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, 1995, the Company had 1,659
common stockholders of record. Refer to Note 16, Supplementary Quarterly
Consolidated Financial Data (Unaudited), of Notes to Consolidated
Financial Statements on page 31 for quarterly share price and dividend
payments.
7
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, 1995, 1994
and 1993, the five months ended December 31, 1992 and the years ended
July 31, 1992, and 1991 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):
1995 1994 1993 1992T* 1992 1991
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FOR THE YEAR:
Net sales $101,961 $94,201 $93,573 $39,398 $ 94,925 $65,109
Cost of sales 55,421 51,811 51,747 21,887 53,378 35,882
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Gross margin 46,540 42,390 41,826 17,511 41,547 29,227
Selling, general and administrative 34,441 32,240 31,735 14,161 34,699 20,814
Research and development 6,765 5,371 5,219 2,498 6,471 4,194
Restructuring expense and other special charges - - 6,263 - 13,795 -
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Income (loss) from operations 5,334 4,779 (1,391) 852 (13,418) 4,219
Interest expense (1,593) (1,782) (2,321) (1,540) (2,911) (570)
Other income (expense) 1,137 1,839 1,463 905 2,021 1,431
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Income (loss) before income taxes 4,878 4,836 (2,249) 217 (14,308) 5,080
Provision (benefit) for taxes 1,003 1,654 951 744 (333) 1,398
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Net income (loss) $ 3,875 $ 3,182 $(3,200) $ (527) $(13,975) $ 3,682
======== ======= ======== ======== ======== =======
Percent to sales:
Gross margin 45.6 45.0 44.7 44.4 43.8 44.9
Selling, general and administrative 33.8 34.2 33.9 35.9 36.6 32.0
Research and development 6.6 5.7 5.6 6.3 6.8 6.4
Income (loss) from operations 5.2 5.1 (1.5) 2.2 (14.1) 6.5
Net income (loss) 3.8 3.4 (3.4) (1.3) (14.7) 5.7
PER SHARE:
Earnings (loss) per share $ 0.45 $ 0.38 $ (0.38) $ (0.06) $ (1.67) $ 0.44
Dividends paid per share 0.04 0.04 0.04 0.04 0.16 0.16
Equity per share 6.06 5.53 5.20 5.66 5.78 7.79
AT YEAR END:
Cash and marketable securities $ 1,524 $ 3,624 $ 4,311 $ 3,436 $ 6,593 $20,601
Customer receivables 20,547 18,755 16,946 18,678 21,065 16,009
Inventories 22,744 21,432 21,655 24,531 27,452 20,322
Other current assets 4,088 4,512 4,941 5,939 7,603 6,122
-------- ------- ------- ------- -------- -------
Current assets 48,903 48,323 47,853 52,584 62,713 63,054
Investments and other assets 4,557 4,441 5,185 5,177 5,074 12,340
Property, plant and equipment 22,327 23,044 24,145 30,415 31,175 14,189
Goodwill, net 8,161 8,846 8,852 9,747 10,893 -
-------- ------- ------- ------- -------- -------
Total assets $ 83,948 $84,654 $86,035 $97,923 $109,855 $89,583
======== ======= ======= ======= ======== =======
Current liabilities $ 20,330 $26,604 $24,085 $29,358 $ 34,893 $19,019
Deferred taxes 1,032 282 2,302 2,083 2,054 1,531
Long-term debt 9,899 11,117 16,005 19,246 24,704 4,047
Stockholders' equity 52,687 46,651 43,643 47,236 48,204 64,986
-------- ------- ------- ------- -------- -------
Total liabilities and equity $ 83,948 $84,654 $86,035 $97,923 $109,855 $89,583
======== ======= ======= ======= ======== =======
MISCELLANEOUS STATISTICS
Working capital $ 28,573 $21,719 $23,768 $23,226 $ 27,820 $44,035
Average equivalent shares 8,679 8,469 8,385 8,345 8,345 8,456
Common stock outstanding 8,699 8,441 8,400 8,345 8,345 8,345
Worldwide employment at end of period 662 650 676 743 805 552
Sales per employee (annualized) $ 155 $ 142 $ 132 $ 122 $ 140 $ 126
* Transition period of five months ended December 31, 1992 because of
change in year end.
8
ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS
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OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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OVERVIEW
- --------
The following is management's discussion and analysis of certain significant
factors which 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,
described more fully in Note 3 to the financial statements on page 23 of this
Form 10-K. The discussion herein is qualified by reference to the Introductory
Note above.
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"), manufacturer of laser-diode instruments, in exchange 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 a suburb of
Minneapolis, Minnesota. The acquisition will be accounted for as a purchase.
RESTRUCTURING In response to the low level of sales experienced in Europe in
- -------------
1993, the Company recorded restructuring and other special charges totaling $6.3
million ($5.1 million after taxes) a majority of which was related to its
European operations. These charges included $3.3 million of non-cash charges to
revalue surplus real estate in the U.S. and Europe, $2.2 million for severance
and related costs and $0.8 million for equipment relocation costs, and carrying
and selling costs associated with the real estate. Cash items totaled $3.0
million of which $1.2 million and $1.3 million were expended during 1995 and
1994, respectively, for severance and other related payroll liabilities, and
costs to close facilities. It is expected that the balance of $0.5 million will
be expended by March 31, 1996.
RESULTS OF OPERATIONS
- ---------------------
FINANCIAL ANALYSIS The following table sets forth, for the periods indicated,
- ------------------
certain income and expense items expressed as a percentage of the Company's
total sales:
PERIOD-TO-PERIOD
PERCENTAGE OF TOTAL SALES INCREASE (DECREASE)
------------------------- -------------------
1995 1994 1993 1995 1994
------ ------ ------ ------ -------
Net sales 100.0% 100.0% 100.0% 8.2% 0.1%
Cost of sales 54.4 55.0 55.3 7.0 -
Gross margin 45.6 45.0 44.7 9.8 1.3
Selling, general and
administrative expense 33.8 34.2 33.9 6.8 1.6
Research and
development expense 6.6 5.7 5.6 26.0 2.9
Restructuring expense - - 6.7 - (100.0)
Income from operations 5.2 5.1 (1.5) 11.6 443.6
Interest expense (1.5) (1.9) (2.5) (10.6) (23.2)
Other income, net 1.1 2.0 1.6 (38.2) 25.7
Income taxes 1.0 1.8 1.0 (39.4) 73.9
Net income 3.8 3.4 (3.4) 21.8 199.4
9
ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS
- ------ ------------------------------------
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CON'T)
--------------------------------------------------------
NET SALES For 1995, 1994 and 1993, the Company's net sales totaled $102.0
- ---------
million, $94.2 million and $93.6 million, respectively. Net sales for 1995
increased $7.8 million compared with 1994, represented by increases of $5.6
million in domestic markets and $0.6 million in international markets combined
with a favorable exchange rate effect of $1.6 million on sales denominated in
foreign currencies. Net sales for 1994 increased modestly versus 1993,
reflecting improvements in both domestic and international markets.
