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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 2000
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OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________ to __________
Commission File Number 0-1649
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NEWPORT CORPORATION
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(Exact name of registrant as specified in its charter)
Nevada 94-0849175
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(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
1791 Deere Avenue, Irvine, CA 92606
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (949) 863-3144
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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 $0.1167 per Share
--------------------------------------------
(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 ___
---
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 $1,063,474,000 as of March 16, 2001.
The number of shares outstanding of the Registrant's sole class of common stock
as of March 16, 2001, was 36,298,040.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Proxy Statement for the Annual Meeting of
Stockholders to be held on May 30, 2001 are incorporated by reference into Part
III.
Page 1 of 46 Pages
Exhibit Index on Sequentially Numbered Page 23
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 we intend that such forward-looking
statements be subject to the safe harbors created thereby. For this purpose, any
statements contained in this Annual Report on Form 10-K except for historical
information may be deemed to be forward-looking statements. Without limiting the
generality of the foregoing, words such as "may," "will," "expect," "believe,"
"anticipate," "intend," "could," "estimate," or "continue" or the negative or
other variations thereof or comparable terminology are intended to identify
forward-looking statements. These statements by their nature involve substantial
risks and uncertainties, certain of which are beyond our control, and actual
results may differ depending on a variety of important factors, including those
described below in "Risks Relating To Our Business."
PART I
ITEM 1 Business
General Description of Business
Newport Corporation is a global supplier of high-precision test, measurement and
automation systems and subsystems that enable manufacturers of fiber optic
components, semiconductor capital equipment, industrial metrology, aerospace and
other high-precision products to automate manufacturing processes, enhance
product performance, and improve manufacturing efficiencies and yields.
Manufacturers of high-precision products increasingly require third party
expertise to develop, engineer and build automated systems and subsystems to
produce, assemble and test their products. Newport's products enhance the
productivity and capabilities of assembly, test and measurement functions by
leveraging our expertise in high-precision automated positioning and vibration
isolation technology and high resolution non-contact visual measurement and
inspection. By combining proven technology with advanced computer software and
imaging technology and our in-depth industry and process expertise, we are able
to offer comprehensive, integrated solutions to manufacturers of fiber optic
components. In the semiconductor capital equipment market we supply high-
performance value-added subsystems that enhance the performance of our
customers' products. We also provide sophisticated high-precision equipment to
commercial, academic and governmental research institutions worldwide that
engage in advanced research and development activities.
For nearly three decades we have serviced the needs of research laboratories for
precision equipment. In 1991, we acquired the micro-positioning business of
Micro-Controle S.A. and commenced our evolution from a provider of discrete
components for research applications to a company that manufactures both
components and integrated systems for research and commercial applications. The
acquisition also provided us with a significant manufacturing and distribution
base in Europe. In February 1995, we acquired RAM Optical Instrumentation, Inc.
("ROI") in order to increase participation in the semiconductor test and
measurement and computer peripherals markets. The acquisition of ROI also
increased our expertise in developing software and manufacturing integrated
systems. In March 1995, we acquired Light Control Instruments, Inc. ("LCI"), a
participant in the fiber optic test and measurement market. The acquisition of
LCI expanded the fiber optic product offering by adding laser diode test
equipment to the internally developed product line. In January 1996, we acquired
MikroPrecision Instruments, Inc. ("MPI") further increasing participation in the
semiconductor equipment and computer peripherals markets. In October 1998, we
acquired Environmental Optical Sensors, Inc ("EOSI"), further strengthening our
position as a leading provider of high-precision assembly and test equipment for
the fast growing fiber optic communications marketplace. In October 1999, we
acquired the west coast commercial optics operation of Corning OCA Corporation,
a subsidiary of Corning Incorporated (renamed Newport Precision Optics
Corporation or "NPOC"). This acquisition increased our product offerings and
expertise in the areas of specialized precision optical products and systems. In
August 2000, we acquired Unique Equipment Company ("Unique"), a systems
integrator specializing in the use of robotics for the fiber optics and
semiconductor industries, which increased our expertise in these areas. In
December 2000, we acquired the business of CE Johansson AB ("CEJ"), a Swedish
based global supplier of advanced metrology systems, which expanded our
industrial metrology product offerings and expertise by adding
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touch-probe metrology systems to our existing non-contact visual metrology
systems. In February 2001, we acquired Kensington Laboratories, Inc. ("KLI"), a
manufacturer of high-precision robotic and motion control equipment for the
semiconductor and fiber optic communication industries, which significantly
increased our product offerings and expertise in these areas. Also in February
2001, we acquired Design Technology Corporation ("DTC"), a systems integrator
specializing in the use of robotics and flexible automation solutions for
manufacturing processes, which further broadened our expertise in these areas.
As a result of our internal growth and strategic acquisitions, we are a leading
supplier of high-precision optics, instruments, micro-positioning and
measurement products and systems to manufacturers of fiber optic communications
equipment and semiconductor equipment worldwide. In addition, we continue to
focus on our core strengths in research test and measurement equipment to
provide ultra-precision motion and measurement technologies for research
applications. We seek to leverage our expertise in research laboratory equipment
to continue to expand product offerings for commercial applications.
Products and Services
We develop and sell a broad range of components, instruments, subsystems and
systems to markets where high-precision manufacturing, test and assembly are
critical. The products are used in mission-critical applications in industries
including fiber optic device manufacturing, semiconductor equipment
manufacturing and life and health sciences. We develop, manufacture and market
products within three distinct business segments, organized around customer and
manufacturing requirements. This structure enables us to quickly incorporate
customer feedback into new products and to respond rapidly to changing market
requirements.
Fiber Optics and Photonics
The Fiber Optics and Photonics division offers a broad line of automated
manufacturing systems. These products address a wide spectrum of applications in
the fiber optic component manufacturing process, from pre-test to assembly and
packaging to final device testing and burn-in. Our integrated systems enable
component manufacturers to significantly increase the productivity and capacity
of their manufacturing operations. In addition, we provide customers with value-
added product and process engineering services and device packaging services.
Pre-Test
The pre-test products automate the verification of devices used in fiber optic
components, such as laser diodes, to ensure their integrity prior to the start
of the assembly process. We offer a range of products that increase the
efficiency of the pre-test process, including:
- -----------------------------------------------------------------------------------------------------------------------
Product Application
- -----------------------------------------------------------------------------------------------------------------------
Broad Area Test Stations Automated testing and validation of devices on semiconductor
wafers
- -----------------------------------------------------------------------------------------------------------------------
AutoBar Test and Characterization System Automated test and characterization of unmounted laser diode
chips, laser bars, chip on carrier (COC) and other devices
- -----------------------------------------------------------------------------------------------------------------------
AutoAlign(TM) Characterization Workstations Automated alignment, test and characterization of laser diodes
and planar waveguides
- -----------------------------------------------------------------------------------------------------------------------
Chameleon Nano Vision and Cognito Micromeasurement Non-contact dimensional and defect analysis of V-grooves,
Systems fibers and fiber arrays, MEMS devices, laser diodes and
waveguides
- -----------------------------------------------------------------------------------------------------------------------
Assembly and Packaging
The assembly and packaging of fiber optic devices require a high degree of
precision. Manufacturers have traditionally used manual assembly techniques for
fiber optic components, which are costly, result in low production yields and
produce inconsistent quality. We offer a line of integrated assembly and
packaging
Page 3
systems which automate these processes and help reduce manufacturing times,
increase yields and enhance quality. Assembly and packaging products
include:
- -----------------------------------------------------------------------------------------------------------------------
Product Application
- -----------------------------------------------------------------------------------------------------------------------
AutoAlign and AMS(TM) Assembly Workstations Automated assembly of waveguides, laser diodes, MEMS devices
and fiber arrays using soldering and adhesive techniques
- -----------------------------------------------------------------------------------------------------------------------
LaserWeld and AMS(TM) Laserweld Automated Packaging High-precision automated assembly of optoelectronic components
Workstations using laser welding processes
- -----------------------------------------------------------------------------------------------------------------------
ULTRAlign Optical Component Positioning System Positioning systems for manual alignment of optical fibers and
devices
- -----------------------------------------------------------------------------------------------------------------------
ORION Semi-automated Fiber Alignment System High-precision fiber-to-fiber and fiber-to-device alignment
systems for low-volume applications
- -----------------------------------------------------------------------------------------------------------------------
Final Device Testing and Burn-In
Fiber optic devices must meet rigorous reliability and performance
specifications, including a requirement for 20 to 30 year life cycles and
the ability to perform in harsh weather conditions or even under water.
These performance standards require manufacturers to perform extensive
testing of the completed devices. We offer standardized systems which
automate the burn-in and test process, including:
- -----------------------------------------------------------------------------------------------------------------------
Product Application
- -----------------------------------------------------------------------------------------------------------------------
Butterfly Module Test Station High-precision characterization of performance data of
butterfly modules during the manufacturing process and final
Quality Assurance checks
- -----------------------------------------------------------------------------------------------------------------------
Chip-on-Carrier and Coaxial Burn-in and Test Systems High-volume precision burn-in and testing of COC and coaxial
devices
- -----------------------------------------------------------------------------------------------------------------------
Butterfly Module Burn-in and Testing Racks High-volume precision control and monitoring of long- term
burn-in and life testing of butterfly modules
- -----------------------------------------------------------------------------------------------------------------------
Model 8800 Photonics Test System Modular instrumentation platforms for testing and qualification
of optical fibers and passive fiber optic components
- -----------------------------------------------------------------------------------------------------------------------
Instruments
We offer several lines of instrumentation that are integral or
complementary to the development of fiber optic components, including:
- -----------------------------------------------------------------------------------------------------------------------
Product Application
- -----------------------------------------------------------------------------------------------------------------------
Power Meters Measure optical power for free space and fiber directed laser
light
- -----------------------------------------------------------------------------------------------------------------------
Laser Diode Instruments Temperature and current controllers for maintaining stability
of laser diodes
- -----------------------------------------------------------------------------------------------------------------------
Tunable Laser Sources DWDM and Optical Spectrum Analyzer calibration, testing of
Erbium Doped Fiber Amplifiers
- -----------------------------------------------------------------------------------------------------------------------
Optical Spectrum Analyzers Characterization of light emitted by laser diodes, ion lasers
and solid state lasers
- -----------------------------------------------------------------------------------------------------------------------
Engineering and Manufacturing Services
Due to our experience in fiber optic device assembly, packaging and testing
technology we have a deep knowledge base and expertise in the processes and
technologies necessary to build high-precision fiber optic components. In
addition, our recent acquisitions of Unique and DTC have expanded our knowledge
base and expertise in the use of robotics and flexible automation solutions for
the manufacture of fiber optic components. We apply this expertise to assist our
customers in designing device packaging,
Page 4
developing manufacturing processes, developing and producing tooling and
programming customized process automation software. These services help
customers significantly reduce the development cycle for their products and
improve the productivity, yields and quality of their manufacturing
processes. In addition to helping customers become more productive, these
services assist us in establishing a long-term relationship with our
customers and allow us to identify additional opportunities for new
products. We also offer device manufacturing and packaging services to
enable customers to design and test new products.
Industrial Metrology Systems
The Industrial Metrology Systems division's products provide a broad range
of non-contact video-based measurement and inspection products and touch
probe measurement products for a number of industrial markets, including
the transportation, automotive, computer peripherals, and life and health
sciences markets. The systems and subsystems from this division incorporate
years of experience and expertise in core technologies such as precision
motion, vibration control and measurement. The Industrial Metrology
Systems' product lines include:
- -------------------------------------------------------------------------------------------------------------------------
Product Application Markets
- -------------------------------------------------------------------------------------------------------------------------
Polaris Dimensional . Computer Peripherals
measurement of disk
drive heads
- -------------------------------------------------------------------------------------------------------------------------
DataStar/Galaxy Automated Measurement High-precision . Fiber Optic Components
Systems dimensional . Industrial Manufacturing
measurements to verify . Life and Health Sciences
manufacturing . Semiconductors
tolerances . Transportation
- -------------------------------------------------------------------------------------------------------------------------
Sprint and Mini/AutoMap Manual Inspection High-precision manual . Fiber Optic Components
Systems dimensional . Industrial Manufacturing
measurements to verify . Life and Health Sciences
manufacturing . Semiconductors
tolerances . Transportation
- -------------------------------------------------------------------------------------------------------------------------
Video Direct Microscopes High magnification for . Fiber Optic Components
visual/video inspection . Industrial Manufacturing
and assembly of small . Life and Health Sciences
parts . Semiconductors
. Transportation
. Research
- -------------------------------------------------------------------------------------------------------------------------
Automatic Stent Inspection System Non-contact dimensional . Life and Health Sciences
inspection and defect
analysis of cardiac
stents
- -------------------------------------------------------------------------------------------------------------------------
JoWin/Ruby Automated Contact Measurement High-precision dimensional . Automotive
Systems measurements to verify . Industrial manufacturing
manufacturing tolerances . Aerospace
. Transportation
. Research
- ----------------------------------------------------------------------------------------------------------------------------
Contact Coordinate Measurement Machines High accuracy contact . Automotive
Dimensional inspection . Industrial manufacturing
. Aerospace
. Transportation
. Research
- -------------------------------------------------------------------------------------------------------------------------
Page 5
Industrial and Scientific Technologies
The Industrial and Scientific Technologies division's products are used across a
wide range of industrial markets for applications that range from basic research
and development activities to high-precision manufacturing. In addition, we sell
systems and subsystems to third parties that integrate these products into
larger systems, particularly for semiconductor manufacturing. Our industrial and
scientific products address a wide range of markets, including fiber optic
communications, semiconductor equipment, life and health sciences, analytical
instruments, aerospace and research. These products and technologies also form
the foundation of our integrated, automated systems that we sell in our other
divisions. We believe that Industrial and Scientific Technologies customers
develop an appreciation for the quality of our products which makes them more
likely to buy integrated, automated systems from us as the need for production
and test systems grows.
