##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, DC 20549
 
 FORM 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended September 27, 2008
 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(State or other jurisdiction of 
incorporation or organization)
    
    94-0849175(IRS Employer Identification No.)
 1791 Deere Avenue, Irvine, California 92606  (Address of principal executive offices) (Zip Code)
 (949) 863-3144  (Registrants telephone number, including area code)
 Not Applicable  (Former name, former address and former fiscal year, if changed since last report)
 
  þ o
  Large accelerated filer o
Accelerated filer þNon-accelerated filer o(Do not check if a smaller reporting company)Smaller reporting company o  o þ




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##### 



NEWPORT CORPORATION
 FORM 10-Q
 INDEX
 PageNumberPART I. FINANCIAL INFORMATIONItem 1.
    
    Financial Statements (unaudited):Consolidated Statements of Operations for the Three and Nine Months Ended September 27, 2008 and September 29, 2007
    
    
    3Consolidated Balance Sheets as of September 27, 2008 and December 29, 2007
    
    
    4Consolidated Statements of Cash Flows for the Nine Months Ended September 27, 2008 and September 29, 2007
    
    
    5Notes to Consolidated Financial Statements
    
    
    6Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    15Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    24Item 4.
    
    Controls and Procedures
    
    
    25PART II. OTHER INFORMATIONItem 1A.
    
    Risk Factors
    
    
    26Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    27Item 6.
    
    Exhibits
    
    
    28SIGNATURES
    
    
    29
  2




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PART I  FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 
 NEWPORT CORPORATION
Consolidated Statements of Operations
(In thousands, except per share data)
(Unaudited)
 Three Months Ended
    
    
    Nine Months EndedSeptember 27,
    
    
    September 29,
    
    
    September 27,
    
    
    September 29,2008
    
    
    2007
    
    
    2008
    
    
    2007Net sales
    
    $
    105,026
    
    
    $
    109,001
    
    
    $
    337,933
    
    
    $
    327,169Cost of sales
    
    
    65,424
    
    
    
    65,409
    
    
    
    204,923
    
    
    
    187,885Gross profit
    
    
    39,602
    
    
    
    43,592
    
    
    
    133,010
    
    
    
    139,284Selling, general and administrative expenses
    
    
    28,205
    
    
    
    28,729
    
    
    
    88,088
    
    
    
    87,535Research and development expense
    
    
    11,340
    
    
    
    9,739
    
    
    
    35,125
    
    
    
    31,216Operating income
    
    
    57
    
    
    
    5,124
    
    
    
    9,797
    
    
    
    20,533Recovery (write-down) of note receivable and
other
amounts related to previously discontinued
operations, net
    
    
    743
    
    
    
    
    
    
    
    (6,317
    )
    
    
    Interest and other income (expense), net
    
    
    (849
    )
    
    
    132
    
    
    
    (1,538
    )
    
    
    349Income (loss) before income taxes
    
    
    (49
    )
    
    
    5,256
    
    
    
    1,942
    
    
    
    20,882Income tax provision (benefit)
    
    
    1,086
    
    
    
    (286
    )
    
    
    2,144
    
    
    
    2,126Net income (loss)
    
    $
    (1,135
    )
    
    $
    5,542
    
    
    $
    (202
    )
    
    $
    18,756Net income (loss) per share:Basic
    
    $
    (0.03
    )
    
    $
    0.15
    
    
    $
    (0.01
    )
    
    $
    0.48Diluted
    
    $
    (0.03
    )
    
    $
    0.15
    
    
    $
    (0.01
    )
    
    $
    0.47Shares used in per share calculations:Basic
    
    
    36,078
    
    
    
    37,723
    
    
    
    36,208
    
    
    
    38,994Diluted
    
    
    36,078
    
    
    
    38,109
    
    
    
    36,208
    
    
    
    39,678
  3




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NEWPORT CORPORATION
Consolidated Balance Sheets
(In thousands, except share and per share data)
(Unaudited)
 September 27,
    