Domestic sales totaled $55.5 million, $49.9 million and $49.5 million for 1995,
1994 and 1993, respectively. Sales for 1995 increased $5.6 million compared
with sales for 1994. The increase was attributable principally to increased
sales revenue at ROI and LCI and to growth across core product lines. For 1994,
domestic sales increased modestly compared with sales for 1993, primarily the
result of strengthening sales of core precision micropositioning systems and
continued improvement in newer growth markets.
International sales totaled $46.5 million, $44.3 million and $44.1 million for
1995, 1994 and 1993, respectively. The increase in 1995 compared with 1994 was
attributable principally to strengthened sales in the major markets of Europe
and the $1.6 million favorable exchange rate effect offset in park by declines
in sales to the Pacific Rim. The Company believes the international sales
decline in the Pacific Rim resulted primarily from the weak economic environment
in Japan. International sales for 1994 increased compared with 1993 primarily
the result of the growth in sales of ROI's products internationally.
The order rate in the U.S. continues to show moderate strength in response to
the increasing sales and marketing emphasis on higher growth market niches in
such industries as fiber optic communications, semiconductor and disk drive
industries and on new products introduced in 1995. Management expects
improvements in sales to the Pacific Rim (primarily Japan) as these economies
strengthen in 1996. However, the order rate in Europe is not showing strength.
Overall, management anticipates continued sales growth through 1996 from
acquisitions, an improving U.S. economy and increased sales of ultrahigh
precision positioning products.
OPERATING INCOME Total costs and expenses for 1995, 1994 and 1993, were $96.6
- ----------------
million, $89.4 million and $95.0 million (including $6.3 million of
restructuring and other special charges), respectively.
Gross margin when stated as a percentage of sales was 45.6%, 45.0% and 44.7% for
1995, 1994 and 1993, respectively. The improvements in gross margin were
primarily attributable to restructuring activities and increased sales volume.
Management anticipates that gross margin will improve further in 1996 as a
result of increased sales volume and continued productivity improvements.
Selling, general and administrative (SG&A) expenses totaled $34.4 million, $32.2
million and $31.7 million for 1995, 1994 and 1993, respectively. SG&A expenses
represented 33.8%, 34.2% and 33.9% of net sales in 1995, 1994 and 1993,
respectively. Although SG&A expenses increased in 1995, they decreased as a
percentage of sales. The increase in dollars was attributable in large part to
non-recurring expenses related to an acquisition which was not consummated ($0.5
million), severance expenses ($0.4 million), the strengthening of the Company's
operating management in Europe ($0.3 million) and an unfavorable exchange rate
effect ($0.7 million). The increase in 1994 was attributable to the costs
associated with strengthening the operating management of the Company.
Management anticipates SG&A expenses in total will increase in 1996 but will be
reduced further as a percent of sales as a result of increased sales volume.
Research and development (R&D) expenses totaled $6.8 million, $5.4 million and
$5.2 million for 1995, 1994 and 1993, respectively. R&D expenses represented
6.6%, 5.7% and 5.6% of net sales in 1995, 1994 and 1993, respectively. The
increases in R&D expenses in 1995 compared with 1994 and 1994 compared with
1993, were attributable primarily to the development of a number of new products
and product enhancements to complement the AutoAlign(TM) fiber alignment system
for the fiber optic communications market, a prototype LaserWeld(TM) packaging
workstation and new products and software by the Company's ROI subsidiary.
Management is committed to continued product development and intends to
10
ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS
- ------ ------------------------------------
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CON'T)
--------------------------------------------------------
increase R&D spending by approximately one million dollars in 1996 over 1995 for
development of new products and product improvements.
Excluding the restructuring and other special charges, operating income totaled
$5.3 million, $4.8 million and $4.9 million for 1995, 1994 and 1993,
respectively. Operating income excluding restructuring and other special
charges represented 5.2%, 5.1% and 5.2% of net sales in 1995, 1994 and 1993,
respectively. Management anticipates that operating income will improve in 1996
primarily as a result of the anticipated sales growth.
During the past three years, inflation has not had any material effect on the
Company's net sales, operating income or other results of operations.
INTEREST EXPENSE Interest expense totaled $1.6 million, $1.8 million and $2.3
- ----------------
million for 1995, 1994 and 1993, respectively. The decreases in interest
expense for the years 1995 and 1994 were attributable to a reduction in the
average debt outstanding and reduced interest rates offset in part by the impact
of the strengthening of the French franc against the US dollar. The Company
anticipates interest expense will increase in 1996 primarily because of funds
expended on the acquisition of MikroPrecision Instruments, Inc. offset in part
by lower interest rates primarily as a result of the new credit agreement signed
in the fourth quarter of 1995. This new credit agreement is described more
fully in Note 9 to the financial statements on page 27 of this Form 10-K.
OTHER INCOME (EXPENSE) Interest and dividend income totaled $0.1 million,
- ----------------------
$0.1 million and $0.2 million for 1995, 1994 and 1993, respectively.
Realized exchange gains (losses) were less than $0.1 million, and totaled $0.2
million, and $(0.2) million for 1995, 1994 and 1993, respectively. The gain in
1994 and the loss in 1993 were attributable primarily to the strengthening in
1994, and the weakening in 1993, of the European currencies compared with the
U.S. dollar on current receivables denominated in European currencies.
