Newport Corporation Reports Second Quarter and Six-Months Results

Company Records Strong Growth in Revenues and Earnings; Cost Reduction Initiatives Taken to Respond to Market Conditions

Irvine, California, UNITED STATES


IRVINE, Calif., July 18, 2001 (PRIMEZONE) -- Newport Corporation (Nasdaq:NEWP) today reported results for the second quarter and six months ended June 30, 2001, in line with the preliminary results announced by the company earlier this month.

For the 2001 second quarter, net income rose 37 percent to $12.1 million, or $0.32 per diluted share, from $8.9 million, or $0.26 per diluted share, in the corresponding prior-year quarter. 2000 results include the addition of Kensington Laboratories, Inc., which was acquired in a transaction accounted for as a pooling of interests. In addition, results for the 2001 period include a provision for income tax on Kensington's results for which there was no corresponding amount required in the prior-year period. On a proforma basis, including a tax provision on the results of Kensington's operations for the 2000 period, net income for the 2001 second quarter would have increased 75 percent from $7.0 million, or $0.20 per diluted share, in the second quarter of 2000.

Sales for the 2001 second quarter rose 62 percent to $98.9 million from $61.1 million a year ago. Results in the second quarter reflect a 66 percent year-over-year increase in sales to the fiber optic communications market to $36.2 million and a 74 percent year-over-year increase in sales to the semiconductor capital equipment market to $28.2 million. Overall, these market segments constituted 65 percent of Newport's second quarter 2001 sales.

For the first half of 2001, net income totaled $19.1 million, or $0.50 per diluted share, on net sales of $205.6 million, compared with net income of $15.1 million, or $0.44 per diluted share, on net sales of $113.5 million for the same period in 2000. The results for the 2001 period include non-recurring charges of $12.5 million recorded in the first quarter related primarily to acquisitions. Excluding the non-recurring charges and including a tax provision on the results of Kensington's operations for the 2000 period, net income for the first half of 2001 would have increased 129 percent to $27.5 million, and diluted earnings per share would have increased 106 percent to $0.72.

"Newport continued to generate strong year-over-year sales and earnings growth in its strategic markets during the second quarter," said Robert G. Deuster, president and chief executive officer. "As we noted previously, however, we also have experienced substantial declines in orders as well as an increase in cancellations, particularly from customers in the fiber optic communications business."

Total new orders received in the second quarter equaled $55.2 million compared with $90.9 million received in the first quarter of 2001 and $102.2 million from the prior-year second quarter. Including the approximately $13 million in cancellations recorded in the second quarter of 2001, net orders equaled approximately $42 million.

Orders from customers in the fiber optic communications market were $11.9 million in the second quarter of 2001, compared with $35.1 million in the first quarter of 2001, and $43.2 million in the prior-year second quarter. Orders from customers in the semiconductor capital equipment markets were $16.8 million in the second quarter of 2001 compared with $20.2 million in the first quarter of 2001 and $32.7 million in the prior-year second quarter. Orders from customers in Newport's industrial metrology segment, were $26.5 million compared with $35.6 million in the first quarter of 2001 and $26.3 million in the prior-year second quarter.

Gross margin for the second quarter of 2001 was 41.5 percent compared with 47.3 percent in the prior-year second quarter. Gross margin for the 2001 period was negatively impacted by higher sales of lower margin semiconductor products as well as by higher manufacturing costs in the company's Fiber Optics and Photonics division. Furthermore, the company noted that gross margin for the 2000 period reflected significantly higher than usual margins at Kensington.

Selling, general and administrative (SG&A) expense for the second quarter of 2001 totaled $18.2 million, or 18.5 percent of sales, versus SG&A expense of $12.1 million, or 19.8 percent of sales, in the second quarter of 2000. Approximately half of the increase in SG&A expense resulted from recently acquired businesses. The remainder of the increase primarily resulted from costs required to support the strong year-over-year sales growth.