- ------------------------------------------------------------------------------------------------------------------------
Category Products Applications
- ------------------------------------------------------------------------------------------------------------------------
Motion Control Linear and rotational stages . High-precision positioning and motion control
Devices, Elevational devices apparatus for manufacturing and test
Systems and Actuators applications
Subsystems Simple and programmable motion controllers . Precision alignment in fiber optic,
for linear stepping and DC motors telecommunication and laser devices
Motion systems assembly
Air bearing stages . Precision positioning of semiconductor wafers
for defect detection
. Sample sorting and sequencing for DNA
research
- ------------------------------------------------------------------------------------------------------------------------
Vibration Isolation Optical benches and support systems . Reduction of impact of external forces on
Systems and Workstations high-precision research, manufacturing test
Subsystems Active and passive isolation systems and assembly systems
Honeycomb, granite and rigid structures . Structures for optical fiber fabrication
Elastomeric mounts . Scanning Electron Microscope/Atomic Force
Microscope base isolation
. Wire bonding equipment base isolation
. Isolated floor for Wafer Stepper equipment
- ------------------------------------------------------------------------------------------------------------------------
Manual Optical mounts . Manual, high-precision alignment of optical
Positioning Bases and brackets instruments
Components Posts and rod systems . Manual assembly of fiber optic devices
Translation and rotation stages . Subsystems used for high-speed cell sorting
Micro interferometer for genomic research
Laser-to-fiber couplers . Semiconductor reticule inspection equipment
Manual fiber optic positioners
Educational kits
- ------------------------------------------------------------------------------------------------------------------------
Optics Lenses . Components for research and product
Optical systems development activities
Mirrors . Deep UV illumination optics for
Prisms and windows semiconductor lithography
Filters and attenuators . Thin film measurement of semiconductor
Collimators wafers for defect inspection
Ultrafast laser optics
Beamsplitters and polarization optics
- ------------------------------------------------------------------------------------------------------------------------
We also offer subassemblies that are a value-added combination of standard and
custom products drawn from the components, optics, motion control and vibration
isolation product lines. We combine these items with additional engineering to
create more highly integrated products to meet customer needs. These products
are often subsystems of our OEM customer's products. This product line offers a
strategic
Page 6
competitive advantage allowing us to differentiate ourselves from competitors
that only offer a limited product selection.
Sales and Marketing
We market components and systems through an internal sales and marketing staff,
an internal field sales organization, an international network of distributors
and sales representatives, technical catalogs and our website. As of December
31, 2000, we had 25 company-employed field sales persons and 74 independent
representatives and distributors located in the United States. In international
markets, we have 54 field sales personnel based in France, Germany, the United
Kingdom, Switzerland, Sweden, Italy, the Netherlands, Canada and Taiwan,
together with 144 independent representatives and distributors located in
countries where we do not have a direct presence. Our customers often have
unique technical specifications and manufacturing processes, and may require
specific system, subsystem or component designs. This requires close cooperation
between the sales representatives and distributors and the engineering staff,
and results in long sales cycles for products.
We have written agreements with each of our representatives and distributors. In
some cases we have granted representatives and distributors exclusive
authorization to sell certain of our products to a specific geographic area.
These agreements generally have terms of one year and are renewable on an annual
basis. Either party can terminate the agreement without cause by providing 90
days written notice to the other party or immediately by providing written
notice to the other party, upon the occurrence of certain specified events.
These agreements are generally not assignable without prior approval. Most
agreements are structured to provide distributors with sales discounts off of
the domestic list price. Representatives are generally paid commissions for
sales of products. No single independent representative or distributor accounted
for more than 5% of revenues in 2000 and all independent representatives and
distributors combined accounted for less than 10% of revenues in 2000.
In addition to sales representatives and distributors, we also market our
standard products through our product catalogs and website. The principal
marketing tool for the scientific market is a comprehensive set of product
catalogs. These documents, numbering approximately 1,100 pages in total, provide
detailed product information as well as extensive technical and applications
data. These catalogs are published in English, French, German and Japanese and
mailed annually to more than 100,000 potential customers. Our website provides
customers with access to the latest products, a literature and information
request form, technical/tutorial and application related material, market
surveys, sales information (including catalogs), and the ability to purchase a
majority of our standard products.
Research and Product Development
We continually seek to improve our technological position through internal
research, product development and licensing, and acquisitions of complementary
technologies. As of December 31, 2000, we had 228 employees engaged in research
and development. We continually work to enhance existing products and to develop
and introduce innovative new products to satisfy the needs of customers. In
addition, we regularly investigate new ways to combine components manufactured
by various divisions to produce innovative technological solutions for the
markets we serve. Research and development expenses were $21.7 million, or 8.6%
of net sales, in 2000 and $13.3 million, or 9.2% of net sales, in 1999. We are
committed to continued product development and expect that R&D expenditures will
increase in absolute dollars in future periods.
Our research and development efforts may not be successful, our new products may
not be developed on a timely basis or achieve customer acceptance, and our
customers' products may not achieve market acceptance. Failure to develop, or
introduce on a timely basis, new products or product enhancements that achieve
market acceptance could have a materially adverse effect on our business,
operating results or financial condition.
Page 7
Competition
The markets for our products are intensely competitive and characterized by
rapidly changing technology. We believe that the primary competitive factors in
our markets are:
. product features and performance;
. quality and reliability;
. customer relationships;
. ability to manufacture and deliver products on a timely basis;
. pricing; and
. ability to customize products to customer specifications.
We believe that we currently compete effectively with respect to each of these
factors. However, we may not be able to compete successfully in the future
against existing or new competitors.
We compete in various markets against a number of companies, many of which have
longer operating histories, greater name recognition and significantly greater
technical, financial, manufacturing and marketing resources than we do. In
addition, some of these companies have long established relationships with our
customers and potential customers in our markets. In the fiber optic
communications market, the primary competition currently comes from certain of
our existing and potential customers, who have developed or may develop their
own manufacturing and test equipment. In the video metrology market, the primary
competitors are currently Optical Gauging Products, Mitutoyo, View Engineering
and Deltronic.
In addition to current competitors, we believe that new competitors, some of
whom may have substantially greater financial, technical and marketing resources
than us, will seek to provide products to one or more of our markets in the
future. Such future competition could harm our business.
Intellectual Property and Proprietary Rights
Our success and competitiveness depends to an extent on our technology and other
intellectual property such as trademarks. We protect our technology through the
use of patents, trademark registrations, exclusive marketing rights and
licenses. We have been granted a number of patents in the U.S. and foreign
jurisdictions. We also have trademarks registered in the U.S. and foreign
jurisdictions. We actively pursue applications for new patents and trademarks as
the need arises.
We generally control access to our proprietary information, and maintain
confidentiality agreements with our employees and consultants, as well as
licensing agreements with our corporate partners. It is possible that, despite
our efforts, other parties may use, obtain or try to copy our products and
technology. Policing unauthorized use of our products and technology is
difficult and time consuming. We cannot guarantee you that the steps we take to
protect our rights will prevent any misappropriation of our products or
technology. This is particularly the case in foreign jurisdictions, where the
intellectual property laws may not afford our intellectual property rights the
same protection as the laws of the United States. In addition, infringement,
invalidity, right to use or ownership claims by third parties may be asserted
against us in the future, which claims could materially harm our business,
operating results or financial condition, regardless of the outcome.
Manufacturing
We assemble, test and package components and systems at domestic manufacturing
facilities located in Chandler, Arizona; Garden Grove, California; Irvine,
California; Richmond, California; San Luis Obispo, California; Santa Ana,
California; Longmont, Colorado; Billerica, Massachusetts; and Plymouth,
Minnesota. International manufacturing facilities are located in France and
Sweden.
Our manufacturing processes are diverse and consist of: purchasing raw
materials, principally stainless
Page 8
steel, aluminum and glass; processing the raw materials into components,
subassemblies and finished products; purchasing components, assembling and
testing components and subassemblies; and, for our larger products, assembling
the subassemblies and components into integrated systems. We seek to primarily
design and manufacture components internally, although on a limited basis, we
purchase completed products from certain suppliers and resell those products
through our distribution system. Most of these completed products are produced
to specifications and carry our logo.
We currently procure various components from single-sources due to unique
component designs as well as certain quality and performance requirements. In
addition, we manufacture certain components internally, from which there are no
readily available suppliers. If single-sourced components were to become
unavailable or were to become unavailable on terms satisfactory to us, we would
be required to purchase comparable components from other sources. If for any
reason we could not obtain comparable replacement components from other sources
in a timely manner, our business, results of operations or financial condition
could be adversely affected.
Employees
As of February 28, 2001, we had 1,744 employees worldwide. None of our employees
are represented by a union. We believe that the relationship with our employees
is good.
Backlog
The consolidated backlog of products totaled $145.5 million and $34.1 at
December 31, 2000 and 1999, respectively. We manufacture a significant portion
of our products for inventory to provide the capability to make shipments upon
receipt of an order. As a result of these short response times and because
orders are generally cancelable with little or no penalty, we do not believe
that the backlog of orders at any particular date is a meaningful indicator of
sales for any succeeding period.
As a result of manufacturing products in advance of receiving orders, we may at
any given time have high levels of inventory. Such levels of inventories
increase our expenses and the amount of resources invested in working capital.
In addition, as the markets we serve are characterized by rapid technological
change, excess inventory levels increase the risk of product obsolescence.
Investments
In addition to the ownership of subsidiaries detailed in Exhibit 21 of this Form
10-K, we have minority ownership interests in several domestic companies
involved in manufacturing laser-related and other high technology products.
ITEM 2 Properties
Our corporate headquarters is located in Irvine, California. We lease this
facility under a fifteen-year lease expiring in March 2007. International
manufacturing operations are in owned facilities at Beaune and La Boulonnie,
France and in leased facilities at Eskilstuna, Sweden. Domestic manufacturing
operations are in leased facilities at Chandler, Arizona; Garden Grove,
California; Irvine, California; Richmond, California; San Luis Obispo,
California; Santa Ana, California; Longmont, Colorado; Billerica, Massachusetts;
and Plymouth, Minnesota. We lease office space in Santa Clara, California for
our Western Region sales, service and application center. We lease sales and
administration offices in Evry, France and Eskilstuna Sweden. We lease
additional sales and service offices in Germany, England, Switzerland, Italy,
the Netherlands, Canada and Taiwan, with leases expiring at various dates
through 2011. Our centralized European distribution center, formerly located at
leased facilities in the Netherlands, was relocated to the facility in Beaune,
France during the second quarter of 1999. We believe that these facilities are
adequate for our current needs and that suitable additional or substitute space
will be available in the future to accommodate expansion of the operations. In
1991, we acquired, in connection with the acquisition of
Page 9
Micro-Controle, a building in Evry, France. In 2000, we sold this property for
approximately $0.5 million.
ITEM 3 Legal Proceedings
In August 1999, Newport Electronics, a manufacturer of electronic devices, filed
suit against us in Federal District Court in Connecticut, claiming that our use
of the "Newport" trademark infringes their rights with respect to such mark. We
are vigorously defending our position in this litigation, however, we are unable
to predict the outcome of the case due to the complex nature of this litigation.
This case, if adversely determined, could have certain adverse effects on our
business, including potential monetary damages and being enjoined from using the
"Newport" mark in conjunction with certain classes of products.
Other than the foregoing, we are not a party to any material litigation.
ITEM 4 Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during the fourth
quarter of the year ended December 31, 2000.
PART II
ITEM 5 Market For the Registrant's Common Equity and Related Security Holder
Matters
Price Range of Common Stock
Our common stock is traded on the NASDAQ National Market under NASDAQ symbol
NEWP. As of December 31, 2000, we had 1,221 common stockholders of record. Refer
to Note 16, Supplementary Quarterly Consolidated Financial Data (Unaudited), of
Notes to Consolidated Financial Statements on page 44 for quarterly share price
and dividend payments.
Recent Sales of Unregistered Securities
During the year ended December 31, 2000, we issued an aggregate of 285,847
shares of our common stock in connection with the purchase of the capital stock
of Unique Equipment Company and the business of CE Johansson AB. The shares were
issued pursuant to exemptions by reason of Section 4(2) of the Securities
Exchange Act of 1933, as amended (the "Securities Act"). These sales were made
without general solicitation or advertising. Each purchaser was an accredited
investor or a sophisticated investor with access to all relevant information
necessary. We have filed Registration Statements on Form S-3 covering the resale
of such securities.
Page 10
ITEM 6 Selected Financial Data
The table below presents selected financial data of the Company and its
subsidiaries as of and for the years ended December 31, 2000, 1999, 1998, 1997,
and 1996, restated to include financial information of Unique which was
accounted for as a pooling of interests. This data does not include the pooling
effects of KLI, a subsequent event included in Note 17.
(In thousands, except percent, per share and worldwide employment)
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
FOR THE YEAR:
Net sales $252,853 $144,112 $142,825 $143,324 $128,472
Cost of sales 142,479 81,646 80,407 80,795 71,984
-------- -------- -------- -------- --------
Gross profit 110,374 62,466 62,418 62,529 56,488
Selling, general and administrative 54,786 36,760 34,402 37,703 38,463
Research and development 21,704 13,300 11,738 9,490 8,204
-------- -------- -------- -------- --------
Income from operations 33,884 12,406 16,278 15,336 9,821
Interest expense 1,927 1,785 1,891 1,992 1,931
Interest income 8,428 144 510 278 151
Other income (expense), net (421) 59 (336) (559) 370
-------- -------- -------- -------- --------
Income before income taxes 39,964 10,824 14,561 13,063 8,411
Income tax provision 12,145 2,956 3,365 3,030 1,705
-------- -------- -------- -------- --------
Net income $ 27,819 $ 7,868 $ 11,196 $ 10,033 $ 6,706
======== ======== ======== ======== ========
Percent of net sales:
Gross profit 43.7% 43.3% 43.7% 43.6% 44.0%
Selling, general and administrative 21.7 25.5 24.1 26.3 30.0
Research and development 8.6 9.2 8.2 6.6 6.4
Income from operations 13.4 8.6 11.4 10.7 7.6
Net income 11.0 5.5 7.8 7.0 5.2
PER SHARE: (1) (2)
Net income
Basic $ 0.93 $ 0.29 $ 0.41 $ 0.37 $ 0.26
Diluted 0.86 0.28 0.40 0.36 0.25
Dividends paid 0.02 0.01 0.01 0.01 0.01
Equity (diluted) 14.55 2.72 2.55 2.21 2.13
AT YEAR END:
Cash and marketable securities $300,006 $ 3,055 $ 6,135 $ 8,591 $ 3,827
Working capital 414,044 46,522 49,409 44,478 40,654
Total assets 531,712 124,564 112,028 109,680 110,792
Total debt 12,696 27,360 21,235 23,407 24,700
Stockholders' equity 470,235 77,778 72,112 61,104 57,731
MISCELLANEOUS STATISTICS
Common shares outstanding (2) 32,643 27,860 27,523 27,019 26,835
Diluted shares outstanding (2) 32,309 28,549 28,316 27,703 27,116
Annual average worldwide employment 1,128 859 836 808 767
Sales per employee $ 224 $ 168 $ 171 $ 177 $ 167
(1) Net income and equity per share (diluted) for 1996 has been restated as
necessary to conform with the requirements of Statement of Financial
Accounting Standards No. 128, Earnings Per Share (SFAS No.128).