The Company recorded investment gains and other income totaling $1.0 million,
$1.5 million and $1.4 million in 1995, 1994 and 1993, respectively. The gains
were attributable primarily to the sale of investments.
TAXES BASED ON INCOME The effective tax rates for 1995, 1994 and 1993 were
- ---------------------
20.6%, 34.2% and 142.3%, respectively. The decrease in the 1995 effective tax
rate was due in part to a $0.4 million reduction in the valuation reserve
attributable to the net operating loss carryforwards of certain of its European
subsidiaries because of an improvement in earnings. Approximately $0.4 million
and $0.5 million of foreign income tax benefit was recorded because of the
utilization of foreign losses in 1995 and 1994, respectively. Prior to 1994,
net losses, principally in Europe, did not have a tax benefit recorded.
EMPLOYMENT Worldwide employment of the Company totaled 662, 650 and 676 at
- ----------
December 31, 1995, 1994 and 1993, respectively. The increase in employment at
December 31, 1995, was a result of the increased sales volume. The declines in
employment at December 31, 1994 and 1993 were primarily the result of the
restructuring activities. Sales per employee approximated $155,000, $142,000
and $132,000 during 1995, 1994 and 1993, respectively.
STOCKHOLDER'S EQUITY The Company paid dividends totaling $0.3 million during
- --------------------
1995, 1994 and 1993, respectively. This represents 4 cents per share during
each of the respective periods.
Stockholders' equity increased from $43.6 million ($5.20 per share), at December
31, 1993 to $46.7 million ($5.53 per share) as of December 31, 1994 and to $52.7
million ($6.06 per share) as of December 31, 1995. The increases in 1995 and
1994 were attributable to the respective year earnings, issuance of stock under
stock option and stock purchase plans, and unrealized exchange gains, offset in
part by dividend payments.
11
ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS
- ------ ------------------------------------
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CON'T)
--------------------------------------------------------
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
WORKING CAPITAL AND LIQUIDITY Net cash provided by operating activities of
- -----------------------------
$5.7 million in 1995 was primarily attributable to the Company's operating
income for 1995, non-cash items principally depreciation and amortization, and
changes in operating assets and liabilities.
Net cash used in investing activities of $1.0 million in 1995 was attributable
principally to the Company's purchases of property, plant and equipment,
partially offset by proceeds from sales of investments and marketable
securities.
Net cash used in financing activities of $6.0 million in 1995 was attributable
principally to cash paid to reduce debt, partially offset by proceeds from the
issuance of common stock under employee agreements.
Cash paid to reduce debt totaled $7.4 million, $2.9 million and $3.5 million
during 1995, 1994 and 1993, respectively. The debt reductions in 1995 and 1994
were offset in part by translation losses of $1.2 million in 1995 and $1.7
million in 1994 as a result of the weakening of the U.S. dollar versus the
French franc.
On December 20, 1995, the Company signed a credit agreement with a bank for a
$15.0 million unsecured line of credit to support the Company's domestic
operation and a $2.0 million unsecured line of credit to support the Company's
European requirements. This new credit agreement with interest at prime plus
0.5%, or LIBOR plus 2.0%, was used to repay amounts owed on credit agreements
with two U.S. financial institutions and provide funds for the acquisition of
MikroPrecision Instruments, Inc. on January 2, 1996. At December 31, 1995, the
amount outstanding under this line of credit was $7.0 million with the remaining
$9.8 million available after reflecting outstanding letters of credit. During
the first quarter of 1996, the Company reached an agreement in principle for
$20.0 million of long-term financing from an insurance company which, if
consummated, would refinance a significant portion of its outstanding debt
during the first half of 1996 and could reduce its after-tax borrowing.
The Company believes its current working capital position together with
estimated cash flows from operations, its existing financing availability and
anticipated refinancing are adequate for operations in the ordinary course of
business, acquisitions, anticipated capital expenditures and debt payment
requirements.
CAPITAL EXPENDITURES Capital expenditures for plant improvements and new
- --------------------
equipment, aggregated $2.5 million, $2.1 million, and $2.1 million for 1995,
1994 and 1993, respectively. The Company anticipates significant increases in
capital expenditures in 1996 compared with 1995 primarily for capacity expansion
at MikroPrecision.
ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- ------ -------------------------------------------
Consolidated financial statements of the Company as of December 31, 1995 and
1994 and for each of the three years in the period ended December 31, 1995, the
report of independent auditors thereon and the Company's unaudited quarterly
financial data for 1995 and 1994 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, 1995 in connection
with its June 5, 1996, Annual Meeting of Stockholders.
12
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,
1995 in connection with its June 5, 1996, 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,
1995 in connection with its June 5, 1996, Annual Meeting of Stockholders.
ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
------- ----------------------------------------------
There were no relationships or transactions required to be reported
under Item 404 of Regulation S-K.
PART IV
ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 10-K
------- ----------------------------------------------------------------
(a) 1. Financial Statements and Financial Statement Schedules
---------------------------------------------------------
Report of Independent Auditors 16
FINANCIAL STATEMENTS:
---------------------
Consolidated statement of operations for the years
ended December 31, 1995, 1994 and 1993 17
Consolidated balance sheet at December 31, 1995 and
1994 18
Consolidated statement of cash flows for the years
ended December 31, 1995, 1994 and 1993 19
Consolidated statement of stockholders' equity for
the years ended December 31, 1995, 1994 and 1993 20
Notes to consolidated financial statements 21 - 31
FINANCIAL STATEMENT SCHEDULES:
------------------------------
II - Consolidated valuation accounts 32
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).
13
ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
------------------------------------------------------
FORM 10-K (CON'T)
-----------------
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 Loan and Security Agreement dated June 23, 1993, with
exhibits and Promissory Note (incorporated by reference to
Exhibit 10.4 of the Company's Form 10-Q for the quarter
ended June 30, 1993).
Exhibit 10.5 Acquisition of subsidiaries of Micro-Controle S.A.,
with exhibits (incorporated by reference to Form 8-K filed
June 28, 1991, and amended July 23, 1992).
Exhibit 10.6 Acquisition of Micro-Controle S.A., with exhibits
(incorporated by reference to Form 8-K filed September 18,
1991, and amended July 23, 1992).
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).