    
    December 29,2008
    
    
    2007ASSETSCurrent assets:Cash and cash equivalents
    
    $
    76,950
    
    
    $
    88,737Marketable securities
    
    
    71,956
    
    
    
    55,127Accounts receivable, net of allowance for doubtful accounts of
$1,689 and
$1,721 as of September 27, 2008 and December 29, 2007,
respectively
    
    
    82,171
    
    
    
    87,606Notes receivable, net
    
    
    4,161
    
    
    
    3,821Inventories
    
    
    105,279
    
    
    
    113,969Deferred income taxes
    
    
    6,374
    
    
    
    6,248Prepaid expenses and other current assets
    
    
    13,573
    
    
    
    13,603Total current assets
    
    
    360,464
    
    
    
    369,111Property and equipment, net
    
    
    65,999
    
    
    
    61,872Goodwill
    
    
    174,197
    
    
    
    174,197Deferred income taxes
    
    
    16,993
    
    
    
    16,932Intangible assets, net
    
    
    43,102
    
    
    
    46,171Investments and other assets
    
    
    15,649
    
    
    
    21,664$
    676,404
    
    
    $
    689,947LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Short-term obligations
    
    $
    11,692
    
    
    $
    12,402Accounts payable
    
    
    23,804
    
    
    
    33,319Accrued payroll and related expenses
    
    
    21,941
    
    
    
    23,096Accrued expenses and other current liabilities
    
    
    30,144
    
    
    
    24,598Total current liabilities
    
    
    87,581
    
    
    
    93,415Long-term debt
    
    
    177,828
    
    
    
    175,000Obligations under capital leases, less current portion
    
    
    1,310
    
    
    
    1,381Accrued pension liabilities
    
    
    11,000
    
    
    
    10,740Other liabilities
    
    
    4,023
    
    
    
    4,966Commitments and contingenciesStockholders equity:Common stock, par value $0.1167 per share, 200,000,000 shares
authorized;
35,985,549 and 36,917,734 shares issued and outstanding as of
September 27, 2008 and December 29, 2007, respectively
    
    
    4,199
    
    
    
    4,308Capital in excess of par value
    
    
    379,703
    
    
    
    389,328Accumulated other comprehensive income
    
    
    10,396
    
    
    
    10,243Retained earnings
    
    
    364
    
    
    
    566Total stockholders equity
    
    
    394,662
    
    
    
    404,445$
    676,404
    
    
    $
    689,947
  4




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NEWPORT CORPORATION
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
 Nine Months EndedSeptember 27,
    
    
    September 29,2008
    
    
    2007CASH FLOWS FROM OPERATING ACTIVITIES:Net income (loss)
    
    $
    (202
    )
    
    $
    18,756Adjustments to reconcile net income (loss) to net cash
provided by operating activities:Depreciation and amortization
    
    
    16,230
    
    
    
    15,662Stock-based compensation expense
    
    
    1,506
    
    
    
    3,222Write-down of note receivable and other amounts
related to previously discontinued operations
    
    
    7,061
    
    
    
    Provision for losses on inventories
    
    
    4,372
    
    
    
    2,241Provision for doubtful accounts, net
    
    
    106
    
    
    
    44Loss on disposal of property and equipment
    
    
    519
    
    
    
    81Deferred income taxes, net
    
    
    1,237
    
    
    
    Increase (decrease) in cash due to changes in:Accounts and notes receivable
    
    
    5,613
    
    
    
    9,897Inventories
    
    
    3,789
    
    
    
    (19,009
    )Prepaid expenses and other assets
    
    
    (1,126
    )
    
    
    15Accounts payable
    
    
    (9,597
    )
    
    
    (2,377
    )Accrued payroll and related expenses
    
    
    (1,188
    )
    
    
    (3,611
    )Accrued expenses and other liabilities
    
    
    3,275
    
    
    
    (1,946
    )Accrued restructuring costs and purchase accounting
reserves
    
    
    38
    
    
    
