##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, DC 20549
 
 FORM 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended September 29, 2007
 OR
 o
    
    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: 000-01649
 
 NEWPORT CORPORATION
 (Exact name of registrant as specified in its charter)
 Nevada
    
    94-0849175(State or other jurisdiction of
    
    (IRS Employer Identification No.)incorporation or organization)
 1791 Deere Avenue, Irvine, California 92606  (Address of principal executive offices) (Zip Code)
 (949) 863-3144
 Not Applicable
 
  þ o
  o þ o
  o þ




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##### 



NEWPORT CORPORATION
 FORM 10-Q
 INDEX
 PageNumberPART I. FINANCIAL INFORMATIONItem 1. Financial Statements:Consolidated Statements of Operations for the Three and Nine Months Ended
September 29, 2007 and September 30, 2006
    
    
    3Consolidated Balance Sheets as of September 29, 2007 and December 30, 2006
    
    
    4Consolidated Statements of Cash Flows for the Nine Months Ended September
29, 2007 and September 30, 2006
    
    
    5Notes to Consolidated Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of
Operations
    
    
    17Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    26Item 4. Controls and Procedures
    
    
    27PART II. OTHER INFORMATIONItem 1A. Risk Factors
    
    
    28Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    28Item 6. Exhibits
    
    
    29SIGNATURES
    
    
    30
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PART I  FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 NEWPORT CORPORATION
 
 Consolidated Statements of Operations
 (In thousands, except per share data)
 (Unaudited)
 Three Months Ended
    
    Nine Months EndedSeptember 29,
    
    September 30,
    
    September 29,
    
    September 30,2007
    
    2006
    
    2007
    
    2006Net sales
    
    $
    109,001
    
    
    $
    114,275
    
    
    $
    327,169
    
    
    $
    329,830Cost of sales
    
    
    65,409
    
    
    
    63,200
    
    
    
    187,885
    
    
    
    185,551Gross profit
    
    
    43,592
    
    
    
    51,075
    
    
    
    139,284
    
    
    
    144,279Selling, general and administrative expense
    
    
    28,729
    
    
    
    29,415
    
    
    
    87,535
    
    
    
    84,548Research and development expense
    
    
    9,739
    
    
    
    10,714
    
    
    
    31,216
    
    
    
    30,850Operating income
    
    
    5,124
    
    
    
    10,946
    
    
    
    20,533
    
    
    
    28,881Interest and other income (expense), net
    
    
    132
    
    
    
    (347
    )
    
    
    349
    
    
    
    (563
    )Income from continuing operations before income taxes
    
    
    5,256
    
    
    
    10,599
    
    
    
    20,882
    
    
    
    28,318Income tax provision (benefit), net
    
    
    (286
    )
    
    
    111
    
    
    
    2,126
    
    
    
    2,251Income from continuing operations
    
    
    5,542
    
    
    
    10,488
    
    
    
    18,756
    
    
    
    26,067Loss from discontinued operations, net of income tax
(provision) benefit of $0, $(46), $0 and $73, respectively
    
    
    
    
    
    
    (201
    )
    
    
    
    
    
    
    (853
    )Net income
    
    $
    5,542
    
    
    $
    10,287
    
    
    $
    18,756
    
    
    $
    25,214Basic income (loss) per share:Income from continuing operations
    
    $
    0.15
    
    
    $
    0.26
    
    
    $
    0.48
    
    
    $
    0.64Loss from discontinued operations, net of income taxes
    
    
    
    
    
    
    (0.01
    )
    
    
    
    
    
    
    (0.02
    )Net income
    
    $
    0.15
    
    
    $
    0.25
    
    
    $
    0.48
    
    
    $
    0.62Diluted income (loss) per share:Income from continuing operations
    
    $
    0.15
    
    
    $
    0.25
    
    
    $
    0.47
    
    
    $
    0.62Loss from discontinued operations, net of income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.02
    )Net income
    
    $
    0.15
    
    
    $
    0.25
    
    
    $
    0.47
    
    
    $
    0.60Shares used in the computation of income (loss) per share:Basic
    
    
    37,723
    
    
    
    40,740
    
    
    
    38,994
    
    
    
    40,555Diluted
    
    
    38,109
    
    
    
    41,798
    
    
    
    39,678
    
    
    
    41,738
  3




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NEWPORT CORPORATION
 
 Consolidated Balance Sheets
 (In thousands, except share and per share data)
 (Unaudited)
 September 29,
    
    December 30,2007
    
    2006ASSETSCurrent assets:Cash and cash equivalents
    
    $
    90,050
    
    
    $
    35,930Marketable securities
    
    
    49,624
    
    
    