(2) Per share amounts have been restated as necessary to reflect the May 2000
three-for-one stock split.
Page 11
ITEM 7 Management's Discussion and Analysis of Financial Condition and
Results of Operations
This Item contains forward-looking statements that involve risks and
uncertainties and actual results could differ materially from those anticipated
in such statements, as a result of various factors including those described
below in "Risks Relating To Our Business."
OVERVIEW
The following is a discussion and analysis of certain significant factors that
have affected the results of operations and financial condition during the
period included in the accompanying financial statements. This discussion
should be read in conjunction with the financial statements and associated
notes.
In October 1998, we acquired Environmental Optical Sensors, Inc. ("EOSI"), a
provider of high-precision assembly and test equipment for the fiber optic
communications market. In October 1999, we acquired the west coast commercial
optics operation of Corning OCA Corporation, a subsidiary of Corning
Incorporated (renamed Newport Precision Optics Corporation or "NPOC"), which
manufactures specialized precision optical products and systems. In August
2000, we acquired Unique Equipment Co. ("Unique"), a systems integrator
specializing in the use of robotics for the fiber optics and semiconductor
industries. In December 2000, we acquired the business of CE Johansson AB
("CEJ"), a Swedish based global supplier of advanced metrology systems. The
EOSI, NPOC and CEJ acquisitions were accounted for using the purchase method.
The Unique acquisition was accounted for as a pooling of interests. This
discussion includes the effects of the acquisition of Unique for all years
presented and the effect of the acquisitions of EOSI, NPOC and CEJ from the
start of their respective acquisition.
Amounts in 1999 include net sales of $2.5 million representing one extra month
of sales from the European operations. The additional net sales stem from a
reporting change in the second quarter of 1999 that eliminated a one-month lag
in the reporting of European results. Without the change, 1999 net sales would
have been $141.6 million, while net income would not have been materially
different. Earnings per share were not impacted by the change.
RESULTS OF OPERATIONS
Financial Analysis The following table sets forth, for the periods indicated,
certain income and expense items expressed as a percent of net sales and as
period-to-period percent increases or decreases:
Period-to-Period
Percent of Net Sales Increase (Decrease)
----------------------------- -------------------
2000 1999 1998 2000 1999
---- ---- ---- ---- ----
Net sales 100.0% 100.0% 100.0% 75.5% 0.9%
Cost of sales 56.3 56.7 56.3 74.5 1.5
----- ----- -----
Gross profit 43.7 43.3 43.7 76.7 0.1
Selling, general and
administrative expense 21.7 25.5 24.1 49.0 6.9
Research and
development expense 8.6 9.2 8.2 63.2 13.3
----- ----- -----
Income from operations 13.4 8.6 11.4 173.1 (23.8)
Interest expense 0.8 1.2 1.3 8.0 (5.6)
Interest income 3.3 0.1 0.4 NM (71.8)
Other income (expense), net (0.1) 0.0 (0.3) NM 117.6
----- ----- -----
Income before income taxes 15.8 7.5 10.2 269.2 (25.7)
Income tax provision 4.8 2.0 2.4 310.9 (12.2)
----- ----- -----
Net income 11.0 5.5 7.8 253.6 (29.7)
===== ===== =====
NM = not meaningful
Page 12
Net Sales For 2000, 1999 and 1998, our net sales totaled $252.9 million, $144.1
million and $142.8 million, respectively. Net sales for 2000 increased $108.8
million, or 75.5%, as compared with 1999, due primarily to sales increases in
the fiber optic communications and semiconductor equipment markets. Net sales
for 1999 increased $1.3 million, or 0.9%, as compared with 1998, due primarily
to sales increases in the fiber optic communications and general metrology
markets, offset in part by sales declines in the computer peripherals and
aerospace and research markets.
Sales to the fiber optic communications market in 2000 were $110.0 million, an
increase of $75.7 million, or 220.7%, as compared with 1999. Sales to the
semiconductor equipment market in 2000 were $42.1 million, an increase of $27.9
million, or 197.0%, as compared with 1999. 2000 sales to the other market
segments, which include the general metrology, aerospace and research, and
computer peripherals markets, were $100.8 million, an increase of $5.2 million,
or 5.3%, as compared with the prior year. In 1999, sales to the fiber optic
communications market were $34.3 million, an increase of $13.3 million, or
63.0%, over 1998. 1999 sales to the semiconductor equipment market were $14.2
million, a decrease of $0.2 million, or 1.4%, as compared with 1998. 1999 sales
to the other market segments were $95.6 million, a decrease of $11.8 million, or
11.0%, versus 1998.
For 2000, 1999 and 1998, domestic sales were $170.1 million, $91.9 million and
$95.7 million, respectively. Domestic sales in 2000 increased $78.2 million, or
85.1%, versus 1999, due primarily to sales increases in the fiber optic
communications and semiconductor equipment markets of $49.1 million, or 221.6%,
and $25.4 million, or 224.0%, respectively. All other market segments combined,
including computer peripherals, aerospace and research and general metrology,
increased $3.7 million, or 6.3%, over 1999. Domestic sales in 1999 decreased
$3.8 million, or 4.0%, as compared with 1998. The sales increase in 1999 of
$10.5 million, or 89.6%, to the fiber optic communications market was offset by
sales declines of $0.5 million, or 3.9% to the semiconductor equipment market,
$9.2 million, or 50.8% to the computer peripherals market and $4.0 million, or
14.7% to the aerospace and research markets.
International sales totaled $82.8 million, $52.2 million and $47.1 million for
2000, 1999 and 1998, respectively. For 2000, international sales increased
$30.6 million, or 58.6%, versus 1999. International sales in 1999 included net
sales of $2.5 million representing one extra month of sales from our European
operations, due to a reporting change in the second quarter of 1999 that
eliminated a one-month lag in the reporting of European results. Without such
change, 1999 international sales would have been $49.7 million. The increase in
international sales in 2000 as compared with 1999 was due primarily to an
increase of $26.6 million, or 218.9%, in sales to international fiber optic
communications customers, an increase of $2.5 million, or 89.1%, in sales to the
semiconductor equipment market, and an increase in international sales to all
other market segments combined of $1.5 million, or 3.8%. Geographically, the
increase in 2000 sales were driven primarily from European, Canadian and Pacific
Rim customers with increases of $8.3 million, or 25.4%, $13.0 million, or
113.2%, and $9.1 million, or 144.9%, respectively, over 1999. International
sales in 1999 increased $5.1 million, or 10.9% versus 1998. The increase in
international sales in 1999 as compared with 1998 was due primarily to an
increase of $2.8 million, or 32.5%, in sales to international fiber optic
communications customers, an increase of $0.2 million, or 9.6%, in sales to
international semiconductor equipment customers and an increase of $4.4 million,
or 32.6%, in sales to international general metrology customers, partially
offset by a decrease of $2.3 million, or 11.5%, in sales to international
aerospace and research customers. Geographically, European, Canadian and
Pacific Rim sales in 1999 increased $2.2 million, or 7.1%, $2.5 million, or
65.3%, and $1.7 million, or 17.2%, respectively, over 1998, while sales to Latin
American customers decreased $1.2 million, or 53.1%
Gross Margin Gross margin was 43.7%, 43.3% and 43.7% for 2000, 1999 and 1998,
respectively. The gross margin increase from 1999 to 2000 was attributable to a
mix shift towards higher margin product and system sales to the fiber optic
communications market. Sales of these higher margin product and systems sales
were offset partially by higher growth rates in sales to semiconductor OEM
customers, which generally have lower margins.
Page 13
Selling, General and Administrative (SG&A) Expense SG&A expenses totaled $54.8
million, or 21.7% of net sales, $36.8 million, or 25.5% of net sales, and $34.4
million, or 24.1% of net sales for 2000, 1999 and 1998, respectively. SG&A
expenses, which increased $18.0 million, or 49.0%, versus 1999, were leveraged
against the net sales increase of 75.5% and primarily resulted from increases in
expenses tied to the sales and profit growth. SG&A expense in 1999 increased
$2.4 million, or 6.9%, versus 1998, due in part to the inclusion of an
additional month of expenses from the change in European reporting, which added
$0.9 million of expenses to 1999, and to the inclusion of additional costs from
companies acquired.
Research and Development (R&D) Expense R&D expenses totaled $21.7 million,
$13.3 million and $11.7 million for 2000, 1999 and 1998, respectively. R&D
expenses represented 8.6%, 9.2% and 8.2% of net sales in 2000, 1999 and 1998,
respectively. R&D expenses increased $8.4 million, or 63.2%, in 2000, and $1.6
million, or 13.3%, in 1999 as compared with 1998. The increases in both years
were attributable primarily to increased personnel costs related to the
development of a number of new products and product enhancements including
extending the range of our automated packaging and test equipment product lines
for the fiber optic communications market, technology enhancements to the
LaserWeld and AutoAlign packaging workstations, and the development of laser
diode burn-in and characterization systems. We are committed to continued
product development and intend to maintain R&D expenditures at a level between
8% and 9% of net sales for the development of new products and product
improvements.
Interest Expense and Interest Income Interest expense totaled $1.9 million,
$1.8 million and $1.9 million for 2000, 1999 and 1998, respectively. Although a
majority of the debt is at fixed interest rates, we anticipate that interest
expense for 2001 will decrease slightly from 2000 because the long term debt
will be reduced by principal payments of $2.5 million in the second quarter and
$2.5 million in the fourth quarter.
In July 2000, we completed a secondary public offering of which net proceeds of
$329.9 million (after underwriting discounts and commissions) were received in
August 2000. Interest income totaled $8.4 million, $0.1 million and $0.5
million for 2000, 1999 and 1998, respectively. The increase in the interest
income is attributable to the investment of the proceeds from the secondary
public offering.
Taxes Based On Income The effective tax rates for 2000, 1999 and 1998 were
30.4%, 27.3% and 23.1%, respectively. Due to substantially higher pretax income
in 2000, tax benefits primarily associated with the Company's foreign sales
corporation and various tax credits did not have as great an impact on the
effective tax rate as in the prior year, which resulted in a higher effective
tax rate versus 1999. The increase in the effective tax rate for 1999 compared
with 1998 was primarily the result of earnings attributable to the Unique
pooling combination for which a tax provision was not presented due to Unique's
S-Corp income tax status.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in our operating activities in 2000 of $23.6 million resulted from
the significant growth of the Company in 2000. The usage was primarily
attributable to the increase in primary working capital (defined as customer
receivables and inventories less accounts payable) and deferred income taxes,
partially offset by net income, plus non-cash charges for depreciation and
amortization. Customer receivables increased by $31.5 million, or 96.4%, in
2000, while the days sales outstanding ratio improved to 70 days in 2000 from 74
days in 1999. Inventories increased 96.6% in 2000 over 1999 levels, due
primarily to production planning associated with our goal of maintaining
competitive manufacturing lead times, and to the inclusion of inventory from CEJ
in 2000 for which there was no comparable inventory in 1999. Inventory turns
improved to 2.5 times in 2000 from 2.2 times in 1999. Accounts payable
increased $16.7 million, or 240.1%, in 2000 compared with 1999, primarily as a
result of higher inventory levels.
Net cash used in investing activities in 2000 of $305.5 million was attributable
principally to the purchases and sales of marketable securities and property,
plant and equipment, net of disposals.
Page 14
Net cash provided by financing activities in 2000 of $336.2 million was
attributable principally to the proceeds from the secondary offering and the
issuance of common stock in connection with stock option and purchase plans.
This increase was offset in part by a decrease in our line of credit and long-
term borrowings.
At December 31, 2000, the Company had in place a $20.0 million unsecured line of
credit expiring May 30, 2003 and a $20.0 million unsecured line of credit
expiring May 30, 2001. Both lines bear interest at either the prevailing prime
rate, or the prevailing London Interbank Offered Rate plus 1.0%, at the
Company's option, plus an unused line fee of 0.2% per year. At December 31,
2000, there was no outstanding balance under either line of credit, with $39.4
million available under the combined lines, after considering outstanding
letters of credit. In March 2001, we amended these lines of credit to be $10.0
million each.
We believe our current working capital position together with estimated cash
flows from operations and existing credit availability are adequate to fund
operations in the ordinary course of business, anticipated capital expenditures
and debt payment requirements, and for at least the next twelve months.
However, this belief is based upon many assumptions and is subject to numerous
risks (see "Risks Relating To Our Business," below), and there can be no
assurance that we will not require additional funding in the future.
Although we have no present agreements or commitments with respect to any
material acquisitions of other businesses, products, product rights or
technologies, we continue to evaluate acquisitions of products, technologies or
companies that complement our business and may make such acquisitions in the
future. Accordingly, there can be no assurance that we will not need to obtain
additional sources of capital to finance any such acquisitions.
European Economic and Monetary Union (EMU) - New European Currency
On January 1, 1999, member countries of the European Economic and Monetary Union
established fixed conversion rates between their existing national currencies
and one common currency - the euro. The euro trades on currency exchanges and,
during a three-year dual-currency transition period, either the euro or the
national currencies may be used in business transactions. Beginning in January
2002, new euro-denominated bills and coins will be issued, and the national
currencies will be withdrawn from circulation. Our operating subsidiaries
affected by the euro conversion have implemented and are implementing plans to
address the systems and business issues raised by the euro currency conversion.