    (611
    )Net cash provided by operating activities
    
    
    31,633
    
    
    
    22,364CASH FLOWS FROM INVESTING ACTIVITIES:Purchase of property and equipment
    
    
    (16,126
    )
    
    
    (12,009
    )Purchase of marketable securities
    
    
    (47,923
    )
    
    
    (44,398
    )Proceeds from the sale of marketable securities
    
    
    30,616
    
    
    
    45,395Net cash used in investing activities
    
    
    (33,433
    )
    
    
    (11,012
    )CASH FLOWS FROM FINANCING ACTIVITIES:Proceeds from long-term debt
    
    
    2,828
    
    
    
    175,000Debt issuance costs
    
    
    
    
    
    
    (5,563
    )Repayment of long-term debt and obligations under capital leases
    
    
    (48
    )
    
    
    (50,869
    )Short-term borrowings, net of repayments
    
    
    (1,627
    )
    
    
    2,226Proceeds from the issuance of common stock under employee plans
    
    
    1,582
    
    
    
    2,820Purchases of common stock and restricted stock units
    
    
    (12,822
    )
    
    
    (82,005
    )Net cash provided by (used in) financing activities
    
    
    (10,087
    )
    
    
    41,609Impact of foreign exchange rate changes on cash balances
    
    
    100
    
    
    
    1,159Net increase (decrease) in cash and cash equivalents
    
    
    (11,787
    )
    
    
    54,120Cash and cash equivalents at beginning of period
    
    
    88,737
    
    
    
    35,930Cash and cash equivalents at end of period
    
    $
    76,950
    
    
    $
    90,050Supplemental disclosures of cash flow information:Cash paid during the period for:Interest
    
    $
    4,844
    
    
    $
    3,423Income taxes, net
    
    $
    759
    
    
    $
    2,579
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NEWPORT CORPORATION
Notes to Consolidated Financial Statements
September 27, 2008
 NOTE 1 BASIS OF PRESENTATION
    NOTE 2 RECENT ACCOUNTING PRONOUNCEMENTS
 Noncontrolling Interests in Consolidated Financial
Statementsan amendment of ARB No. 51
 Business Combinations
 Disclosures about Derivative Instruments and Hedging
Activities.
 Determination of the Useful
Life of Intangible Assets Goodwill and Other Intangible Assets
 6




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NEWPORT CORPORATION
Notes to Consolidated Financial Statements
September 27, 2008
  The Hierarchy of Generally Accepted Accounting
Principles. The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles
 Accounting for Convertible Debt Instruments That May Be
Settled in Cash upon Conversion (Including Partial Cash Settlement).
 NOTE 3 FAIR VALUE MEASUREMENTS
  (In thousands)
    
    
    
    
    
    Fair Value Measurements at Reporting Date UsingQuoted Prices inActive Markets for
    
    
    Significant Other
    
    
    SignificantIdentical Assets
    
    
    Observable Inputs
    
    
    Unobservable InputsDescription
    
    September 27, 2008
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)Assets:Marketable securities
    
    $
    71,956
    
    
    $
    71,956
    
    
    $
    
    
    
    $
    Pension assets not
owned by plan
    
    
    6,879
    
    
    
    6,879
    
    
    
    
    
    
    
    $
    78,835
    
    
    $
    78,835
    
    
    $
    
    
    
    $
    
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NEWPORT CORPORATION
Notes to Consolidated Financial Statements
September 27, 2008
 NOTE 4 SUPPLEMENTAL BALANCE SHEET INFORMATION
 Inventories
  September 27,
    
    
    December 29,(In thousands)
    
    2008
    
    
    2007Raw materials and
purchased parts
    
    $
    88,480
    
    
    $
    83,954Work in process
    
    
    8,349
    
    
    
    15,239Finished goods
    
    
    31,502
    
    
    
    37,920128,331
    
    
    
    137,113Allowance for
excess and obsolete
inventory
    
    
    (23,052
    )
    