Research and development (R&D) expense for the second quarter of 2001 increased 45 percent year-over-year to $8.2 million, or 8.3 percent of sales, compared with R&D expense of $5.7 million, or 9.3 percent of sales in the second quarter of 2000. The increase related primarily to continued product development and enhancements, especially for the fiber optic communications market.

Operating income in the second quarter of 2001 increased 31 percent to $14.6 million compared with $11.1 million recorded in the second quarter of 2000.

Interest and other income, net of interest expense, consisting primarily of interest earned on marketable securities, totaled $3.5 million for the second quarter of 2001 compared with $0.6 million expense in the second quarter of 2000. The tax rate for the second quarter was 33.0 percent versus a proforma tax rate of 33.8 percent in the second quarter last year.

Deuster added, "We firmly believe that, notwithstanding the current downturn, there will be a continuing need for fiber optic and semiconductor manufacturers to improve their process efficiencies and yields through automation. Accordingly, we will continue to focus on the development of future products and enhancements to maintain our position as a leading supplier of manufacturing and automation solutions to the fiber optic communications and semiconductor capital equipment markets.

"As announced in our news release dated July 9, 2001, we have proceeded with strategic actions to align Newport's expense structure with the current market conditions," Deuster said.

On July 9, Newport announced staff reductions and other cost containment programs designed to achieve total cost savings of $5 million to $7 million on an annualized basis. Such actions include:


  -- A reduction of approximately 10 percent of the company's 
     workforce, or about 180 to 200 people, primarily in manufacturing
     and support capacities within Newport's Fiber Optics and 
     Photonics division, and 

  -- An evaluation of certain product lines and the carrying value of
     certain inventory items, with the intention of eliminating
     products or assets that have no long term strategic benefit to
     the company.   

Newport expects to record a cash charge in the third quarter of 2001 of approximately $1.0 million to $1.5 million for employee severance as well as a third quarter 2001 charge for writing down certain assets, which may include inventory, goodwill and fixed assets, expected to be in the range of $6 million to $10 million. This charge will be largely non-cash in nature.

EXPANDED BUSINESS OUTLOOK

The following statements are based on current expectations. These statements are forward-looking, and actual results may differ materially as a result of the factors more specifically referenced below. The following estimates exclude the non-recurring charges of $12.5 million recorded in the first quarter, as well as expected third quarter charges of $1.0 million to $1.5 million for employee severance and $6 million to $10 million for writing down certain assets.

**Based on current indications from customers, the company anticipates that revenues for the third quarter of 2001 will be slightly less than the $73.6 million recorded in the third quarter of 2000. For the full year 2001, revenues are expected to be in the range of $350 million to $360 million.

**Gross margin for each of the third and fourth quarters of 2001 is expected to be in the 41 to 43 percent range.

**Due to the lower sales volume, SG&A expense as a percent of sales for the remainder of the year is expected to be 22 to 24 percent. For the full year, SG&A expense is expected to be approximately 21 percent of sales.

**R&D spending is expected to be between $7 million and $8 million, or 8.5 and 10.0 percent of sales, in each of the third and fourth quarters of 2001. For the full year, R&D spending is expected to be between 8 and 9 percent of sales.

**The company expects interest and other income, net of interest expense, to be between $3.0 million and $3.5 million per quarter for the remainder of 2001, depending on interest rates, cash balances, foreign exchange markets, and potential business development activity.

**The tax rate for the third quarter of 2001 and the full year is expected to be in the range of 33 to 34 percent.

**The company expects the number of diluted common shares outstanding to increase to 38 million to 39 million by the end of the year. Actual diluted shares may vary depending on the share price trends and option grant and exercise activity.

**For the full year, diluted earnings per share, excluding non-recurring charges, are expected to be in the range of $1.10 to $1.15. Including non-recurring charges, diluted earnings per share are expected to be in range of $0.68 to $0.81.

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 research and industrial metrology markets. The company's innovative products are designed to enhance productivity and capabilities in 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.