Exhibit 10.8 Severance Compensation Agreement dated as of April 1,
1994, between Newport Corporation, a Nevada Corporation,
and Edmund K. Langley, Executive Vice President and Chief
Operating Officer (incorporated by reference to Exhibit
10.8 of the Company's Form 10-Q for the quarter ended June
30, 1994).
Exhibit 10.9 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 Credit Agreement dated as of December 20, 1995 between
Newport Corporation and ABN AMRO Bank N.V., Los Angeles
International Branch 34
Exhibit 21 Subsidiaries of Registrant 93
Exhibit 23 Consent of Independent Auditors 94
Exhibit 27 Financial Data Schedule (Article 5 of Regulation S-X) 95
(b) Reports on Form 8-K
-------------------
The Company filed no Reports on Form 8-K during the quarter ended
December 31, 1995.
14
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/ RICHARD E. SCHMIDT
---------------------
Richard E. Schmidt, Chairman of the Board
(Principal Executive Officer)
/s/ ROBERT C. HEWITT
--------------------
Robert C. Hewitt, Vice President, Chief Financial Officer, Secretary and
Treasurer
(Chief Financial Officer)
/s/ GERALD A. DECICCIO
---------------------
Gerald A. DeCiccio, Corporate Controller
(Principal Accounting Officer)
Date: March 28,1996
-------------
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 28, 1996
----------------- --------------
R. Jack Aplin, Member of the Board Date
/s/ ROBERT L. GUYETT March 28, 1996
-------------------- --------------
Robert L. Guyett, Member of the Board Date
/s/ LOUIS B. HORWITZ March 28, 1996
-------------------- --------------
Louis B. Horwitz, Member of the Board Date
/s/ DAN L. MCGURK March 28, 1996
----------------- --------------
Dan L. McGurk, Member of the Board Date
/s/ C. KUMAR N. PATEL March 28, 1996
--------------------- --------------
C. Kumar N. Patel, Member of the Board Date
/s/ JOHN T. SUBAK March 28, 1996
----------------- --------------
John T. Subak, Member of the Board Date
15
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, 1995 and 1994, and the related
consolidated statements of operations, stockholders' equity, and cash
flows for each of the three years in the period ended December 31, 1995.
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, 1995 and 1994, and the
consolidated results of its operations and its cash flows for each of the
three years in the period ended December 31, 1995, 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
February 9, 1996
16
NEWPORT CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
(In thousands except
per share amounts)
Years Ended December 31,
-------------------------------
1995 1994 1993
-------- ------- -------
Net sales $101,961 $94,201 $93,573
Cost of sales 55,421 51,811 51,747
-------- ------- -------
Gross profit 46,540 42,390 41,826
Selling, general and administrative expense 34,441 32,240 31,735
Research and development expense 6,765 5,371 5,219
Restructuring and other special charges - - 6,263
-------- ------- -------
Income (loss) from operations 5,334 4,779 (1,391)
Interest expense (1,593) (1,782) (2,321)
Other income, net 1,137 1,839 1,463
-------- ------- -------
Income (loss) before income taxes 4,878 4,836 (2,249)
Income tax provision 1,003 1,654 951
-------- ------- -------
Net income (loss) $ 3,875 $ 3,182 $(3,200)
======== ======= =======
Net income (loss) per share $0.45 $0.38 $(0.38)
======== ======= =======
Number of shares used to calculate
net income (loss) per share 8,679 8,469 8,385
======== ======= =======
Dividends per share $0.04 $0.04 $0.04
======== ======= =======
See accompanying notes.
17
NEWPORT CORPORATION
CONSOLIDATED BALANCE SHEET
(Dollars in thousands, except stated value per share)
December 31,
-------------------
1995 1994
------- -------
ASSETS
Current assets:
Cash and cash equivalents $ 1,524 $ 3,014
Marketable securities -- 610
Customer receivables, net 19,767 18,755
Other receivables 780 1,912
Inventories 22,744 21,432
Deferred tax assets 2,570 693
Other current assets 1,518 1,907
------- -------
Total current assets 48,903 48,323
Investments, notes receivable and other assets 4,557 4,441
Property, plant and equipment, at cost, net 22,327 23,044
Goodwill, net 8,161 8,846
------- -------
$83,948 $84,654
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 5,054 $ 5,393
Accrued payroll and related expenses 5,143 4,679
Taxes based on income 1,261 1,308
Accrued restructuring liabilities, net 513 2,364
Current portion of long-term debt 5,286 10,316
Other accrued liabilities 3,073 2,544
------- -------
Total current liabilities 20,330 26,604
Deferred taxes 1,032 282
Long-term debt 9,899 11,117
Commitments (Note 10)
Stockholders' equity:
Common stock, $.35 stated value, 20,000,000 shares authorized;
8,699,000 shares issued and outstanding at December 31, 1995;
8,441,000 shares at December 31, 1994 3,045 2,954
Capital in excess of stated value 7,609 5,771
Unamortized deferred compensation (369) (251)
Unrealized gain on marketable securities -- 343
Unrealized translation loss (1,773) (2,778)
Retained earnings 44,175 40,612
------- -------
Total stockholders' equity 52,687 46,651
------- -------
$83,948 $84,654
======= =======
See accompanying notes.