    
    (23,144
    )$
    105,279
    
    
    $
    113,969
 Accrued Warranty Obligations
 accrued expenses and other current liabilities
  Nine Months EndedSeptember 27,
    
    
    September 29,(In thousands)
    
    2008
    
    
    2007Balance at beginning of year
    
    $
    5,847
    
    
    $
    5,159Additions charged to cost of sales
    
    
    5,208
    
    
    
    6,612Warranty claims
    
    
    (4,761
    )
    
    
    (6,276
    )Balance at end of period
    
    $
    6,294
    
    
    $
    5,495
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NEWPORT CORPORATION
Notes to Consolidated Financial Statements
September 27, 2008
 Accrued Expenses and Other Current Liabilities
  September 27,
    
    
    December 29,(In thousands)
    
    2008
    
    
    2007Deferred revenue
    
    $
    11,705
    
    
    $
    7,396Accrued warranty obligations
    
    
    6,294
    
    
    
    5,847Accrued sales tax
    
    
    250
    
    
    
    2,031Other
    
    
    11,895
    
    
    
    9,324$
    30,144
    
    
    $
    24,598
 Accumulated Other Comprehensive Income
  September 27,
    
    
    December 29,(In thousands)
    
    2008
    
    
    2007Cumulative foreign currency translation gains
    
    $
    10,916
    
    
    $
    10,135Unrecognized net pension gains
    
    
    76
    
    
    
    52Unrealized gains (losses) on marketable securities
    
    
    (596
    )
    
    
    56$
    10,396
    
    
    $
    10,243
 NOTE 5 INTEREST AND OTHER INCOME (EXPENSE), NET
  Three Months Ended
    
    
    Nine Months EndedSeptember 27,
    
    
    September 29,
    
    
    September 27,
    
    
    September 29,(In thousands)
    
    2008
    
    
    2007
    
    
    2008
    
    
    2007Interest and dividend income
    
    $
    1,006
    
    
    $
    1,642
    
    
    $
    3,070
    
    
    $
    5,124Interest expense
    
    
    (1,578
    )
    
    
    (1,323
    )
    
    
    (4,558
    )
    
    
    (3,827
    )Bank and portfolio asset
management fees
    
    
    (149
    )
    
    
    (128
    )
    
    
    (441
    )
    
    
    (493
    )Other income (expense), net
    
    
    (128
    )
    
    
    (59
    )
    
    
    391
    
    
    
    (455
    )$
    (849
    )
    
    $
    132
    
    
    $
    (1,538
    )
    
    $
    349
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NEWPORT CORPORATION
Notes to Consolidated Financial Statements
September 27, 2008
 NOTE 6 STOCK-BASED COMPENSATION
   Three Months Ended
    
    
    Nine Months EndedSeptember 27,
    
    
    September 29,
    
    
    September 27,
    
    
    September 29,(In thousands)
    
    2008
    
    
    2007
    
    
    2008
    
    
    2007Cost of sales
    
    $
    36
    
    
    $
    152
    
    
    $
    198
    
    
    $
    396Selling, general and
administrative expenses
    
    
    (195
    )
    
    
    (322
    )
    
    
    1,044
    
    
    
    2,603Research and development expense
    
    
    61
    
    
    
    (100
    )
    
    
    264
    
    
    
    223$
    (98
    )
    
    $
    (270
    )
    
    $
    1,506
    
    
    $
    3,222
   NOTE 7 DEBT AND LINES OF CREDIT
 long-term debt investments and other assets
 long-term debt
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NEWPORT CORPORATION
Notes to Consolidated Financial Statements
September 27, 2008
 short-term obligations short-term obligations Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilitiesa replacement of FASB Statement No. 125
 NOTE 8 NET INCOME (LOSS) PER SHARE
  Three Months Ended
    
    
    Nine Months EndedSeptember 27,
    
    
    September 29,
    
    
    September 27,
    
    
    September 29,(In thousands)
    
    2008
    
    
    2007
    
    
    2008
    
    
    2007Net income (loss)
    