    49,483Accounts receivable, net of allowance for doubtful accounts of $1,228 and
$1,503 as of September 29, 2007 and December 30, 2006, respectively
    
    
    86,862
    
    
    
    94,325Notes receivable, net
    
    
    3,649
    
    
    
    4,868Inventories
    
    
    112,277
    
    
    
    94,899Deferred income taxes
    
    
    2,120
    
    
    
    2,031Prepaid expenses and other current assets
    
    
    11,911
    
    
    
    11,639Total current assets
    
    
    356,493
    
    
    
    293,175Property and equipment, net
    
    
    58,885
    
    
    
    57,400Goodwill
    
    
    174,863
    
    
    
    175,281Deferred income taxes
    
    
    1,882
    
    
    
    781Intangible assets, net
    
    
    47,189
    
    
    
    50,234Investments and other assets
    
    
    21,572
    
    
    
    16,144$
    660,884
    
    
    $
    593,015LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Short-term obligations
    
    $
    11,483
    
    
    $
    9,481Accounts payable
    
    
    30,420
    
    
    
    31,376Accrued payroll and related expenses
    
    
    24,947
    
    
    
    27,443Accrued expenses and other current liabilities
    
    
    22,049
    
    
    
    22,765Other liabilities
    
    
    482
    
    
    
    1,302Total current liabilities
    
    
    89,381
    
    
    
    92,367Long-term debt
    
    
    175,000
    
    
    
    50,688Obligations under capital leases, less current portion
    
    
    1,372
    
    
    
    1,346Accrued pension liabilities
    
    
    12,324
    
    
    
    11,430Accrued restructuring costs and other liabilities
    
    
    4,677
    
    
    
    2,231Commitments and contingenciesStockholders equity:Common stock, par value $0.1167 per share, 200,000,000 shares authorized;
37,066,459 and 41,457,632 shares issued and outstanding as of
September 29, 2007 and December 30, 2006, respectively
    
    
    4,325
    
    
    
    4,838Capital in excess of par value
    
    
    391,614
    
    
    
    467,235Accumulated other comprehensive income
    
    
    6,750
    
    
    
    4,410Accumulated deficit
    
    
    (24,559
    )
    
    
    (41,530
    )Total stockholders equity
    
    
    378,130
    
    
    
    434,953$
    660,884
    
    
    $
    593,015
  4




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NEWPORT CORPORATION
 
 Consolidated Statements of Cash Flows
 (In thousands)
 (Unaudited)
 Nine Months EndedSeptember 29,
    
    
    September 30,2007
    
    
    2006CASH FLOWS FROM OPERATING ACTIVITIES:Net income
    
    $
    18,756
    
    
    $
    25,214Adjustments to reconcile net income to net cash provided by
operating activities:Depreciation and amortization
    
    
    15,662
    
    
    
    14,537Stock-based compensation expense
    
    
    3,222
    
    
    
    4,485Loss on disposal of business
    
    
    
    
    
    
    958Provision for losses on inventories
    
    
    2,241
    
    
    
    1,709Provision for doubtful accounts, net
    
    
    44
    
    
    
    681Loss (gain) on disposal of property and equipment
    
    
    81
    
    
    
    (66
    )Gain on sale of patents
    
    
    
    
    
    
    (1,425
    )Realized foreign exchange translation gain
    
    
    
    
    
    
    (915
    )Deferred income taxes, net
    
    
    
    
    
    
    (121
    )Increase (decrease) in cash due to changes in:Accounts and notes receivable
    
    
    9,897
    
    
    
    (4,898
    )Inventories
    
    
    (19,009
    )
    
    
    (15,478
    )Prepaid expenses and other current assets
    
    
    (87
    )
    
    
    (1,746
    )Other assets and liabilities
    
    
    83
    
    
    
    510Accounts payable
    
    
    (2,377
    )
    
    
    2,296Accrued payroll and related expenses
    
    
    (3,611
    )
    
    
    2,238Accrued expenses and other current liabilities
    
    
    (1,927
    )
    
    
    (4,408
    )Accrued restructuring costs
    
    
    (611
    )
    
    
    (902
    )Net cash provided by operating activities
    
    
    22,364
    
    
    
    22,669CASH FLOWS FROM INVESTING ACTIVITIES:Purchase of property and equipment
    
    
    (6,252
    )
    
    
    (7,438
    )Purchase of property and equipment related to information systems
implementation
    
    
    (5,757
    )
    
    
    (6,781
    )Proceeds from the sale of property and equipment
    
    
    
    
    
    
    215Purchase of marketable securities
    
    
    (44,398
    )
    
    
    (37,304
    )Proceeds from the sale of marketable securities
    
    
    45,395
    
    
    
    39,003Proceeds from the sale of patents
    
    
    