These issues include, among others, (1) the need to adapt computer and other
business systems and equipment to accommodate euro-denominated transactions; and
(2) the competitive impact of cross-border price transparency, which may make it
more difficult for businesses to charge different prices for the same products
on a country-by-country basis, particularly once the euro currency is issued in
2002. While we anticipate that the euro conversion will not have a material
adverse impact on our financial condition or results of operations, there can be
no assurance that key vendors, customers and distributors will not be affected
by such euro currency issues, which could have an adverse effect on our
business, operating results and financial condition. Further, there can be no
assurance that the currency market volatility will not increase, which could
have an adverse effect on our euro exposures.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, Accounting for Derivative Instruments
and Hedging Activities (SFAS No. 133). SFAS No. 133 establishes a new model for
accounting for derivatives and hedging activities and supercedes and amends a
number of existing accounting standards. SFAS No. 133 requires that all
derivatives be recognized in the balance sheet at their fair market value and
the corresponding derivative gains or losses be either reported in the statement
of operations or as a deferred item depending on the type of hedge relationship
that exists with respect of such derivatives. In July 1999, the Financial
Accounting Standards Board issued Statement of Financial Accounting Standards
No. 137, Accounting for Derivative Instruments
Page 15
and Hedging Activities-Deferral of the Effective Date of SFAS No. 133 (SFAS No.
137). SFAS No. 137 deferred the effective date until the year beginning after
June 30, 2000. In June 2000, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 138, Accounting for Derivative
Instruments and Hedging Activities-An Amendment of SFAS Statement No. 133 (SFAS
No. 138). SFAS No. 138 amends the accounting and reporting standards for certain
derivatives and hedging activities such as net settlement contracts, foreign
currency transactions and intercompany derivatives. We will adopt SFAS No. 133
in our quarter ending March 31, 2001. We do not anticipate that the adoption of
SFAS No. 133 will have a significant impact on our results of operations,
financial position or cash flow.
In December 1999, the Securities and Exchange Commission ("SEC") issued Staff
Accounting Bulletin No. 101, Revenue Recognition in Financial Statements (SAB
No. 101), which provides guidance on the recognition, presentation and
disclosure of revenue in financial statements filed with the SEC. SAB No. 101
outlines the basic criteria that must be met to recognize revenue and provides
guidance for disclosures related to revenue recognition policies. We review our
sales contracts on an ongoing basis to ensure our compliance with SAB No. 101.
Adoption of SAB No. 101 had no material effect on our results of operations,
financial position or cash flow for the current or any prior period.
RISKS RELATING TO OUR BUSINESS
Our quarterly operating results are difficult to predict, and if we fail to meet
the expectations of investors and/or securities analysts, the market price of
our common stock would likely decline significantly.
Our operating results in any given quarter have fluctuated and will likely
continue to fluctuate. These fluctuations are typically unpredictable and can
result from numerous factors including:
. the timing of customer orders and shipments within a given quarter;
. fluctuations in the economic conditions of the markets for our products;
. demand for our products and the products sold by our customers;
. our ability to manufacture a sufficient quantity of our products;
. variations in the mix of products we sell in each of the markets in
which we do business;
. our timing in introducing new products;
. changes in our pricing policies or in the pricing policies of our
competitors or suppliers;
. market acceptance of any new or enhanced versions of our products;
. the availability and cost of key components we use to manufacture our
products;
. fluctuations in foreign currency exchange rates;
. timing of our competitors in introducing new products; and
. our levels of expenses.
We may in the future choose to reduce prices, increase spending, or add or
eliminate products in response to actions by competitors or as an effort to
pursue new market opportunities. These actions may also adversely affect our
business and operating results and may cause our quarterly results to be lower
than the
Page 16
results of previous quarters. We believe that quarter-to-quarter comparisons of
results from operations, or any other similar period-to-period comparisons, are
not meaningful and should not be construed as reliable indicators of our future
performance. In any period, our results may be below the expectations of market
analysts and investors, which would likely cause the trading price of our common
stock to drop.
We are highly dependent on the growth of the fiber optic communications industry
and on our customers who serve this industry.
A substantial portion of our current and future business comes from sales to
companies that manufacture components for fiber optic communications systems.
The fiber optics communications market is characterized by rapid technological
change, frequent product introductions, changing customer requirements and
evolving industry standards. Because our customers face uncertainties with
regard to the growth and requirements of this market, their products and
components may not achieve, or continue to achieve, anticipated levels of market
acceptance. If our customers are unable to deliver products that gain market
acceptance with fiber optic systems vendors, it is likely that these customers
will not purchase our products or will purchase smaller quantities of our
products. We often invest substantial resources in helping our customers develop
products and manufacturing processes in advance of significant sales of our
products to such customers. A failure on the part of our customers' products to
gain market acceptance, or a failure of the fiber optic communications market as
a whole to grow would have a significant negative effect on our business and
results of operations.
If we are unable to continue to meet the demand for our products in the fiber
optic communications market, we may not be able to sustain our growth rate.
The fiber optic communications market has experienced significant growth over
the past few years, and demand for the products we sell to companies that
manufacture components for fiber optic communications systems has increased
accordingly. If we cannot significantly increase our manufacturing capacity, we
may not be able to meet the demand for our products in the future and our growth
rate may decline.
The markets and industries that we serve are subject to rapid technological
change, and if we do not introduce new and innovative products or improve our
existing products, our business and results of operations will be negatively
affected.
Our markets are characterized by rapid technological advances, evolving industry
standards, shifting customer needs and new product introductions and
enhancements. Products in our markets often become outdated quickly and without
warning. We depend to a significant extent upon our ability to enhance our
existing products, to address the demands of the marketplace for new and
improved technology and to be price competitive. We may not be successful in
developing, manufacturing or marketing new products on a timely or cost-
effective basis. If we fail to adequately introduce new, competitive products on
a timely basis, our business and results of operations would be harmed.
We offer products for multiple industries and must face the challenges of
supporting the distinct needs of each of our markets.
We market products for the fiber optic component, semiconductor capital
equipment, industrial metrology, aerospace and research markets. Because we
operate in multiple markets, we must work constantly to understand the needs,
standards and technical requirements of several different industries and must
devote significant resources to developing different products for these
industries. Product development is costly and time consuming. Many of our
products are used by our customers to develop, manufacture and test their own
products. As a result, we must anticipate trends in our customers' industries
and develop products before our customers' products are commercialized. If we do
not accurately predict our customers' needs and future activities, we may invest
substantial resources in developing products that do not achieve broad market
acceptance. Our decision to continue to offer products to a given market or to
Page 17
penetrate new markets is based in part on our judgment of the size, growth rate
and other factors that contribute to the attractiveness of a particular market.
If our product offerings in any particular market are not competitive or our
analyses of a market are incorrect, our business and results of operations would
be harmed.
Because our sales cycle is long and difficult to predict, we may experience
fluctuations in our operating results.
Many of our products are complex, and customers for these products require
substantial time to make purchase decisions. These customers often perform, or
require us to perform, elaborate testing and evaluation of our products before
committing to purchasing them. The sales cycle for our products typically
varies, is difficult to predict and can last as long as one year. Orders
expected to be shipped in any one quarter may be delayed to subsequent quarters,
which could cause our operating results to fluctuate from period to period.
These fluctuations could harm our results of operations and cause our stock
price to drop.
If we are unable to attract, retain and motivate our employees, our business and
results of operations will suffer.
Our ability to maintain and grow our business is directly related to the service
of our employees in each area of our operations. Our future performance will be
directly tied to our ability to hire, train, motivate and retain qualified
personnel. Competition for personnel in the technology marketplace is intense,
particularly for employees with expertise in fiber optics. If we are unable to
hire sufficient numbers of employees with the experience and skills we need or
to retain our employees, our business and results of operations would be harmed.
We face significant risks from doing business in foreign countries.
Our business is subject to risks inherent in conducting business
internationally. In 2000, 1999 and 1998, our international revenues accounted
for approximately 32.7%, 36.3% and 33.0%, respectively, of total net sales, with
a substantial portion of sales originating in Europe. We expect that
international revenues will continue to account for a significant percentage of
total net sales for the foreseeable future. As a result of our international
operations, we face various risks, which include:
. adverse changes in the political or economic conditions in countries or
regions where we manufacture or sell our products;
. challenges of administering our business globally;
. compliance with multiple and potentially conflicting regulatory
requirements including export requirements, tariffs and other trade
barriers;
. longer accounts receivable cycles;
. overlapping or differing tax structures;
. adverse currency fluctuations;
. differing protection of intellectual property;
. difficulties in staffing and managing each of our individual foreign
operations; and
. trade restrictions and licensing requirements.
Page 18
As a result of our international operations, fluctuations in foreign exchange
rates could affect the sales price in local currencies of our products in
foreign markets, potentially making our products less competitive. In addition,
exchange rate fluctuations could increase the costs and expenses of our foreign
operations or require us to modify our current business practices. If we
experience any of the risks associated with international business, our business
and results of operations could be significantly harmed.
We face substantial competition, and if we fail to compete effectively, our
operating results will suffer.
The markets for our products are intensely competitive, and we believe that
competition from both new and existing competitors will increase in the future.
We compete in several specialized market segments, against a limited number of
companies. We also face competition in some of our markets from our existing and
potential customers who have developed or may develop products that are
competitive to ours. Many of our existing and potential competitors are more
established, enjoy better name recognition and possess greater financial,
technological and marketing resources than we do. Other competitors are small,
and highly specialized firms that are able to focus on only one aspect of a
market. We compete on the basis of product features, quality, reliability and
price and on our ability to manufacture and deliver our products on a timely
basis. We may not be able to compete successfully in the future against existing
or new competitors. In addition, competitive pressures may force us to reduce
our prices, which could negatively affect our operating results. If we do not
respond adequately to competitive challenges, our business and results of
operations would be harmed.
Acquisitions of additional business, products or technologies we may make could
negatively affect our business.
We have historically achieved growth through a combination of internally
developed new products and acquisitions. Since August 2000 we have acquired
four companies, and as part of our strategy to sustain growth, we expect to
continue to pursue acquisitions of other companies, technologies and
complementary product lines in the future. Each of our recent acquisitions
involves, and any future acquisition would involve risks, including:
. our ability to integrate the acquired business' operations, products and
personnel;
. our ability to retain key personnel of the acquired businesses;
. our ability to manufacture and sell the products of the acquired
businesses;
. a decline in demand by our customers for the acquired business'
products;
. our ability to expand our financial and management controls and
reporting systems and procedures to incorporate the acquired businesses;
. diversion of management's time and attention;
. customer dissatisfaction or performance problems with the products or
services of an acquired firm;
. assumption of unknown liabilities, or other unanticipated events or
circumstances; and
. the need to record significant one-time charges or amortize intangible
assets, which could lower our reported earnings.
We cannot assure you that any business that we may acquire will achieve
anticipated revenues and operating results, which could decrease the value of
the acquisition to us. Any of these risks could materially harm our business,
financial condition and results of operations.
Page 19
If we are delayed in introducing our new products into the marketplace, or if
our new products contain defects, our operating results will suffer.
Because our products are sophisticated and complex, we may experience delays in
introducing new products or enhancements to our existing products. If we do not
introduce our new products or enhancements into the marketplace in a timely
fashion, our customers may choose to use competitors' products. Our inability to
introduce new or enhanced products in a timely manner could cause our business
and results of operations to suffer. Our products may also contain defects or
undetected errors. As a result, we could incur substantial expenses in fixing
any defects or undetected errors, which could result in damage to our
competitive position and harm our business and results of operations.
We rely on several sole-source and limited source suppliers.
We obtain some of the materials used to build our systems and subsystems, such
as the sheet steel used in some of our vibration isolation tables, from single
or limited sources due to unique component designs as well as specialized
quality and performance requirements needed to manufacture our products. If our
components or raw materials are unavailable in adequate amounts or are
unavailable on satisfactory terms, we may be required to purchase them from
alternative sources, if available, which could increase our costs and cause
delays in the production and distribution of our products. If we do not obtain
comparable replacement components from other sources in a timely manner, our
business and results of operations will be harmed. Many of our suppliers require
long lead-times to deliver the quantities of components that we need. If we fail
to accurately forecast our needs, or if we fail to obtain sufficient quantities
of components that we use to manufacture our products, then delays or reductions
in production and shipment could occur, which would harm our business and
results of operations.
Natural disasters or power outages could disrupt or shut down our operations.
Our operations are susceptible to damages from earthquakes, floods, fire, loss
of power or water supplies, or other similar contingencies. We have significant
facilities in areas with above average seismic activity. If any of our
facilities were to experience a catastrophic loss, it could disrupt our
operations, delay production, shipments and revenue, and result in large
expenses to repair or replace the facility, any of which would harm our
business. In addition, a significant portion of our manufacturing operations
are located in California, which has recently experienced ongoing power
shortages, which have resulted in "rolling blackouts." These blackouts, which
are expected to continue at least through 2001, could cause disruptions to our
operations and the operations of certain of our suppliers, distributors and
customers. We are predominantly uninsured for losses and interruptions caused by
earthquakes and power outages.
ITEM 7A Quantitative and Qualitative Disclosures About Market Risk
The principal market risks (i.e., the risk of loss arising from adverse changes
in market rates and prices) to which we are exposed are foreign exchange rates
which may generate translation and transaction gains and losses and interest
rate risk.
Foreign Currency Risk
Operating in international markets sometimes involves exposure to volatile
movements in currency exchange rates. The economic impact of currency exchange
rate movements on our operating results is complex because such changes are
often linked to variability in real growth, inflation, interest rates,
governmental actions and other factors. These changes, if material, may cause
us to adjust our financing and operating strategies. Consequently, isolating
the effect of changes in currency does not incorporate these other important
economic factors.
International operations constituted approximately 28% of our 2000 consolidated
operating profit. As
Page 20
currency exchange rates change, translation of the income statements of
international operations into U.S. dollars affects year-over-year comparability
of operating results. We do not generally hedge translation risks because cash
flows from international operations are generally reinvested locally. We do not
enter into hedges to minimize volatility of reported earnings because we do not
believe it is justified by the exposure or the cost.