    $
    (1,135
    )
    
    $
    5,542
    
    
    $
    (202
    )
    
    $
    18,756Shares:Weighted average shares outstanding  basic
    
    
    36,078
    
    
    
    37,723
    
    
    
    36,208
    
    
    
    38,994Dilutive potential common shares, using treasury
stock method
    
    
    
    
    
    
    386
    
    
    
    
    
    
    
    684Weighted average shares outstanding 
diluted
    
    
    36,078
    
    
    
    38,109
    
    
    
    36,208
    
    
    
    39,678Net income (loss) per share:Basic
    
    $
    (0.03
    )
    
    $
    0.15
    
    
    $
    (0.01
    )
    
    $
    0.48Diluted
    
    $
    (0.03
    )
    
    $
    0.15
    
    
    $
    (0.01
    )
    
    $
    0.47
   11




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NEWPORT CORPORATION
Notes to Consolidated Financial Statements
September 27, 2008
 NOTE 9 INCOME TAXES
  Accounting for Income Taxes,
  NOTE 10 COMPREHENSIVE INCOME (LOSS)
  Three Months Ended
    
    
    Nine Months EndedSeptember 27,
    
    
    September 29,
    
    
    September 27,
    
    
    September 29,(In thousands)
    
    2008
    
    
    2007
    
    
    2008
    
    
    2007Net income (loss)
    
    $
    (1,135
    )
    
    $
    5,542
    
    
    $
    (202
    )
    
    $
    18,756Foreign currency translation gains (losses)
    
    
    (4,772
    )
    
    
    381
    
    
    
    781
    
    
    
    2,281Unrecognized net pension gains (losses)
    
    
    1
    
    
    
    (20
    )
    
    
    24
    
    
    
    (49
    )Unrealized gains (losses) on marketable
securities
    
    
    (511
    )
    
    
    104
    
    
    
    (652
    )
    
    
    108$
    (6,417
    )
    
    $
    6,007
    
    
    $
    (49
    )
    
    $
    21,096
 NOTE 11 STOCKHOLDERS EQUITY TRANSACTIONS
   NOTE 12 DEFINED BENEFIT PENSION PLANS
  12




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NEWPORT CORPORATION
Notes to Consolidated Financial Statements
September 27, 2008
   Three Months Ended
    
    
    Nine Months EndedSeptember 27,
    
    
    September 29,
    
    
    September 27,
    
    
    September 29,(In thousands)
    
    2008
    
    
    2007
    
    
    2008
    
    
    2007Service cost
    
    $
    143
    
    
    $
    161
    
    
    $
    438
    
    
    $
    477Interest
cost on benefit obligations
    
    
    172
    
    
    
    165
    
    
    
    523
    
    
    
    486Expected return on plan assets
    
    
    (40
    )
    
    
    (47
    )
    
    
    (123
    )
    
    
    (139
    )Net gain
    
    
    
    
    
    
    2
    
    
    
    
    
    
    
    6$
    275
    
    
    $
    281
    
    
    $
    838
    
    
    $
    830
 NOTE 13 BUSINESS SEGMENT INFORMATION
   Photonics andPrecision(In thousands)
    
    Lasers
    
    Technologies
    
    TotalThree months ended September 27, 2008:Sales to external customers
    
    $
    44,847
    
    
    $
    60,179
    
    
    $
    105,026Segment income (loss)
    
    $
    (2,218
    )
    
    $
    8,935
    
    
    $
    6,717Three months ended September 29, 2007:Sales to external customers
    
    $
    45,080
    
    
    $
    63,921
    
    
    $
    109,001Segment income
    
    $
    182
    
    
    $
    13,239
    
    
    $
    13,421Nine months ended September 27, 2008:Sales to external customers
    
    $
    142,212
    
    
    $
    195,721
    
    
    $
    337,933Segment income (loss)
    
    $
    (4,143
    )
    