    
    
    
    1,425Net cash used in investing activities
    
    
    (11,012
    )
    
    
    (10,880
    )CASH FLOWS FROM FINANCING ACTIVITIES:Proceeds from the issuance of convertible debt
    
    
    175,000
    
    
    
    Debt issuance costs
    
    
    (5,563
    )
    
    
    Repayment of long-term debt and obligations under capital leases
    
    
    (50,869
    )
    
    
    (63
    )Short-term borrowings (repayments), net
    
    
    2,226
    
    
    
    (2,501
    )Proceeds from the issuance of common stock under employee plans
    
    
    2,820
    
    
    
    6,878Purchases of the Companys common stock and restricted stock units
    
    
    (82,005
    )
    
    
    (1,387
    )Net cash provided by financing activities
    
    
    41,609
    
    
    
    2,927Impact of foreign exchange rate changes on cash balances
    
    
    1,159
    
    
    
    961Net increase in cash and cash equivalents
    
    
    54,120
    
    
    
    15,677Cash and cash equivalents at beginning of period
    
    
    35,930
    
    
    
    30,112Cash and cash equivalents at end of period
    
    $
    90,050
    
    
    $
    45,789Supplemental disclosures of cash flow information:Cash paid during the period for:Interest
    
    $
    3,423
    
    
    $
    2,221Income taxes, net
    
    $
    2,579
    
    
    $
    4,345
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NEWPORT CORPORATION
 
 Notes to Consolidated Financial Statements
 September 29, 2007
 NOTE 1 BASIS OF PRESENTATION
    NOTE 2 RECENT ACCOUNTING PRONOUNCEMENTS
 Fair Value Measurement.
 The Fair Value Option for Financial Assets and
Financial Liabilities, Including an amendment of SFAS No. 115.
 NOTE 3 DISCONTINUED OPERATIONS
  6




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NEWPORT CORPORATION
Notes to Consolidated Financial Statements
September 29, 2007
 NOTE 4 DERIVATIVE INSTRUMENTS
 interest and other income (expense), net
  NOTE 5 ACCOUNTS AND NOTES RECEIVABLE
  notes receivable, net notes receivable, net short-term obligations notes receivable, net short-term obligations
 NOTE 6 REVENUE RECOGNITION
   7




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NEWPORT CORPORATION
Notes to Consolidated Financial Statements
September 29, 2007
 accrued expenses and other current liabilities
 NOTE 7 STOCK-BASED COMPENSATION
  Share-Based Payment,
  Three Months Ended
    
    Nine Months EndedSeptember 29,
    
    September 30,
    
    September 29,
    
    September 30,(In thousands)
    
    2007
    
    2006
    
    2007
    
    2006Cost of sales
    
    $
    152
    
    
    $
    187
    
    
    $
    396
    
    
    $
    284Selling, general and
administrative expense
    
    
    (322
    )
    
    
    2,084
    
    
    
    2,603
    
    
    
    3,881Research and development expense
    
    
    (100
    )
    
    
    144
    
    
    
    223
    
    
    
    320$
    (270
    )
    
    $
    2,415
    
    
    $
    3,222
    
    
    $
    4,485
   8




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NEWPORT CORPORATION
Notes to Consolidated Financial Statements
September 29, 2007
   NOTE 8 INCOME TAXES
 Accounting for Income
Taxes
   Adoption of FIN 48
 Accounting For Uncertain Tax Positions
 accumulated deficit
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NEWPORT CORPORATION
Notes to Consolidated Financial Statements
September 29, 2007
     U.S. Federal
    
    2003 through current periodsCalifornia
    
    2002 through current periodsFrance
    
    2006 through current periodsGermany
    
    2001 through current periodsJapan
    
    2000 through current periods
  NOTE 9 INVENTORIES
   September 29,
    
    December 30,(In thousands)
    
    2007
    
    2006Raw materials and purchased parts
    
    $
    80,222
    
    
    $
    67,437Work in process
    
    
    13,633
    
    
    
    15,888Finished goods
    
    
    41,935
    
    
    
    34,944135,790
    
    
    
    118,269Allowance for excess and obsolete inventory
    
    
    (23,513
    )
    
    
    (23,370
    )$
    112,277
    
    
    $
    94,899
 10




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NEWPORT CORPORATION
Notes to Consolidated Financial Statements
September 29, 2007
 NOTE 10 ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
  September 29,
    
    December 30,(In thousands)
    
    2007
    
    2006Deferred revenue
    
    $
    7,717
    
    
    $
    7,986Accrued warranty obligations
    
    
    5,495
    
    
    
    5,159Other
    
    
    8,837
    
    
    
