##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, DC 20549
 
 FORM 10-K
  þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended December 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 
incorporation or organization)
    
    (IRS Employer Identification No.)
 1791 Deere Avenue, Irvine, California 92606  (Address of principal executive offices) (Zip Code)
 (949) 863-3144
  Title of Each Class
    
    Name of Each Exchange on Which RegisteredCommon Stock, Par Value $0.1167 per share
    
    The NASDAQ Stock Market LLC
 None
 o þ
 o þ
 þ o
 o
  Large accelerated filer
o
    
    Accelerated filer
þ
 Non-accelerated filer   o
  (Do not check if a smaller reporting company)
    

Smaller
reporting company o
 o þ
   DOCUMENTS INCORPORATED BY REFERENCE




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##### 



TABLE OF CONTENTS
 PART IItem 1.
Business
    
    
    1Item 1A.
Risk Factors
    
    
    17Item 1B.
Unresolved Staff Comments
    
    
    27Item 2.
Properties
    
    
    27Item 3.
Legal Proceedings
    
    
    27Item 4.
Submission of Matters to a Vote of Security Holders
    
    
    28PART IIItem 5.
Market for the Registrants Common Equity, Related Stockholder
Matters and Issuer Purchases of Equity Securities
    
    
    28Item 6.
Selected Financial Data
    
    
    32Item 7.
Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    35Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
    
    
    49Item 8.
Financial Statements and Supplementary Data
    
    
    50Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
    
    
    50Item 9A.
Controls and Procedures
    
    
    50Item 9B.
Other Information
    
    
    52PART
IIIItem 10.
Directors, Executive Officers and Corporate Governance
    
    
    53Item 11.
Executive Compensation
    
    
    53Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
    
    
    53Item 13.
Certain Relationships and Related Transactions, and Director Independence
    
    
    53Item 14.
Principal Accounting Fees and Services
    
    
    53PART IVItem 15.
Exhibits, Financial Statement Schedules
    
    
    53SIGNATURES
    
    
    57INDEX
TO FINANCIAL STATEMENTS AND SCHEDULE
    
    
    F-1EXHIBIT 21.1EXHIBIT 23.1EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1EXHIBIT 32.2
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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,
would, 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 projections of our future financial performance, trends in our businesses, or other
characterizations of future events or circumstances are forward-looking statements.
 The forward-looking statements included herein are based on current expectations of our management
based on available information and involve a number of risks and uncertainties, all of which are
difficult or impossible to predict accurately and many of which are beyond our control. As such,
our actual results may differ significantly from those expressed in any forward-looking statements.
Factors that may cause or contribute to such differences include, but are not limited to, those
discussed in more detail in Item 1 (Business) and Item 1A (Risk Factors) of Part I and Item 7
(Managements Discussion and Analysis of Financial Condition and Results of Operations) of Part II
of this Annual Report on Form 10-K. Readers should carefully review these risks, as well as the
additional risks described in other documents we file from time to time with the Securities and
Exchange Commission. In light of the significant risks and uncertainties inherent in the
forward-looking information included herein, the inclusion of such information should not be
regarded as a representation by us or any other person that such results will be achieved, and
readers are cautioned not to place undue reliance on such forward-looking information. We
undertake 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.
 
 PART I
 
 Item 1. Business
 General Description of Business
    
    
    lasers and laser technology, including solid-state, gas and dye lasers, high-power diode
lasers, fiber lasers and amplifiers, and ultrafast laser systems;
    
    optical components and subassemblies, including precision optics and opto-mechanical
subassemblies, thin-film optical filters, ruled and holographic diffraction gratings and
crystals;
    
    photonics instruments and components, including optical meters, light sources,
monochromators and spectroscopy instrumentation;
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
    
    high-precision positioning and vibration isolation products and systems; and
    
    advanced automated manufacturing systems used in the manufacture of communications and
electronics devices.
       2




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Our Markets
  
    
    Scientific Research. We are one of the worlds leading suppliers of lasers and
photonics products to scientific researchers. For more than forty-five years, we have
worked closely with the research community to pioneer new applications and technologies.
Today, we continue to help researchers break new ground in a variety of scientific research
areas, including spectroscopy, ultrafast phenomena, multiphoton microscopy, terahertz
imaging, optical coherence tomography, laser induced fluorescence, light detection and
ranging (LIDAR) and nonlinear optics.
    
    Microelectronics. Photonics technology addresses a number of vital applications in the
microelectronics market, and is a key enabler of the industry roadmap driving smaller
feature sizes with the increased functionalities needed for next-generation consumer
technology products, including cellular phones, personal digital assistants and digital
cameras. Our products are used in several key applications in this market, including
semiconductor wafer inspection and metrology, memory yield enhancement, lithography, wafer
dicing and scribing, wafer and component marking and resistor trimming, as well as in disk
drive, printed circuit board, flat panel display and photovoltaic module manufacturing
applications.
    
    Life and Health Sciences. Photonics is increasingly becoming a key enabling technology
in the life and health sciences market. We provide products for use in diagnostic and
analytical instrumentation and cosmetic and therapeutic applications. Our products are
used in applications such as optical coherence tomography, multiphoton and confocal
microscopy, flow cytometry, matrix-assisted laser desorption/ionization time-of-flight
(MALDI-TOF) mass spectrometry, laser microdissection, DNA microarrays and blood analysis to
enable advancements in the fields of molecular biology, proteomics and drug discovery. In
addition, we supply high-power diode lasers to OEM customers for incorporation into laser
systems for hair removal and a variety of dermatological and dental procedures.
    
    Aerospace and Defense/Security. The drive for more technologically advanced weapons and
sensors is producing increased investment in light-based technologies that can remotely,
rapidly and non-invasively detect threats, improve intelligence gathering, provide secure
communications systems and improve the performance of weapons and countermeasures. In
addition, innovative optical sensors are augmenting human vision on the battlefield,
providing remote sensing, ranging and observation capabilities that offer high-resolution
imaging and night vision. Our high-precision products are used by aerospace and defense
engineers to develop, assemble, test and calibrate equipment for a wide range of
applications, including target recognition and acquisition, LIDAR, range finding, missile
guidance and advanced weapons development.
    
    Industrial Manufacturing, Marking and Engraving. Our lasers and photonics products are
used in a wide range of precision industrial manufacturing applications, including rapid
prototyping, micromachining, heat-treating, welding and soldering, cutting, illumination,
drilling and high-precision marking and engraving. We also offer laser solutions for image
recording and graphics applications including pre-press (computer-to-plate), on-press,
ultra-high speed printing, photo finishing and holography.
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Our Operating Divisions
  Lasers Division
  Products
  Category
    
    Products
    
    Representative ApplicationsUltrafast Lasers and Systems
    
    
    
    Mai Tai® one box femtosecond
    
    
    
    Femtosecond spectroscopyTi:sapphire lasers
    
    
    
    Materials processing
    
    Tsunami® ultrafast Ti:sapphire
    
    
    
    Multiphoton microscopylasers
    
    
    
    Optical coherence tomography
    
    Opal® femtosecond optical
    
    
    
    Semiconductor metrologyparametric oscillator (OPO)
    
    
    
    Terahertz imaging
    
    Spitfire® Pro ultrafast
    
    
    
    Time-resolved photoluminescenceTi:sapphire amplifier
    
    TOPAS automated ultrafast opticalparametric amplifier (OPA)
    
    Solstice One Box Ultrafast Amplifier
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Category
    
    Products
    
    Representative ApplicationsDiode-Pumped Solid State
    
    
    
    BL series low power lasers
    
    
    
    Diamond processingQ-Switched Lasers
    
    
    
    V-series high-repetition lasers
    
    
    
    Disk texturing
    
    Tristar high repetition rate UV laser
    
    
    
    Laser microdissection
    
    Navigator lasers
    
    
    
    Matrix-assisted laser
    
    HIPPO high-power lasers
    
    
    
    desorption/ionization
    
    Pulseo high peak power UV laser
    
    
    
    Memory yield enhancement systems
    
    Explorer low-power UV lasers
    
    
    
    Microelectronics material
    
    Empower green/UV lasers
    
    
    
    processing
    
    Pump source for Ti:sapphire
lasers
    
    Rapid prototyping
    
    Resistor trimming
    
    Sapphire scribing
    
    Silicon micromachining
    
    Solar cell manufacturing
    
    Wafer markingDiode-Pumped Solid State
    
    
    
    Millennia® Pro i/s CW lasers
    
    
    
    Flow cytometryContinuous Wave (CW) and
    
    
    
    MG series CW solid state green lasers
    
    
    
    Forensic investigationsQuasi-CW Lasers
    
    
    
    Reveal CW forensic lasers
    
    
    
    Image recording
    
    Centennia® CW thin-disk lasers
    
    
    
    Laser cooling
    
    Excelsior low power CW lasers
    
    
    
    Materials processing
    
    Vanguard quasi-CW solid state UV lasers
    
    
    
    Optical trapping
    
    3900S and Matisse® CW tunable
    
    
    
    Raman imagingTi:sapphire lasers
    
    
    
    Semiconductor wafer inspection
    
    Cyan compact low power CW lasers
    
    
    
    and metrology
    
    Solar cell manufacturing
    
    Spectroscopy
    
    Ti:Sapphire pumping
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Category
    
    Products
    
    Representative ApplicationsDiode Lasers
    
    
    
    Open heatsink diode laser bars
    
    
    
    Graphics and printing
    
    Multi-bar modules
    
    
    
    Hair removal
    
    Fiber-coupled diode laser bars
    
    
    
    Material heat treatment and
    
    Fiber-coupled single emitter diodes
    
    
    
    processing
    
    Open heatsink single emitter diodes
    
    
    
    Medical, therapeutic and
    
    Integra industrial diode laser systems
    
    
    
    cosmetic procedures
    
    Pump source for solid state
and fiber lasers
    
    Soldering and weldingHigh Energy Pulsed Nd:YAG
    
    
    
    Quanta-Ray® PRO, LAB and PIV
    
    
    
    Flat-panel display manufacturingand Tunable Lasers
    
    
    
    series pulsed Nd:YAG lasers
    
    
    
    Laser ablation
    
    Quanta-Ray® INDI series compact
    
    
    
    Laser cleaningNd:YAG lasers
    
    
    
    LIDAR
    
    MOPO® series High Energy
    
    
    
    Mass spectrometryoptical parametric oscillator (OPO)
    
    
    
    Particle imaging velocimetry
    
    Tunable dye lasers
    
    
    
    combustion diagnostics
    
    Plastic and ceramic componentmarking
    
    Remote sensing
    
    SpectroscopyGas Lasers
    
    
    
    Air-cooled argon ion lasers
    
    
    
    Confocal microscopy
    
    Water-cooled ion laser systems
    
    
    
    DNA sequencing
    
    Nitrogen lasers
    
    
    
    Flow cytometry
    
    Laser doppler anemometry
Raman spectroscopy
    
    Semiconductor wafer inspection
    
    Spectroscopy
    
    Holography
    
    Laser-doppler velocimetry
    
    Lithography
    
    Fluorescence immunoassay
    
    Matrix-assisted laser
desorption/ionization
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Fiber Laser Business Group
  Photonics and Precision Technologies Division
  Products
  Category
    
    Products
    
    Representative ApplicationsPhotonics
Instruments and Systems
    
    
    
    Optical meters
    
    
    
    Characterization of light
    
    Laser diode instruments
    
    
    
    emitted by lasers, light emitting diodes
    
    Light sources
    
    
    
    and broadband light sources
    
    Solar simulators
    
    
    
    Chemical composition analysis
    
    Solar cell test instruments
    
    
    
    Colorimetry
    
    Photonics test systems
    
    
    
    Optical power and energy
    
    Optical detectors
    
    
    
    measurement for free space and
    
    Dispersive and Fourier transform (FT)
    
    
    
    fiber-directed laser lightspectrometers
    
    
    
    Solar cell characterization
    
    Monochromators and spectrographs
    
    
    
    and measurements
    
    Ultrafast laser pulse measurement
    
    
    
    Testing and characterizationsystems
    
    
    
    of optical fibers and passive fiber opticcomponents
    
    Spectroscopy
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Category
    
    Products
    
    Representative ApplicationsPrecision
Micro-Positioning Devices,
    
    
    
    Precision air-bearing motion systems
    
    
    
    High-precision positioning andSystems and Subsystems
    
    
    
    Motorized linear and rotation stages
    
    
    
    motion control apparatus for
    
    Motorized actuators and optics mounts
    
    
    
    manufacturing, in-process inspection and
    
    Custom multi-axis positioning systems
    
    
    
    final test applications
    
    Motion controllers and drivers
    
    
    
    High-precision positioning
    
    Manual linear and rotation stages
    
    
    
    systems for thin-film solar panel
    
    Fiber alignment stages and accessories
    
    
    
    manufacturing
    
    Micrometers and adjustment screws
    
    
    
    Laser system alignment andbeam steering for inspection, laserprocessing and communications
    
    Precision positioning ofsemiconductor wafers for metrology andfabrication
    
    Precision alignment in fiberoptic, telecommunication and laser deviceassembly
    
    Sample or sensor manipulationfor imaging and microscopy
    
    Sample sorting and sequencing for DNA research
    
    Tracking and targeting testsystems for aerospace and defense/securityapplicationsVibration
Isolation Systems and Subsystems
    
    
    
    Optical tables and support systems
    
    
    
    Foundation platforms for laser
    
    Workstations
    
    
    
    systems
    
    Active and passive isolation systems
    
    
    
    Isolated platform for
    
    Active vibration damping systems
    
    
    
    semiconductor lithography equipment
    
    Honeycomb, granite and rigid
    
    
    
    Reduction of impact ofstructures
    
    
    
    external vibration sources on
    
    Elastomeric mounts
    
    
    
    high-precision research, manufacturingtest and assembly systems
    
    Scanning electron microscope,atomic force microscope, and opticalmicroscope base isolation
    
    Workstation platforms forfiber optic device fabrication
    
    Workstation platforms formicroscopy and other advanced imagingapplications
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Category
    
    Products
    
    Representative ApplicationsOptics
and Optical Hardware
    
    
    
    Lenses
    
    
    
    Analytical instrumentation for
    
    Mirrors
    
    
    
    life and health sciences
    
    Prisms and windows
    
    
    
    Components for research and
    
    Thin-film filters and coatings
    
    
    
    product development activities
    
    Filters and attenuators
    
    
    
    Deep ultraviolet optics for
    
    Collimators
    
    
    
    semiconductor lithography, wafer
    
    Ultrafast laser optics
    
    
    
    inspection and wafer processing
    
    Beamsplitters and polarization optics
    
    
    
    Development and manufacture of
    
    Ruled and holographic diffraction
    
    
    
    laser systemsgratings
    
    
    
    Electro-optic sensors and
    
    Optical mounts
    
    
    
    imaging systems for defense/security
    
    Bases and brackets
    
    
    
    applications
    
    Posts and rod systems
    
    
    
    High-precision alignment of
    
    Beam routing and enclosing systems
    
    
    
    optical instruments
    
    Laser-to-fiber couplers
    
    
    
    Optical measurement and
    
    Educational kits
    
    
    
    communications systems
    
    Spectroscopy
    
    Ultrafast laser, terahertzimaging and laser fusion researchOpto-Mechanical
Subassemblies
    
    
    
    Laser beam delivery and imaging
    
    
    
    Analytical instrumentation forand Subsystems
    
    
    
    assemblies
    
    
    
    life and health sciences
    
    Integrated electro-optic-mechanical
    
    
    
    High-speed cell sorting forsubsystems
    
    
    
    genomic research
    
    Objective lens systems
    
    
    
    Laser beam delivery systems
    
    Refractive beam shaper assemblies
    
    
    
    for solar cell manufacturing
    
    Fast steering mirrors
    
    
    
    Laser beam stabilization for
    
    Laser beam attenuators
    
    
    
    industrial metrology
    
    Light detection and ranging
    
    Optical coherence tomographyfor non-invasive diagnostics
    
    Optical data storage
    
    Semiconductor mask patterning
    
    Semiconductor wafer defectinspection
    
    Thin-film measurement ofsemiconductor wafers
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Category
    
    Products
    
    Representative ApplicationsCrystals
    
    
    
    Optical crystals
    
    
    
    Infrared spectroscopy (FT-IR)
    
    Scintillation crystals
    
    
    
    for quality assurance
    
    Crystal imaging arrays
    
    
    
    Optical and acoustic
    
    Electro optics
    
    
    
    applications including frequency doubling,optical modulators and Q switches
    
    X-ray detection such as steelthickness gauging
    
    X-ray imaging for security,industrial and medical applicationsAdvanced
Manufacturing Systems
    
    
    
    Automated manufacturing/ assembly
    
    
    
    Automated manufacturing andsystems
    
    
    
    assembly of microelectronic and
    
    Automated dispensing systems
    
    
    
    optoelectronic devices
    
    High-speed, high-accuracyautomated dispensing applications formicrowave modules, optical modules, hybridcircuits, multi-chip modules andsemiconductor packaging
    
    High-speed, high-accuracylaser texturing of disk drive media
 Integrated Solutions
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Sales and Marketing
   ®
   11




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Research and Product Development
   Customers
  12




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Competition
  Product Category
    
    Primary CompetitorsLasers
    
    Bookham, Inc.
Coherent, Inc.
CVI Melles Griot
Excel Technology, Inc.
IPG Photonics, Inc.
    