Changes in currency exchange rates that would have the largest impact on
translating future international operating profit include the euro, British
pound, Canadian dollar, Swedish krona and Swiss franc. We estimate that a 10%
change in foreign exchange rates would have affected reported operating profit
by approximately $1.2 million for the year ended December 31, 2000. We believe
that this quantitative measure has inherent limitations because, as discussed in
the first paragraph of this section, it does not take into account any
governmental actions or changes in either customer purchasing patterns or
financing and operating strategies.
Transaction gains and losses arise from monetary assets and liabilities
denominated in currencies other than a subsidiary's functional currency. Net
foreign exchange gains and losses were not material to our earnings for the last
three years. The impact of unrealized foreign exchange translation gains and
losses is disclosed in the Consolidated Statement of Comprehensive Income on
page 28.
Interest Rate Risk
Our exposure to interest rate risk is limited to our unsecured lines of credit
and our investments in marketable securities. Our lines of credit bear interest
at either the prevailing prime rate, or the prevailing London Interbank Offered
Rate plus 1.0%, at our option. No amounts were outstanding under these lines of
credit as of December 31, 2000. Our long term debt instruments carry fixed
interest rates. Our investments in marketable securities, which total $289.8
million at December 31, 2000, are sensitive to changes in the general level of
U.S. interest rates. We estimate that a 10% decline in the interest earned on
our investment portfolio would have resulted in an after tax decline in our net
income of $1.3 million for the year ended December 31, 2000.
The sensitivity analyses presented in the interest rate and foreign exchange
discussions above disregard the possibility that rates can move in opposite
directions and that gains from one category may or may not be offset by losses
from another category and vice versa.
ITEM 8 Financial Statements and Supplementary Data
Consolidated financial statements of the Company as of December 31, 2000 and
1999 and for each of the three years in the period ended December 31, 2000, the
report of independent auditors thereon and the Company's unaudited quarterly
financial data for 2000 and 1999 are referenced in Item 14 herein.
ITEM 9 Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Not applicable.
Page 21
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, 2000 in connection
with its May 30, 2001 Annual Meeting of Stockholders.
ITEM 11 Executive Compensation
The information required hereunder is incorporated by reference to the Company's
Proxy Statement to be filed within 120 days of December 31, 2000 in connection
with its May 30, 2001 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, 2000 in connection
with its May 30, 2001 Annual Meeting of Stockholders.
ITEM 13 Certain Relationships and Related Transactions
The information required hereunder is incorporated by reference to the Company's
Proxy Statement to be filed within 120 days of December 31, 2000 in connection
with its May 30, 2001 Annual Meeting of Stockholders.
Page 22
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 27
FINANCIAL STATEMENTS:
Consolidated income statement
for the years ended December 31, 2000, 1999 and 1998 28
Consolidated statement of comprehensive income
for the years ended December 31, 2000, 1999 and 1998 28
Consolidated balance sheet
at December 31, 2000 and 1999 29
Consolidated statement of cash flows
for the years ended December 31, 2000, 1999 and 1998 30
Consolidated statement of stockholders' equity
for the years ended December 31, 2000, 1999 and 1998 31
Notes to consolidated financial statements 32-45
FINANCIAL STATEMENT SCHEDULES:
II - Consolidated valuation accounts 46
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 Certificate of Amendment to Articles of Incorporation, as
filed May 30, 2000 (incorporated by reference to Exhibit 3.2
to the Company's Registration Statement on Form S-3, No. 333-
40878 (the "Form S-3")).
Exhibit 3.3 Restated Bylaws of Newport Corporation, a Nevada Corporation,
as amended to date (incorporated by reference to Exhibit 3.2
of the Company's Annual Report on Form 10-K for the year ended
July 31, 1992).
Exhibit 10.1 Lease Agreement dated March 27, 1991, as amended, pertaining
to premises located in Irvine, California (incorporated by
reference to Exhibit 10.1 of the Company's Annual Report on
Form 10-K for the year ended July 31, 1992).
Page 23
ITEM 14 Exhibits, Financial Statement Schedules and Reports on Form
10-K (Cont'd)
Exhibit 10.2 Lease Agreement dated November 1, 2000, between Newport
Corporation and Arden Realty Limited Partnership.
Exhibit 10.3 1992 Incentive Stock Plan (incorporated by reference to
exhibit in the Company's 1992 Proxy Statement).*
Exhibit 10.4 1999 Stock Incentive Plan* (incorporated by reference to
Exhibit 10.11 of the Company's Annual Report on Form 10-K
for the year ended December 31, 1999).
Exhibit 10.5 Amendment to 1999 Stock Incentive Plan (incorporated by
reference to Exhibit 10.4 to the Company's Form S-3).*
Exhibit 10.6 Employee Stock Purchase Plan, as amended (incorporated by
reference to Exhibit 10.4 of the Company's Annual Report on
Form 10-K for the year ended December 31, 1997).*
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 8, 1996,
between Newport Corporation, a Nevada Corporation, and
Robert J. Phillippy, Vice President and General Manager
(incorporated by reference to Exhibit 10.2 of the Company's
Form 10-Q for the quarter ended September 30, 1996).*
Exhibit 10.9 Severance Compensation Agreement dated as of May 1, 1996,
between Newport Corporation, a Nevada Corporation, and
Robert G. Deuster, President and Chief Executive Officer
(incorporated by reference to Exhibit 10.3 of the Company's
Form 10-Q for the quarter ended September 30, 1996).*
Exhibit 10.10 Consulting Agreement dated November 7, 1997 between Newport
Corporation, a Nevada Corporation, and Richard E. Schmidt, a
director of the Company (incorporated by reference to
Exhibit 10.14 of the Company's Annual Report on Form 10-K
for the year ended December 31, 1997).
Exhibit 10.11 364-Day $10,000,000 Credit Agreement dated as of October 29,
1999 between Newport Corporation and ABN AMRO Bank, N.V.
(incorporated by reference to Exhibit 10.9 of the Company's
Annual Report on Form 10-K for the year ended December 31,
1999).
Exhibit 10.12 3-Year $15,000,000 Credit Agreement dated as of October 29,
1999 between Newport Corporation and ABN AMRO Bank, N.V.
(incorporated by reference to Exhibit 10.10 of the Company's
Annual Report on Form 10-K for the year ended December 31,
1999).
Exhibit 10.13 Amendment to 364-Day $10,000,000 Revolving Credit Agreement,
dated as of May 31, 2000, between Newport Corporation and
ABN AMRO Bank, N.V. (incorporated by reference to Exhibit
10.10 to the Company's Form S-3).
Page 24
ITEM 14 Exhibits, Financial Statement Schedules and Reports on Form
10-K (Cont'd)
Exhibit 10.14 Amendment to 3-Year $15,000,000 Revolving Credit Agreement,
dated as of May 31, 2000, between Newport Corporation and
ABN AMRO Bank, N.V. (incorporated by reference to Exhibit
10.12 to the Company's Form S-3).
Exhibit 10.15 Amendment to 364 Day $10,000,000 Revolving Credit Agreement,
dated as of March 9, 2001, between Newport Corporation and
ABN AMRO Bank, N.V.
Exhibit 10.16 Amendment to 3 Year $15,000,000 Revolving Credit Agreement,
dated as of March 9, 2001, between Newport Corporation and
ABN AMRO Bank, N.V.
Exhibit 10.17 Note Agreement dated as of May 2, 1996 between Newport
Corporation and The Prudential Insurance Company of America
(incorporated by reference to Exhibit 10.8 of the Company's
Form 10-Q for the quarter ended March 31, 1996).
Exhibit 21 Subsidiaries of Registrant
Exhibit 23 Consent of Independent Auditors
_____________
* Management contract or compensatory plan or arrangement required to be filed
pursuant to Item 14(a) (3) of Form 10-K
(b) Reports on Form 8-K
The Company filed no Reports on Form 8-K during the quarter ended December 31,
2000.
Page 25
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this amendment to be signed on its
behalf by the undersigned, thereunto duly authorized.
NEWPORT CORPORATION
/s/ ROBERT G. DEUSTER March 27, 2001
- --------------------------------------------------------------------------------
Robert G. Deuster, President and Chief Executive Officer Date
(Principal Executive Officer)
/s/ CHARLES F. CARGILE March 27, 2001
- --------------------------------------------------------------------------------
Charles F. Cargile, Vice President and Chief Financial Officer Date
(Principal Financial Officer)
/s/ WILLIAM R. ABBOTT March 27, 2001
- --------------------------------------------------------------------------------
William R. Abbott, Vice President and Corporate Controller Date
(Principal Accounting Officer)
POWER OF ATTORNEY
The undersigned directors and officers of Newport Corporation constitutes and
appoints Robert G. Deuster and Charles F. Cargile, or either of them, as their
true and lawful attorney and agent with power of substitution, to do any and all
acts and things in our name and behalf in our capacities as directors and
officers and to execute any and all instruments for us and in our names in the
capacities indicated below, which said attorney and agent may deem necessary or
advisable to enable said corporation to comply with the Securities Exchange Act
of 1934, as amended, and any rules, regulations and requirements of the
Securities and Exchange Commission, in connection with this Annual Report on
Form 10-K, including specifically but without limitation, power and authority to
sign for us or any of us in our names in the capacities indicated below, any and
all amendments (including post-effective amendments) hereto; and we do hereby
ratify and confirm all that said attorney and agent shall do or cause to be done
by virtue hereof. Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed below by the following persons on behalf of
the Registrant and in the capacities and on the dates indicated.
/s/ R. JACK APLIN March 27, 2001
- -----------------------------------------------------------------------
R. Jack Aplin, Member of the Board Date
/s/ ROBERT L. GUYETT March 27, 2001
- -----------------------------------------------------------------------
Robert L. Guyett, Member of the Board Date
/s/ C. KUMAR N. PATEL March 27, 2001
- -----------------------------------------------------------------------
C. Kumar N. Patel, Member of the Board Date
/s/ KENNETH F. POTASHNER March 27, 2001
- -----------------------------------------------------------------------
Kenneth F. Potashner, Member of the Board Date
/s/ RICHARD E. SCHMIDT March 27, 2001
- -----------------------------------------------------------------------
Richard E. Schmidt, Member of the Board Date
/s/ JOHN T. SUBAK March 27, 2001
- -----------------------------------------------------------------------
John T. Subak, Member of the Board Date
Page 26
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, 2000 and 1999, and the related consolidated
statements of income, comprehensive income, stockholders' equity and cash flows
for each of the three years in the period ended December 31, 2000. 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 auditing standards generally accepted
in the United States. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Newport
Corporation at December 31, 2000 and 1999, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 2000, in conformity with accounting principles generally accepted
in the United States. 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.
/S/ ERNST & YOUNG LLP
Orange County, California
January 23, 2001
except for Note 17, as to which the date is
February 2, 2001
Page 27
NEWPORT CORPORATION
Consolidated Income Statement
(In thousands, except per share amounts) Years Ended December 31,
-----------------------------------
2000 1999 1998
---- ---- ----
Net sales $252,853 $144,112 $142,825
Cost of sales 142,479 81,646 80,407
-------- -------- --------
Gross profit 110,374 62,466 62,418
Selling, general and administrative expense 54,786 36,760 34,402
Research and development expense 21,704 13,300 11,738
-------- -------- --------
Income from operations 33,884 12,406 16,278
Interest expense 1,927 1,785 1,891
Interest income 8,428 144 510
Other income (expense), net (421) 59 (336)
-------- -------- --------
Income before income taxes 39,964 10,824 14,561
Income tax provision 12,145 2,956 3,365
-------- -------- --------
Net income $ 27,819 $ 7,868 $ 11,196
======== ======== ========
Earnings per share
Basic $ 0.93 $ 0.29 $ 0.41
Diluted $ 0.86 $ 0.28 $ 0.40
Number of shares used to calculate earnings per share
Basic 29,938 27,413 27,132
Diluted 32,309 28,549 28,316
Dividends per share $ 0.02 $ 0.01 $ 0.01
Consolidated Statement of Comprehensive Income
(In thousands) Years Ended December 31,
---------------------------
2000 1999 1998
---- ---- ----
Net income $27,819 $ 7,868 $11,196
Foreign currency translation gains (losses) (1,501) (2,719) 1,120
Unrealized gain on marketable securities 901 - -
------- ------- -------
Comprehensive income $27,219 $ 5,149 $12,316
======= ======= =======
See accompanying notes.