    9,620$
    22,049
    
    
    $
    22,765
 NOTE 11 ACCRUED WARRANTY OBLIGATIONS
   Nine Months EndedSeptember 29,
    
    September 30,(In thousands)
    
    2007
    
    2006Balance at beginning of year
    
    $
    5,159
    
    
    $
    5,255Additions charged to cost of sales
    
    
    6,612
    
    
    
    4,804Warranty claims
    
    
    (6,276
    )
    
    
    (5,094
    )Balance at end of period
    
    $
    5,495
    
    
    $
    4,965
 accrued expenses and other current liabilities
 NOTE 12 ACCRUED RESTRUCTURING COSTS
 2004 Restructuring Plan
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NEWPORT CORPORATION
Notes to Consolidated Financial Statements
September 29, 2007
  Facility(In thousands)
    
    ConsolidationAccrued restructuring at December 30, 2006
    
    $
    1,560Cash payments
    
    
    (198
    )Accrued restructuring at September 29, 2007
    
    $
    1,362
 other liabilities accrued restructuring costs and other
liabilities,
 NOTE 13 DEBT AND LINES OF CREDIT
 long-term debt investments and other assets
     12




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NEWPORT CORPORATION
Notes to Consolidated Financial Statements
September 29, 2007
 short-term obligations short-term obligations
  September 29,
    
    December 30,(In thousands)
    
    2007
    
    2006Convertible subordinated notes due February 2012, interest at 2.5%
per year, payable semiannually
    
    $
    175,000
    
    
    $
    Line of credit due June 2008, interest at banks prevailing rate
(1.3% at December 30, 2006)
    
    
    
    
    
    
    2,525Note payable due July 2009, interest at 5% per year, payable quarterly
    
    
    
    
    
    
    50,000Subtotal
    
    
    175,000
    
    
    
    52,525Less: unamortized discount on note payable
    
    
    
    
    
    
    (1,837
    )$
    175,000
    
    
    $
    50,688
 NOTE 14 INTEREST AND OTHER INCOME (EXPENSE), NET
  Three Months Ended
    
    Nine Months EndedSeptember 29,
    
    September 30,
    
    September 29,
    
    September 30,(In thousands)
    
    2007
    
    2006
    
    2007
    
    2006Interest and dividend income
    
    $
    1,642
    
    
    $
    773
    
    
    $
    5,124
    
    
    $
    2,108Interest expense
    
    
    (1,323
    )
    
    
    (935
    )
    
    
    (3,827
    )
    
    
    (2,764
    )Bank and portfolio asset management fees
    
    
    (128
    )
    
    
    (140
    )
    
    
    (493
    )
    
    
    (415
    )Foreign exchange gains (losses), net
    
    
    (50
    )
    
    
    (91
    )
    
    
    (456
    )
    
    
    465Gains (losses) on sales of marketable
securities, net
    
    
    (8
    )
    
    
    35
    
    
    
    (16
    )
    
    
    27Other income (expense), net
    
    
    (1
    )
    
    
    11
    
    
    
    17
    
    
    
    16$
    132
    
    
    $
    (347
    )
    
    $
    349
    
    
    $
    (563
    )
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NEWPORT CORPORATION
Notes to Consolidated Financial Statements
September 29, 2007
 NOTE 15 ACCUMULATED OTHER COMPREHENSIVE INCOME AND COMPREHENSIVE INCOME
  September 29,
    
    December 30,(In thousands)
    
    2007
    
    2006Cumulative foreign currency translation gains
    
    $
    7,548
    
    
    $
    5,267Unrecognized net pension losses
    
    
    (780
    )
    
    
    (731
    )Unrealized losses on marketable securities
    
    
    (18
    )
    
    
    (126
    )$
    6,750
    
    
    $
    4,410
  Three Months Ended
    
    Nine Months EndedSeptember 29,
    
    September 30,
    
    September 29,
    
    September 30,(In thousands)
    
    2007
    
    2006
    
    2007
    
    2006Net income
    
    $
    5,542
    
    
    $
    10,287
    
    
    $
    18,756
    
    
    $
    25,214Foreign currency translation gains (losses)
    
    
    381
    
    
    
    583
    
    
    
    2,281
    
    
    
    (177
    )Reclassification adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (915
    )Unrecognized net pension losses
    
    
    (20
    )
    
    
    
    
    
    
    (49
    )
    
    
    Minimum pension liability adjustments
    
    
    
    
    
    
    (16
    )
    
    
    
    
    
    
    79Unrealized gains on marketable securities,
net of reclassification adjustment
    
    
    104
    
    
    
    166
    
    
    
    108
    
    
    