    JDS Uniphase Corporation
Jenoptik Laser Optik Systeme GmbH
Rofin-Sinar Technologies, Inc.
Trumpf GroupPhotonics Instruments
    
    Agilent Technologies, Inc.
Coherent, Inc.
CVI Melles Griot
ILX Lightwave Corporation
    
    Ocean Optics, Inc.
Ophir Optronics Ltd.
Thorlabs, Inc.Light Sources and
Spectroscopy 
   
Instrumentation
    
    Andor Technology
Acton Research Corporation
Ocean Optics, Inc.
    
    Photon Technology International 
Spectral Products
Thorlabs, Inc.Precision
Micro-Positioning
     Devices, Systems and 
   
Subsystems
    
    Aerotech Inc.
Bookham, Inc.
Danaher Corporation
Parker Hannifin Corporation
    
    Physik Instrumente
Rockwell Automation, Inc. (Anorad) 

Sigma Koki Co., Ltd.
Thorlabs, Inc.Vibration Isolation
   Systems and Subsystems
    
    Kinetic Systems, Inc.
Technical Manufacturing Corp.
    
    Thorlabs, Inc.Optics, Optical Hardware 
   
and Opto-Mechanical 
   
Subassemblies and 
   
Subsystems
    
    Bookham, Inc.
CVI Melles Griot
Corning Tropel Corporation
Jenoptik Laser Optik Systeme GmbH
    
    LINOS Photonics
OptoSigma Corporation
Thorlabs, Inc.
Zygo CorporationOptical Filters
    
    Bookham, Inc.
Barr Associates, Inc.
Chroma Technology Corp.
Ferroperm EMC Filters ApS
    
    JDS Uniphase Corporation
Omega Optical, Inc.
Semrock, Inc.Diffraction Gratings
    
    Headwall Photonics, Inc.
Horiba Jobin Yvon Ltd.
    
    Optometrics LLC
Spectrogon
   
    
    product features and performance;
    
    quality and reliability of products;
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
    
    pricing;
    
    customer service and support;
    
    breadth of product portfolio;
    
    customer relationships;
    
    ability to manufacture and deliver products on a timely basis;
    
    ability to customize products to customer specifications; and
    
    ability to offer complete integrated solutions to OEM customers.
   Intellectual Property and Proprietary Rights
    14




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Manufacturing
    Backlog
  Investments
   15




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Employees
  Government Regulation
 Regulatory Compliance
  Environmental Regulation
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Availability of Reports
  
 Item 1A. Risk Factors
 The following is a summary of certain risks we face in our business. They are not the only
risks we face. Additional risks that we do not yet know of or that we currently believe are
immaterial may also impair our business operations. If any of the events or circumstances
described in the following risks actually occur, our business, financial condition or results of
operations could suffer, and the trading price of our common stock could decline. In assessing
these risks, investors should also refer to the other information contained or incorporated by
reference in our other filings with the Securities and Exchange Commission.
 Our financial results are difficult to predict, and if we fail to meet our financial guidance or
the expectations of investors and/or securities analysts, the market price of our common stock will
likely decline significantly.
  
    
    fluctuations in our customers capital spending, industry cyclicality (particularly in
the semiconductor equipment industry), market seasonality (particularly in the scientific
research market), levels of government funding available to our customers and other
economic conditions within the markets we serve;
    
    demand for our products and the products sold by our customers;
    
    the level of orders within a given quarter and preceding quarters;
    
    the timing and level of cancellations and delays of orders for our products;
    
    the timing of product shipments within a given quarter;
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
    
    our timing in introducing new products;
    
    market acceptance of any new or enhanced versions of our products;
    
    timing of new product introductions by our competitors;
    
    variations in the mix of products we sell;
    
    timing and level of scrap and warranty expenses;
    
    changes in our pricing policies or in the pricing policies of our competitors or suppliers;
    
    the availability and cost of key components and raw materials we use to manufacture our products;
    
    our ability to manufacture a sufficient quantity of our products to meet customer demand;
    
    our ability to retain and attract key employees;
    
    changes in our effective tax rates;
    
    changes in interest rates;
    
    fluctuations in foreign currency exchange rates; and
    
    our levels of expenses.
    We are dependent in part on the semiconductor capital equipment market, which is volatile and
unpredictable.
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##### Table of Contents



A limited number of customers account for a significant portion of our sales to the
microelectronics market, and if we lose any of these customers or they significantly curtail their
purchases of our products, our results of operations would be harmed.
   Difficulties in executing our acquisitions could adversely impact our business.
  
    
    potentially incompatible cultural differences between the two companies;
    
    incorporating the acquired companys technology and products into our current and future
product lines, and successfully generating market demand for these expanded product lines;
    
    potential additional geographic dispersion of operations;
    
    the diversion of our managements attention from other business concerns;
    
    the difficulty in achieving anticipated synergies and efficiencies;
    
    the difficulty in integrating disparate operational and information systems;
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
    
    the difficulty in leveraging the acquired companys and our combined technologies and
capabilities across all product lines and customer bases; and
    
    our ability to retain key customers, suppliers and employees of an acquired company.
  Many of 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.
  We offer products for multiple industries and must face the challenges of supporting the distinct
needs of each of the markets we serve.
  Because the sales cycle for some of our products is long and difficult to predict, and certain of
our orders are subject to rescheduling or cancellation, we may experience fluctuations in our
operating results.
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If we are delayed in introducing our new products into the marketplace, our operating results will
suffer.
  We face significant risks from doing business in foreign countries.
  
    
    adverse changes or instability in the political or economic conditions in countries or
regions where we manufacture or sell our products;
    
    challenges of administering our business globally;
    
    the actions of U.S. and foreign regulatory authorities, including embargoes, export
restrictions, tariffs, trade restrictions and trade barriers, license requirements,
currency controls and other rules and regulations applicable to the importing and exporting
of our products, which are complicated and potentially conflicting and may impose strict
and severe penalties for noncompliance;
    
    longer accounts receivable collection periods;
    
    overlapping, differing or more burdensome tax structures;
    
    adverse currency fluctuations;
    
    differing protection of intellectual property;
    
    difficulties in staffing and managing each of our individual foreign operations; and
    
    increased risk of exposure to terrorist activities.
  We face substantial competition, and if we fail to compete effectively, our operating results will
suffer.
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##### Table of Contents



If we fail to protect our intellectual property and proprietary technology, we may lose our
competitive advantage.
  We have experienced, and may in the future experience, intellectual property infringement claims,
which could be costly and time consuming to defend.
  If we are unable to attract new employees and retain and motivate existing employees, our business
and results of operations will suffer.
  22




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##### Table of Contents



Our reliance on sole source and limited source suppliers could result in delays in production and
distribution of our products.
  Our products could contain defects, which would increase our costs and harm our business.
    
    
    loss of customers;
    
    increased costs of product returns and warranty expenses;
    
    damage to our brand reputation;
    
    failure to attract new customers or achieve market acceptance;
    
    diversion of development and engineering resources; or
    
    legal action by our customers.
  23




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##### Table of Contents



Our convertible debt imposes significant financial obligations upon us, and certain provisions of
our convertible notes could discourage a change in control.
    Proposed accounting changes for convertible debt securities, such as our convertible subordinated
notes, may adversely affect our financial results.
 Accounting for Convertible Debt Instruments That May Be Settled in Cash Upon
Conversion (Including Partial Cash Settlement)
 Our products are subject to potential product liability claims which, if successful, could
adversely affect our results of operations.
  24




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##### Table of Contents



While we believe we currently have adequate internal control over financial reporting, we are
required to evaluate our internal control over financial reporting each year, and any adverse
results from such evaluation could result in a loss of investor confidence in our financial reports
and have an adverse effect on our stock price.
    Difficulties in implementing a new global information technology system could harm our business.
  Compliance with environmental regulations and potential environmental liabilities could adversely
affect our financial results.
  25




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##### Table of Contents



26




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##### Table of Contents



Natural disasters or power outages could disrupt or shut down our operations, which would
negatively impact our operations.
  
 Item 1B. Unresolved Staff Comments
  
 Item 2. Properties
  Division
    
    Primary Facility Locations
    
    Approximate Facility SizeLasers
    
    Mountain View, California
Tucson, Arizona
Ottawa, Ontario
Stahnsdorf, Germany
    
    159,000 square feet
81,000 square feet
19,000 square feet
12,000 square feetPhotonics and
Precision
Technologies
    
    Irvine, California
Franklin, Massachusetts
Rochester, New York
North Billerica, Massachusetts
Stratford, Connecticut
Beaune-la Rolande, France
Brigueuil, France
Wuxi, China
Margate, United Kingdom
    
    273,000 square feet
56,000 square feet
55,000 square feet
38,000 square feet
32,000 square feet
86,000 square feet
44,000 square feet
30,000 square feet
16,500 square feet
  
 Item 3. Legal Proceedings
  27




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##### Table of Contents



Item 4. Submission of Matters to a Vote of Security Holders
  
 PART II
 
 Item 5.
    
    Market for the Registrants Common Equity, Related Stockholder Matters and
Issuer Purchases of Equity Securities
 Price Range of Common Stock
  Quarter Ended
    
    High
    
    LowDecember 29, 2007
    
    $
    15.68
    
    
    
    12.42September 29, 2007
    
    
    16.28
    
    
    
    11.85June 30, 2007
    
    
    16.84
    
    
    
    14.40March 31, 2007
    
    
    21.34
    
    
    
    15.96December 30, 2006
    
    
    22.83
    
    
    
    15.84September 30, 2006
    
    
    18.59
    
    
    
    13.94July 1, 2006
    
    
    19.83
    
    
    
    15.44April 1, 2006
    
    
    20.18
    
    
    
    13.50
 Dividends
  28




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##### Table of Contents



Purchases of Equity Securities
  MaximumNumber (orApproximateTotal Number of
    
    
    Dollar Value ofAverage
    
    
    Shares (or Units)
    
    
    Shares (or Units)Price Paid
    
    
    Purchased as Part
    
    
    that May Yet BeTotal Number of
    
    
    per Share
    
    
    of Publicly
    
    
    Purchased UnderShares (or Units)
    
    
    (or
    
    
    Announced Plans
    
    
    the Plans orPeriod(1)
    
    Purchased
    
    
    Unit)
    
    
    or Programs
    
    
    ProgramsSeptember 30, 2007 - October 27, 2007
    
    
    
    
    
    
    
    
    
    
    October 28, 2007 - November 24, 2007
    
    
    386,092
    (2)
    
    
    $12.93
    
    
    
    386,092
    
    
    
    1,056,717November 25, 2007 - December 29, 2007
    
    
    
    
    
    
    
    
    
    
    Totals
    
    
    386,092
    
    
    
    $12.93
    
    
    
    386,092
 
 (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
December 29, 2007, we had purchased a total of 3.1 million shares and 1.1 million 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. 29




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##### Table of Contents



Information Regarding Equity Compensation Plans
  Equity Compensation Plan Information
 Number of SecuritiesNumber of Securities
    
    
    
    
    
    Remaining Availableto be Issued upon
    
    Weighted-Average
    
    for Future IssuanceExercise of
    
    Exercise Price of
    
    under EquityOutstanding
    
    Outstanding
    
    Compensation PlansOptions, Warrants
    
    Options, Warrants
    
    (excluding securitiesand Rights
    
    and Rights
    
    reflected in column (a))Plan Category
    
    (a)
    
    (b)
    
    (c)Equity Compensation
Plans Approved by
Security
Holders(1)
    
    
    4,108,854
    
    
    $
    18.09
    
    
    
    4,553,800Equity Compensation
Plans Not Approved
by Security
Holders(2)
    
    
    288,340
    
    
    $
    47.70
    
    
    
    Total
    
    
    4,397,194
    
    
    
    
    
    
    
    4,553,800
 
 (1)
    
    The number of shares reflected in column (a) for equity compensation plans
approved by security holders includes outstanding options to purchase 2,966,904 shares of
our common stock, which were issued under our 1992 Stock Incentive Plan and our 2001 Stock
Incentive Plan, and outstanding restricted stock units representing the right to receive
upon vesting an aggregate of 1,141,950 shares of our common stock, which were issued under
our 2006 Performance-Based Stock Incentive Plan. Substantially all of the outstanding
restricted stock units are subject to performance conditions and are not expected to vest.
Any restricted stock units that do not vest will become available for future grant. The
weighted-average exercise price reflected in column (b) for equity compensation plans
approved by security holders represents the weighted-average exercise price of the options
to purchase 2,966,904 shares of our common stock. The restricted stock units representing
the right to receive an aggregate of 1,141,950 shares of our common stock were awarded
without payment of any purchase price.(2)
    
    The number of shares reflected in column (a) for equity compensation plans not
approved by security holders consists of outstanding options to purchase shares of our
common stock issued under our 1999 Stock Incentive Plan having a weighted-average exercise
price of $47.70, and excludes outstanding options to purchase 134,637 shares of our common
stock having a weighted-average exercise price of $2.66, which were granted to employees
and non-employees upon the assumption and conversion of former options to purchase shares
of common stock of Micro Robotics Systems, Inc. (MRSI) in connection with our acquisition
of MRSI in February 2002. The options granted in connection with our acquisition of MRSI
were granted outside of a plan pursuant to individual nonqualified stock option agreements,
and, therefore, no additional securities are available for future grants. Equity Compensation Plans Not Approved by Security Holders
  30