INVESTOR CONFERENCE CALL

Robert G. Deuster, chairman and chief executive officer, and Charles F. Cargile, vice president and chief financial officer, will host an investor conference call today, July 18, 2001 at 5:00 p.m., Eastern Time, to review the company's second quarter results. The call will be open to all interested investors through a live audio Web broadcast via the Internet at www.newport.com and www.streetevents.com. Rebroadcast over the Internet will be available through 8:00 a.m., Eastern Time, Wednesday, August 1, on both Web sites. A telephonic playback of the conference call will also be available through 8:00 p.m., Eastern Time, July 27, 2001. Listeners should call (800) 633-8284 or (858) 812-6440 and use Reservation No. 19321000.

This news release contains forward-looking statements, including specifically statements made by Robert G. Deuster that are based on current expectations and involve risks and uncertainties. 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. In addition, any statements that refer to expectations, projections or other characterizations of future events or circumstances are forward-looking statements. As discussed in Newport's Annual Report on Form 10-K for the year ended December 31, 2000 and its subsequent SEC reports, assumptions relating to the foregoing involve judgments and risks with respect to, among other things, future economic, competitive and market conditions, including those in Europe and Asia and those related to its strategic markets, whether its products, particularly those targeting the company's strategic markets, will continue to achieve customer acceptance, the ability of Newport to successfully integrate its acquired and to-be-acquired companies and the contributions of those companies to Newport's operating results, the risks of power interruptions and electricity rate increases and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond the control of Newport. Although Newport believes that the assumptions underlying the forward-looking statements are reasonable, any of the assumptions could prove inaccurate and, therefore, there can be no assurance that the results contemplated in forward-looking statements will be realized. In light of the significant uncertainties inherent in the forward-looking information included herein, the inclusion of such information should not be regarded as a representation by Newport or any other person that Newport's objectives or plans will be achieved. Newport undertakes no obligation to revise the forward-looking statements contained herein to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.


                           Newport Corporation
                     Consolidated Income Statement
       (In thousands, except per share amounts and percentages)

                                         Three Months Ended June 30,
                                        ----------------------------
                                          2001       2000      % Chg
                                        --------   --------    -----
 Net sales                              $ 98,899   $ 61,109       62
 Cost of sales, including asset
  writedown related to acquisition
  integration                             57,862     32,209
                                        --------   --------
 Gross profit                             41,037     28,900       42
 
 Selling, general and administrative
  expense                                 18,227     12,107
 Acquisition and other charges                 0          0
 Research and development expense          8,233      5,680
                                        --------   --------
 Income from operations                   14,577     11,113       31
 Income from operations %                   14.7       18.2
 
 Interest and other income, net            3,546       (614)
                                        --------   --------
 Income before income taxes               18,123     10,499       73
 Income tax provision                      5,981      1,632
                                        --------   --------
 
 Net income                             $ 12,142   $  8,867       37
 
 Earnings per share
  Basic                                 $   0.33   $   0.28       18
  Diluted                               $   0.32   $   0.26       23
 Number of shares used to calculate
  earnings per share
   Basic                                  36,354     31,899
   Diluted                                37,849     34,211


                                           Six Months Ended June 30,
                                           -------------------------
                                          2001       2000      % Chg
                                        --------   --------    -----
 Net sales                             $ 205,640  $ 113,546       81
 Cost of sales, including asset
  writedown related to acquisition
  integration                            119,026     60,332
                                       ---------  ---------
 Gross profit                             86,614     53,214       63

 Selling, general and
  administrative expense                  38,464     23,291
 Acquisition and other charges            10,683          0
 Research and development expense         16,444     10,778
                                       ---------   ---------
 Income from operations                   21,023     19,145       10
 Income from operations %                   10.2       16.9

 Interest and other income, net            7,461     (1,242)
                                       ---------   --------
  Income before income taxes              28,484     17,903       59
 Income tax provision                      9,400      2,804
                                       ---------   --------

 Net income                            $  19,084  $  15,099       26

 Earnings per share
  Basic                                $    0.53  $    0.48       10
  Diluted                              $    0.50  $    0.44       14
 Number of shares used to calculate
  earnings per share
   Basic                                  36,260     31,675
   Diluted                                37,918     34,029
                                                
 NOTE: Refer to the following Consolidated Income Statement for the
 proforma presentation.