    158$
    6,007
    
    
    $
    11,020
    
    
    $
    21,096
    
    
    $
    24,359
  NOTE 16 DEFINED BENEFIT PENSION PLANS
   Three Months Ended
    
    Nine Months EndedSeptember 29,
    
    September 30,
    
    September 29,
    
    September 30,(In thousands)
    
    2007
    
    2006
    
    2007
    
    2006Service cost
    
    $
    161
    
    
    $
    159
    
    
    $
    477
    
    
    $
    472Interest cost on benefit obligation
    
    
    165
    
    
    
    152
    
    
    
    486
    
    
    
    447Expected return on plan assets
    
    
    (47
    )
    
    
    (42
    )
    
    
    (139
    )
    
    
    (123
    )Net loss
    
    
    2
    
    
    
    8
    
    
    
    6
    
    
    
    23$
    281
    
    
    $
    277
    
    
    $
    830
    
    
    $
    819
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NEWPORT CORPORATION
Notes to Consolidated Financial Statements
September 29, 2007
 NOTE 17 NET INCOME PER SHARE
  Three Months Ended
    
    Nine Months EndedSeptember 29,
    
    September 30,
    
    September 29,
    
    September 30,(In thousands)
    
    2007
    
    2006
    
    2007
    
    2006Numerator for basic and diluted net income
per share:Income from continuing operations
    
    $
    5,542
    
    
    $
    10,488
    
    
    $
    18,756
    
    
    $
    26,067Loss from discontinued operations, net of
income taxes
    
    
    
    
    
    
    (201
    )
    
    
    
    
    
    
    (853
    )Net income
    
    $
    5,542
    
    
    $
    10,287
    
    
    $
    18,756
    
    
    $
    25,214Denominator for basic and diluted net income
per share:Weighted average shares outstanding
    
    
    37,723
    
    
    
    40,783
    
    
    
    38,994
    
    
    
    40,626Weighted unvested restricted stock
outstanding
    
    
    
    
    
    
    (43
    )
    
    
    
    
    
    
    (71
    )Denominator for basic net income per share:
    
    
    37,723
    
    
    
    40,740
    
    
    
    38,994
    
    
    
    40,555Effect of dilutive securities:Employee stock options and restricted
stock units
    
    
    386
    
    
    
    1,015
    
    
    
    684
    
    
    
    1,112Restricted stock
    
    
    
    
    
    
    43
    
    
    
    
    
    
    
    71Denominator for diluted net income per share:
    
    
    38,109
    
    
    
    41,798
    
    
    
    39,678
    
    
    
    41,738
    NOTE 18 BUSINESS SEGMENT INFORMATION
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NEWPORT CORPORATION
Notes to Consolidated Financial Statements
September 29, 2007
  Photonics andPrecision(In thousands)
    
    Lasers
    
    Technologies
    
    TotalThree months ended September 29, 2007:Sales to external customers
    
    $
    45,080
    
    
    $
    63,921
    
    
    $
    109,001Segment income
    
    
    182
    
    
    
    13,239
    
    
    
    13,421Three months ended September 30, 2006:Sales to external customers
    
    $
    49,293
    
    
    $
    63,232
    
    
    $
    112,525Segment income
    
    
    2,376
    
    
    
    12,940
    
    
    
    15,316Nine months ended September 29, 2007:Sales to external customers
    
    $
    133,835
    
    
    $
    193,334
    
    
    $
    327,169Segment income
    
    
    1,470
    
    
    
    41,602
    
    
    
    43,072Nine months ended September 30, 2006:Sales to external customers
    
    $
    136,161
    
    
    $
    191,919
    
    
    $
    328,080Segment income
    
    
    4,510
    
    
    
    41,188
    
    
    
    45,698
  Three Months Ended
    
    Nine Months EndedSeptember 29,
    
    September 30,
    
    September 29,
    
    September 30,(In thousands)
    
    2007
    
    2006
    
    2007
    
    2006Segment income
    
    $
    13,421
    
    
    $
    15,316
    
    
    $
    43,072
    
    
    $
    45,698Unallocated net sales
    
    
    
    
    
    
    1,750
    
    
    
    
    
    
    
    1,750Unallocated operating expenses
    
    
    (8,297
    )
    
    
    (6,120
    )
    
    
    (22,539
    )
    
    
    (18,567
    )Interest and other income (expense), net
    
    
    132
    
    
    
    (347
    )
    
    
    349
    
    
    
    (563
    )$
    5,256
    
    
    $
    10,599
    
    
    $
    20,882
    
    
    $
    28,318
 NOTE 19 STOCKHOLDERS EQUITY TRANSACTIONS
   16




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
for the Three and Nine Months Ended September 29, 2007 and September 30, 2006
 Introductory Note
     Critical Accounting Policies and Estimates
  17