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##### Table of Contents



Stock Performance Graph
   COMPARES 5-YEAR CUMULATIVE RETURN AMONG
NEWPORT CORPORATION, NASDAQ MARKET INDEX AND PEER GROUP
 
 The material in this performance graph is not soliciting material and is not deemed filed with
the SEC and is not to be incorporated by reference in any filing of Newport under the Securities
Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or
after the date hereof and irrespective of any general incorporation language in any such filing.
 31




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##### Table of Contents



Item 6. Selected Financial Data
   As of or for the Year Ended(1)(8)December 29,
    
    December 30,
    
    December 31,
    
    January 1,
    
    December 31,(In thousands, except percentages)
    
    2007
    
    2006
    
    2005
    
    2005
    
    2003(2)CONSOLIDATED STATEMENTS OF OPERATIONS:Net sales
    
    $
    445,197
    
    
    $
    454,724
    
    
    $
    403,733
    
    
    $
    267,335
    
    
    $
    118,373Cost of sales (3)
    
    
    259,636
    
    
    
    256,756
    
    
    
    234,480
    
    
    
    178,335
    
    
    
    78,225Gross profit
    
    
    185,561
    
    
    
    197,968
    
    
    
    169,253
    
    
    
    89,000
    
    
    
    40,148Selling, general and administrative expense
    
    
    116,476
    
    
    
    114,533
    
    
    
    102,002
    
    
    
    71,354
    
    
    
    35,328Research and development expense
    
    
    42,570
    
    
    
    41,981
    
    
    
    35,949
    
    
    
    22,161
    
    
    
    11,793Restructuring, impairment and other charges (3)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14,877
    
    
    
    687Operating income (loss)
    
    
    26,515
    
    
    
    41,454
    
    
    
    31,302
    
    
    
    (19,392
    )
    
    
    (7,660
    )Interest and other income (expense), net (4)
    
    
    137
    
    
    
    (759
    )
    
    
    (1,842
    )
    
    
    (2,000
    )
    
    
    7,985Income (loss) from continuing operations before income taxes
    
    
    26,652
    
    
    
    40,695
    
    
    
    29,460
    
    
    
    (21,392
    )
    
    
    325Income tax provision (benefit) (5)
    
    
    (17,229
    )
    
    
    2,193
    
    
    
    3,746
    
    
    
    (979
    )
    
    
    (812
    )Income (loss) from continuing operations before
extraordinary gain
    
    
    43,881
    
    
    
    38,502
    
    
    
    25,714
    
    
    
    (20,413
    )
    
    
    1,137Loss from
discontinued operations, net of income tax
benefits (3)(6)
    
    
    
    
    
    
    (1,075
    )
    
    
    (16,973
    )
    
    
    (61,023
    )
    
    
    (14,297
    )Extraordinary gain on settlement of litigation (7)
    
    
    
    
    
    
    
    
    
    
    2,891
    
    
    
    
    
    
    
    Net income (loss)
    
    $
    43,881
    
    
    $
    37,427
    
    
    $
    11,632
    
    
    $
    (81,436
    )
    
    $
    (13,160
    )Percentage of net sales:Gross profit
    
    
    41.7
    %
    
    
    43.5
    %
    
    
    41.9
    %
    
    
    33.3
    %
    
    
    33.9
    %Selling, general and administrative expense
    
    
    26.2
    %
    
    
    25.2
    %
    
    
    25.3
    %
    
    
    26.7
    %
    
    
    29.8
    %Research and development expense
    
    
    9.6
    %
    
    
    9.2
    %
    
    
    8.9
    %
    
    
    8.3
    %
    
    
    10.0
    %Restructuring, impairment and other charges
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5.6
    %
    
    
    0.6
    %Operating income (loss)
    
    
    5.9
    %
    
    
    9.1
    %
    
    
    7.7
    %
    
    
    (7.3
    )%
    
    
    (6.5
    )%Income (loss) from continuing operations
before extraordinary gain
    
    
    9.9
    %
    
    
    8.5
    %
    
    
    6.4
    %
    
    
    (7.6
    )%
    
    
    1.0
    %Net income (loss)
    
    
    9.9
    %
    
    
    8.2
    %
    
    
    2.9
    %
    
    
    (30.5
    )%
    
    
    (11.1
    )%
 32




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##### Table of Contents



As of or for the Year Ended(In thousands, except per share and worldwide
    
    December 29,
    
    December 30,
    
    December 31,
    
    January 1,
    
    December 31,employment figures)
    
    2007
    
    2006
    
    2005
    
    2005
    
    2003PER SHARE INFORMATION:Basic net income (loss) per share:Income (loss) from continuing operations before
extraordinary gain
    
    $
    1.14
    
    
    $
    0.95
    
    
    $
    0.62
    
    
    $
    (0.50
    )
    
    $
    0.03Loss from discontinued operations, net of income taxes
    
    
    
    
    
    
    (0.03
    )
    
    
    (0.41
    )
    
    
    (1.49
    )
    
    
    (0.37
    )Extraordinary gain on settlement of litigation
    
    
    
    
    
    
    
    
    
    
    0.07
    
    
    
    
    
    
    
    Net income (loss)
    
    $
    1.14
    
    
    $
    0.92
    
    
    $
    0.28
    
    
    $
    (1.99
    )
    
    $
    (0.34
    )Diluted net income (loss) per share:Income (loss) from continuing operations before
extraordinary gain
    
    $
    1.12
    
    
    $
    0.91
    
    
    $
    0.60
    
    
    $
    (0.50
    )
    
    $
    0.03Loss from discontinued operations, net of income taxes
    
    
    
    
    
    
    (0.02
    )
    
    
    (0.40
    )
    
    
    (1.49
    )
    
    
    (0.36
    )Extraordinary gain on settlement of litigation
    
    
    
    
    
    
    
    
    
    
    0.07
    
    
    
    
    
    
    
    Net income (loss)
    
    $
    1.12
    
    
    $
    0.89
    
    
    $
    0.27
    
    
    $
    (1.99
    )
    
    $
    (0.33
    )Shares used in computation of income (loss) per share:Basic
    
    
    38,479
    
    
    
    40,698
    
    
    
    41,281
    
    
    
    40,838
    
    
    
    38,685Diluted
    
    
    39,058
    
    
    
    42,167
    
    
    
    42,716
    
    
    
    40,838
    
    
    
    39,939Total stockholders equity per diluted share
    
    $
    10.35
    
    
    $
    10.32
    
    
    $
    8.82
    
    
    $
    10.17
    
    
    $
    10.98BALANCE SHEET INFORMATION:Cash and marketable securities
    
    $
    143,864
    
    
    $
    85,413
    
    
    $
    71,022
    
    
    $
    108,182
    
    
    $
    267,302Working capital
    
    $
    275,696
    
    
    $
    200,808
    
    
    $
    150,318
    
    
    $
    181,999
    
    
    $
    374,315Total assets
    
    $
    689,947
    
    
    $
    593,015
    
    
    $
    529,406
    
    
    $
    578,468
    
    
    $
    468,219Short-term obligations
    
    $
    12,402
    
    
    $
    9,481
    
    
    $
    12,559
    
    
    $
    17,186
    
    
    $
    Long-term obligations (includes obligations under
capital leases)
    
    $
    176,487
    
    
    $
    52,125
    
    
    $
    51,372
    
    
    $
    48,453
    
    
    $
    1,884Stockholders equity
    
    $
    404,445
    
    
    $
    434,953
    
    
    $
    376,583
    
    
    $
    415,509
    
    
    $
    438,409MISCELLANEOUS STATISTICS:Common shares outstanding at year end
    
    
    36,918
    
    
    
    41,458
    
    
    
    40,036
    
    
    
    43,023
    
    
    
    39,033Average worldwide employment
    
    
    1,943
    
    
    
    1,940
    
    
    
    1,978
    
    
    
    1,352
    
    
    
    834Sales per employee
    
    $
    229
    
    
    $
    234
    
    
    $
    204
    
    
    $
    198
    
    
    $
    142
 
 (1)
    
    We use a conventional 52/53-week accounting fiscal year. Our fiscal year ends on the
Saturday closest to December 31, and our fiscal quarters end on the Saturday closest to the
end of each corresponding calendar quarter. Fiscal year 2007 (referred to herein as 2007)
ended on December 29, 2007, fiscal year 2006 (referred to herein as 2006) ended on December
30, 2006, fiscal year 2005 (referred to herein as 2005) ended on December 31, 2005, fiscal
year 2004 (referred to herein as 2004) ended on January 1, 2005 and fiscal year 2003
(herein referred to as 2003) ended on December 31, 2003.(2)
    
    In July 2004, we acquired Spectra-Physics and the transaction was accounted for using
the purchase method. The Companys results of operations for 2004 included the results of
operations of Spectra-Physics from July 16, 2004, the closing date of the acquisition.(3)
    
    In 2004, we determined that goodwill and other intangible assets of our former APAS
Division were impaired and recorded impairment charges of $56.6 million related to goodwill
and $2.7 million related to other acquired intangible assets, of which $1.8 million is
included in cost of sales,$13.4 million is
included in restructuring, impairment and other chargesand $44.1 million is included in
loss from discontinued operations, net of income taxesfor 2004.In addition, as a result
of the acquisition of 33




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Spectra-Physics, we determined that we had duplicate fixed assets
that were not needed in our operations and an intangible asset that was no longer
strategic to our business. As a result, we recorded impairment charges of $3.8 million,
of which $1.5 million is included in cost of sales, $1.1 million is included in
restructuring, impairment and other chargesand $1.2 million is included in loss from
discontinued operations, net of income taxesfor 2004.(4)
    
    For 2004, such amounts included a $1.4 million write-down of a minority interest
investment made in prior years in a manufacturer of precision mechanical components due to
other-than-temporary impairment in value. In addition, 2004 included a realized loss of
$1.7 million on sales of marketable securities prior to their maturity in order to fund the
cash portion of the purchase price for the Spectra-Physics acquisition.(5)
    
    We established a valuation allowance in 2002 against our deferred tax assets, due to
uncertainty as to the timing and ultimate realization of those assets. In 2007, we reduced
our valuation allowance against our deferred tax assets by $19.8 million. Additionally, in
2006, 2005 and 2004, we reduced our tax contingency reserve by $2.2 million, $0.2 million
and $3.0 million, respectively. See further discussion in Note 13 of the Notes to
Consolidated Financial Statements regarding the reduction in our valuation allowance in
2007.(6)
    
    In 2005, our Board of Directors approved a plan to sell our robotic systems operations
and, in 2002, approved a plan to sell our operations in Plymouth, Minnesota and our
Industrial Metrology Systems Division. These divestitures have been accounted for as
discontinued operations for all periods presented. See further discussion related to the
divestiture of our robotic systems operations in Note 3 of the Notes to Consolidated
Financial Statements.(7)
    
    In March 2005, we settled a dispute arising out of our acquisition of MRSI. As a
result of this settlement, we recorded an extraordinary gain of $2.9 million in the first
quarter of 2005.(8)
    
    Certain reclassifications have been made to prior year amounts to conform to the
current year presentation. 34




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##### Table of Contents



Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
 The following discussion and analysis of our financial condition and results of operations
should be read in conjunction with our consolidated financial statements and related notes included
in this Annual Report on Form 10-K . This discussion contains forward-looking statements that
involve risks and uncertainties. These statements are based on assumptions that we consider
reasonable. When used in this report, the words anticipates, believes, can, continue,
could, would, estimates, expects, intends, may, plans, potential, predicts,
should, will and similar expressions or the negative of such expressions are intended to
identify these forward-looking statements. In addition, any statements that refer to projections
of our future financial performance, trends in our businesses, or other characterizations of future
events or circumstances are forward-looking statements. Our actual results could differ materially
from those anticipated in these forward-looking statements as a result of certain factors
including, but not limited to, those discussed in Item 1A (Risk Factors) of Part I of this Annual
Report on Form 10-K .
 Overview
   Acquisitions
  Divestitures
   Year EndedDecember 30,
    
    December 31,(In thousands)
    
    2006
    
    2005Net sales
    
    $
    
    
    
    $
    8,835Loss before income taxes
    
    $
    (1,106
    )
    
    $
    (17,823
    )
 35




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Extraordinary Gain
  Fiscal Year End
  Critical Accounting Policies and Estimates
 Organization and Summary of Significant
Accounting Policies,
 Revenue Recognition
  36




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Accounts and Notes Receivable
  notes receivable, net Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities (a replacement of
FASB Statement No. 125) notes receivable, net short-term obligations notes
receivable, net short-term obligations
 Pension Plans
  Inventories
  37




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Warranty
  Impairment of Assets
  Goodwill and Other Intangible Assets
 38




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Income Taxes
 Accounting for Income Taxes
   Accounting for Uncertainty in Income Taxes  An Interpretation of FASB Statement No.
109
 39




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##### Table of Contents



Stock-Based Compensation
 Share-Based Payment
  Stock-Based Compensation Costs
 Accounting for Stock Issued to Employees Accounting for Stock-Based Compensation, .
   Year EndedDecember 29,
    
    December 30,
    
    December 31,(In thousands)
    
    2007
    
    2006
    
    2005Cost of sales
    
    $
    425
    
    
    $
    516
    
    
    $
    Selling, general and administrative expense
    
    
    3,005
    
    
    
    5,935
    
    
    
    463Research and development expense
    
    
    238
    
    
    
    464
    
    
    
    $
    3,668
    
    
    $
    6,915
    
    
    $
    463
  40




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41




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Results of Operations for the Years Ended December 29, 2007, December 30, 2006 and December 31, 2005
  Percentage of Net SalesFor the Year EndedDecember 29,
    
    December 30,
    
    December 31,2007
    
    2006
    
    2005Net sales
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Cost of sales
    
    
    58.3
    
    
    
    56.5
    
    
    
    58.1Gross profit
    
    
    41.7
    
    
    
    43.5
    
    
    
    41.9Selling, general and administrative expense
    
    
    26.2
    
    
    
    25.2
    
    
    
    25.3Research and development expense
    
    
    9.6
    
    
    
    9.2
    
    
    
    8.9Operating income
    
    
    5.9
    
    
    
    9.1
    
    
    
    7.7Interest and other income (expense), net
    
    
    0.1
    
    
    
    (0.2
    )
    
    
    (0.4
    )Income from continuing operations before income taxes
    
    
    6.0
    
    
    
    8.9
    
    
    
    7.3Income tax provision (benefit)
    
    
    (3.9
    )
    
    
    0.4
    
    
    
    0.9Income from continuing operations before
extraordinary gain
    
    
    9.9
    
    
    
    8.5
    
    
    
    6.4Loss from discontinued operations, net of income tax
benefits
    
    
    
    
    
    
    (0.3
    )
    
    
    (4.2
    )Extraordinary gain on settlement of litigation
    
    
    
    
    
    
    
    
    
    
    0.7Net income
    
    
    9.9
    %
    
    
    8.2
    %
    
    
    2.9
    %
  Net Sales
    42




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##### Table of Contents



Year Ended
    
    
    