    $
    33,367
    
    
    $
    29,224Nine months ended September 29, 2007:Sales to external customers
    
    $
    133,835
    
    
    $
    193,334
    
    
    $
    327,169Segment income
    
    $
    1,470
    
    
    $
    41,602
    
    
    $
    43,072
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NEWPORT CORPORATION
Notes to Consolidated Financial Statements
September 27, 2008
  Three Months Ended
    
    
    Nine Months EndedSeptember 27,
    
    
    September 29,
    
    
    September 27,
    
    
    September 29,(In thousands)
    
    2008
    
    
    2007
    
    
    2008
    
    
    2007Segment income
    
    $
    6,717
    
    
    $
    13,421
    
    
    $
    29,224
    
    
    $
    43,072Unallocated operating expenses
    
    
    (6,660
    )
    
    
    (8,297
    )
    
    
    (19,427
    )
    
    
    (22,539
    )Recovery (write-down) of note receivable and
other
amounts related to previously discontinued
operations, net
    
    
    743
    
    
    
    
    
    
    
    (6,317
    )
    
    
    Interest and other income (expense), net
    
    
    (849
    )
    
    
    132
    
    
    
    (1,538
    )
    
    
    349$
    (49
    )
    
    $
    5,256
    
    
    $
    1,942
    
    
    $
    20,882
 NOTE 14 WRITE-DOWN OF NOTE RECEIVABLE AND OTHER AMOUNTS
  NOTE 15 SUBSEQUENT EVENTS
   14




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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 This Managements Discussion and Analysis of Financial Condition and Results of Operations should
be read in conjunction with our unaudited consolidated financial statements and related notes
included elsewhere in this Quarterly Report on Form 10-Q and in conjunction with our Annual Report
on Form 10-K for the year ended December 29, 2007. This discussion contains descriptions of our
expectations regarding future trends affecting our business. These forward-looking statements and
other forward-looking statements made elsewhere in this report are made in reliance upon safe
harbor provisions in Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. Words such as may, will, expect, believe, anticipate, intend,
could, estimate, or continue or the negative or other variations thereof or comparable
terminology are intended to identify forward-looking statements. In addition, any statements that
refer to projections of our future financial performance or condition, trends in our business, 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 several factors, including, but not limited to those factors set forth and discussed
elsewhere in this Quarterly Report on Form 10-Q and 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 our Annual Report on Form
10-K for the year ended December 29, 2007. In light of the significant uncertainties inherent in
the forward-looking information included in this report, the inclusion of this information should
not be regarded as a representation by us or any other person that our objectives or plans will be
achieved and readers are cautioned not to place undue reliance on such forward-looking information.
We undertake no obligation to update or revise these forward-looking statements, whether as a
result of new information, future events or otherwise.
 Overview
   Critical Accounting Policies and Estimates
  15




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Stock-Based Compensation
   Three Months Ended
    
    
    Nine Months EndedSeptember 27,
    
    
    September 29,
    
    
    September 27,
    
    
    September 29,(In thousands)
    
    2008
    
    
    2007
    
    
    2008
    
    
    2007Cost of sales
    
    $
    36
    
    
    $
    152
    
    
    $
    198
    
    
    $
    396Selling, general and
administrative expenses
    
    
    (195
    )
    
    
    (322
    )
    
    
    1,044
    
    
    
    2,603Research and development expense
    
    
    61
    
    
    
    (100
    )
    
    
    264
    
    
    
    223$
    (98
    )
    
    $
    (270
    )
    
    $
    1,506
    
    
    $
    3,222
   Results of Operations for the Three and Nine Months Ended September 27, 2008 and September 29, 2007
  Percentage of Net SalesThree Months Ended
    
    Nine Months EndedSeptember 27,
    
    September 29,
    
    September 27,
    
    September 29,2008
    
    2007
    
    2008
    
    2007Net sales
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Cost of sales
    
    
    62.3
    
    
    
    60.0
    
    
    
    60.6
    
    
    
    57.4Gross profit
    
    
    37.7
    
    
    