                 Condensed Consolidated Balance Sheet
                            (In thousands)

                                     June 30,       December 31,
                                       2001             2000
                                     --------         --------
 ASSETS
    Cash and cash equivalents        $ 24,555         $ 16,861
    Marketable securities             244,758          289,781
    Customer receivables, net          72,698           70,241
    Income tax receivable                   0            4,110
    Inventories                       118,959           80,585
    Deferred tax assets                17,648           17,720

    Other current assets                8,175            7,836
                                     --------         --------
      Total current assets            486,793          487,134
    Investments and other assets        8,388            9,773
    Property, plant and equipment,
      at cost                          49,341           41,308
    Goodwill, net                      29,193           18,805
                                     --------         --------
                                     $573,715         $557,020
                                     ========         ========

 LIABILITIES AND EQUITY
     Accounts payable                $ 24,933         $ 24,797
     Accrued payroll expenses          12,632           13,313
     Taxes based on income              3,199            1,139
     Current portion of long-term       8,276            7,590
     Deferred revenue                   1,623            2,696
     Other current liabilities         10,058           11,305
                                     --------         --------
       Total current liabilities       60,721           60,840

     Long-term debt                     4,496            9,540
     Other liabilities                  1,290              675
     Stockholders' equity             507,208          485,965
                                     --------         --------
                                     $573,715         $557,020
                                     ========         ========



                          Newport Corporation
                Proforma Consolidated Income Statement
       (In thousands, except per share amounts and percentages)

                                         Three Months Ended June 30,
                                        ----------------------------
                                          2001       2000      % Chg
                                        --------   --------    -----
 Net sales                              $ 98,899   $ 61,109       62
 Cost of sales                            57,862     32,209
                                        --------   --------
 Gross profit                             41,037     28,900       42

 Selling, general and
  administrative expense                  18,227     12,107
 Research and development expense          8,233      5,680
                                        --------   --------
 Income from operations                   14,577     11,113       31
 Income from operations %                   14.7        18.2

 Interest and other income, net            3,546       (614)
                                        --------   --------

 Income before income taxes               18,123     10,499       73
 Income tax provision                      5,981      3,547
                                        --------   --------

 Net income                             $ 12,142   $  6,952       75

 Earnings per share
  Basic                                 $   0.33   $   0.22       50
  Diluted                               $   0.32   $   0.20       60
 Number of shares used to
  calculate earnings per share
   Basic                                  36,354     31,899
   Diluted                                37,849     34,211


                                           Six Months Ended June 30,
                                           -------------------------
                                          2001       2000      % Chg 
                                        --------   --------    -----
 Net sales                             $ 205,640  $ 113,546       81
 Cost of sales                           117,238     60,332
                                        --------   --------
 Gross profit                             88,402     53,214       66

 Selling, general and
  administrative expense                  38,464     23,291
 Research and development expense         16,444     10,778
                                        --------   --------
 Income from operations                   33,494     19,145       75
 Income from operations %                   16.3       16.9

 Interest and other income, net            7,509     (1,242)
                                        --------   --------

 Income before income taxes               41,003     17,903      129
 Income tax provision                     13,531      5,909
                                        --------   --------

 Net income                            $  27,472  $  11,994      129

 Earnings per share
  Basic                                $    0.76  $    0.38      100
  Diluted                              $    0.72  $    0.35      106
 Number of shares used to
  calculate earnings per share
   Basic                                  36,260     31,675
   Diluted                                37,918     34,029

 Note: Adjusted to (a) exclude the impact of the $12.5 million of
 non-recurring charges in the first quarter of 2001 and (b) reflect
 proforma tax provisions of $1.9 million and $3.1 million on the
 operations of Kensington in the 2000 three and six month periods,
 respectively.


        

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