    
    
    PercentageDecember 29,
    
    December 30,
    
    Increase /
    
    Increase /(In thousands, except percentages)
    
    2007
    
    2006
    
    (Decrease)
    
    (Decrease)United States
    
    $
    223,891
    
    
    $
    238,433
    
    
    $
    (14,542
    )
    
    
    (6.1
    )%Europe
    
    
    112,695
    
    
    
    99,968
    
    
    
    12,727
    
    
    
    12.7Pacific Rim
    
    
    80,946
    
    
    
    91,277
    
    
    
    (10,331
    )
    
    
    (11.3
    )Other
    
    
    27,665
    
    
    
    25,046
    
    
    
    2,619
    
    
    
    10.5Total sales
    
    $
    445,197
    
    
    $
    454,724
    
    
    $
    (9,527
    )
    
    
    (2.1
    )%
 Year EndedDecember 30,
    
    December 31,
    
    
    
    
    
    Percentage(In thousands, except percentages)
    
    2006
    
    2005
    
    Increase
    
    IncreaseUnited States
    
    $
    238,433
    
    
    $
    215,600
    
    
    $
    22,833
    
    
    
    10.6
    %Europe
    
    
    99,968
    
    
    
    86,054
    
    
    
    13,914
    
    
    
    16.2Pacific Rim
    
    
    91,277
    
    
    
    81,635
    
    
    
    9,642
    
    
    
    11.8Other
    
    
    25,046
    
    
    
    20,444
    
    
    
    4,602
    
    
    
    22.5Total sales
    
    $
    454,724
    
    
    $
    403,733
    
    
    $
    50,991
    
    
    
    12.6
    %
   43




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##### Table of Contents



Gross Margin
    Selling, General and Administrative (SG&A) Expense
   44




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##### Table of Contents



Research and Development (R&D) Expense
   Interest and Other Income (Expense), Net
   Income Taxes
  45




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##### Table of Contents



Liquidity and Capital Resources
      46




---



##### Table of Contents



short-term obligations short-term obligations .
      47




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##### Table of Contents



Contractual Obligations
   Capital
    
    Long-Term
    
    Operating
    
    Total(In thousands)
    
    Leases
    
    Debt
    
    Leases
    
    ObligationsPayments Due By Period:2008
    
    $
    199
    
    
    $
    4,375
    
    
    $
    9,158
    
    
    $
    13,7322009
    
    
    198
    
    
    
    4,375
    
    
    
    6,638
    
    
    
    11,2112010
    
    
    197
    
    
    
    4,375
    
    
    
    4,961
    
    
    
    9,5332011
    
    
    196
    
    
    
    4,375
    
    
    
    4,211
    
    
    
    8,7822012
    
    
    195
    
    
    
    177,188
    
    
    
    1,869
    
    
    
    179,252Thereafter
    
    
    1,039
    
    
    
    
    
    
    
    3,276
    
    
    
    4,315Total minimum payments
    
    
    2,024
    
    
    
    194,688
    
    
    $
    30,113
    
    
    $
    226,825Less amount representing interest
    
    
    (537
    )
    
    
    (19,688
    )Present value of obligation
    
    $
    1,487
    
    
    $
    175,000
  Operating(In thousands)
    
    LeasesPayments Due By Period:2008
    
    $
    1,1572009
    
    
    2022010
    
    
    1942011
    
    
    1382012
    
    
    12Total minimum sublease payments
    
    $
    1,703
  New Accounting Standards
 Fair Value Measurement.
 48




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##### Table of Contents



The Fair Value Option for Financial Assets and
Financial Liabilities, Including an amendment of SFAS No. 115.
 Noncontrolling Interests in Consolidated
Financial Statementsan amendment of ARB No. 51
 Business Combinations
 
 Item 7A. Quantitative and Qualitative Disclosures About Market Risk
  Foreign Currency Risk
   49




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##### Table of Contents



Interest Rate Risk
  
 Item 8. Financial Statements and Supplementary Data
  
 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure
  
 Item 9A. Controls and Procedures
 Evaluation of Disclosure Controls and Procedures
  50




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##### Table of Contents



Managements Annual Report on Internal Control over Financial Reporting
 Internal Control over Financial Reporting
   Managements Assessment of the Effectiveness of our Internal Control over Financial Reporting
 Internal Control  Integrated Framework
 Attestation Report
  Attestation Report of Independent Registered Public Accounting Firm
 Report of Independent Registered Public Accounting Firm
    51




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##### Table of Contents



Changes in Internal Control Over Financial Reporting
  
 Item 9B. Other Information
  52




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##### Table of Contents



PART III
 
 Item 10. Directors, Executive Officers and Corporate Governance
  
 Item 11. Executive Compensation
  
 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
  
 Item 13. Certain Relationships and Related Transactions, and Director Independence
  
 Item 14. Principal Accounting Fees and Services
  
 PART IV
 
 Item 15. Exhibits, Financial Statement Schedules
 (a)
    
    The following documents are filed as part of this Annual Report on Form 10-K:
 (1)
    
    Financial Statements.See Index to Financial Statements and Schedule on page F-1.(2)
    
    Financial Statement Schedules.See Index to Financial Statements and Schedule on page F-1. 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.
 53




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##### Table of Contents



(3)
    
    Exhibits.The following exhibits are filed (or incorporated by reference herein) as part of this
Annual Report on Form 10-K:
 ExhibitNumber
    
    Description of Exhibit2.1
    
    
    Stock Purchase Agreement dated May 28, 2004 by and among
the Registrant, Thermo Electron Corporation and other
related parties (incorporated by reference to Exhibit 2.1
to the Registrants Current Report on Form 8-K filed on
June 17, 2004).3.1
    
    
    Restated Articles of Incorporation of the Registrant, as
amended to date (incorporated by reference to Exhibit 3.1
of the Registrants Annual Report on Form 10-K for the year
ended December 30, 2006).3.2
    
    
    Restated Bylaws of the Registrant, as amended to date
(incorporated by reference to Exhibit 3.2 of the
Registrants Annual Report on Form 10-K for the year ended
July 31, 1992).4.1
    
    
    Indenture, dated February 7, 2007, between the Registrant
and Wells Fargo Bank, N.A. (incorporated by reference to
Exhibit 10.1 to the Registrants Current Report on Form 8-K
filed with the Securities and Exchange Commission on
February 7, 2007).4.2
    
    
    Registration Rights Agreement, dated February 7, 2007,
between the Registrant and Merrill, Lynch, Pierce, Fenner &
Smith Incorporated (incorporated by reference to Exhibit
10.2 to the Registrants Current Report on Form 8-K filed
with the Securities and Exchange Commission on February 7,
2007).4.3
    
    
    Form of 2.50% Convertible Subordinated Note due 2012
(incorporated by reference to Exhibit 10.3 to the
Registrants Current Report on Form 8-K filed with the
Securities and Exchange Commission on February 7, 2007).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
Registrants Annual Report on Form 10-K for the year ended
July 31, 1992).10.2
    
    
    First Amendment to Lease dated January 31, 2002, between
the Registrant and IRP Muller Associates, LLC pertaining to
premises located in Irvine, California (incorporated by
reference to Exhibit 10.2 of the Registrants Annual Report
on Form 10-K for the year ended December 31, 2001).10.3
    
    
    Second Amendment to Lease dated September 28, 2004, between
the Registrant and BCSD Properties, L.P. pertaining to
premises located in Irvine, California (incorporated by
reference to Exhibit 10.5 of the Registrants Quarterly
Report on Form 10-Q for the quarter ended October 2, 2004).10.4
    *
    
    1992 Stock Incentive Plan (incorporated by reference to
exhibit in the Registrants 1992 Proxy Statement).10.5
    *
    
    1999 Stock Incentive Plan (incorporated by reference to
Exhibit 10.11 of the Registrants Annual Report on Form
10-K for the year ended December 31, 1999).10.6
    *
    
    Amendment to 1999 Stock Incentive Plan (incorporated by
reference to Exhibit 10.4 to the Registrants Registration
Statement on Form S-3, No. 333-40878, filed with the
Securities and Exchange Commission on July 6, 2000).10.7
    *
    
    2001 Stock Incentive Plan (incorporated by reference to
Appendix B to the Registrants Definitive Proxy Statement
filed with the Securities and Exchange Commission on April
27, 2001).
 54




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##### Table of Contents



ExhibitNumber
    
    Description of Exhibit10.8
    *
    
    Form of Nonqualified Stock Option Agreement under the
Registrants 2001 Stock Incentive Plan, as amended
(incorporated by reference to Exhibit 10.9 of the
Registrants Annual Report on Form 10-K for the year ended
December 31, 2002).10.9
    *
    
    Form of Incentive Stock Option Agreement under the
Registrants 2001 Stock Incentive Plan (incorporated by
reference to Exhibit 10.10 of the Registrants Annual
Report on Form 10-K for the year ended December 31, 2002).10.10
    *
    
    Form of Restricted Stock Agreement under the Registrants
2001 Stock Incentive Plan (incorporated by reference to
Exhibit 10.3 of the Registrants Quarterly Report on Form
10-Q for the quarter ended October 2, 2004).10.11
    *
    
    Form of Nonqualified Stock Option Agreement between the
Registrant and each of the former optionholders of Micro
Robotics Systems, Inc. (incorporated by reference to
Exhibit 4.1 of the Registrants Registration Statement on
Form S-8, File No. 333-86268, filed with the Securities and
Exchange Commission on April 15, 2002).10.12
    *
    
    2006 Performance-Based Stock Incentive Plan (incorporated
by reference to Appendix B of the Registrants Definitive
Proxy Statement filed with the Securities and Exchange
Commission on April 10, 2006).10.13
    *
    
    Form of Restricted Stock Unit Award Agreement to be used
under the Registrants 2006 Performance-Based Stock
Incentive Plan (incorporated by reference to Exhibit 10.2
to the Registrants Current Report on Form 8-K filed with
the Securities and Exchange Commission on May 23, 2006).10.14
    *
    
    Amended and Restated Employee Stock Purchase Plan, as
amended (incorporated by reference to Exhibit 10.15 to the
Registrants Annual Report on Form 10-K for the year ended
December 31, 2005).10.15
    *
    
    Form of Severance Compensation Agreement between the
Registrant and certain of its executive officers
(incorporated by reference to Exhibit 10.14 of the
Registrants Annual Report on Form 10-K for the year ended
December 31, 2003).10.16
    *
    
    Severance Compensation Agreement dated as of January 1,
2004, between the Registrant and Robert G. Deuster,
Chairman and Chief Executive Officer (incorporated by
reference to Exhibit 10.15 of the Registrants Annual
Report on Form 10-K for the year ended December 31, 2003).10.17
    *
    
    Severance Compensation Agreement dated as of January 1,
2004, between the Registrant and Robert J. Phillippy,
President and Chief Operating Officer (incorporated by
reference to Exhibit 10.16 of the Registrants Annual
Report on Form 10-K for the year ended December 31, 2003).10.18
    *
    
    Form of Indemnification Agreement between the Registrant
and each of its directors and executive officers
(incorporated by reference to Exhibit 10.3 of the
Registrants Quarterly Report on Form 10-Q for the quarter
ended June 30, 2002).10.19
    *
    
    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).10.20
    
    
    Business Loan Agreement dated September 25, 2002, by and
between the Registrant and Bank of America, N.A.
(incorporated by reference to Exhibit 10.3 of the
Registrants Quarterly Report on Form 10-Q for the quarter
ended September 30, 2002).
 55




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##### Table of Contents



ExhibitNumber
    
    Description of Exhibit10.21
    
    
    Promissory Note dated September 25, 2002, payable by the
Registrant to Bank of America, N.A. (incorporated by
reference to Exhibit 10.4 of the Registrants Quarterly
Report on Form 10-Q for the quarter ended September 30,
2002).10.22
    
    
    Commercial Pledge Agreement dated September 25, 2002, by
and between the Registrant and Bank of America, N.A.
(incorporated by reference to Exhibit 10.5 of the
Registrants Quarterly Report on Form 10-Q for the quarter
ended September 30, 2002).10.23
    
    
    Amendment No. 1 to Loan Documents dated August 21, 2003,
between the Registrant and Bank of America, N.A.
(incorporated by reference to Exhibit 10.1 of the
Registrants Quarterly Report on Form 10-Q for the quarter
ended September 30, 2003).10.24
    
    
    Amendment No. 2 to Loan Documents dated October 27, 2003,
between the Registrant and Bank of America, N.A.
(incorporated by reference to Exhibit 10.2 of the
Registrants Quarterly Report on Form 10-Q for the quarter
ended September 30, 2003).10.25
    
    
    Amendment No. 3 to Loan Documents dated November 30, 2004,
between the Registrant and Bank of America, N.A.
(incorporated by reference to Exhibit 10.1 of the
Registrants Current Report on Form 8-K filed with the
Securities and Exchange Commission on December 3, 2004).10.26
    
    
    Amendment No. 4 to Loan Documents dated January 6, 2006,
between the Registrant and Bank of America, N.A.
(incorporated by reference to Exhibit 10.1 of the
Registrants Current Report on Form 8-K filed with the
Securities and Exchange Commission on January 11, 2006).10.27
    
    
    Amendment No. 5 to Loan Documents dated December 1, 2006,
between the Registrant and Bank of America, N.A.
(incorporated by reference to Exhibit 10.1 of the
Registrants Current Report on Form 8-K filed with the
Securities and Exchange Commission on December 5, 2006).10.28
    
    
    Subordinated Promissory Note dated July 16, 2004 payable by
the Registrant to Thermo Electron Corporation (incorporated
by reference to Exhibit 10.1 to the Registrants Current
Report on Form 8-K filed with the Securities and Exchange
Commission on July 20, 2004).21.1
    
    
    Subsidiaries of the Registrant.23.1
    
    
    Consent of Independent Registered Public Accounting Firm.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.
 