    40.0
    
    
    
    39.4
    
    
    
    42.6Selling, general and administrative expenses
    
    
    26.9
    
    
    
    26.4
    
    
    
    26.1
    
    
    
    26.8Research and development expense
    
    
    10.8
    
    
    
    8.9
    
    
    
    10.4
    
    
    
    9.5Operating income
    
    
    0.0
    
    
    
    4.7
    
    
    
    2.9
    
    
    
    6.3Recovery (write-down) of note receivable and
other
amounts related to previously discontinued
operations, net
    
    
    0.7
    
    
    
    
    
    
    
    (1.9
    )
    
    
    Interest and other income (expense), net
    
    
    (0.8
    )
    
    
    0.1
    
    
    
    (0.5
    )
    
    
    0.1Income (loss) before income taxes
    
    
    (0.1
    )
    
    
    4.8
    
    
    
    0.5
    
    
    
    6.4Income tax provision (benefit)
    
    
    1.0
    
    
    
    (0.3
    )
    
    
    0.6
    
    
    
    0.6Net income (loss)
    
    
    (1.1
    )%
    
    
    5.1
    %
    
    
    (0.1
    )%
    
    
    5.8
    %
 16




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Net Sales
       17




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##### Table of Contents



Three Months Ended
    
    
    
    
    
    
    PercentageSeptember 27,
    
    
    September 29,
    
    
    Increase
    
    
    Increase(In thousands)
    
    2008
    
    
    2007
    
    
    (Decrease)
    
    
    (Decrease)United States
    
    $
    50,869
    
    
    $
    53,332
    
    
    $
    (2,463
    )
    
    
    (4.6
    )%Europe
    
    
    27,165
    
    
    
    29,865
    
    
    
    (2,700
    )
    
    
    (9.0
    )Pacific Rim
    
    
    21,872
    
    
    
    19,260
    
    
    
    2,612
    
    
    
    13.6Other
    
    
    5,120
    
    
    
    6,544
    
    
    
    (1,424
    )
    
    
    (21.8
    )$
    105,026
    
    
    $
    109,001
    
    
    $
    (3,975
    )
    
    
    (3.6
    )%
 Nine Months Ended
    
    
    
    
    
    
    PercentageSeptember 27,
    
    
    September 29,
    
    
    Increase
    
    
    Increase(In thousands)
    
    2008
    
    
    2007
    
    
    (Decrease)
    
    
    (Decrease)United States
    
    $
    157,249
    
    
    $
    167,884
    
    
    $
    (10,635
    )
    
    
    (6.3
    )%Europe
    
    
    86,982
    
    
    
    83,245
    
    
    
    3,737
    
    
    
    4.5Pacific Rim
    
    
    78,207
    
    
    
    56,436
    
    
    
    21,771
    
    
    
    38.6Other
    
    
    15,495
    
    
    
    19,604
    
    
    
    (4,109
    )
    
    
    (21.0
    )$
    337,933
    
    
    $
    327,169
    
    
    $
    10,764
    
    
    
    3.3
    %
  Gross Margin
  Selling, General and Administrative (SG&A) Expenses
   18




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Research and Development (R&D) Expense
   Recovery (Write-Down) of Note Receivable and Other Amounts
  Interest and Other Income (Expense), Net
   Income Taxes
  19




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Interim
Financial Reporting
 Accounting for Income Taxes
  Liquidity and Capital Resources
     20




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long-term debt
   short-term obligations short-term obligations .
   21




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Recent Accounting Pronouncements
 Noncontrolling Interests in Consolidated Financial Statementsan amendment of ARB No. 51
 Business Combinations
 Disclosures about Derivative Instruments and Hedging
Activities.
 22




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Determination of the Useful
Life of Intangible Assets Goodwill and Other Intangible Assets
 The Hierarchy of Generally Accepted Accounting
Principles. The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles
 Accounting for Convertible Debt Instruments That May Be
Settled in Cash upon Conversion (Including Partial Cash Settlement).
 23