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Income Taxes
   18




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Results of Operations for the Three and Nine Months Ended September 29, 2007 and September 30, 2006
  Percentage of Net SalesThree Months Ended
    
    Nine Months EndedSeptember 29,
    
    September 30,
    
    September 29,
    
    September 30,2007
    
    2006
    
    2007
    
    2006Net sales
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Cost of sales
    
    
    60.0
    
    
    
    55.3
    
    
    
    57.4
    
    
    
    56.3Gross profit
    
    
    40.0
    
    
    
    44.7
    
    
    
    42.6
    
    
    
    43.7Selling, general and administrative expense
    
    
    26.4
    
    
    
    25.7
    
    
    
    26.8
    
    
    
    25.6Research and development expense
    
    
    8.9
    
    
    
    9.4
    
    
    
    9.5
    
    
    
    9.3Operating income
    
    
    4.7
    
    
    
    9.6
    
    
    
    6.3
    
    
    
    8.8Interest and other income (expense), net
    
    
    0.1
    
    
    
    (0.3
    )
    
    
    0.1
    
    
    
    (0.2
    )Income from continuing operations before
income taxes
    
    
    4.8
    
    
    
    9.3
    
    
    
    6.4
    
    
    
    8.6Income tax provision (benefit), net
    
    
    (0.3
    )
    
    
    0.1
    
    
    
    0.6
    
    
    
    0.7Income from continuing operations
    
    
    5.1
    
    
    
    9.2
    
    
    
    5.8
    
    
    
    7.9Loss from discontinued operations, net of
income taxes
    
    
    
    
    
    
    (0.2
    )
    
    
    
    
    
    
    (0.3
    )Net income
    
    
    5.1
    %
    
    
    9.0
    %
    
    
    5.8
    %
    
    
    7.6
    %
  Net Sales
  Three Months Ended
    
    Nine Months EndedSeptember 29,
    
    September 30,
    
    September 29,
    
    September 30,(In thousands)
    
    2007
    
    2006
    
    2007
    
    2006Scientific research, aerospace
and defense/security
    
    $
    40,778
    
    
    $
    40,543
    
    
    $
    118,248
    
    
    $
    116,126Microelectronics
    
    
    30,399
    
    
    
    39,266
    
    
    
    97,952
    
    
    
    111,287Life and health sciences
    
    
    18,914
    
    
    
    19,201
    
    
    
    56,757
    
    
    
    54,349Industrial and other end markets
    
    
    18,910
    
    
    
    15,265
    
    
    
    54,212
    
    
    
    48,068$
    109,001
    
    
    $
    114,275
    
    
    $
    327,169
    
    
    $
    329,830
  19




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20




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Domestic Sales:
    
    Three Months Ended
    
    
    
    
    
    PercentageSeptember 29,
    
    September 30,
    
    Increase
    
    Increase(In thousands)
    
    2007
    
    2006
    
    (Decrease)
    
    (Decrease)Scientific research, aerospace
and defense/security
    
    $
    14,819
    
    
    $
    18,210
    
    
    $
    (3,391
    )
    
    
    (18.6
    )%Microelectronics
    
    
    20,072
    
    
    
    28,614
    
    
    
    (8,542
    )
    
    
    (29.9
    )Life and health sciences
    
    
    10,336
    
    
    
    11,558
    
    
    
    (1,222
    )
    
    
    (10.6
    )Industrial and other end markets
    
    
    8,105
    
    
    
    5,570
    
    
    
    2,535
    
    
    
    45.5$
    53,332
    
    
    $
    63,952
    
    
    $
    (10,620
    )
    
    
    (16.6
    %)
 International Sales:
    
    Three Months Ended
    
    
    
    
    
    PercentageSeptember 29,
    
    September 30,
    
    Increase
    
    Increase(In thousands)
    
    2007
    
    2006
    
    (Decrease)
    
    (Decrease)Scientific research, aerospace
and defense/security
    
    $
    25,959
    
    
    $
    22,333
    
    
    $
    3,626
    
    
    
    16.2
    %Microelectronics
    
    
    10,327
    
    
    
    10,652
    
    
    
    (325
    )
    
    
    (3.1
    )Life and health sciences
    
    
    8,578
    
    
    
    7,643
    
    
    
    935
    
    
    
    12.2Industrial and other end markets
    
    
    10,805
    
    
    
    9,695
    
    
    
    1,110
    
    
    
    11.4$
    55,669
    
    
    $
    50,323
    
    
    $
    5,346
    
    
    
    10.6
    %
 Domestic Sales:
    
    Nine Months Ended
    
    
    
    
    
    PercentageSeptember 29,
    
    September 30,
    
    Increase
    
    Increase(In thousands)
    