 *
    
    This exhibit is identified as a management contract or compensatory
plan or arrangement pursuant to Item 15(a)(3) of Form 10-K. 56




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##### Table of Contents



SIGNATURES
  NEWPORT CORPORATIONBy:
    /s/ Robert J. PhillippyRobert J. PhillippyPresident and Chief Executive Officer   SIGNATURE
    
    TITLE
    
    DATE/s/ Robert J. Phillippy

Robert J. Phillippy
    
    President and Chief Executive
Officer (Principal Executive
Officer)
    
    March 11, 2008/s/ Charles F. Cargile

Charles F. Cargile
    
    Senior Vice President, Chief
Financial Officer and
Treasurer (Principal Financial
Officer)
    
    March 11, 2008/s/ John D. Swancoat

John D. Swancoat
    
    Vice President, Corporate
Controller and Chief
Accounting Officer
    
    March 11, 2008/s/ R. Jack Aplin

R. Jack Aplin
    
    Director
    
    March 11, 2008/s/ Robert L. Guyett

Robert L. Guyett
    
    Director
    
    March 11, 2008/s/ Michael T. ONeill

Michael T. ONeill
    
    Director
    
    March 11, 2008/s/ C. Kumar N. Patel

C. Kumar N. Patel
    
    Director
    
    March 11, 2008/s/ Kenneth F. Potashner

Kenneth F. Potashner
    
    Director
    
    March 11, 2008/s/ Richard E. Schmidt

Richard E. Schmidt
    
    Director
    
    March 11, 2008/s/ Peter J. Simone

Peter J. Simone
    
    Director
    
    March 11, 2008
 57




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##### Table of Contents



INDEX TO FINANCIAL STATEMENTS AND SCHEDULE
 PageReport of Independent Registered Public Accounting Firm
    
    
    F-2Consolidated statements of operations for the years ended December 29, 2007,
December 30, 2006 and December 31, 2005
    
    
    F-3Consolidated balance sheets at December 29, 2007 and December 30, 2006
    
    
    F-4Consolidated statements of cash flows for the years ended December 29, 2007,
December 30, 2006 and December 31, 2005
    
    
    F-5Consolidated statements of comprehensive income and stockholders equity for
the years ended December 29, 2007, December 30, 2006 and December 31, 2005
    
    
    F-6Notes to consolidated financial statements
    
    
    F-7Financial Statement Schedule  Schedule II  Consolidated valuation accounts
    
    
    F-37
 F-1




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##### Table of Contents



Report of Independent Registered Public Accounting Firm
      Internal Control  Integrated Framework
  
 F-2




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##### Table of Contents



NEWPORT CORPORATION
 
 Consolidated Statements of Operations
 (In thousands, except per share data)
 Year EndedDecember 29,
    
    December 30,
    
    December 31,2007
    
    2006
    
    2005Net sales
    
    $
    445,197
    
    
    $
    454,724
    
    
    $
    403,733Cost of sales
    
    
    259,636
    
    
    
    256,756
    
    
    
    234,480Gross profit
    
    
    185,561
    
    
    
    197,968
    
    
    
    169,253Selling, general and administrative expense
    
    
    116,476
    
    
    
    114,533
    
    
    
    102,002Research and development expense
    
    
    42,570
    
    
    
    41,981
    
    
    
    35,949Operating income
    
    
    26,515
    
    
    
    41,454
    
    
    
    31,302Interest and other income (expense), net
    
    
    137
    
    
    
    (759
    )
    
    
    (1,842
    )Income from continuing operations before income taxes
    
    
    26,652
    
    
    
    40,695
    
    
    
    29,460Income tax provision (benefit)
    
    
    (17,229
    )
    
    
    2,193
    
    
    
    3,746Income from continuing operations before extraordinary gain
    
    
    43,881
    
    
    
    38,502
    
    
    
    25,714Loss from discontinued operations, net of income tax
benefits of $31 and $850 for the year ended December 30, 2006
and December 31, 2005, respectively
    
    
    
    
    
    
    (1,075
    )
    
    
    (16,973
    )Extraordinary gain on settlement of litigation
    
    
    
    
    
    
    
    
    
    
    2,891Net income
    
    $
    43,881
    
    
    $
    37,427
    
    
    $
    11,632Basic income per share:Income from continuing operations before extraordinary gain
    
    $
    1.14
    
    
    $
    0.95
    
    
    $
    0.62Loss from discontinued operations, net of income tax benefits
    
    
    
    
    
    
    (0.03
    )
    
    
    (0.41
    )Extraordinary gain on settlement of litigation
    
    
    
    
    
    
    
    
    
    
    0.07Net income
    
    $
    1.14
    
    
    $
    0.92
    
    
    $
    0.28Diluted income per share:Income from continuing operations before extraordinary gain
    
    $
    1.12
    
    
    $
    0.91
    
    
    $
    0.60Loss from discontinued operations, net of income tax benefits
    
    
    
    
    
    
    (0.02
    )
    
    
    (0.40
    )Extraordinary gain on settlement of litigation
    
    
    
    
    
    
    
    
    
    
    0.07Net income
    
    $
    1.12
    
    
    $
    0.89
    
    
    $
    0.27Shares used in the computation of income per share:Basic
    
    
    38,479
    
    
    
    40,698
    
    
    
    41,281Diluted
    
    
    39,058
    
    
    
    42,167
    
    
    
    42,716
  F-3




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##### Table of Contents



NEWPORT CORPORATION
 
 Consolidated Balance Sheets
 (In thousands, except share and per share data)
 December 29,
    
    December 30,2007
    
    2006ASSETSCurrent assets:Cash and cash equivalents
    
    $
    88,737
    
    
    $
    35,930Marketable securities
    
    
    55,127
    
    
    
    49,483Accounts receivable, net of allowance for doubtful accounts of $1,381
and $1,503, as of December 29, 2007 and December 30, 2006, respectively
    
    
    87,606
    
    
    
    94,325Notes receivable, net
    
    
    3,821
    
    
    
    4,868Inventories
    
    
    113,969
    
    
    
    94,899Deferred income taxes
    
    
    6,248
    
    
    
    2,031Prepaid expenses and other current assets
    
    
    13,603
    
    
    
    11,639Total current assets
    
    
    369,111
    
    
    
    293,175Property and equipment, net
    
    
    61,872
    
    
    
    57,400Goodwill
    
    
    174,197
    
    
    
    175,281Deferred income taxes
    
    
    16,932
    
    
    
    781Intangible assets, net
    
    
    46,171
    
    
    
    50,234Investments and other assets
    
    
    21,664
    
    
    
    16,144$
    689,947
    
    
    $
    593,015LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Short-term obligations
    
    $
    12,402
    
    
    $
    9,481Accounts payable
    
    
    33,319
    
    
    
    31,376Accrued payroll and related expenses
    
    
    23,096
    
    
    
    27,443Accrued expenses and other current liabilities
    
    
    24,598
    
    
    
    24,067Total current liabilities
    
    
    93,415
    
    
    
    92,367Long-term debt
    
    
    175,000
    
    
    
    50,688Obligations under capital leases, less current portion
    
    
    1,381
    
    
    
    1,346Accrued pension liabilities
    
    
    10,740
    
    
    
    11,430Accrued restructuring costs and other liabilities
    
    
    4,966
    
    
    
    2,231Commitments and contingenciesStockholders equity:Common stock, par value $0.1167 per share, 200,000,000 shares authorized;
36,917,734 and 41,457,632 shares issued and outstanding as of 
December 29, 2007 and December 30, 2006, respectively
    
    
    4,308
    
    
    
    4,838Capital in excess of par value
    
    
    389,328
    
    
    
    467,235Accumulated other comprehensive income
    
    
    10,243
    
    
    
    4,410Retained earnings (accumulated deficit)
    
    
    566
    
    
    
    (41,530
    )Total stockholders equity
    
    
    404,445
    
    
    
    434,953$
    689,947
    
    
    $
    593,015
  F-4




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NEWPORT CORPORATION
 
 Consolidated Statements of Cash Flows
 (In thousands)
 Year EndedDecember 29,
    
    December 30,
    
    December 31,2007
    
    2006
    
    2005CASH FLOWS FROM OPERATING ACTIVITIES:Net income
    
    $
    43,881
    
    
    $
    37,427
    
    
    $
    11,632Adjustments to reconcile net income to net cash provided by operating
activities:Depreciation and amortization
    
    
    21,260
    
    
    
    19,494
    
    
    
    19,283Stock-based compensation expense
    
    
    3,668
    
    
    
    6,915
    
    
    
    463Loss on disposal of business
    
    
    
    
    
    
    958
    
    
    
    8,539Provision for losses on inventories
    
    
    4,501
    
    
    
    2,411
    
    
    
    1,986Provision for doubtful accounts, net
    
    
    190
    
    
    
    697
    
    
    
    (199
    )Investment write-down
    
    
    
    
    
    
    
    
    
    
    454Provision for restructuring and related charges
    
    
    
    
    
    
    
    
    
    
    135Gain on sale of patents
    
    
    
    
    
    
    (1,425
    )
    
    
    Realized foreign exchange translation gain
    
    
    
    
    
    
    (915
    )
    
    
    (Gain) loss on disposal of property and equipment
    
    
    198
    
    
    
    45
    
    
    
    (518
    )Extraordinary gain on settlement of litigation
    
    
    
    
    
    
    
    
    
    
    (2,891
    )Deferred income taxes, net
    
    
    (19,679
    )
    
    
    704
    
    
    
    (922
    )Increase (decrease) in cash, net of acquisitions and divestitures, due
to changes in:Accounts and notes receivable
    
    
    9,862
    
    
    
    (17,972
    )
    
    
    (14,290
    )Inventories
    
    
    (22,712
    )
    
    
    (19,804
    )
    
    
    (3,717
    )Prepaid expenses and other assets
    
    
    (2,193
    )
    
    
    (3,028
    )
    
    
    (1,227
    )Accounts payable
    
    
    1,147
    
    
    
    4,483
    
    
    
    659Accrued payroll and related expenses
    
    
    (5,032
    )
    
    
    4,373
    
    
    
    (891
    )Accrued expenses and other liabilities
    
    
    996
    
    
    
    (4,991
    )
    
    
    (1,559
    )Accrued restructuring costs and purchase accounting reserves
    
    
    (712
    )
    
    
    (1,019
    )
    
    
    (3,002
    )Net cash provided by operating activities
    
    
    35,375
    
    
    
    28,353
    
    
    
    13,935CASH FLOWS FROM INVESTING ACTIVITIES:Purchase of property and equipment
    
    
    (18,705
    )
    
    
    (18,894
    )
    
    
    (11,638
    )Proceeds from the sale of property and equipment
    
    
    
    
    
    
    237
    
    
    
    806Business acquisitions, net of cash acquired
    
    
    
    
    
    
    (7,118
    )
    
    
    Purchase of marketable securities
    
    
    (58,061
    )
    
    
    (46,034
    )
    
    
    (265,775
    )Proceeds from the sale of marketable securities
    
    
    54,013
    
    
    
    38,691
    
    
    
    290,296Proceeds from the sale of business, patents and equity investments
    
    
    
    
    
    
    1,425
    
    
    
    2,382Net cash provided by (used in) investing activities
    
    
    (22,753
    )
    
    
    (31,693
    )
    
    
    16,071CASH 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
    
    
    (48,403
    )
    
    
    (87
    )
    
    
    (270
    )Short term borrowings (repayments), net
    
    
    14
    
    
    
    (2,576
    )
    
    
    1,384Proceeds from the issuance of common stock under employee plans
    
    
    5,064
    
    
    
    11,931
    
    
    
    5,454Purchases of the Companys common stock
    
    
    (86,998
    )
    
    
    (1,387
    )
    
    
    (46,209
    )Net cash provided by (used in) financing activities
    
    
    39,114
    
    
    
    7,881
    
    
    
    (39,641
    )Impact of foreign exchange rate changes on cash balances
    
    
    1,071
    
    
    
    1,277
    
    
    
    (1,696
    )Net increase (decrease) in cash and cash equivalents
    
    
    52,807
    
    
    
    5,818
    
    
    
    (11,331
    )Cash and cash equivalents at beginning of year
    
    
    35,930
    
    
    
    30,112
    
    
    
    41,443Cash and cash equivalents at end of period
    
    $
    88,737
    
    
    $
    35,930
    
    
    $
    30,112Supplemental disclosures of cash flow information:Cash paid during the year for:Interest
    
    $
    3,793
    
    
    $
    3,124
    
    
    $
    2,972Income taxes, net
    
    $
    3,488
    
    
    $
    5,291
    
    
    $
    2,916
  F-5




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##### Table of Contents



NEWPORT CORPORATION
 
 Consolidated Statements of Comprehensive Income and Stockholders Equity
 (In thousands)
 Accumulated
    
    
    RetainedCapital in
    
    
    Deferred
    
    
    other
    
    
    earnings/
    
    
    TotalCommon Stock
    
    
    excess of
    
    
    stock
    
    
    comprehensive
    
    
    (accumulated
    
    
    stockholdersShares
    
    
    Amount
    
    
    par value
    
    
    compensation
    
    
    income
    
    
    deficit)
    
    
    equityJanuary 1, 2005
    
    
    43,023
    
    
    $
    5,021
    
    
    $
    493,986
    
    
    $
    (1,379
    )
    
    $
    8,470
    
    
    $
    (90,589
    )
    
    $
    415,509Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11,632
    
    
    
    11,632Foreign currency translation loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,871
    )
    
    
    
    
    
    
    (5,871
    )Minimum pension liability adjustments, net
of income tax benefit of $224
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,220
    )
    
    
    
    
    
    
    (1,220
    )Unrealized loss on marketable securities,
net of reclassification adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (116
    )
    
    
    
    
    
    
    (116
    )Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,425Issuance of common stock under employee plans
    
    
    577
    
    
    
    67
    
    
    
    5,387
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,454Repurchases of common stock
    
    
    (3,404
    )
    
    
    (397
    )
    
    
    (45,812
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (46,209
    )Cancellation of common stock
    
    
    (115
    )
    
    
    (13
    )
    
    
    (3,046
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,059
    )Cancellation of restricted stock
    
    
    (45
    )
    
    
    (6
    )
    
    
    (594
    )
    
    
    600
    
    
    
    
    
    
    
    
    
    
    
    Amortization of deferred compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    463
    
    
    
    
    
    
    
    
    
    
    
    463December 31, 2005
    
    
    40,036
    
    
    
    4,672
    
    
    
    449,921
    
    
    
    (316
    )
    
    
    1,263
    
    
    
    (78,957
    )
    
    
    376,583Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    37,427
    
    
    
    37,427Foreign currency translation gain, net of
reclassification adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,466
    
    
    
    
    
    
    
    2,466Minimum pension liability adjustment, net of
income tax of $224
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,220
    
    
    
    
    
    
    
    1,220Unrealized gain on marketable securities,
net of reclassification adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    192
    
    
    
    
    
    
    
    192Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    41,305Adjustment to initially apply SFAS No. 158,
net of income tax benefit of $364
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (731
    )
    
    
    
    
    
    
    (731
    )Issuance of common stock under employee plans
    
    
    1,504
    
    
    
    175
    
    
    
    11,756
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11,931Stock-based compensation expense
    
    
    
    
    
    
    
    
    
    
    6,948
    
    
    
    304
    
    
    
    
    
    
    
    
    
    
    
    7,252Repurchases of common stock
    
    
    (81
    )
    
    
    (9
    )
    
    
    (1,378
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,387
    )Cancellation of restricted stock
    
    
    (1
    )
    
    
    
    
    
    
    (12
    )
    
    
    12
    
    
    
    
    
    
    
    
    
    
    
    December 30, 2006
    
    
    41,458
    
    
    
    4,838
    
    
    
    467,235
    
    
    
    
    
    
    
    4,410
    
    
    
    (41,530
    )
    
    
    434,953Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    43,881
    
    
    
    43,881Foreign currency translation gain
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,868
    
    
    
    
    
    
    
    4,868Unrecognized net pension gain, net of income
tax of $457
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    783
    
    
    
    
    
    
    
    783Unrealized gain on marketable securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    182
    
    
    
    
    
    
    
    182Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    49,714Cumulative effect to prior year accumulated
deficit related to the adoption of FASB
Interpretation No. 48 (FIN 48) (Note 13)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,785
    )
    
    
    (1,785
    )Issuance of common stock under employee plans
    
    
    842
    
    
    
    98
    
    
    
    4,966
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,064Stock-based compensation expense
    
    
    
    
    
    
    
    
    