Page 28
NEWPORT CORPORATION
Consolidated Balance Sheet
(In thousands, except share data) December 31,
--------------------
2000 1999
---- ----
ASSETS
Current assets:
Cash and cash equivalents $ 10,225 $ 3,055
Marketable securities 289,781 -
Customer receivables, net 64,101 32,639
Other receivables 3,383 686
Income tax receivable 4,110 -
Inventories 74,107 37,696
Deferred tax assets 17,720 2,626
Other current assets 4,246 2,484
-------- --------
Total current assets 467,673 79,186
Investments and other assets 9,773 8,461
Property, plant and equipment, at cost, net 35,461 26,003
Goodwill, net 18,805 10,914
-------- --------
$531,712 $124,564
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 23,705 $ 6,971
Accrued payroll and related expenses 12,699 5,549
Line of credit - 10,000
Current portion of long-term debt 5,523 4,645
Deferred revenue 1,148 1,512
Other current liabilities 10,554 3,987
-------- --------
Total current liabilities 53,629 32,664
Long-term debt 7,173 12,715
Deferred tax liabilities 675 1,407
Commitments and contingencies
Stockholders' equity:
Common stock, $0.1167 stated value, 75,000,000 shares authorized;
32,643,000 shares issued and outstanding at December 31, 2000;
27,860,000 shares at December 31, 1999 3,808 3,250
Capital in excess of stated value 375,371 9,385
Unamortized deferred compensation (996) (417)
Accumulated other comprehensive loss (7,235) (6,635)
Retained earnings 99,287 72,195
-------- --------
Total stockholders' equity 470,235 77,778
-------- --------
$531,712 $124,564
======== ========
See accompanying notes
Page 29
NEWPORT CORPORATION
Consolidated Statement of Cash Flows
(In thousands) Years Ended December 31,
-------------------------------
2000 1999 1998
--------- -------- -------
Operating activities:
Net income $ 27,819 $ 7,868 $11,196
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 10,805 7,098 6,148
Increase in provision for losses on
receivables, inventories and investments 3,914 1,260 1,073
Deferred income taxes (13,726) 251 704
Other non-cash items, net (78) (484) (481)
Changes in operating assets and liabilities:
Receivables (29,442) (6,201) (796)
Income tax receivable (4,108) - -
Inventories (36,248) (6,023) (880)
Other current assets (3,885) (1,531) (196)
Other assets (820) 327 280
Accounts payable and other accrued expenses 22,524 (339) (4,620)
Deferred revenue (364) 1,218 (4,178)
Other, net - - (1)
--------- -------- -------
Net cash provided by (used in) operating activities (23,609) 3,444 8,249
--------- -------- -------
Investing activities:
Purchases of property, plant and equipment (15,850) (4,924) (5,400)
Disposition of property, plant and equipment 503 201 2,323
Acquisition of business, net of cash acquired (50) (6,559) (3,561)
Purchases of marketable securities (314,451) - -
Sales of marketable securities 25,571 - -
Payments for equity investment (1,510) (1,074) -
Proceeds from sale of equity investments 1,430 1,054 720
Acquisition of other assets (1,157) (2,261) (779)
--------- -------- -------
Net cash used in investing activities (305,514) (13,563) (6,697)
--------- -------- -------
Financing activities:
Increase (decrease) in credit line (10,000) 10,000 -
Decrease in long-term borrowings (7,777) (3,632) (2,360)
Cash dividends paid (555) (478) (1,886)
Repurchase of common stock - (1,589) (2,879)
Proceeds from secondary offering 329,851 - -
Issuance of common stock under employee
plans including associated tax benefit 24,664 2,453 3,218
--------- -------- -------
Net cash provided by (used in) financing activities 336,183 6,754 (3,907)
--------- -------- -------
Effect of foreign exchange rate changes on cash 110 285 (101)
--------- -------- -------
Increase (decrease) in cash and cash equivalents 7,170 (3,080) (2,456)
Cash and cash equivalents at beginning of year 3,055 6,135 8,591
--------- -------- -------
Cash and cash equivalents at end of year $ 10,225 $ 3,055 $ 6,135
========= ======== =======
See accompanying notes.
Page 30
NEWPORT CORPORATION
Consolidated Statement of Stockholders' Equity
(In thousands) Years Ended December 31
-----------------------------
2000 1999 1998
-------- ------- -------
Common shares:
Shares outstanding at beginning of year 27,860 27,523 27,019
Issuance of common shares through secondary offering 3,100 - -
Issuance of common shares through employee plans 1,503 670 960
Grants of restricted stock, net 60 - 60
Repurchase of common shares - (333) (516)
Other 120 - -
-------- ------- -------
Shares outstanding at end of year 32,643 27,860 27,523
======== ======= =======
Common stock:
Balance at beginning of year $ 3,250 $ 3,211 $ 3,151
Issuance of common shares through secondary offering 362 - -
Issuance of common shares through employee plans 175 75 113
Grants of restricted stock, net 7 - 7
Repurchase of common stock - (36) (60)
Other 14 - -
-------- ------- -------
Balance at end of year 3,808 3,250 3,211
======== ======= =======
Capital in excess of stated value:
Balance at beginning of year 9,385 8,560 8,013
Issuance of common shares through secondary offering 329,489 - -
Issuance of common shares through employee plans 24,111 2,378 3,105
Grants of restricted stock, net 2,400 - 261
Repurchase of common stock - (1,553) (2,819)
Other 9,986 - -
-------- ------- -------
Balance at end of year 375,371 9,385 8,560
======== ======= =======
Unamortized deferred compensation:
Balance at beginning of year (417) (548) (519)
Grants of restricted stock, net (2,407) - (268)
Amortization of deferred compensation 1,828 131 239
-------- ------- -------
Balance at end of year (996) (417) (548)
======== ======= =======
Accumulated other comprehensive loss:
Balance at beginning of year (6,635) (3,916) (5,036)
Foreign currency translation gain (loss) (1,501) (2,719) 1,120
Unrealized gain on marketable securities 901 - -
-------- ------- -------
Balance at end of year (7,235) (6,635) (3,916)
======== ======= =======
Retained earnings:
Balance at beginning of year 72,195 64,805 55,495
Dividends (609) (366) (364)
Distribution of S-Corp earnings (118) (112) (1,522)
Net income 27,819 7,868 11,196
-------- ------- -------
Balance at end of year 99,287 72,195 64,805
======== ======= =======
Total stockholders' equity $470,235 $77,778 $72,112
======== ======= =======
See accompanying notes.
Page 31
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization Newport Corporation is a global leader in the design, manufacture
and marketing of high-precision components, instruments and integrated systems
to the fiber optic communications, semiconductor equipment, aerospace and
scientific research markets. The company's innovative products are designed to
enhance productivity and capabilities of test and measurement and automated
assembly for precision manufacturing, engineering and research applications.
Customers include Fortune 500 corporations, technology companies and research
laboratories in commercial, academic and government sectors worldwide.
Consolidation The accompanying financial statements consolidate the accounts of
the Company and its wholly owned subsidiaries and have been restated to reflect
the acquisition of Unique Equipment Co. (Note 2) which has been accounted for as
a pooling of interests. All significant intercompany transactions and balances
have been eliminated. Certain reclassifications have been made to prior year
amounts to conform to current year presentation. Amounts in 1999 include net
sales of $2.5 million representing one extra month of sales from Newport's
European operations. The additional net sales stem from a reporting change in
the second quarter of 1999 that eliminated a one-month lag in the reporting of
European results. Without the change, 1999 net sales would have been $141.6
million, while net income would not have been materially different. Earnings
per share were not impacted by the change.
Use of Estimates The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Significant estimates made in preparing the consolidated financial statements
include the allowance for doubtful accounts, inventory obsolescence reserves,
income tax valuation and warranty reserves.
Sales A sale is recorded upon customer acceptance after all significant
obligations have been met, collectibility is probable and title has passed to
the customer. Customers generally have 30 days from the original invoice date
(generally 60 days for international customers) to return a catalog product
purchase for exchange or credit. The catalog product must be returned in its
original condition and meet certain other criteria. Product returns of catalog
items have historically been immaterial. Custom configured and certain other
products as defined in the Company's Customer Satisfaction and Product Guarantee
Policy cannot be returned. Unless otherwise stated in its product literature,
the Company provides a one-year warranty from the original invoice date on all
product material and workmanship. Defective products will be either repaired or
replaced, at the Company's option, upon meeting certain criteria.
In December 1999, the Securities and Exchange Commission ("SEC") issued Staff
Accounting Bulletin No. 101, Revenue Recognition in Financial Statements (SAB
No. 101), which provides guidance on the recognition, presentation and
disclosure of revenue in financial statements filed with the SEC. SAB No. 101
outlines the basic criteria that must be met to recognize revenue and provides
guidance for disclosures related to revenue recognition policies. We review our
sales contracts on an ongoing basis to ensure our compliance with SAB No. 101.
Adoption of SAB No. 101 had no material effect on our results of operations,
financial position or cash flow for the years ended December 31, 2000, 1999 or
1998.
Income Taxes The Company recognizes the amount of current and deferred taxes
payable or refundable at the date of the financial statements as a result of all
events that have been recognized in the financial statements and as measured by
the provisions of enacted laws.
Depreciation and Amortization Property, plant and equipment is depreciated on a
straight line basis over estimated useful lives of the assets ranging from three
to twenty years. Leasehold improvements are generally amortized over the term
of the lease.
Page 32
Advertising The Company expenses the costs of advertising as incurred, except
for direct-response advertising, which is capitalized and amortized over its
expected period of future benefits. Direct-response advertising consists
primarily of product catalogs. The Company uses these product catalogs as its
principal marketing tools for the scientific market. Sales to this market
approximate 16% of the Company's annual revenues. The catalogs provide detailed
product information as well as extensive technical and applications data. The
catalogs are published in English, French, German and Japanese languages and are
mailed worldwide to more than 100,000 potential customers.
The Company believes that after a period of generally 12 to 18 months, no future
benefit can be realized from these catalogs due to price changes, technological
enhancements to existing products and new product releases. As such, the
Company has established benefit periods for its various catalogs ranging from 12
to 18 months and amortizes catalog costs over this timeframe. Advertising
materials of $0.3 million and $0.8 million were reported as assets at December
31, 2000 and 1999, respectively. Advertising expense was $1.6 million, $1.5
million and $1.4 million for 2000, 1999 and 1998, respectively.
Earnings per Share Basic earnings per share is computed using the weighted
average number of shares of common stock outstanding during the periods,
excluding restricted stock. Diluted earnings per share is computed using the
weighted average number of shares of common stock outstanding during the
periods, including restricted stock, and the dilutive effects of common stock
equivalents (stock options), determined using the treasury stock method,
outstanding during the periods (see Note 13).
In May 2000, the Company effected a three-for-one stock split of its shares of
common stock. Share and per share information for all periods presented have
been restated to reflect the stock split.
Cash and Cash Equivalents Cash and cash equivalents consist of cash-on-hand and
interest bearing investments with original maturities of three months or less at
the date of purchase.
Cash and cash equivalents consist of the following:
(In thousands) December 31,
---------------
2000 1999
------- ------
Cash $10,163 $2,938
Money market 62 117
------- ------
$10,225 $3,055
======= ======
Fair Values of Financial Instruments Fair values of cash and cash equivalents,
short-term borrowings and the current portion of long-term debt approximate the
carrying value because of the short period of time to maturity. The fair value
of long-term debt approximates its carrying value because their rates of
interest approximate current market rates. The carrying amounts of the foreign
exchange contracts, if any, equal fair value and are adjusted each balance sheet
date for changes in exchange rates.
Marketable Securities The Company considers all liquid interest-earning
investments with a maturity of more than three months at the date of purchase to
be marketable securities. Marketable securities generally mature between three
months and three years from the purchase date. All marketable securities are
classified as available for sale and are recorded at market using the specific
identification method; unrealized gains and losses are reflected in other
comprehensive income. Cost approximates market for all classifications of cash
and short-term investments; realized and unrealized gains and losses are not
material.
Page 33
Marketable securities consist of the following:
(In thousands) December 31,
-----------------
2000 1999
---- ----
Commercial paper $ 84,731 $ -
U.S. government and agency securities 20,208 -
Corporate notes and bonds 74,435 -
Asset backed securities 32,015 -
Municipal notes and bonds 63,578 -
Certificates of deposit 14,814 -
-------- -------
$289,781 $ -
======== =======
Goodwill Goodwill, representing the excess of the purchase price over the fair
value of the net assets of acquired entities, is amortized on a straight-line
basis over its estimated useful life of fourteen to twenty years. Accumulated
amortization totaled $6.1 million and $5.2 million at December 31, 2000 and
1999, respectively.
The Company examines the carrying value of goodwill for impairment when
indicators of impairment are present. If such circumstances are present and
undiscounted future cash flows are not expected to be sufficient to recover the
assets' carrying amount, the asset would be written down to its fair value. No
events have been identified to indicate an impairment of the carrying value of
material intangible assets.
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
Comprehensive Income. 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 (see Note 12). Foreign
exchange contracts totaled $4.6 million and $4.3 million at December 31, 2000
and 1999, respectively.
Stock-Based Compensation The Company accounts for stock-based employee
compensation arrangements in accordance with Accounting Principles Board Opinion
No. 25, Accounting for Stock-Issued to Employees (APB No. 25), and complies with
the disclosures provisions of Statement of Financial Accounting Standards No.
123, Accounting for Stock-Based Compensation. Under APB No. 25, compensation
cost is recognized based on the difference, if any, on the date of the grant
between the fair value of the Company's stock and the amount the employee must
pay to acquire the stock.
Comprehensive Income The Company adopted the provisions of Statement of
Financial Accounting Standards No. 130, Reporting Comprehensive Income. This
statement requires companies to classify items of other comprehensive income by
their nature in the financial statements and display the accumulated balance of
other comprehensive income separately in the equity section of the balance
sheet.
Page 34
The accumulated other comprehensive loss presented in the balance sheet consists
of the following:
(In thousands) December 31,
------------------
2000 1999
---- ----
Cumulative foreign currency translation losses $(8,136) $(6,635)
Unrealized gains on marketable securities 901 -
------ ------
$(7,235) $(6,635)
====== ======
Adoption of Statement of Financial Accounting Standards No. 133 In June 1998,
the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging
Activities (SFAS No. 133). SFAS No. 133 establishes a new model for accounting
for derivatives and hedging activities and supercedes and amends a number of
existing accounting standards. SFAS No. 133 requires that all derivatives be
recognized in the balance sheet at their fair market value and the corresponding
derivative gains or losses be either reported in the statement of operations or
as a deferred item depending on the type of hedge relationship that exists with
respect of such derivatives. In July 1999, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards No. 137, Accounting for
Derivative Instruments and Hedging Activities-Deferral of the Effective Date of
SFAS No. 133 (SFAS No. 137). SFAS No. 137 deferred the effective date until the
year beginning after June 30, 2000. In June 2000, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No. 138,
Accounting for Derivative Instruments and Hedging Activities-An Amendment of
SFAS Statement No. 133 (SFAS No. 138). SFAS No. 138 amends the accounting and
reporting standards for certain derivatives and hedging activities such as net
settlement contracts, foreign currency transactions and intercompany
derivatives. We will adopt SFAS No. 133 in our quarter ending March 31, 2001.
We do not anticipate that the adoption of SFAS No. 133 will have a significant
impact on our results of operations, financial position or cash flow.
NOTE 2 ACQUISITIONS
In October 1998, the Company acquired all the outstanding capital stock of
Environmental Optical Sensors, Inc. ("EOSI"), a manufacturer of tunable external
cavity diode laser systems and other components. The company is located in
Longmont, Colorado. The acquisition was accounted for as a purchase. EOSI's
results from the date of acquisition are included in the Fiber Optics and
Photonics reportable segment in Note 14.