    2007
    
    2006
    
    (Decrease)
    
    (Decrease)Scientific research, aerospace
and defense/security
    
    $
    46,999
    
    
    $
    50,433
    
    
    $
    (3,434
    )
    
    
    (6.8
    )%Microelectronics
    
    
    70,343
    
    
    
    79,757
    
    
    
    (9,414
    )
    
    
    (11.8
    )Life and health sciences
    
    
    29,154
    
    
    
    32,216
    
    
    
    (3,062
    )
    
    
    (9.5
    )Industrial and other end markets
    
    
    21,388
    
    
    
    17,189
    
    
    
    4,199
    
    
    
    24.4$
    167,884
    
    
    $
    179,595
    
    
    $
    (11,711
    )
    
    
    (6.5
    )%
 International Sales:
    
    Nine Months Ended
    
    
    
    
    
    PercentageSeptember 29,
    
    September 30,
    
    Increase
    
    Increase(In thousands)
    
    2007
    
    2006
    
    (Decrease)
    
    (Decrease)Scientific research, aerospace
and defense/security
    
    $
    71,249
    
    
    $
    65,693
    
    
    $
    5,556
    
    
    
    8.5
    %Microelectronics
    
    
    27,609
    
    
    
    31,530
    
    
    
    (3,921
    )
    
    
    (12.4
    )Life and health sciences
    
    
    27,603
    
    
    
    22,133
    
    
    
    5,470
    
    
    
    24.7Industrial and other end markets
    
    
    32,824
    
    
    
    30,879
    
    
    
    1,945
    
    
    
    6.3$
    159,285
    
    
    $
    150,235
    
    
    $
    9,050
    
    
    
    6.0
    %
  Three Months Ended
    
    
    
    
    
    PercentageSeptember 29,
    
    September 30,
    
    Increase
    
    Increase(In thousands)
    
    2007
    
    2006
    
    (Decrease)
    
    (Decrease)Europe
    
    $
    29,865
    
    
    $
    23,127
    
    
    $
    6,738
    
    
    
    29.1
    %Pacific Rim
    
    
    19,260
    
    
    
    21,488
    
    
    
    (2,228
    )
    
    
    (10.4
    )Other
    
    
    6,544
    
    
    
    5,708
    
    
    
    836
    
    
    
    14.6$
    55,669
    
    
    $
    50,323
    
    
    $
    5,346
    
    
    
    10.6
    %
 Nine Months Ended
    
    
    
    
    
    PercentageSeptember 29,
    
    September 30,
    
    Increase
    
    Increase(In thousands)
    
    2007
    
    2006
    
    (Decrease)
    
    (Decrease)Europe
    
    $
    83,245
    
    
    $
    68,524
    
    
    $
    14,721
    
    
    
    21.5
    %Pacific Rim
    
    
    56,436
    
    
    
    62,766
    
    
    
    (6,330
    )
    
    
    (10.1
    )Other
    
    
    19,604
    
    
    
    18,945
    
    
    
    659
    
    
    
    3.5$
    159,285
    
    
    $
    150,235
    
    
    $
    9,050
    
    
    
    6.0
    %
 21




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Gross Margin
  22




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##### Table of Contents



Selling, General and Administrative (SG&A) Expense
     Research and Development (R&D) Expense
   23




---



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Interest and Other Income (Expense), Net
   Income Taxes
     Liquidity and Capital Resources
  24




---



##### Table of Contents



short-term obligations short-term obligations
   25




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##### Table of Contents



Recent Accounting Pronouncements
 Fair Value Measurement.
 The Fair Value Option for Financial Assets and
Financial Liabilities, Including an amendment of SFAS No. 115.
 
 Item 3. Quantitative and Qualitative Disclosures About Market Risk
  Foreign Currency Risk
  26




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##### Table of Contents



Interest Rate Risk
   
 Item 4. Controls and Procedures
 (a)
    
    Evaluation of Disclosure Controls and ProceduresOur chief executive officer and our chief financial officer, after evaluating our
disclosure controls and procedures (as defined in Securities Exchange Act of 1934 (the
Exchange Act) Rules 13a-15(e) and 15-d-15(e)) as of the end of the period covered by this
Quarterly Report on Form 10-Q (the Evaluation Date), have concluded that as of the
Evaluation Date, our disclosure controls and procedures are effective to ensure that
information we are required to disclose in reports that we file or submit under the Exchange
Act is recorded, processed, summarized and reported within the time periods specified in
Securities and Exchange Commission rules and forms, and to ensure that information required
to be disclosed by us in such reports is accumulated and communicated to our management,
including our chief executive officer and chief financial officer where appropriate, to
allow timely decisions regarding required disclosure.(b)
    