    
    3,497
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,497Repurchases of common stock
    
    
    (5,382
    )
    
    
    (628
    )
    
    
    (86,370
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (86,998
    )December 29, 2007
    
    
    36,918
    
    
    $
    4,308
    
    
    $
    389,328
    
    
    $
    
    
    
    $
    10,243
    
    
    $
    566
    
    
    $
    404,445
  F-6




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##### Table of Contents



NEWPORT CORPORATION
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 1 ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Organization
  Basis of Presentation
   Foreign Currency Translation
  Derivative Instruments
 interest and other income (expense), net
  F-7




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##### Table of Contents



Cash and Cash Equivalents and Marketable Securities
 accumulated
other comprehensive income
 Accounts and Notes Receivable
  notes receivable, net Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities (a
replacement of FASB Statement No. 125) notes receivable, net short-term obligations notes receivable, net short-term obligations
 Concentrations of Credit Risk
   F-8




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##### Table of Contents



Pension Plans
  Inventories
  Property and Equipment
  Buildings and improvements
    
    3 to 40 yearsMachinery and equipment
    
    2 to 20 yearsOffice equipment
    
    3 to 10 years
  Intangible Assets, including Goodwill
  Developed technology
    
    10 to 18 yearsCustomer relationships
    
    10 yearsOther
    
    3 years
  Goodwill and Other Intangible Assets
 F-9




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##### Table of Contents



Investments
  Long-Lived Assets
  Warranty
  Environmental Reserves
  Revenue Recognition
  F-10




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##### Table of Contents



Advertising
  Shipping and Handling Costs
 selling, general and administrative
expense
 Research and Development
  Income Taxes
 Accounting for Income Taxes
 Accounting for Uncertainty in Income Taxes  An Interpretation of FASB Statement No. 109
 F-11




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##### Table of Contents



Accounting for Contingencies
 Income per Share
 Basic Diluted
 Stock-Based Compensation
 Share-Based Payment
 Use of Estimates
  Reclassifications
  Recent Accounting Pronouncements
 Fair Value Measurement.
 The Fair Value Option for Financial Assets and
Financial Liabilities, Including an amendment of SFAS No. 115.
 F-12




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##### Table of Contents



Noncontrolling Interests in Consolidated Financial
Statementsan amendment of ARB No. 51
 Business Combinations
 NOTE 2 ACQUISITIONS AND INVESTMENTS
 Acquisition of Laser Product Business from Picarro
    F-13




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##### Table of Contents



(In thousands)Assets acquired and liabilities assumed:Current assets
    
    $
    1,613Goodwill
    
    
    1,584Purchased intangible assets
    
    
    3,300Other assets
    
    
    803Current liabilities
    
    
    (600
    )$
    6,700
  Investments
 investments and other assets
 NOTE 3 DIVESTITURES
 investments and other assets
   Year EndedDecember 30,
    
    December 31,(In thousands)
    
    2006
    
    2005Net sales
    
    $
    
    
    
    $
    8,835Loss before income taxes
    
    $
    (1,106
    )
    
    $
    (17,823
    )
  F-14




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##### Table of Contents



NOTE 4 MARKETABLE SECURITIES
  December 29,
    
    December 30,(In thousands)
    
    2007
    
    2006U.S. government and agency debt securities
    
    $
    13,063
    
    
    $
    14,216Corporate debt securities
    
    
    13,970
    
    
    
    13,696Equity securities
    
    
    16,478
    
    
    
    13,436Asset-backed securities
    
    
    10,674
    
    
    
    8,135Certificates of deposit
    
    
    942
    
    
    
    $
    55,127
    
    
    $
    49,483
 accumulated
other comprehensive income
 Aggregate
    
    Aggregate Amount of Unrealized(In thousands)
    
    Fair Value
    
    Gains
    
    LossesU.S. government and agency debt securities
    
    $
    13,063
    
    
    $
    102
    
    
    $
    (1
    )Corporate debt securities
    
    
    13,970
    
    
    
    11
    
    
    
    (98
    )Equity securities
    
    
    16,478
    
    
    
    
    
    
    
    Asset-backed securities
    
    
    10,674
    
    
    
    49
    
    
    
    (7
    )Certificates of deposit
    
    
    942
    
    
    
    
    
    
    
    $
    55,127
    
    
    $
    162
    
    
    $
    (106
    )
 Marketable Securities In CumulativeUnrealized Loss PositionsLess Than 12 Months
    
    More Than 12 MonthsAggregate
    
    Unrealized
    
    Aggregate
    
    Unrealized(In thousands)
    
    Fair Value
    
    Loss
    
    Fair Value
    
    LossU.S. government and agency debt securities
    
    $
    826
    
    
    $
    
    
    
    $
    269
    
    
    $
    (1
    )Corporate debt securities
    
    
    8,047
    
    
    
    (84
    )
    
    
    4,409
    
    
    
    (14
    )Asset-backed securities
    
    
    873
    
    
    
    (2
    )
    
    
    208
    
    
    
    (5
    )Certificates of deposit
    
    
    942
    
    
    
    
    
    
    
    
    
    
    
    $
    10,688
    
    
    $
    (86
    )
    
    $
    4,886
    
    
    $
    (20
    )
  Aggregate
    
    Aggregate Amount of Unrealized(In thousands)
    
    Fair Value
    
    Gains
    
    LossesU.S. government and agency debt securities
    
    $
    14,216
    
    
    $
    15
    
    
    $
    (63
    )Corporate debt securities
    
    
    13,696
    
    
    
    1
    
    
    
    (56
    )Equity securities
    
    
    13,436
    
    
    
    
    
    
    
    Asset-backed securities
    
    
    8,135
    
    
    
    5
    
    
    
    (28
    )$
    49,483
    
    
    $
    21
    
    
    $
    (147
    )
 F-15




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##### Table of Contents



Marketable Securities In CumulativeUnrealized Loss PositionsLess Than 12 Months
    
    More Than 12 MonthsAggregate
    
    Unrealized
    
    Aggregate
    
    Unrealized(In thousands)
    
    Fair Value
    
    Loss
    
    Fair Value
    
    LossU.S. government and agency debt securities
    
    $
    5,183
    
    
    $
    (12
    )
    
    $
    6,014
    
    
    $
    (51
    )Corporate debt securities
    
    
    2,834
    
    
    
    (5
    )
    
    
    4,379
    
    
    
    (51
    )Asset-backed securities
    
    
    5,444
    
    
    
    (19
    )
    
    
    760
    
    
    
    (9
    )$
    13,461
    
    
    $
    (36
    )
    
    $
    11,153
    
    
    $
    (111
    )
  December 29,
    
    December 30,(In thousands)
    
    2007
    
    20060  1 Year
    
    $
    24,277
    
    
    $
    24,6081  2 Years
    
    
    11,820
    
    
    
    8,0732  3 Years
    
    
    8,094
    
    
    
    5,4983  5 Years
    
    
    4,576
    
    
    
    5,7045  10 Years
    
    
    1,598
    
    
    
    389More than 10 years
    
    
    4,762
    
    
    
    5,211$
    55,127
    
    
    $
    49,483
  Year EndedDecember 29,
    
    December 30,
    
    December 31,(In thousands)
    
    2007
    
    2006
    
    2005Gross realized gains
    
    $
    17
    
    
    $
    64
    
    
    $
    95Gross realized losses
    
    
    (24
    )
    
    
    (26
    )
    
    
    (136
    )$
    (7
    )
    
    $
    38
    
    
    $
    (41
    )
 NOTE 5 SUPPLEMENTAL BALANCE SHEET INFORMATION
 Inventories
  December 29,
    
    December 30,(In thousands)
    
    2007
    
    2006Raw materials and purchased parts
    
    $
    77,360
    
    
    $
    67,437Work in process
    
    
    15,611
    
    
    
    15,888Finished goods
    
    
    44,142
    
    
    
    34,944137,113
    
    
    
    118,269Allowance for excess and obsolete inventory
    
    
    (23,144
    )
    
    
    (23,370
    )$
    113,969
    
    
    $
    94,899
 F-16




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##### Table of Contents



Property and Equipment, net
  December 29,
    
    December 30,(In thousands)
    
    2007
    
    2006Land
    
    $
    3,004
    
    
    $
    2,978Buildings
    
    
    2,796
    
    
    
    3,019Leasehold improvements
    
    
    30,820
    
    
    
    29,036Machinery and equipment
    
    
    44,628
    
    
    
    55,200Office equipment
    
    
    42,666
    
    
    
    30,781123,914
    
    
    
    121,014Less accumulated depreciation
    
    
    (62,042
    )
    
    
    (63,614
    )$
    61,872
    
    
    $
    57,400
  Accrued Warranty Obligations
  Year EndedDecember 29,
    
    December 30,(In thousands)
    
    2007
    
    2006Balance at beginning of year
    
    $
    5,159
    
    
    $
    5,255Additions charged to cost of sales
    
    
    8,693
    
    
    
    6,612Warranty claims
    
    
    (8,005
    )
    
    
    (6,708
    )Balance at end of year
    
    $
    5,847
    
    
    $
    5,159
 accrued expenses and other current liabilities
 Accrued Expenses and Other Current Liabilities
  December 29,
    
    December 30,(In thousands)
    
    2007
    
    2006Deferred revenue
    
    $
    7,396
    
    
    $
    7,986Accrued warranty obligations
    
    
    5,847
    
    
    
    5,159Accrued sales tax
    
    
    2,031
    
    
    
    1,039Other
    
    
    9,324
    
    
    
    9,883$
    24,598
    
    
    $
    24,067
 F-17




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##### Table of Contents



Accumulated Other Comprehensive Income
  December 29,
    
    December 30,(In thousands)
    
    2007
    
    2006Cumulative foreign currency translation gains
    
    $
    10,135
    
    
    $
    5,267Unrecognized net pension gains (losses), net of taxes
    
    
    52
    
    
    
    (731
    )Unrealized gains (losses) on marketable securities
    
    
    56
    
    
    
    (126
    )$
    10,243
    
    
    $
    4,410
 NOTE 6 GOODWILL AND INTANGIBLE ASSETS
  December 29,
    
    December 30,(In thousands)
    
    2007
    
    2006Lasers
    
    $
    104,562
    
    
    $
    105,380Photonics and Precision Technologies
    
    
    69,635
    
    
    
    69,901$
    174,197
    
    
    $
    175,281
   December 29,
    
    December 30,(In thousands)
    
    2007
    
    2006Intangible assets subject to amortization:Developed technology, net of accumulated
amortization of $6,443 and $4,458 as of
December 29, 2007 and December 30, 2006,
respectively
    
    $
    21,357
    
    
    $
    23,342Customer relationships, net of accumulated
amortization of $6,744 and $4,794 as of
December 29, 2007 and December 30, 2006,
respectively
    
    
    12,756
    
    
    
    14,706Other, net of accumulated amortization of
$230 and $102 as of December 29, 2007 and
December 30, 2006, respectively
    
    
    158
    
    
    
    28634,271
    
    
    
    38,334Intangible assets not subject to amortization:Trademarks and trade names
    
    
    11,900
    
    
    
    11,900Intangible assets, net
    
    $
    46,171
    
    
    $
    50,234
  F-18




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##### Table of Contents



EstimatedAggregateAmortization(In thousands)
    
    Expense2008
    
    $
    4,0932009
    
    
    3,9352010
    
    
    3,9352011
    
    
    3,9342012
    
    
    3,934Thereafter
    
    
    14,440$
    34,271
 NOTE 7 INTEREST AND OTHER INCOME (EXPENSE), NET
  Year EndedDecember 29,
    
    December 30,
    
    December 31,(In thousands)
    
    2007
    
    2006
    
    2005Interest and dividend income
    
    $
    6,717
    
    
    $
    3,247
    
    
    $
    2,516Interest expense
    
    
    (5,579
    )
    
    
    (3,847
    )
    
    
    (3,696
    )Bank and portfolio asset management fees
    
    
    (642
    )
    
    
    (549
    )
    
    
    (490
    )Other, net
    
    
    (359
    )
    
    
    390
    
    
    
    (172
    )$
    137
    
    
    $
    (759
    )
    
    $
    (1,842
    )
 NOTE 8 STOCK INCENTIVE PLANS AND STOCK-BASED COMPENSATION
 Stock-Based Benefit Plans
    F-19




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##### Table of Contents



Stock-Based Compensation Expense
  Year EndedDecember 30,
    
    December 31,2006
    
    2005Fair value
    
    $
    5.79
    
    
    $
    7.38Expected annual volatility
    
    
    35.9
    %
    
    
    60.1
    %Risk-free interest rate
    
    
    4.4
    %
    
    
    3.9
    %Expected term (years)
    
    
    5.4
    
    
    
    5.0Annualized expected dividend yield
    
    
    
    
    
    
    
   Year EndedDecember 29,
    
    December 30,
    
    December 31,(In thousands)
    
    2007
    
    2006
    
    2005Cost of sales
    
    $
    425
    
    
    $
    516
    
    
    $
    Selling, general and administrative expense
    
    
    3,005
    
    
    
    5,935
    
    
    
    463Research and development expense
    
    
    238
    
    
    
    464
    
    
    
    $
    3,668
    
    
    $
    6,915
    
    
    $
    463
   F-20




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##### Table of Contents



Stock Options and Awards Activity
  WeightedWeighted
    
    Average
    
    AggregateNumber of
    
    Average
    
    Remaining
    
    IntrinsicOptions
    
    Exercise
    
    Contractual
    
    Value(In thousands)
    
    Price
    
    Life (Years)
    
    (In thousands)Outstanding at December 30, 2006
    
    
    3,959
    
    
    $
    18.59Granted
    
    
    
    
    
    
    Exercised
    
    
    (463
    )
    
    $
    8.32Forfeited (cancelled pre-vesting)
    
    
    (82
    )
    
    $
    13.35Expired (cancelled post-vesting)
    
    
    (24
    )
    
    $
    39.00Outstanding at December 29, 2007
    
    
    3,390
    
    
    $
    19.97
    
    
    
    4.5
    
    
    $
    3,063Vested and
expected to vest at December 29, 2007
    
    
    3,360
    
    
    $
    20.03
    
    
    
    4.5
    
    
    $
    3,062Options Exercisable at December 29, 2007
    
    
    3,146
    
    
    $
    20.48
    
    
    
    4.5
    
    
    $
    3,057
   F-21




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##### Table of Contents



WeightedNumber of
    
    AverageShares
    
    Grant Date Fair(In thousands)
    
    ValueOutstanding at December 30, 2006
    
    
    845
    
    
    $
    15.54Granted
    
    
    822
    
    
    $
    15.41Vested
    
    
    (304
    )
    
    $
    15.65Forfeited
    
    
    (221
    )
    
    $
    15.46Outstanding at December 29, 2007
    
    
    1,142
    
    
    $
    15.44
   Pro Forma Disclosures
  Year EndedDecember 31,(In thousands, except per share amounts)
    
    2005Net income  reported
    
    $
    11,632Employee compensation expense under fair value method
    
    
    (8,245
    )Net income  pro forma
    
    $
    3,387Basic net income per share reported
    
    $
    0.28Basic net income per share pro forma
    
    $
    0.08Diluted net income per share reported
    
    $
    0.27Diluted net income per share pro forma
    
    $
    0.08
  NOTE 9 DEBT AND LINES OF CREDIT
 Long-term convertible note
 long-term debt
 F-22