In October 1999, the Company entered into a stock purchase agreement providing
for the acquisition of the west coast commercial optics subsidiary of Corning
OCA Corporation, a subsidiary of Corning Incorporated. The transaction was
accounted for as a purchase and the commercial optics subsidiary (renamed
Newport Precision Optics Corporation, "NPOC"), a manufacturer of specialized
precision optical products and systems, became a wholly owned subsidiary of
Newport. NPOC's results from the date of acquisition are included in the
Industrial and Scientific Technologies reportable segment in Note 14.
In August 2000, the Company acquired Unique Equipment Co. ("Unique"), based in
Chandler, Arizona. Unique is a privately held systems integrator specializing
in the use of robotics for the fiber optics and semiconductor industries. The
transaction was accounted for as a pooling of interests, and accordingly, the
accompanying consolidated financial statements have been restated to incorporate
the results of operations, financial position and cash flows of Unique, the
effects of which are immaterial to all periods presented. Unique's results are
included in the Fiber Optics and Photonics reportable segment in Note 14.
In December 2000, the Company acquired the business of CE Johansson AB ("CEJ"),
a privately held, Swedish based, global supplier of advanced metrology systems.
The acquisition was accounted for as a purchase. The December 2000 results of
operations for CEJ have been included in the Company's consolidated financial
statements. CEJ's results from the date of acquisition are included in the
Industrial Metrology Systems reportable segment in Note 14.
Page 35
Pro forma information for these acquisitions is not presented as they are not
material to the Company's consolidated sales or net income.
NOTE 3 CUSTOMER RECEIVABLES
The Company maintains adequate reserves for potential credit losses. Such
losses have been minimal and within management's estimates. Receivables from
customers are generally unsecured.
Customer receivables consist of the following:
(In thousands) December 31,
----------------
2000 1999
---- ----
Customer receivables $64,568 $33,050
Less allowance for doubtful accounts 467 411
------- -------
$64,101 $32,639
======= =======
NOTE 4 INVENTORIES
Inventories are stated at cost, determined on either a first-in, first-out
(FIFO) or average cost basis and do not exceed net realizable value.
Inventories consist of the following:
(In thousands) December 31,
------------------
2000 1999
---- ----
Raw materials and purchased parts $24,538 $12,128
Work in process 15,059 8,701
Finished goods 34,510 16,867
------- -------
$74,107 $37,696
======= =======
NOTE 5 INCOME TAXES
The provision for taxes based on income consists of the following:
(In thousands) Years Ended December 31,
----------------------------
2000 1999 1998
---- ---- ----
Current:
Federal $ 20,620 $ 2,038 $ 1,999
State 3,859 340 225
Foreign 1,392 327 437
Deferred:
Federal (13,605) 262 674
State (4,062) (16) 35
Foreign 3,941 5 (5)
-------- ------- -------
$ 12,145 $ 2,956 $ 3,365
======== ======= =======
Page 36
The provision for taxes based on income differs from the amount obtained by
applying the statutory tax rate as follows:
(In thousands) Years Ended December 31,
---------------------------
2000 1999 1998
------- ------- -------
Income tax provision at statutory rate $14,057 $3,834 $4,220
Increase (decrease) in taxes resulting from:
Non deductible goodwill amortization 267 250 142
State income taxes, net of federal income tax benefit (131) 214 171
Foreign rate variance 211 (314) (21)
Foreign sales corporation benefit (607) (370) (516)
Reduction valuation allowance (3,569) (607) (237)
Other, net 1,917 (51) (394)
------- ------ ------
$12,145 $2,956 $3,365
======= ====== ======
Deferred tax assets and liabilities determined in accordance with Statement of
Financial Accounting Standards No. 109, Accounting for Income Taxes, reflect the
impact of temporary differences between amounts of assets and liabilities for
tax and financial reporting purposes. Such amounts are measured by tax laws and
the expected future tax consequences of net operating loss carryforwards.
In 2000, the Company reduced the valuation allowance primarily applicable to
foreign net operating loss carryforwards by approximately $5,669,000, of which
$2,100,000 was allocated to goodwill, primarily because of improvements in
earnings of certain of its European subsidiaries.
Temporary differences and net operating loss carryforwards, which give rise to
deferred tax assets and liabilities recognized in the balance sheet, are as
follows:
(In thousands) December 31,
------------------
2000 1999
---- ----
Deferred tax assets:
Net operating loss carryforwards $11,164 $ 8,449
Accruals not currently deductible for tax purposes and other 3,090 1,609
Tax credit carryforwards 7,454 -
Valuation allowance (1,763) (7,432)
------- -------
Total deferred tax asset 19,945 2,626
------- -------
Deferred tax liabilities:
Accelerated depreciation methods used for tax purposes 849 977
Other 2,051 430
------- -------
Total deferred tax liability 2,900 1,407
------- -------
Net deferred tax asset $17,045 $ 1,219
======= =======
The Company has foreign net operating loss carryforwards totaling approximately
$3.1 million at December 31, 2000, principally expiring in the years 2007
through 2012 if not sooner utilized. For financial reporting purposes, a
valuation allowance was recorded primarily to offset the deferred tax assets
related to net operating loss and tax credit carryforwards. Approximately $5.7
million of the $7.4 million valuation allowance existing at January 1, 2000 was
released due to improved earnings of certain European subsidiaries.
Approximately $2.1 million and $0.4 million of the valuation allowance realized
was allocated to goodwill for 2000 and 1999, respectively. As the Company's net
operating loss carryforwards and valuation allowance are largely denominated in
foreign currencies, they are subject to foreign currency translation adjustments
as described in Note 1 above and to the risks associated therewith. The
exchange loss related to gross net operating loss carryforwards is partly offset
by a corresponding exchange fluctuation in the valuation allowance.
Accordingly, the net effect of currency fluctuations on the net operating loss
carryforwards, net of valuation allowance, is not material.
Page 37
The Company has income tax credit carryforwards of approximately $7.5 million
that begin to expire for federal and state tax purposes in years 2005 through
2020.
The Company has federal and state net operating loss carryforwards totaling
approximately $26.3 million and $15.6 million, respectively. These losses
relate primarily to employee stock option exercises, the benefit for which has
been allocated directly to capital in excess of stated value. Federal net
operating loss carryforwards begin to expire in 2020, while state net operating
loss carryforwards begin to expire in 2005.
Net income taxes paid for 2000, 1999 and 1998 totaled $3.5 million, $2.8 million
and $4.3 million, respectively.
Undistributed earnings of the Company's foreign subsidiaries amounted to
approximately $20.0 million and $10.0 million at December 31, 2000 and December
31, 1999, respectively. Those earnings are considered to be indefinitely
reinvested and, accordingly, no provision for U.S. federal and state taxes has
been provided thereon.
United States and foreign earnings before taxes are as follows:
(In thousands) Years Ended December 31,
----------------------------
2000 1999 1998
---- ---- ----
United States $27,879 $ 6,758 $12,658
Foreign 12,085 4,066 1,903
------- ------- --------
$39,964 $10,824 $14,561
======= ======= ========
NOTE 6 PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment, at cost, including capitalized lease assets,
consists of the following:
(In thousands) December 31,
--------------------
2000 1999
---- ----
Land $ 920 $ 1,106
Buildings 5,304 6,202
Leasehold improvements 12,677 8,457
Machinery and equipment 35,727 29,727
Office equipment 20,492 13,840
------- --------
75,120 59,332
Less accumulated depreciation 39,659 33,329
------- --------
$35,461 $26,003
======= ========
Depreciation expense, including the amortization of capital lease assets,
totaled $6.2 million, $5.0 million and $4.3 million for 2000, 1999 and 1998,
respectively.
NOTE 7 INVESTMENTS AND OTHER ASSETS
Investments and other assets consist of the following:
(In thousands) December 31,
--------------------
2000 1999
---- ----
Nonmarketable investments $4,088 $4,015
Other assets 5,685 4,446
------ ------
$9,773 $8,461
====== ======
Nonmarketable investments consist primarily of investments in private companies,
including a $1.4 million investment in a U.S. supplier and a $2.6 million
investment in a photonics manufacturer. The Company
Page 38
made purchases of approximately $4.8 million, $3.8 million and $4.3 million from
the U.S. supplier during 2000, 1999 and 1998, respectively.
Other assets consist primarily of capitalized software, patents and license
agreements.
NOTE 8 LONG-TERM DEBT
Long-term debt consists of the following:
(In thousands) December 31,
----------------------
2000 1999
---- ----
Revolving credit agreements:
$20.0 million, expiring May 2003 $ - $10,000
$20.0 million, expiring May 2001 - -
Term notes:
8.25% senior notes, maturing May 2004 11,500 15,500
Capitalized lease obligations, payable in installments to 2005,
in French francs 888 1,224
Equipment loans and other 308 636
------- -------
12,696 27,360
Less current portion 5,523 14,645
------- -------
$ 7,173 $12,715
======= =======
During May 1996, the Company obtained $20.0 million of long-term financing from
an insurance company. These senior notes, sold at par, are unsecured, carry an
8.25% annual coupon and mature in May 2004. Interest is payable semiannually
and semiannual principal payments commenced during November 1998.
To support its worldwide operations, at December 31, 2000, the Company had in
place a $20.0 million unsecured line of credit expiring May 30, 2003 and a $20.0
million unsecured line of credit expiring May 30, 2001. Both lines bear
interest at either the prevailing prime rate, or the prevailing London Interbank
Offered Rate plus 1.0%, at the Company's option, plus an unused line fee of 0.2%
per year. At December 31, 2000, there was no outstanding balance under either
line of credit, with $39.4 million available under the combined lines, after
considering outstanding letters of credit. In March 2001, we amended these
lines of credit to be $10.0 million each.
Capitalized lease obligations of 6.2 million French francs (approximately $0.9
million) relate to real estate and equipment located in France. The original
cost of assets under capital leases at December 31, 2000 and 1999, was 19.1
million French francs (approximately $2.7 million at December 31, 2000).
Accumulated amortization totaled 11.8 million French francs (approximately $1.7
million) and 11.1 million French francs (approximately $1.6 million) at December
31, 2000 and 1999, respectively. Required annual payments are as follows:
(In thousands) Capitalized
Lease Borrowings and
For years ending December 31, Obligations Term Notes
----------- --------------
2001 $ 280 $ 5,308
2002 285 3,500
2003 252 2,000
2004 181 1,000
2005 78 -
------ -------
1,076 11,808
Less interest 188 -
------ -------
$ 888 $11,808
====== =======
Page 39
Interest paid totaled $2.1 million, $1.9 million and $1.9 million for 2000, 1999
and 1998, respectively.
NOTE 9 COMMITMENTS
The Company leases certain of its manufacturing and office facilities and
equipment under non-cancelable operating leases. Minimum rental commitments
under terms of these leases are as follows for years ending December 31:
(In thousands)
2001 $5,539
2002 4,427
2003 4,116
2004 3,640
2005 3,444
Thereafter 4,777
The principal lease expires in 2007. Rental expense under all leases totaled
$4.5 million, $2.8 million and $2.6 million for 2000, 1999 and 1998,
respectively.
NOTE 10 CONTINGENCIES
In August 1999, Newport Electronics, a manufacturer of electronic devices, filed
suit against us in Federal District Court in Connecticut, claiming that our use
of the "Newport" trademark infringes their rights with respect to such mark. We
are vigorously defending our position in this litigation, however we are unable
to predict the outcome of the case due to the complex nature of this litigation.
This case, if adversely determined, could have certain adverse effects on our
business, including potential monetary damages and being enjoined from using the
"Newport" mark in conjunction with certain classes of products.
NOTE 11 STOCK OPTION PLANS
The Company's 1992 stock option plan provides that the number of shares
available for issuance as either stock options or restricted stock increases on
the last day of each fiscal year by an amount equal to 2% of the then
outstanding shares. Options have been granted to directors, officers and key
employees at a price not less than fair market value at the dates of grants for
terms of not more than ten years. Accordingly, no charges have been made to
income in accounting for these options. The tax benefits, if any, resulting
from the exercise of options are credited to capital in excess of stated value.
The fair market value of restricted stock at date of grant is amortized to
expense over the vesting period of one to five years.
Effective November 18, 1999, the Company's Board of Directors adopted the
Newport Corporation 1999 Stock Incentive Plan to enhance the Company's ability
to attract and retain qualified managers (excluding Board members, officers and
key employees) and to align their interests with stockholders. The Plan
authorizes the granting of non-incentive stock options and restricted stock up
to an aggregate of 1,800,000 shares, of which 853,500 shares were granted in
2000. The term of the Plan is 10 years.
Page 40
The following table summarizes option plan and restricted stock activity for the
years ended December 31, 2000, 1999, and 1998:
Under Plan Weighted Average
Available for ------------------------------------- Exercise Price
Option Grant Restricted of Option Shares
or Award Stock Options Total Under Plan
-------- ----- ------- ----- ----------
Balance, December 31, 1997 1,494,795 303,750 3,186,177 3,489,927 $ 2.56
Authorized 547,164 - - - -
Granted (1,468,800) 60,000 1,408,800 1,468,800 4.50
Exercised - (73,875) (688,200) (762,075) 2.19
Forfeited 95,700 - (95,700) (95,700) 3.50
---------- ------- ---------- ----------
Balance, December 31, 1998 668,859 289,875 3,811,077 4,100,952 3.32
Authorized 1,453,893 - - - -
Granted (725,100) - 725,100 725,100 7.10
Exercised - (89,250) (401,025) (490,275) 3.12
Forfeited 173,928 - (173,928) (173,928) 4.57
---------- ------- ---------- ----------
Balance, December 31, 1999 1,571,580 200,625 3,961,224 4,161,849 3.99
Authorized 1,552,800 - - - -
Granted (1,626,039) 69,039 1,557,000 1,626,039 34.39
Exercised - (86,625) (1,563,099) (1,649,724) 3.04
Forfeited 97,308 (22,500) (97,308) (119,808) 12.05
---------- ------- ---------- ----------
Balance, December 31, 2000 1,595,649 160,539 3,857,817 4,018,356 $16.44
========== ======= ========== ==========
The weighted average per share fair value of restricted stock granted during
2000 and 1998 was $36.32 and $4.46, respectively. There were no grants of
restricted stock in 1999.