    Changes in Internal Control Over Financial ReportingThere was no change in our internal control over financial reporting that occurred during
the period covered by this Quarterly Report on Form 10-Q that has materially affected, or is
reasonably likely to materially affect, our internal control over financial reporting. We
continue to enhance our internal control
over financial reporting, primarily by evaluating and enhancing our process and control
documentation and increasing our systems security, in connection with our ongoing efforts to
meet the requirements of Section 404 of the Sarbanes-Oxley Act of 2002. We discuss with and
disclose these matters to the Audit Committee of our Board of Directors and our independent
registered public accounting firm.
 27




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##### Table of Contents



PART II  OTHER INFORMATION
 
 Item 1A. Risk Factors
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
  MaximumNumber (orApproximateTotal Number of
    
    Dollar Value ofShares (or Units)
    
    Shares (or Units)Purchased as Part
    
    that May Yet BeTotal Number of
    
    Average Price
    
    of Publicly
    
    Purchased UnderShares (or Units)
    
    Paid per Share
    
    Announced Plans
    
    the Plans orPeriod(1)
    
    Purchased
    
    (or Unit)
    
    or Programs
    
    ProgramsJuly 1, 2007  July 28, 2007
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    July 29, 2007  August 25, 2007
    
    
    1,160,447
    (2)
    
    $
    13.31
    
    
    
    1,160,447
    
    
    
    1,737,515August 26, 2007  September 29, 2007
    
    
    294,706
    (2)
    
    
    13.96
    
    
    
    294,706
    
    
    
    1,442,809Totals
    
    
    1,455,153
    
    
    $
    13.44
    
    
    
    1,455,153
 
 (1)
    
    The periods reported conform to our fiscal calendar which consists of two periods
of four weeks and one period of five weeks in each fiscal quarter.(2)
    
    Represents shares of our common stock repurchased in open market transactions
under a share repurchase program approved by our Board of Directors in May 2006. A total
of 4.2 million shares has been authorized for repurchase under this program. As of
September 29, 2007, we had purchased a total of 2,757,191 shares and 1,442,809 shares
remained available for purchase under this program. This program has no fixed expiration
date but may be terminated by our Board of Directors at any time. Purchases may be made
under this program from time to time in the open market or in privately negotiated
transactions. The timing of any future purchases will depend upon factors including our
share price, cash balances, expected cash requirements and general business and market
conditions. 28




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##### Table of Contents



Item 6. Exhibits
 ExhibitNumber
    
    Description of Exhibit10.1
    
    Separation Agreement, dated September 18, 2007, by and
between the Registrant and Robert G. Deuster (incorporated
by reference to Exhibit 10.1 to the Current Report on Form
8-K filed with the Securities and Exchange Commission on
September 20, 2007).31.1
    
    Certification of Chief Executive Officer pursuant to Rule
13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act
of 1934 (the Exchange Act).31.2
    
    Certification of Chief Financial Officer pursuant to Rule
13a-14(a) or Rule 15d-14(a) of the Exchange Act.32.1
    
    Certification of Chief Executive Officer pursuant to Rule
13a-14(b) or Rule 15d-14(b) of the Exchange Act and 18
U.S.C. Section 1350.32.2
    
    Certification of Chief Financial Officer pursuant to Rule
13a-14(b) or Rule 15d-14(b) of the Exchange Act and 18
U.S.C. Section 1350.
 29




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##### Table of Contents



SIGNATURES
  Dated:  November 8, 2007
    NEWPORT CORPORATIONBy:
    /s/ Charles F. CargileCharles F. Cargile,Senior Vice President, Chief Financial
Officer and Treasurer (Principal
Financial Officer and Duly Authorized
Officer) 30




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##### Table of Contents



EXHIBIT INDEX
 ExhibitNumber
    
    Description of Exhibit10.1
    
    Separation Agreement, dated September 18, 2007, by and
between the Registrant and Robert G. Deuster (incorporated
by reference to Exhibit 10.1 to the Current Report on Form
8-K filed with the Securities and Exchange Commission on
September 20, 2007).31.1
    
    Certification of Chief Executive Officer pursuant to Rule
13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act
of 1934 (the Exchange Act).31.2
    
    Certification of Chief Financial Officer pursuant to Rule
13a-14(a) or Rule 15d-14(a) of the Exchange Act.32.1
    
    Certification of Chief Executive Officer pursuant to Rule
13a-14(b) or Rule 15d-14(b) of the Exchange Act and 18
U.S.C. Section 1350.32.2
    
    Certification of Chief Financial Officer pursuant to Rule
13a-14(b) or Rule 15d-14(b) of the Exchange Act and 18
U.S.C. Section 1350.
 31