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##### Table of Contents



investments and
other assets
   Long-term debt
  Lines of credit
   short-term obligations
  F-23




---



##### Table of Contents



short-term obligations
  December 29,
    
    December 30,(In thousands)
    
    2007
    
    2006Line 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% payable quarterly
    
    
    
    
    
    
    50,000Convertible notes due February 2012, interest at 2.5%
semi-annually
    
    
    175,000
    
    
    
    Subtotal
    
    
    175,000
    
    
    
    52,525Less: unamortized discount on note payable
    
    
    
    
    
    
    (1,837
    )Total long-term debt
    
    $
    175,000
    
    
    $
    50,688
 NOTE 10 NET INCOME PER SHARE
  Year EndedDecember 29,
    
    December 30,
    
    December 31,(In thousands)
    
    2007
    
    2006
    
    2005Numerator for basic and diluted net income per share:Income from continuing operations before
extraordinary gain
    
    $
    43,881
    
    
    $
    38,502
    
    
    $
    25,714Loss from discontinued operations, net of income
taxes
    
    
    
    
    
    
    (1,075
    )
    
    
    (16,973
    )Extraordinary gain on settlement of litigation
    
    
    
    
    
    
    
    
    
    
    2,891Net income
    
    $
    43,881
    
    
    $
    37,427
    
    
    $
    11,632Denominator for basic and diluted net income per share:Weighted average shares outstanding
    
    
    38,479
    
    
    
    40,771
    
    
    
    41,446Weighted unvested restricted stock outstanding
    
    
    
    
    
    
    (73
    )
    
    
    (165
    )Denominator for basic net income per share
    
    
    38,479
    
    
    
    40,698
    
    
    
    41,281Effect of dilutive securities:Employee stock options and restricted stock units
    
    
    579
    
    
    
    1,396
    
    
    
    1,270Restricted stock
    
    
    
    
    
    
    73
    
    
    
    165Denominator for diluted net income per share
    
    
    39,058
    
    
    
    42,167
    
    
    
    42,716
  F-24




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##### Table of Contents



NOTE 11 COMMITMENTS AND CONTINGENCIES
   Capital
    
    Operating
    
    Total(In thousands)
    
    Leases
    
    Leases
    
    ObligationsPayments Due By Period:2008
    
    $
    199
    
    
    $
    9,158
    
    
    $
    9,3572009
    
    
    198
    
    
    
    6,638
    
    
    
    6,8362010
    
    
    197
    
    
    
    4,961
    
    
    
    5,1582011
    
    
    196
    
    
    
    4,211
    
    
    
    4,4072012
    
    
    195
    
    
    
    1,869
    
    
    
    2,064Thereafter
    
    
    1,039
    
    
    
    3,276
    
    
    
    4,315Total minimum payments
    
    
    2,024
    
    
    $
    30,113
    
    
    $
    32,137Less amount representing interest
    
    
    (537
    )Present value of obligation
    
    $
    1,487
  Operating(In thousands)
    
    LeasesPayments Due By Period:2008
    
    $
    1,1572009
    
    
    2022010
    
    
    1942011
    
    
    1382012
    
    
    12Total minimum sublease payments
    
    $
    1,703
  Environmental Reserves
  F-25




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##### Table of Contents



Other Contingencies
  NOTE 12 EXTRAORDINARY GAIN ON SETTLEMENT OF LITIGATION
  NOTE 13 INCOME TAXES
  Year EndedDecember 29,
    
    December 30,
    
    December 31,(In thousands)
    
    2007
    
    2006
    
    2005United States
    
    $
    20,540
    
    
    $
    32,583
    
    
    $
    23,002Foreign
    
    
    6,112
    
    
    
    8,112
    
    
    
    6,458$
    26,652
    
    
    $
    40,695
    
    
    $
    29,460
  Year EndedDecember 29,
    
    December 30,
    
    December 31,(In thousands)
    
    2007
    
    2006
    
    2005Current:Federal
    
    $
    (116
    )
    
    $
    (1,782
    )
    
    $
    78State
    
    
    637
    
    
    
    234
    
    
    
    1,090Foreign
    
    
    2,725
    
    
    
    3,037
    
    
    
    3,5003,246
    
    
    
    1,489
    
    
    
    4,668Deferred:Federal
    
    
    (17,005
    )
    
    
    
    
    
    
    State
    
    
    (2,843
    )
    
    
    
    
    
    
    Foreign
    
    
    (627
    )
    
    
    704
    
    
    
    (922
    )(20,475
    )
    
    
    704
    
    
    
    (922
    )$
    (17,229
    )
    
    $
    2,193
    
    
    $
    3,746
 F-26




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##### Table of Contents



Year EndedDecember 29,
    
    December 30,
    
    December 31,(In thousands)
    
    2007
    
    2006
    
    2005Income tax provision at statutory rate
    
    $
    9,328
    
    
    $
    14,243
    
    
    $
    10,311Increase (decrease) in taxes resulting from:Non-deductible expenses
    
    
    382
    
    
    
    117
    
    
    
    55State tax (net of federal benefit)
    
    
    (1,473
    )
    
    
    55
    
    
    
    720Foreign rate variance
    
    
    (150
    )
    
    
    850
    
    
    
    (52
    )Income tax credits
    
    
    (763
    )
    
    
    
    
    
    
    Valuation allowance
    
    
    (25,154
    )
    
    
    (10,792
    )
    
    
    (7,063
    )Increase (reduction) of tax contingency
    
    
    402
    
    
    
    (2,160
    )
    
    
    (243
    )Other, net
    
    
    199
    
    
    
    (120
    )
    
    
    18$
    (17,229
    )
    
    $
    2,193
    
    
    $
    3,746
  December 29,
    
    December 30,(In thousands)
    
    2007
    
    2006Deferred tax assets:Net operating loss carryforwards
    
    $
    32,799
    
    
    $
    40,892Accruals and reserves not currently deductible
    
    
    17,553
    
    
    
    15,538Tax credit carryforwards
    
    
    15,554
    
    
    
    16,956Capital loss carryforwards
    
    
    627
    
    
    
    2,534Foreign deferred tax assets
    
    
    4,092
    
    
    
    3,663Other basis differences
    
    
    
    
    
    
    2,392Total gross deferred tax assets
    
    
    70,625
    
    
    
    81,975Valuation allowance
    
    
    (25,952
    )
    
    
    (59,311
    )44,673
    
    
    
    22,664Deferred tax liabilities:Intangible assets
    
    
    16,029
    
    
    
    16,491Property and equipment
    
    
    4,461
    
    
    
    3,954Other basis differences
    
    
    1,003
    
    
    
    162Total deferred tax liabilities
    
    
    21,493
    
    
    
    20,607Net deferred tax assets
    
    $
    23,180
    
    
    $
    2,057
   F-27




---



##### Table of Contents



Accounting for
Income Taxes
  F-28




---



##### Table of Contents



(In thousands)Unrecognized tax benefits at December 31, 2006
    
    $
    8,399Gross increases for tax positions of prior years
    
    
    262Gross decreases for tax positions of prior years
    
    
    (2,683
    )Gross increases for tax positions of current year
    
    
    1,578Settlements
    
    
    (660
    )Lapse of statute of limitations
    
    
    Unrecognized tax benefits at December 29, 2007
    
    $
    6,896
      U.S. Federal
    
    2004 through current periodsCalifornia
    
    2003 through current periodsFrance
    
    2006 through current periodsGermany
    
    2001 through current periodsJapan
    
    2002 through current periods
  NOTE 14 STOCKHOLDERS EQUITY TRANSACTIONS
   F-29




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##### Table of Contents



NOTE 15 FAIR VALUES OF FINANCIAL INSTRUMENTS
   December 29, 2007
    
    December 30, 2006Carrying
    
    
    
    
    
    Carrying(In thousands)
    
    Amount
    
    Fair Value
    
    Amount
    
    Fair ValueCash and cash equivalents
    
    $
    88,737
    
    
    $
    88,737
    
    
    $
    35,930
    
    
    $
    35,930Marketable securities
    
    $
    55,127
    
    
    $
    55,127
    
    
    $
    49,483
    
    
    $
    49,483Investments
    
    $
    2,890
    
    
    $
    3,633
    
    
    $
    2,890
    
    
    $
    3,633Note receivable related to sale of business
    
    $
    5,701
    
    
    $
    5,701
    
    
    $
    5,642
    
    
    $
    5,642Short-term obligations
    
    $
    12,402
    
    
    $
    12,402
    
    
    $
    9,481
    
    
    $
    9,481Long-term debt
    
    $
    175,000
    
    
    $
    175,000
    
    
    $
    50,688
    
    
    $
    50,688
 NOTE 16 EMPLOYEE BENEFIT PLANS
 Defined Contribution Plan
  F-30




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##### Table of Contents



Defined Benefit Pension Plans
   Year EndedDecember 29,
    
    December 30,
    
    December 31,(In thousands)
    
    2007
    
    2006
    
    2005Service cost
    
    $
    638
    
    
    $
    641
    
    
    $
    580Interest cost on projected benefit obligation
    
    
    654
    
    
    
    599
    
    
    
    590Expected return on plan assets
    
    
    (183
    )
    
    
    (162
    )
    
    
    (150
    )Recognized net actuarial loss
    
    
    
    
    
    
    50
    
    
    
    $
    1,109
    
    
    $
    1,128
    
    
    $
    1,020
  December 29,
    
    December 30,(In thousands)
    
    2007
    
    2006Change in projected benefit obligation:Benefit obligation, beginning of year
    
    $
    17,078
    
    
    $
    16,048Service cost
    
    
    566
    
    
    
    576Interest cost
    
    
    654
    
    
    
    599Contributions by plan participants
    
    
    18
    
    
    
    20Actuarial gains
    
    
    (1,589
    )
    
    
    (622
    )Benefits paid
    
    
    (1,942
    )
    
    
    (865
    )Currency translation adjustments
    
    
    962
    
    
    
    1,322Projected benefit obligation, end of year
    
    
    15,747
    
    
    
    17,078Change in plan assets:Fair value of plan assets, beginning of year
    
    
    5,428
    
    
    
    4,443Company contributions
    
    
    1,138
    
    
    
    1,080Contributions by plan participants
    
    
    18
    
    
    
    20Gain (loss) on plan assets
    
    
    (157
    )
    
    
    322Benefits paid
    
    
    (1,790
    )
    
    
    (744
    )Currency translation adjustments
    
    
    132
    
    
    
    307Fair value of plan assets, end of year
    
    
    4,769
    
    
    
    5,428Funded status
    
    $
    (10,978
    )
    
    $
    (11,650
    )Amounts recognized in the balance sheet:Current portion of pension liabilities
    
    $
    (238
    )
    
    $
    (220
    )Accrued pension liabilities
    
    $
    (10,740
    )
    
    $
    (11,430
    )Total accrued pension liabilities
    
    $
    (10,978
    )
    
    $
    (11,650
    )Accumulated other comprehensive income
    
    $
    (52
    )
    
    $
    731Deferred taxes
    
    $
    (93
    )
    
    $
    364
 F-31




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##### Table of Contents



EstimatedBenefit(In thousands)
    
    Payments2008
    
    $
    1,8912009
    
    
    7222010
    
    
    6252011
    
    
    1,2452012
    
    
    1,0082013-2017
    
    
    5,438$
    10,929
   Year EndedDecember 29,
    
    December 30,
    
    December 31,2007
    
    2006
    
    2005Discount rate
    
    
    4.4
    %
    
    
    3.8
    %
    
    
    3.7
    %Rate of increase in salary levels
    
    
    2.9
    %
    
    
    2.9
    %
    
    
    3.0
    %Expected long-term rate of return on assets
    
    
    3.5
    %
    
    
    3.4
    %
    
    
    3.3
    %
  December 29,
    
    December 30,2007
    
    2006Discount rate
    
    
    4.5
    %
    
    
    3.9
    %Rate of increase in salary levels
    
    
    3.0
    %
    
    
    2.9
    %Expected long-term rate of return on assets
    
    
    3.5
    %
    
    
    3.4
    %
   December 29,
    
    December 30,2007
    
    2006Cash
    
    
    32
    %
    
    
    34
    %Bonds
    
    
    24
    
    
    
    Pooled funds of insurance companies
    
    
    44
    
    
    
    66100
    %
    
    
    100
    %
  F-32




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##### Table of Contents



Other Pension-Related Assets
 investments and other assets
 NOTE 17 BUSINESS SEGMENT INFORMATION
      F-33




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##### Table of Contents



Lasers
    
    PPT(In thousands)
    
    Division
    
    Division
    
    TotalYear ended December 29, 2007Sales to external customers
    
    $
    185,186
    
    
    $
    260,011
    
    
    $
    445,197Depreciation and amortization
    
    $
    7,012
    
    
    $
    6,127
    
    
    $
    13,139Segment income
    
    $
    1,445
    
    
    $
    54,397
    
    
    $
    55,842Segment assets
    
    $
    271,504
    
    
    $
    201,531
    
    
$
    473,035Expenditures for long-lived assets
    
    $
    2,548
    
    
    $
    5,000
    
    
    $
    7,548Year ended December 30, 2006Sales to external customers
    
    $
    190,842
    
    
    $
    262,132
    
    
    $
    452,974Depreciation and amortization
    
    $
    7,480
    
    
    $
    5,570
    
    
$
    13,050Segment income
    
$
    8,042
    
    
    $
    56,542
    
    
$
    64,584Segment assets
    
    $
    265,617
    
    
    $
    234,036
    
    
    $
    499,653Expenditures for long-lived assets
    
    $
    3,711
    
    
    $
    5,400
    
    
    $
    9,111Year ended December 31, 2005Sales to external customers
    
    $
    175,871
    
    
    $
    227,862
    
    
    $
    403,733Depreciation and amortization
    
    $
    7,700
    
    
    $
    5,453
    
    
$
    13,153Segment income
    
$
    14,931
    
    
    $
    40,279
    
    
    $
    55,210Segment assets
    
    $
    253,550
    
    
$
    208,467
    
    
    $
    462,017Expenditures for long-lived assets
    
    $
    4,744
    
    
    $
    5,496
    
    
$
    10,240
  Year EndedDecember 29,
    
    December 30,
    
    December 31,(In thousands)
    
    2007
    
    2006
    
    2005Segment income
    
    $
    55,842
    
    
    $
    64,584
    
    
    $
    55,210Unallocated net sales (1)
    
    
    
    
    
    
    1,750
    
    
    
    Unallocated operating expenses
    
    
    (29,327
    )
    
    
    (24,880
    )
    
    
    (23,908
    )Interest and other income (expense), net
    
    
    137
    
    
    
    (759
    )
    
    
    (1,842
    )Consolidated income from continuing operations
before income taxes
    
    $
    26,652
    
    
    $
    40,695
    
    
    $
    29,460
 
 (1)
    
    2006 includes revenue associated with licensing of certain intellectual property, which
was not allocated to the business segments. F-34




---



##### Table of Contents



As of or for the Year EndedDecember 29,
    
    December 30,
    
    December 31,(In thousands)
    