18
NEWPORT CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
Years Ended December 31,
------------------------------
1995 1994 1993
-------- -------- --------
OPERATING ACTIVITIES:
Net income (loss) $ 3,875 $ 3,182 $(3,200)
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Depreciation and amortization 4,940 4,622 5,638
Net gains from sales of investments (832) (1,685) (1,260)
Increase in provision for losses on
receivables, inventories and investments 1,940 1,129 1,366
Deferred income taxes (889) (1,126) (2)
Realized foreign currency (gains) losses, net (8) (175) 158
Restructuring and other special charges - - 6,263
Other non-cash (income) loss (86) 79 -
Changes in operating assets and liabilities:
Receivables 561 (1,799) 1,471
Inventories (2,492) 234 1,660
Other current assets 232 (517) 171
Accounts payable and other accrued expenses (2,488) (3,358) (6,807)
Taxes based on income (50) 2,203 (19)
Translation gain (loss) related to operating activities 1,127 (19) (1,989)
Other, net (132) 222 (207)
------- ------- -------
Net cash provided by operating activities 5,698 2,992 3,243
------- ------- -------
INVESTING ACTIVITIES:
Proceeds from sales of investments
and marketable securities 1,319 2,205 1,386
Purchases of property, plant and equipment (2,513) (2,142) (2,139)
Disposition of property, plant and equipment 50 434 454
Other, net 97 164 20
------- ------- -------
Net cash provided by (used in) investing activities (1,047) 661 (279)
------- ------- -------
FINANCING ACTIVITIES:
Increase (decrease) in short-term borrowings (5,512) 2,450 (76)
Repayment of long-term borrowings (1,859) (5,394) (3,455)
Cash dividends paid (312) (299) (304)
Issuance of common stock under
employee agreements including
associated tax benefit 1,675 99 91
------- ------- -------
Net cash used in financing activities (6,008) (3,144) (3,744)
Effect of foreign exchange rate changes on cash (133) (32) (119)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (1,490) 477 (899)
Cash and cash equivalents at beginning of year 3,014 2,537 3,436
------- ------- -------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 1,524 $ 3,014 $ 2,537
======= ======= =======
See accompanying notes.
19
NEWPORT CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(Amounts in thousands, except
share and per share amounts) Unrealized
Capital in Unamortized gain on Unrealized
Common excess of deferred marketable translation Retained
stock stated value compensation securities adjustments earnings Total
---------------- ------------- ------------- ----------- ------------ --------- --------
Balance at December 31, 1992 $2,920 $5,265 $ - $ - $(2,181) $41,233 $47,237
- ----------------------------
Cash dividends to Newport
shareholders ($0.04 per share) - - - - - (280) (280)
Cash dividends to ROI
shareholders - - - - - (24) (24)
Issuance of common stock
under employee agreements
for cash 6 85 - - - - 91
Grants of restricted stock 13 204 (217) - - - -
Amortization of deferred
compensation - - 43 - - - 43
Unrealized gain on marketable
equity securities, net of
income taxes - - - 979 - - 979
Net loss - - - - - (3,200) (3,200)
Unrealized translation loss - - - - (1,203) - (1,203)
---------------- ------------- ------------- ----------- ------------ --------- --------
Balance at December 31, 1993 2,939 5,554 (174) 979 (3,384) 37,729 43,643
- ----------------------------
Cash dividends to Newport
shareholders ($0.04 per share) - - - - - (281) (281)
Cash dividends to ROI
shareholders - - - - - (18) (18)
Issuance of common stock
under employee agreements
for cash 7 92 - - - - 99
Grants of restricted stock 11 169 (180) - - - -
Forfeiture of restricted
stock grants (3) (44) 47 - - - -
Amortization of deferred
compensation - - 56 - - - 56
Reduction in unrealized gain
on marketable equity
securities, net of income
taxes - - - (636) - - (636)
Net income - - - - - 3,182 3,182
Unrealized translation gain - - - - 606 - 606
---------------- ------------- ------------- ----------- ------------ --------- --------
Balance at December 31, 1994 2,954 5,771 (251) 343 (2,778) 40,612 46,651
- ----------------------------
Cash dividends ($0.04 per share) - - - - - (312) (312)
Issuance of common stock
under employee agreements
for cash including
associated tax benefit 55 1,134 - - - - 1,189
Issuance of common stock
under employee stock purchase
plan for cash 25 461 - - - - 486
Grants of restricted stock 14 293 (307) - - - -
Forfeiture of restricted
stock grants (3) (50) 53 - - - -
Amortization of deferred
compensation - - 136 - - - 136
Reduction in unrealized gain on
marketable equity securities,
net of income taxes (note 8) - - - (343) - - (343)
Net income - - - - - 3,875 3,875
Unrealized translation gain - - - - 1,005 - 1,005
---------------- ------------- ------------- ----------- ------------ --------- --------
BALANCE AT DECEMBER 31, 1995 $3,045 $7,609 $(369) $ - $(1,773) $44,175 $52,687
================ ============= ============= =========== ============ ========= ========
See accompanying notes.
20
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization Newport Corporation (the "Company") is a leading
worldwide manufacturer and marketer of precision equipment for
scientists and engineers who develop and apply technology involving
lasers and optics. The Company also uses its precision positioning
expertise to serve such high technology industries as semiconductor
manufacturing, telecommunications, data storage, life science and
health care and analytical instrumentation. Customers include Fortune
500 corporations, national research laboratories, government and
educational institutions.
Consolidation The accompanying financial statements consolidate the
accounts of the Company and its wholly-owned subsidiaries and have been
restated for all periods presented to reflect the acquisitions of ROI
and LCI (Note 3) which have been accounted for using the pooling of
interests method. The accounts of the Company's subsidiaries in Europe,
and for 1993 in Japan, 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 The cost of buildings, machinery and
equipment, and leasehold improvements is depreciated generally using an
accelerated method based on a declining balance formula over estimated
useful lives ranging from three to thirty one years. Leasehold
improvements are generally amortized over the term of the lease.
Net income (loss) per share Net income (loss) per share is based on
the weighted average number of shares of common stock, and for periods
with income, the dilutive effects of common stock equivalents (stock
options), determined using the treasury stock method, outstanding
during the periods.
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.
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 of their variable rates of interest. 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 Marketable securities are considered available-for-sale
and are stated at fair market value. The excess of fair market value
over cost is included as a separate component of Stockholders' Equity.
Nonmarketable investments are stated at cost, adjusted for the
Company's proportionate share of undistributed earnings or losses.
21
Intangible Assets Goodwill, representing the excess of the purchase
price over the fair value of the net assets of the acquired entities,
is amortized on a straight-line basis over its estimated useful life of
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, 1995, accumulated amortization of intangible assets,
principally goodwill, aggregated $2.7 million.
Long-Lived Assets The Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of" (SFAS No. 121), in March 1995. The Company adopted SFAS
No. 121 during 1995. In accordance with SFAS No. 121, the Company
reviewed its long-lived assets and certain identifiable intangibles for
impairment. Based on its analysis, the Company believes that no
impairment of the carrying value of its long-lived assets, including
goodwill, existed at December 31, 1995.