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Item 3. Quantitative and Qualitative Disclosures About Market Risk
  Foreign Currency Risk
     Interest Rate Risk
  24




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Item 4. Controls and Procedures
 (a)
    
    Evaluation of Disclosure Controls and ProceduresOur chief executive officer and our chief financial officer, after evaluating our
disclosure controls and procedures (as defined in Securities Exchange Act of 1934 (the
Exchange Act) Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this
Quarterly Report on Form 10-Q (the Evaluation Date), have concluded that as of the
Evaluation Date, our disclosure controls and procedures are effective to ensure that
information we are required to disclose in reports that we file or submit under the Exchange
Act is recorded, processed, summarized and reported within the time periods specified in
Securities and Exchange Commission rules and forms, and to ensure that information required
to be disclosed by us in such reports is accumulated and communicated to our management,
including our chief executive officer and chief financial officer where appropriate, to
allow timely decisions regarding required disclosure.(b)
    
    Changes in Internal Control Over Financial ReportingThere was no change in our internal control over financial reporting that occurred during
the period covered by this Quarterly Report on Form 10-Q that has materially affected, or is
reasonably likely to materially affect, our internal control over financial reporting. We
continue to enhance our internal control over financial reporting, primarily by evaluating
and enhancing our process and control documentation, in connection with our ongoing efforts
to meet the requirements of Section 404 of the Sarbanes-Oxley Act of 2002. We discuss with
and disclose these matters to the Audit Committee of our Board of Directors and our
independent registered public accounting firm.
 25




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PART II  OTHER INFORMATION
 
 Item 1A. Risk Factors
  Our operating results may be adversely affected by unfavorable economic and market
conditions.
    26




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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
  Maximum Number (orTotal Number of
    
    Approximate DollarShares (or Units)
    
    Value of Shares (orPurchased as Part
    
    Units) that May YetTotal Number of
    
    
    
    
    
    of Publicly
    
    Be Purchased UnderShares (or Units)
    
    Average Price Paid
    
    Announced Plans or
    
    the Plans orPeriod(1)
    
    Purchased
    
    per Share (or Unit)
    
    Programs
    
    ProgramsJune 29, 2008  July 26, 2008
    
    
    
    
    
    $
    
    
    
    
    
    
    
    
    July 27, 2008  August 23, 2008
    
    
    
    
    
    $
    
    
    
    
    
    
    
    
    August 24, 2008  September
27, 2008(2)
    
    
    127,472
    
    
    $
    10.76
    
    
    
    127,472
    
    
    
    3,872,528Totals
    
    
    127,472
    
    
    $
    10.76
    
    
    
    127,472
 
 (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 2008. A total
of 4.0 million shares have been authorized for repurchase under this program and this
program has no fixed expiration date. As of September 27, 2008, we had purchased a total
of 127,472 shares and 3,872,528 shares remained available for purchase under the program. 27




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Item 6. Exhibits
 ExhibitNumber
    
    Description of Exhibit31.1
    
    Certification pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities
Exchange Act of 1934 (the Exchange Act).31.2
    
    Certification pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Exchange Act.32.1
    
    Certification 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 pursuant to Rule 13a-14(b) or Rule 15d-14(b) of the Exchange Act
and 18 U.S.C. Section 1350.
 28




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SIGNATURES
  Dated:  November 6, 2008
    NEWPORT CORPORATIONBy:
    /s/ Charles F. CargileCharles F. Cargile,Senior Vice President, Chief Financial Officer
and Treasurer (Principal Financial Officer and
Duly Authorized Officer) 29




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EXHIBIT INDEX
 ExhibitNumber
    
    Description of Exhibit31.1
    
    Certification pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities
Exchange Act of 1934 (the Exchange Act).31.2
    
    Certification pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Exchange Act.32.1
    
    Certification 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 pursuant to Rule 13a-14(b) or Rule 15d-14(b) of the Exchange Act
and 18 U.S.C. Section 1350.
 30