    2007
    
    2006
    
    2005Depreciation and amortization for reportable segments
    
    $
    13,139
    
    
    $
    13,050
    
    
    $
    13,153Depreciation and amortization for assets held at corporate
    
    
    8,121
    
    
    
    6,444
    
    
    
    6,130Total depreciation and amortization
    
    $
    21,260
    
    
    $
    19,494
    
    
    $
    19,283Assets of reportable segments
    
    $
    473,035
    
    
    $
    499,653
    
    
    $
    462,017Assets held at corporate, primarily cash and cash
equivalents and marketable securities
    
    
    216,912
    
    
    
    93,362
    
    
    
    67,389Total assets
    
    $
    689,947
    
    
    $
    593,015
    
    
    $
    529,406Expenditures for long-lived assets for reportable segments
    
    $
    7,548
    
    
    $
    9,111
    
    
    $
    10,240Expenditures for assets held at corporate
    
    
    11,157
    
    
    
    9,783
    
    
    
    917Expenditures
for long-lived assets for discontinued operations
    
    
    
    
    
    
    
    
    
    
    481Total expenditures for long-lived assets
    
    $
    18,705
    
    
    $
    18,894
    
    
    $
    11,638
  As of or for the Year EndedDecember 29,
    
    December 30,
    
    December 31,(In thousands)
    
    2007
    
    2006
    
    2005Geographic area net sales:United States
    
    $
    223,891
    
    
    $
    238,433
    
    
    $
    215,600Europe
    
    
    112,695
    
    
    
    99,968
    
    
    
    86,054Pacific Rim
    
    
    80,946
    
    
    
    91,277
    
    
    
    81,635Other
    
    
    27,665
    
    
    
    25,046
    
    
    
    20,444$
    445,197
    
    
    $
    454,724
    
    
    $
    403,733Geographic area long-lived assets:United States
    
    $
    270,976
    
    
    $
    272,210
    
    
    $
    265,054Europe
    
    
    9,048
    
    
    
    9,426
    
    
    
    9,246Other
    
    
    2,216
    
    
    
    1,279
    
    
    
    404$
    282,240
    
    
    $
    282,915
    
    
    $
    274,704
 F-35




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##### Table of Contents



NOTE 18 SUPPLEMENTARY QUARTERLY CONSOLIDATED FINANCIAL DATA (Unaudited)
 First
    
    Second
    
    Third
    
    Fourth(In thousands except per share data)
    
    Quarter
    
    Quarter
    
    Quarter
    
    QuarterYear Ended December 29, 2007:Net sales
    
    $
    107,264
    
    
    $
    110,904
    
    
    $
    109,001
    
    
    $
    118,028Gross profit
    
    $
    46,631
    
    
    $
    49,061
    
    
    $
    43,592
    
    
$
    46,277Net income
    
$
    5,251
    
    
$
    7,963
    
    
$
    5,542
    
    
    $
    25,125Basic income per share (1)
    
$
    0.13
    
    
$
    0.20
    

$
    0.15
    
    
$
    0.68Diluted income per share (1)
    
$
    0.13
    
    
$
    0.20
    
    
$
    0.15
    
    
$
    0.67
 First
    
    Second
    
    Third
    
    Fourth(In thousands except per share data)
    
    Quarter
    
    Quarter
    
    Quarter
    
    QuarterYear Ended December 30, 2006:Net sales
    
    $
    103,186
    
    
    $
    112,369
    
    
    $
    114,275
    
    
    $
    124,894Gross profit
    
$
    43,444
    
    
$
    49,760
    
    
$
    51,075
    
    
$
    53,689Income from continuing operations before
extraordinary gain
    
$
    6,330
    
    
$
    9,249
    
    
$
    10,488
    
    
$
    12,435Net income
    
$
    5,678
    
    
$
    9,249
    
    
$
    10,287
    
    
$
    12,213Basic income from continuing operations before
extraordinary gain per share (1)
    
$
    0.16
    
    
$
    0.23
    
    
$
    0.26
    
    
$
    0.30Basic income per share (1)
    
$
    0.14
    
    
$
    0.23
    
    
$
    0.25
    
    
$
    0.30Diluted income from continuing operations
before
extraordinary gain per share (1)
    
$
    0.15
    
    
$
    0.22
    
    
$
    0.25
    
    
$
    0.29Diluted income per share (1)
    
$
    0.14
    
    
$
    0.22
    
    
$
    0.25
    
    
$
    0.29
 
 (1)
    
    Per share data was computed independently for each of the quarters presented.
Therefore, the sum of the quarterly per share information may not equal the annual income
per share. F-36




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NEWPORT CORPORATION
Schedule II
 
 Consolidated Valuation Accounts
 Additions
    
    AdditionsBalance at
    
    Charged
    
    Charged
    
    
    
    
    
    OtherBeginning
    
    to Costs and
    
    to Other
    
    
    
    
    
    Charges
    
    Balance at(In thousands)
    
    of Period
    
    Expenses (1)
    
    Accounts (2)
    
    Write-Offs (3)
    
    Add/Deduct (4)
    
    End of PeriodYear Ended December 29, 2007:Deducted from asset accounts:Allowance for doubtful accounts
    
    $
    1,503
    
    
    $
    190
    
    
    $
    
    
    
    $
    (397
    )
    
    $
    85
    
    
    $
    1,381Reserve for inventory obsolescence
    
    $
    23,370
    
    
$
    4,501
    
    
$
    
    
    
    $
    (5,251
    )
        
$
524
    
    
$
    23,144Year Ended December 30, 2006:Deducted from asset accounts:Allowance for doubtful accounts
    
    $
    1,402
    
    
    $
    697
    
    
    $
    
    
    
    $
    (629
    )
    
    $
    33
    
    
    $
    1,503Reserve for inventory obsolescence
    
$
    26,275
    
    
$
    3,508
    
    
$
    154
    
    
    $
    (7,059
    )
    
$
    492
    
    
$
    23,370Year Ended December 31, 2005:Deducted from asset accounts:Allowance for doubtful accounts
    
    $
    2,057
    
    
    $
    (234
    )
    
    $
    
    
    
    $
    (226
    )
    
    $
    (195
    )
    
    $
    1,402Reserve for inventory obsolescence
    
$
    30,324
    
    
$
    2,969
    
    
$
    
    
    
    $
    (5,964
    )
    
    $
    (1,054
    )
    
$
    26,275
 
 (1)
    
    In 2005, the Company revised its method of estimating its allowance for doubtful accounts
based upon the Companys historical collections experience. As a result, the allowance for
doubtful accounts was reduced by $0.7 million in 2005.(2)
    
    Amounts represent beginning balances acquired through purchase acquisitions.(3)
    
    Amounts are net of recoveries.(4)
    
    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 Translationand certain reclassifications between balance sheet accounts. F-37




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##### Table of Contents



EXHIBIT INDEX
 ExhibitNumber
    
    Description of Exhibit2.1
    
    Stock Purchase Agreement dated May 28, 2004 by and among
the Registrant, Thermo Electron Corporation and other
related parties (incorporated by reference to Exhibit 2.1
to the Registrants Current Report on Form 8-K filed on
June 17, 2004).3.1
    
    Restated Articles of Incorporation of the Registrant, as
amended to date (incorporated by reference to Exhibit 3.1
of the Registrants Annual Report on Form 10-K for the year
ended December 30, 2006).3.2
    
    Restated Bylaws of the Registrant, as amended to date
(incorporated by reference to Exhibit 3.2 of the
Registrants Annual Report on Form 10-K for the year ended
July 31, 1992).4.1
    
    Indenture, dated February 7, 2007, between the Registrant
and Wells Fargo Bank, N.A. (incorporated by reference to
Exhibit 10.1 to the Registrants Current Report on Form 8-K
filed with the Securities and Exchange Commission on
February 7, 2007).4.2
    
    Registration Rights Agreement, dated February 7, 2007,
between the Registrant and Merrill, Lynch, Pierce, Fenner &
Smith Incorporated (incorporated by reference to Exhibit
10.2 to the Registrants Current Report on Form 8-K filed
with the Securities and Exchange Commission on February 7,
2007).4.3
    
    Form of 2.50% Convertible Subordinated Note due 2012
(incorporated by reference to Exhibit 10.3 to the
Registrants Current Report on Form 8-K filed with the
Securities and Exchange Commission on February 7, 2007).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
Registrants Annual Report on Form 10-K for the year ended
July 31, 1992).10.2
    
    First Amendment to Lease dated January 31, 2002, between
the Registrant and IRP Muller Associates, LLC pertaining to
premises located in Irvine, California (incorporated by
reference to Exhibit 10.2 of the Registrants Annual Report
on Form 10-K for the year ended December 31, 2001).10.3
    
    Second Amendment to Lease dated September 28, 2004, between
the Registrant and BCSD Properties, L.P. pertaining to
premises located in Irvine, California (incorporated by
reference to Exhibit 10.5 of the Registrants Quarterly
Report on Form 10-Q for the quarter ended October 2, 2004).10.4*
    
    1992 Stock Incentive Plan (incorporated by reference to
exhibit in the Registrants 1992 Proxy Statement).10.5*
    
    1999 Stock Incentive Plan (incorporated by reference to
Exhibit 10.11 of the Registrants Annual Report on Form
10-K for the year ended December 31, 1999).10.6*
    
    Amendment to 1999 Stock Incentive Plan (incorporated by
reference to Exhibit 10.4 to the Registrants Registration
Statement on Form S-3, No. 333-40878, filed with the
Securities and Exchange Commission on July 6, 2000).10.7*
    
    2001 Stock Incentive Plan (incorporated by reference to
Appendix B to the Registrants Definitive Proxy Statement
filed with the Securities and Exchange Commission on April
27, 2001).10.8*
    
    Form of Nonqualified Stock Option Agreement under the
Registrants 2001 Stock Incentive Plan, as amended
(incorporated by reference to Exhibit 10.9 of the
Registrants Annual Report on Form 10-K for the year ended
December 31, 2002).




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##### Table of Contents



ExhibitNumber
    
    Description of Exhibit10.9*
    
    Form of Incentive Stock Option Agreement under the
Registrants 2001 Stock Incentive Plan (incorporated by
reference to Exhibit 10.10 of the Registrants Annual
Report on Form 10-K for the year ended December 31, 2002).10.10*
    
    Form of Restricted Stock Agreement under the Registrants
2001 Stock Incentive Plan (incorporated by reference to
Exhibit 10.3 of the Registrants Quarterly Report on Form
10-Q for the quarter ended October 2, 2004).10.11*
    
    Form of Nonqualified Stock Option Agreement between the
Registrant and each of the former optionholders of Micro
Robotics Systems, Inc. (incorporated by reference to
Exhibit 4.1 of the Registrants Registration Statement on
Form S-8, File No. 333-86268, filed with the Securities and
Exchange Commission on April 15, 2002).10.12*
    
    2006 Performance-Based Stock Incentive Plan (incorporated
by reference to Appendix B of the Registrants Definitive
Proxy Statement filed with the Securities and Exchange
Commission on April 10, 2006).10.13*
    
    Form of Restricted Stock Unit Award Agreement to be used
under the Registrants 2006 Performance-Based Stock
Incentive Plan (incorporated by reference to Exhibit 10.2
to the Registrants Current Report on Form 8-K filed with
the Securities and Exchange Commission on May 23, 2006).10.14*
    
    Amended and Restated Employee Stock Purchase Plan, as
amended (incorporated by reference to Exhibit 10.15 to the
Registrants Annual Report on Form 10-K for the year ended
December 31, 2005).10.15*
    
    Form of Severance Compensation Agreement between the
Registrant and certain of its executive officers
(incorporated by reference to Exhibit 10.14 of the
Registrants Annual Report on Form 10-K for the year ended
December 31, 2003).10.16*
    
    Severance Compensation Agreement dated as of January 1,
2004, between the Registrant and Robert G. Deuster,
Chairman and Chief Executive Officer (incorporated by
reference to Exhibit 10.15 of the Registrants Annual
Report on Form 10-K for the year ended December 31, 2003).10.17*
    
    Severance Compensation Agreement dated as of January 1,
2004, between the Registrant and Robert J. Phillippy,
President and Chief Operating Officer (incorporated by
reference to Exhibit 10.16 of the Registrants Annual
Report on Form 10-K for the year ended December 31, 2003).10.18*
    
    Form of Indemnification Agreement between the Registrant
and each of its directors and executive officers
(incorporated by reference to Exhibit 10.3 of the
Registrants Quarterly Report on Form 10-Q for the quarter
ended June 30, 2002).10.19*
    
    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).10.20
    
    Business Loan Agreement dated September 25, 2002, by and
between the Registrant and Bank of America, N.A.
(incorporated by reference to Exhibit 10.3 of the
Registrants Quarterly Report on Form 10-Q for the quarter
ended September 30, 2002).10.21
    
    Promissory Note dated September 25, 2002, payable by the
Registrant to Bank of America, N.A. (incorporated by
reference to Exhibit 10.4 of the Registrants Quarterly
Report on Form 10-Q for the quarter ended September 30,
2002).




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##### Table of Contents



ExhibitNumber
    
    Description of Exhibit10.22
    
    Commercial Pledge Agreement dated September 25, 2002, by
and between the Registrant and Bank of America, N.A.
(incorporated by reference to Exhibit 10.5 of the
Registrants Quarterly Report on Form 10-Q for the quarter
ended September 30, 2002).10.23
    
    Amendment No. 1 to Loan Documents dated August 21, 2003,
between the Registrant and Bank of America, N.A.
(incorporated by reference to Exhibit 10.1 of the
Registrants Quarterly Report on Form 10-Q for the quarter
ended September 30, 2003).10.24
    
    Amendment No. 2 to Loan Documents dated October 27, 2003,
between the Registrant and Bank of America, N.A.
(incorporated by reference to Exhibit 10.2 of the
Registrants Quarterly Report on Form 10-Q for the quarter
ended September 30, 2003).10.25
    
    Amendment No. 3 to Loan Documents dated November 30, 2004,
between the Registrant and Bank of America, N.A.
(incorporated by reference to Exhibit 10.1 of the
Registrants Current Report on Form 8-K filed with the
Securities and Exchange Commission on December 3, 2004).10.26
    
    Amendment No. 4 to Loan Documents dated January 6, 2006,
between the Registrant and Bank of America, N.A.
(incorporated by reference to Exhibit 10.1 of the
Registrants Current Report on Form 8-K filed with the
Securities and Exchange Commission on January 11, 2006).10.27
    
    Amendment No. 5 to Loan Documents dated December 1, 2006,
between the Registrant and Bank of America, N.A.
(incorporated by reference to Exhibit 10.1 of the
Registrants Current Report on Form 8-K filed with the
Securities and Exchange Commission on December 5, 2006).10.28
    
    Subordinated Promissory Note dated July 16, 2004 payable by
the Registrant to Thermo Electron Corporation (incorporated
by reference to Exhibit 10.1 to the Registrants Current
Report on Form 8-K filed with the Securities and Exchange
Commission on July 20, 2004).21.1
    
    Subsidiaries of the Registrant.23.1
    
    Consent of Independent Registered Public Accounting Firm.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.
 
 *
    
    This exhibit is identified as a management contract or compensatory plan or
arrangement pursuant to Item 15(a)(3) of Form 10-K.