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. There were no foreign exchange contracts at
December 31, 1995.
Stock Option Plans The Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" (SFAS No. 123), in October 1995. SFAS No. 123
establishes financial accounting and reporting standards for stock-
based compensation plans and for transactions in which an entity issues
its equity instruments to acquire goods and services from nonemployees.
The new accounting standards prescribed by SFAS No. 123 are optional,
and the Company may continue to account for its plans under previous
accounting standards. The Company does not expect to adopt the new
accounting standards, consequently, SFAS No. 123 will not have an
impact on the Company's consolidated results of operations or financial
position. However, pro forma disclosures of net earnings and earnings
per share will be made in 1996 as if the SFAS No. 123 accounting
standards had been adopted.
NOTE 2 RESTRUCTURING
In response to the low level of sales experienced in Europe in 1993,
the Company recorded restructuring and other special charges totaling
$6.3 million ($5.1 million after taxes) a majority of which was related
to its European operations. These charges included $3.3 million of non-
cash charges to revalue surplus real estate in the U.S. and Europe,
$2.2 million for severance and related costs and $0.8 million for
equipment relocation costs, and carrying and selling costs associated
with the real estate. Cash items totaled $3.0 million of which $1.2
million and $1.3 million were expended during 1995 and 1994,
respectively, for severance and other related payroll liabilities, and
costs to close facilities. It is expected that the balance of $0.5
million will be expended by March 31, 1996.
22
NOTE 3 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 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.
Net sales and net income (loss) of Newport, ROI and LCI for the periods
preceding the acquisitions were:
(In thousands)
Newport ROI LCI Combined
-------- ------- -------- ---------
Year ended December 31, 1994:
Net sales $85,637 $8,039 $ 525 $94,201
Net income (loss) 3,339 (145) (12) 3,182
Year ended December 31, 1993:
Net sales 84,147 9,069 357 93,573
Net income (loss) (3,746) 566 (20) (3,200)
NOTE 4 CUSTOMER RECEIVABLES
Customer receivables consist of the following:
(In thousands) December 31,
-------------------
1995 1994
------- -------
Customer receivables $20,304 $19,215
Less allowance for doubtful accounts 537 460
------- -------
$19,767 $18,755
======= =======
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 5 INVENTORIES
Inventories are stated at cost, determined on either a first-in, first-
out (FIFO) or average cost basis and do not exceed net realizable
value.
Inventories consist of the following:
(In thousands) December 31,
----------------------
1995 1994
------- ------------
Raw materials and purchased parts $ 6,027 $ 7,350
Work in process 4,103 3,541
Finished goods 12,614 10,541
------- -------
$22,744 $21,432
======= =======
23
NOTE 6 INCOME TAXES
The provision (benefit) for taxes based on income (loss) consists of
the following:
(In thousands) Years Ended December 31,
------------------------------------
1995 1994 1993
------ ------- ------
Current:
Federal $ 935 $ 2,615 $ 877
State 85 (35) 90
Foreign 303 200 (7)
Deferred:
Federal 74 (1,114) (364)
State 14 (12) 355
Foreign (408) - -
------ ------- -----
$1,003 $ 1,654 $ 951
====== ======= =====
The provision (benefit) for taxes based on income (loss) differs from
the amount obtained by applying the statutory tax rate as follows:
(In thousands)
Years Ended December 31,
---------------------------------
1995 1994 1993
------ ------ ------
Income tax provision (benefit) at statutory rate $1,658 $1,644 $ (765)
Increase (decrease) in taxes resulting from:
Foreign losses not currently benefited 90 432 1,508
Non deductible goodwill amortization 191 182 174
Utilization of foreign loss carryforwards (422) (527) -
Reduction in valuation allowance (408) - -
State income taxes, net of federal income tax benefit 65 (31) 294
Foreign Sales Corporation income (156) (79) (14)
Other, net (15) 33 (246)
------ ------ ------
$1,003 $1,654 $ 951
====== ====== ======
Deferred tax assets and liabilities determined in accordance with SFAS
109 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 1995, the Company reduced the valuation allowance applicable to
foreign net operating loss carryforwards by $408,000 due to an
improvement in earnings of certain of its European subsidiaries.
24
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,
---------------------
1995 1994
------- ----------
Deferred tax assets:
Net operating loss carryforwards $ 9,834 $ 10,677
Accrued restructuring liabilities 188 785
Accruals not currently deductible for tax purposes 1,958 1,932
Other 100 142
Valuation allowance (9,375) (11,462)
------- --------
Total deferred tax asset 2,705 2,074
Deferred tax liabilities:
Accelerated depreciation methods used for tax purposes 922 1,033
Unrealized gain on marketable securities - 228
Other 245 402
------- --------
Total deferred tax liability 1,167 1,663
------- --------
Net deferred tax asset $ 1,538 $ 411
======= ========
The Company has foreign net operating loss carryforwards totaling
approximately $25.8 million at December 31, 1995, of which
approximately $0.2 million expires in 1996, $0.1 million expires in
1998, with the balance principally expiring in the years 2007 through
2010. The Company also has California net operating loss carryforwards
totaling approximately $0.8 million, which expire in 1998. 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 $2.9 million of the
valuation allowance will be allocated to reduce goodwill when realized.
Approximately $0.2 million and $0.4 million of the valuation allowance
realized was allocated to goodwill for 1995 and 1994, respectively.
Net income taxes paid for 1995, 1994 and 1993 totaled $1.0 million,
$0.3 million and $1.1 million, respectively.
NOTE 7 PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment, at cost, including capitalized lease
assets, consist of the following:
(In thousands) December 31,
------------------
1995 1994
------- --------
Land $ 2,238 $ 2,115
Buildings 13,366 12,671
Leasehold improvements 7,500 7,176
Machinery and equipment 19,510 19,119
Office equipment 8,865 7,596
------- -------
51,479 48,677
Less accumulated depreciation 29,152 25,633
------- -------
$22,327 $23,044
======= =======
25
NOTE 8 INVESTMENTS, NOTES RECEIVABLE AND OTHER ASSETS
Investments, notes receivable and other assets consist of the
following:
(In thousands) December 31,
---------------------
1995 1994
------ ------
Marketable securities available-for-sale $ - $ 610
Nonmarketable investments 3,966 3,840
Notes receivable - 97
Other assets 591 504
------ ------
4,557 5,051
Less current portion - 610
------ ------
4,557 $4,441
====== ======
Marketable securities available-for-sale which consisted of shares of
common stocks of publicly traded companies, were sold in 1995. At
December 31, 1994 they were stated at fair market which resulted in
gross unrealized gains of $0.5 million. The excess of fair market value
over cost (net of deferred income taxes of $0.2 million at December 31,
1994) is included as a separate component of Stockholders' Equity.