At December 31, 2000, options on 1,301,173 shares were exercisable with a
weighted average exercise price of $4.45 per share. The following table
summarizes information concerning options outstanding and exercisable at
December 31, 2000 (Contractual life in years):
Options Outstanding Options Exercisable
------------------------------------------- ---------------------
Weighted Average Weighted Weighted
Remaining Average Average
Range of Number Contractual Exercise Number Exercise
Exercise Prices Outstanding Life Price Exercisable Price
--------------- ----------- ---- ----- ----------- -----
$2.00 - 6.00 2,115,567 6.4 $ 4.07 1,184,398 $ 3.56
6.50 - 15.50 1,318,600 9.0 13.66 116,275 13.17
22.00 - 180.00 458,450 9.6 85.85 500 95.88
--------- ---------
3,892,617 1,301,173
========= =========
The Company applies Accounting Principles Board Opinion No. 25, Accounting for
Stock Issued to Employees, and related interpretations in accounting for its
plans. Accordingly, no compensation expense has been recognized for its stock-
based compensation plans other than for restricted stock awards. Had
compensation cost for the Company's stock option and employee stock purchase
plans been determined based upon the fair value at the grant date for awards
under these plans consistent with the methodology prescribed under Statement of
Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation
(SFAS No. 123), the Company's net income and earnings per share would have been
reduced to the pro forma amounts indicated below:
(In thousands) 2000 1999 1998
---- ---- ----
Net income - reported $27,819 $7,868 $11,196
Net income - pro forma $25,159 $7,358 $11,079
Diluted earnings per share - reported $ 0.86 $ 0.28 $ 0.40
Diluted earnings per share - pro forma $ 0.78 $ 0.26 $ 0.39
Page 41
The fair value of each option grant in 2000 was estimated on the date of the
grant using the Black-Scholes option-pricing model with the following weighted-
average assumptions: dividend yield of 0.02%; expected annual volatility of 76%;
risk-free interest rate of 6.33%; expected lives of 5 years; and expected
turnover rate of 12.90%. The fair value of each option grant in 1999 and 1998
was estimated on the date of the grant using the following weighted-average
assumptions: dividend yield of 0.23% and 0.33% respectively; expected annual
volatility of 50.50% and 41.01%, respectively, risk-free interest rates of 4.93%
and 5.44%, respectively, expected lives of 5 years and expected turnover rate of
12.90%. The weighted average per share fair value of options granted in 2000,
1999 and 1998 was $34.43, $2.89 and $1.94, respectively. The pro forma amounts
shown for the impact of SFAS No. 123 are not necessarily indicative of future
results because of the phase in rules and differences in number of grants, stock
price and assumptions for future years.
Effective January 1, 1995 the Company adopted an Employee Stock Purchase Plan
(the "Purchase Plan") to provide employees of the Company with an opportunity to
purchase common stock through payroll deductions. The purchase price is the
lower of 85% of the fair market value of the stock on the first or last day of
each quarter. The Purchase Plan expires on December 31, 2005. An aggregate of
1,950,000 shares of common stock is available for purchase under the Purchase
Plan. There were 68,180, 297,408, and 246,603 shares issued under the Purchase
Plan during 2000, 1999, and 1998, respectively. The amounts included in the pro
forma net income disclosures related to the impact of the Purchase Plan totaled
$0.5 million, $0.2 million, and $0.2 million for the years 2000, 1999, and 1998,
respectively.
NOTE 12 OTHER INCOME (EXPENSE), NET
Other income (expense), net, consisted of the following:
(In thousands) Years Ended December 31,
----------------------------
2000 1999 1998
---- ---- ----
Exchange losses, net $ (59) $ (226) $ (261)
Gains (losses) on sale of investments, net (8) 275 134
Other (354) 10 (209)
---- ---- ----
$ (421) $ 59 $ (336)
==== ==== ====
NOTE 13 EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per
share under SFAS No. 128:
(In thousands, except per share amounts) Years Ended December 31,
-----------------------------
2000 1999 1998
---- ---- ----
Numerator:
Net income $27,819 $ 7,868 $11,196
Denominator:
Denominator for basic earnings per
share - weighted-average shares 29,938 27,413 27,132
Effect of dilutive securities:
Employee stock options 2,273 1,016 1,010
Restricted stock 98 120 174
-- --- ---
Dilutive potential common shares 2,371 1,136 1,184
Denominator for diluted earnings per
share - adjusted weighted-average
shares and assumed conversions 32,309 28,549 28,316
======= ======= =======
Basic earnings per share $ 0.93 $ 0.29 $ 0.41
Diluted earnings per share $ 0.86 $ 0.28 $ 0.40
Page 42
NOTE 14 BUSINESS SEGMENT INFORMATION
The Company operates in three reportable segments, Industrial and Scientific
Technologies, Fiber Optics and Photonics and Industrial Metrology Systems. The
accounting policies of the reportable segments are the same as those described
in the summary of significant accounting policies except that certain non-
operating income and expenses, such as interest, are not allocated to the
segments. In addition, certain assets, including cash and cash equivalents,
deferred taxes and certain long-lived and intangible assets are not allocated to
the segments.
The Industrial and Scientific Technologies segment consists primarily of Motion
Control Devices and Systems, Vibration Isolation Products, Optics, Mechanical
Components, Instruments and Subassemblies. The Fiber Optics and Photonics
segment consists primarily of Device Testing and Characterization Systems and
Process Automation Workstations for Fiber Optics and Photonics manufacturing.
The Industrial Metrology Systems segment (formerly Video Metrology segment)
consists primarily of Measurement and Inspection Systems.
Selected financial information for the Company's reportable segments for the
years ended December 31, 2000, 1999 and 1998 follows:
(In thousands) Industrial Industrial
and Scientific Fiber Optics Metrology
Technologies and Photonics Systems Total
------------ ------------- ------- -----
Year Ended December 31, 2000:
- -----------------------------
Sales to external customers $152,856 $91,036 $ 8,961 $252,853
Depreciation and amortization 4,722 1,148 1,223 7,093
Segment income (loss) 29,941 11,058 (7,115) 33,884
Segment assets 121,473 70,226 21,810 213,509
Expenditures for long-lived assets 5,044 3,210 227 8,481
Year Ended December 31, 1999:
- -----------------------------
Sales to external customers $ 96,578 $37,617 $ 9,917 $144,112
Depreciation and amortization 4,011 914 484 5,409
Segment income (loss) 12,418 3,353 (3,365) 12,406
Segment assets 77,110 25,503 10,897 113,510
Expenditures for long-lived assets 2,558 754 304 3,616
Year Ended December 31, 1998:
- -----------------------------
Sales to external customers $ 97,792 $32,545 $12,488 $142,825
Depreciation and amortization 4,034 456 258 4,748
Segment income (loss) 14,667 3,804 (2,193) 16,278
Segment assets 68,143 17,110 9,445 94,698
Expenditures for long-lived assets 3,231 479 615 4,325
The following reconciles segment income to consolidated income before income
taxes and segment assets and depreciation and amortization to consolidated
assets and consolidated depreciation and amortization.
(In thousands) 2000 1999 1998
---- ---- ----
Income:
Segment income $ 33,884 $ 12,406 $ 16,278
Unallocated amounts:
Interest expense 1,927 1,785 1,891
Interest income 8,428 144 510
Other income (expense) (421) 59 (336)
------ ------ ------
Income before income taxes $ 39,964 $ 10,824 $ 14,561
====== ====== ======
Page 43
(In thousands) 2000 1999 1998
---- ---- ----
Assets:
Assets for reportable segments $213,509 $113,510 $ 94,698
Assets held at corporate 318,203 11,054 17,330
-------- -------- --------
Total assets $531,712 $124,564 $112,028
======== ======== ========
Expenditures for long-lived assets for reportable segments $ 8,481 $ 3,616 $ 4,325
Expenditures for long-lived assets held at corporate 7,369 1,308 1,075
-------- -------- --------
Total expenditures for long-lived assets $ 15,850 $ 4,924 $ 5,400
======== ======== ========
Depreciation and amortization:
Depreciation and amortization for reportable segments $ 7,093 $ 5,409 $ 4,748
Depreciation and amortization for assets held at corporate 3,712 1,689 1,400
-------- -------- --------
Total depreciation and amortization $ 10,805 $ 7,098 $ 6,148
======== ======== ========
Selected financial information for the Company's operations by geographic
segment is as follows:
2000 1999 1998
---- ---- ----
Geographic area revenue:
United States $170,093 $ 91,853 $ 95,708
Europe 40,769 32,516 30,358
Pacific Rim 24,459 11,474 9,787
Other 17,532 8,269 6,972
-------- -------- --------
$252,853 $144,112 $142,825
======== ======== ========
Geographic area long-lived assets:
United States $ 29,169 $ 19,287 $ 14,325
Europe 6,226 6,634 8,508
Other 66 82 94
-------- -------- --------
$ 35,461 $ 26,003 $ 22,927
======== ======== ========
NOTE 15 DEFINED CONTRIBUTION PLAN
The Company sponsors a defined contribution plan. Generally, all U.S. employees
are eligible to participate in and contribute to this plan. Company
contributions to the plan are determined based on a percentage of contributing
employees' compensation. Expense recognized for the plan totaled $1.9 million,
$1.3 million and $1.3 million for 2000, 1999 and 1998, respectively.
NOTE 16 SUPPLEMENTARY QUARTERLY CONSOLIDATED FINANCIAL DATA (Unaudited)
(In thousands, except per share amounts)
Diluted Dividends High Low
Net Gross Net Earnings Per Per Share Share
Three months ended Sales Profit Income Share Share Price Price
- ------------------ ----- ------ ------ ----- ----- ----- -----
December 31, 2000 $86,723 $38,024 $12,302 $0.36 $0.0100 $176.25 $57.00
September 30, 2000 66,594 28,660 8,179 0.25 - 189.25 82.44
June 30, 2000 52,769 23,237 4,080 0.13 0.0100 110.00 29.33
March 31, 2000 46,767 20,453 3,258 0.11 - 59.50 14.31
December 31, 1999 $42,329 $17,798 $ 2,952 $0.10 $0.0067 $ 15.25 $ 5.42
September 30, 1999 35,530 15,484 2,014 0.07 - 6.88 4.58
June 30, 1999 36,538 16,268 2,137 0.08 0.0067 5.25 3.98
March 31, 1999 29,715 12,916 765 0.03 - 4.13 6.50
Page 44
NOTE 17 SUBSEQUENT EVENTS
In February 2001, the Company acquired Kensington Laboratories, Inc. ("KLI"), a
manufacturer of high-precision robotic and motion control equipment for the
semiconductor and fiber optic communications industries. The Company issued
3,526,000 shares in the transaction, which is being accounted for as a pooling
of interests.
Net sales and net income information assuming the acquisition had occurred on
January 1, 1998, is as follows:
Years Ended December 31, 2000
--------------------------------
2000 1999 1998
---- ---- ----
Net sales:
Newport $252,853 $144,112 $142,825
KLI 38,828 18,853 23,964
Less: Intercompany sales (7,676) (3,440) (2,938)
-------- -------- --------
Combined $284,005 $159,525 $163,851
======== ======== ========
Net income:
Newport $ 27,819 $ 7,868 $ 11,196
KLI 8,492 2,053 5,079
-------- -------- --------
Combined $ 36,311 $ 9,921 $ 16,275
======== ======== ========
Net earnings per share:
Basic
Newport $ 0.83 $ 0.25 $ 0.36
KLI 0.26 0.07 0.17
-------- -------- --------
Combined $ 1.09 $ 0.32 $ 0.53
======== ======== ========
Diluted
Newport $ 0.77 $ 0.25 $ 0.35
KLI 0.24 0.06 0.16
-------- -------- --------
Combined $ 1.01 $ 0.31 $ 0.51
======== ======== ========
Number of shares used to calculate net earnings per share:
Basic 33,464 30,939 30,658
Diluted 35,835 32,075 31,842
Also in February 2001, the Company acquired Design Technology Corporation
("DTC"), a systems integrator specializing in the use of robotics and flexible
automation solutions for manufacturing processes. The acquisition was accounted
for using the purchase method. Results of the operations will be included with
the filing of our Quarterly Report on Form 10-Q for the quarter ended March 31,
2001.
Page 45
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, 2000:
Deducted from asset accounts:
Allowance for doubtful accounts $ 411 $ 232 $ (164) $ (12) $ 467
Reserve for inventory obsolescence 3,768 3,682 (2,394) 810 5,866
Warranty reserve 403 1,965 (1,901) - 467
Year ended December 31, 1999:
Deducted from asset accounts:
Allowance for doubtful accounts $ 279 $ 278 $ (116) $ (30) $ 411
Reserve for inventory obsolescence 4,304 982 (1,330) (188) 3,768
Warranty reserve 336 1,575 (1,508) - 403
Year ended December 31, 1998:
Deducted from asset accounts:
Allowance for doubtful accounts $ 485 $ (97) $ (120) $ 11 $ 279
Reserve for inventory obsolescence 4,119 1,170 (1,460) 475 4,304
Warranty reserve 426 966 (1,056) - 336
(1) Amounts are net of recoveries.
(2) Amounts reflect the effect of exchange rate changes on translating valuation
accounts of foreign subsidiaries in accordance with Statement of Financial
Accounting Standards No. 52, Foreign Currency Translation, the acquisition
of CE Johansson, and certain reclassifications between balance sheet
accounts.
Page 46
NEWPORT CORPORATION
FORM 10-K
Exhibit Index
Exhibit 10.2 Lease Agreement dated November 1, 2000, between Newport
Corporation and Arden Realty Limited Partnership.
Exhibit 10.15 Amendment to 364 Day $10,000,000 Revolving Credit Agreement,
dated as of March 9, 2001, between Newport Corporation and ABN
AMRO Bank, N.V.
Exhibit 10.16 Amendment to 3 Year $15,000,000 Revolving Credit Agreement, dated
as of March 9, 2001, between Newport Corporation and ABN AMRO
Bank, N.V.
Exhibit 21 Subsidiaries of Registrant
Exhibit 23 Consent of Independent Auditors