Gross proceeds resulting from the sale of these securities were $0.9
million, $1.2 million and $1.4 million 1995, 1994 and 1993,
respectively. 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, $1.1 million and $1.3 million are
reflected as other income for 1995, 1994 and 1993, respectively.
Nonmarketable investments consist primarily of investments in private
companies, including a 25% interest in a US 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 or losses. The Company made purchases of approximately $3.8
million, $3.8 million, and $4.2 million from that supplier during 1995,
1994 and 1993, respectively.
Notes receivable are carried at lower of amortized cost or net
realizable value. Other assets consist primarily of patents and license
agreements.
26
NOTE 9 LONG-TERM DEBT
Long-term debt consists of the following:
(Dollar amounts in thousands) December 31,
------------------
1995 1994
------- --------
Credit agreements:
Prime + 0.5%, maturing December 1997 $ 4,555 $ -
Prime + 1%, maturing June 1996 - 6,378
PIBOR + 1%, maturing March 31, 1996, payable in French francs $ - 2,434
Prime + 1%, maturing August 1995 - 249
Term notes:
PIBOR + 1.35%, maturing October 1997, payable in French francs 5,097 7,024
LIBOR + 2%, maturing March 1996 2,448 -
Prime + 1%, maturing June 1996 - 1,185
Capitalized lease obligations, payable in varying installments to 2005,
in French francs 2,991 3,015
Equipment loans 94 -
Mortgages payable:
Various (9.2% to 12.75%), maturing from 1995 to 1999,
payable in French francs - 1,148
------- -------
15,185 21,433
Less current portion 5,286 10,316
------- -------
$ 9,899 $11,117
======= =======
On December 20, 1995, the Company signed a credit agreement with a bank
for a $15.0 million unsecured line of credit to support the Company's
domestic operations and a $2.0 million unsecured line of credit to
support the Company's European requirements. This new credit agreement
provides for interest at prime plus 0.5%, or LIBOR (London Interbank
Offered Rate) plus 2.00%, proceeds from the line were used to repay
amounts owed on credit agreements with two U.S. financial institutions
as well as provide funds for the acquisition of MikroPrecision
Instruments, Inc. on January 2, 1996. The line has no annual facility
fee and an unused line fee of 0.375 percent. At December 31, 1995, the
amount outstanding under this line of credit was $7.0 million and
amounts available for borrowing under the line totaled $9.8 million
after reflecting outstanding letters of credit. The prime rate was 8.5%
at December 31, 1995. The weighted average interest rate was 9.9% and
10.2% for 1995 and 1994, respectively. Under the terms of the
agreement, the Company is required to comply with various covenants,
including covenants limiting the ability of the Company and its
subsidiaries to pledge assets or incur liens on assets, requiring the
Company to maintain specified ratios, and levels of tangible net worth
and net income, and limiting the amount of capital expenditures and
dividends.
The Company has a line of credit with a consortium of foreign banks
which provides for advances up to a limit of 25.0 million French francs
(approximately $5.1 million) with interest at 1% above PIBOR (Paris
Interbank Offered Rate), collateralized by eligible receivables. There
were no borrowings outstanding under this agreement at December 31,
1995. During the first quarter of 1996, the Company anticipates that
this line will be replaced by the $2 million available under the new
credit agreement. The weighted average interest rate was 8.5% and 7.6%
for 1995 and 1994, respectively.
The Company has term notes with the same consortium of foreign banks
which, at December 31, 1995, totaled 25.0 million French francs
(approximately $5.1 million) with interest at 1.6% above PIBOR prior to
October 1, 1995 and 1.35% above PIBOR after that date, secured
generally by assets of Micro-Controle with a carrying value of 110.8
million French francs (approximately $22.6 million) at December 31,
1995. The six-month PIBOR was 6.3% at December 31, 1995. Repayment is
due in two annual installments commencing in October 1996.
27
Capitalized lease obligations of 14.7 million French francs
(approximately $3.0 million) relate to real estate and equipment. The
book value of assets under capital leases at December 31, 1995, was
19.1 million French francs (approximately $2.5 million), net of
accumulated amortization of 6.7 million French francs (approximately
$1.4 million).
Required annual payments are as follows:
(In thousands) Capitalized Borrowings,
Lease Mortgages and
For years ending December 31, Obligations Term Notes
----------- -------------
1996 $ 519 $ 4,997
1997 523 7,103
1998 527 94
1999 531 -
2000 464 -
Thereafter 1,561 -
------ -------
4,125 $12,194
=======
Less interest 1,134
------
$2,991
======
Interest paid for 1995, 1994 and 1993, totaled $1.4 million, $1.5
million and $2.4 million, respectively.
NOTE 10 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 (in thousands):
For years ending December 31,
1996 $ 2,297
1997 2,114
1998 1,882
1999 1,745
2000 1,641
Thereafter 10,624
The principal lease expires in 2007. Future sublease income is
estimated at $1.6 million. Rental expense under all leases totaled $2.6
million, $2.6 million and $2.4 million for 1995, 1994 and 1993,
respectively.
NOTE 11 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. 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.
28
The following table summarizes option plan and restricted stock
activity for the years ended December 31, 1995 and 1994:
Restricted
Stock Options Total
----------- ---------- -----------
Amounts outstanding at December 31, 1993 37,000 970,900 1,007,900
Granted 32,000 181,470 213,470
Exercised (10,250) (16,750) (27,000)
Canceled (8,000) (132,864) (140,864)
----------- ---------- -----------
Amounts outstanding at December 31, 1994 50,750 1,002,756 1,053,506
Granted 41,000 320,475 361,475
Exercised (10,000) (155,520) (165,520)
Canceled (8,250) (149,196) (157,446)
----------- ---------- -----------
Amounts outstanding at December 31, 1995 73,500 1,018,515 1,092,015
=========== ========== ===========
At December 31, 1995:
Exercise prices of outstanding options $5.00 to $13.50
Shares available for future grants 540,190
Options exercisable 648,265
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 250,000 shares of common stock is available for purchase under the
Purchase Plan. There were 70,850 shares issued under the Purchase Plan
during 1995.
NOTE 12 OTHER INCOME
Other income consisted of the following:
(In thousands) Years Ended December 31,
-------------------------------
1995 1994 1993
------ --------- --------
Interest and dividend income $ 95 $ 143 $ 229
Realized foreign currency gains (losses), net 8 175 (158)
Gains on sale of investments, net 832 1,404 1,260
Other 202 117 132
------ ------ ------
$1,137 $1,839 $1,463
====== ====== ======
NOTE 13 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
catalogues. The capitalized costs are amortized over estimated future
benefit periods ranging from three months to two years.
Advertising materials of $0.6 million and $0.3 million were reported as
assets at December 31, 1995 and 1994, respectively. Advertising expense
was $1.6 million, $1.6 million and $1.3 million for 1995, 1994 and
1993, respectively.
29
NOTE 14 BUSINESS SEGMENT INFORMATION
The Company operates in one business segment. It designs, manufactures
and markets on a worldwide basis precision equipment for scientists and
engineers who develop and apply technology involving lasers, optics and
integrated motion control. The Company designs and manufactures a broad
line of vibration isolation systems, electronic and optical instruments
and precision mechanical, electronic and optical components and
systems. These products are used predominately in research laboratories
and test and measurement applications for industrial, government and
university customers, domestically and internationally.
Information concerning the Company's operations by geographic segment
is as follows:
(In thousands) Years Ended December 31,
-----------------------------------
1995 1994 1993
-------- -------- --------
Sales to unaffiliated customers:
United States $ 64,769 $ 59,211 $ 55,469
Europe 35,087 30,926 32,595
Other areas 2,105 4,064 5,509
-------- -------- --------
$101,961 $ 94,201 $ 93,573
======== ======== ========
Sales between geographic areas (based on invoiced prices):
United States $ 7,233 $ 7,784 $ 8,951
Europe 11,489 9,095 8,251
Intercompany eliminations (18,722) (16,879) (17,202)
-------- -------- --------
$ -- $ -- $ --
======== ======== ========
Income (loss) before taxes:
United States $ 4,215 $ 4,693 $ 2,501
Europe 735 (244) (5,446)
Other areas (46) 493 282
Intercompany eliminations (26) (106) 414
-------- -------- --------
$ 4,878 $ 4,836 $ (2,249)
======== ======== ========
Assets:
United States $ 94,376 $ 91,129 $ 86,950
Europe 40,160 48,516 50,577
Other areas 770 720 2,145
Intercompany eliminations (51,358) (55,711) (53,637)
-------- -------- --------
$ 83,948 $ 84,654 $ 86,035
======== ======== ========
The Company's manufacturing facilities are located in the United States
and France. United States revenues include exports to unaffiliated
customers totaling $9.3 million, $9.2 million and $5.9 million for
1995, 1994 and 1993, respectively.
NOTE 15 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 $0.8 million, $0.9 million and
$0.9 million for 1995, 1994 and 1993, respectively.
30
NOTE 16 SUPPLEMENTARY QUARTERLY CONSOLIDATED FINANCIAL DATA (UNAUDITED)
(In thousands, except per share amounts)
Net Dividends High Low
Net Gross Net Income Per Per Share Share
Three months ended Sales Profit Income Share Share Price Price
------- ------- ------ ---------- --------- -------- -------
DECEMBER 31, 1995 $27,867 $12,973 $1,450 $0.17 $ -- $ 9 1/2 $ 7 1/2
SEPTEMBER 30, 1995 24,253 11,174 743 0.08 0.02 12 3/8 8 7/8
JUNE 30, 1995 25,525 11,597 854 0.10 -- 9 3/8 7 1/2
MARCH 31, 1995 24,316 10,796 828 0.10 0.02 9 1/8 7
December 31, 1994 25,285 11,332 1,090 0.13 -- 8 1/8 6 7/8
September 30, 1994 23,031 10,590 698 0.08 0.02 8 1/4 5 7/8
June 30, 1994 23,596 10,675 862 0.10 -- 6 1/4 5 1/4
March 31, 1994 22,289 9,794 532 0.06 0.02 6 5
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.
NOTE 17 SUBSEQUENT EVENT (UNAUDITED)
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 a suburb of Minneapolis, Minnesota. The
acquisition will be accounted for as a purchase.
31
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, 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
====== ====== ======= ===== ======
Year ended December 31, 1994:
Deducted from asset accounts:
Allowance for doubtful accounts $ 717 $ 90 $ (203) $(144) $ 460
Reserve for inventory obsolescence 2,786 715 (313) 192 3,380
Reserve on investments 133 324 - - 457
------ ------ ------- ----- ------
Total $3,636 $1,129 $ (516) $ 48 $4,297
====== ====== ======= ===== ======
Year ended December 31, 1993:
Deducted from asset accounts:
Allowance for doubtful accounts $1,439 $ 150 $ (786) $ (86) $ 717
Reserve for inventory obsolescence 2,298 1,216 (625) (103) 2,786
Reserve on investments 133 - - - 133
------ ------ ------- ----- ------
Total $3,870 $1,366 $(1,411) $(189) $3,636
====== ====== ======= ===== ======
(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 FASB Statement No. 52, "Foreign Currency
Translation" and certain reclassifications between balance sheet
accounts.
32
NEWPORT CORPORATION
FORM 10-K
Exhibit Index
-------------
Sequential
Page Number
-----------
Exhibit 10.10 Credit Agreement dated as of December 20,
1995 between Newport Corporation and ABN
AMRO Bank N.V., Los Angeles International
Branch 34
Exhibit 21 Subsidiaries of Registrant 93
Exhibit 23 Consent of Independent Auditors 94
Exhibit 27 Financial Data Schedule (Article 5 of
Regulation S-X) 95
33