If any such facts or circumstances exist, the carrying values of long-lived assets are evaluated to determine if impairment exists based upon estimated undiscounted future cash flows over the remaining useful life of the assets and comparing that value to the carrying value of the assets. If the carrying value of the assets is greater than the estimated future cash flows, the assets are written down to the estimated fair value. The estimated fair value of the assets is based on a current market value of the assets. If a current market value is not readily available, a projected discounted cash flow method is applied using a discount rate determined by management to be commensurate with the risk inherent in the current business model. Our cash flow estimates contain management’s best estimates, using appropriate and customary assumptions and projections at the time. During fiscal 2011, we recorded an impairment charge on property, plant and equipment. During fiscal 2010, we recorded an impairment charge on goodwill. During fiscal 2009, we recorded impairment charges on property, plant, and equipment, intangible assets and marketable securities.
Uncertainty in income taxes is accounted for by applying a more likely than not threshold to the recognition and de-recognition of tax benefits. The calculation of the tax liabilities involves dealing with uncertainties in the application of complex tax regulations in a multitude of jurisdictions across our global operations. We also recognize potential liabilities for anticipated tax audit issues in the U.S. and other tax jurisdictions based on an estimate of whether it is more likely than not additional taxes will be due.
obligations. For custom equipment where customer acceptance is part of the sales agreement, revenue is recognized when the customer has accepted the product. In cases where custom equipment does not have customer acceptance as part of the sales agreement, we recognize revenue upon shipment, as long as the system meets the specifications as agreed upon with the customer. Certain transactions have multiple deliverables, with the deliverables clearly defined. To the extent that the secondary deliverables are other than perfunctory, we recognize the revenue on each deliverable, if separable, or on the completion of all deliverables, if not separable.
Certain customer transactions include payment terms whereby we receive a partial payment of the total order amount prior to the related sale being recognized in our financial statements. These advance payments are included in accrued progress payments and deferred revenue in the consolidated balance sheet. Generally, these progress payments relate to orders for custom equipment that require a lengthy build cycle and, in some cases, acceptance by the customer. We may negotiate payment terms with these customers on these particular orders and secure certain payments prior to or on shipment of the equipment. These payments remain in accrued progress payments and deferred revenue until our applicable revenue recognition criteria have been met.
Research and Development
Research and development costs are expensed as incurred. For fiscal 2011, 2010, and 2009, we expensed $7,899, $8,566 and $14,385 of research and development costs. Reimbursements from customers for research and development costs are recorded as offsets to the expenses. Reimbursed research and development costs of $33 were recorded in fiscal 2010 and none were recorded in fiscal 2011 and 2009.
Earnings Per Share
Basic Earnings per share (“EPS) is computed based on the weighted average number of common stock outstanding during the period. Diluted EPS is computed based on the weighted average number of shares of common stock plus the effect of dilutive potential common shares outstanding during the period using the treasury stock method. Dilutive potential common shares include outstanding stock options and restricted stock units. The following table sets forth the reconciliation of weighted average shares outstanding and diluted weighted average shares outstanding:
| | | | | | | | | | |
| | June 30, 2011 | | June 30, 2010 | | June 30, 2009 | |
| |
| |
| |
| |
| | | | | | | | | | |
Weighted average shares outstanding | | | 17,638,635 | | | 17,183,224 | | | 16,843,186 | |
Dilutive effect of stock options and restricted stock units | | | 501,739 | | | — | | | — | |
| |
|
| |
|
| |
|
| |
Diluted weighted average shares outstanding | | | 18,140,374 | | | 17,183,224 | | | 16,843,186 | |
| |
|
| |
|
| |
|
| |
For fiscal 2011, 2010 and 2009, 814,741, 2,036,759 and 2,170,002, respectively, of the Company’s outstanding stock options and restricted stock awards were excluded from the calculation of diluted earnings per share because they were antidilutive.
Share-Based Compensation
We have two share-based compensation plans which are described in Note 13. Share-based compensation expense for the fiscal year ended June 30, 2011 was $3,965, with a related tax benefit of $1,427. This increased cost of goods sold by $650, selling, general and administrative expenses by $2,416 and research, development and engineering expenses by $899. Share-based compensation expense for the fiscal year ended June 30, 2010 was $2,492, with a related tax benefit of $897. This increased cost of goods sold by $316, selling, general and administrative expenses by $1,770 and research, development and engineering expenses by $406. Share-based compensation expense for the fiscal year ended June 30, 2009 was $2,885, with a related tax benefit of $1,039. This increased cost of goods sold by $346, selling, general and administrative expenses by $2,161, and research, development and engineering expenses by $378. Restricted stock awards generally allow recipients to sell a portion of the stock award back to us, in order to cover tax liabilities resulting from the vesting of the award.
Fair Value of Financial Instruments
We account for marketable securities and foreign currency hedges at fair value. The carrying amounts of cash, accounts receivable, accounts payable and accrued expenses approximate fair value because they are short-term in nature.
F - 9
Use of Estimates
Management has made a number of estimates and assumptions relating to the reporting of assets, liabilities, revenues and expenses and the disclosure of contingent assets and liabilities to prepare these consolidated financial statements in conformity with U.S. GAAP. On an ongoing basis, management evaluates its estimates and judgments, including those related to allowances for bad debts, reserves for excess and obsolete inventories, impairments and recoverability of long-lived assets, share-based compensation, income taxes and warranty obligations. Actual results could differ from those estimates.
Adoption of New Accounting Pronouncements
In October 2009, the FASB issued authoritative guidance on revenue recognition that became effective for us on July 1, 2010. Under the new guidance on arrangements that include software elements, tangible products that have software components that are essential to the functionality of the tangible product will no longer be within the scope of the software revenue recognition guidance and software-enabled products will now be subject to other relevant revenue recognition guidance. Additionally, the FASB issued authoritative guidance on revenue arrangements with multiple deliverables that are outside the scope of the software revenue recognition guidance. Under the new guidance, when vendor specific objective evidence or third party evidence for deliverables in an arrangement cannot be determined, a best estimate of the selling price is required to separate deliverables and allocate arrangement consideration using the relative selling price method. The new guidance includes new disclosure requirements on how the application of the relative selling price method affects the timing and amount of revenue recognition. The adoption of this new guidance did not have a material impact on our consolidated financial statements.
In June 2009, the FASB issued authoritative guidance on the consolidation of variable interest entities which became effective for us on July 1, 2010. The new guidance requires revised evaluations of whether entities represent variable interest entities, ongoing assessments of power over such entities, and additional disclosures for variable interests. The adoption of this new guidance did not have a material impact on our consolidated financial statements.
Recent Accounting Guidance Not Yet Adopted
In January 2010, the FASB issued amended standards that require additional fair value disclosures. These disclosure requirements are effective in two phases. On January 1, 2010, we adopted the requirements for disclosures about inputs and valuation techniques used to measure fair value as well as disclosures about significant transfers. The adoption of this portion of the guidance did not have a material impact on our consolidated financial statements. Beginning in fiscal 2012, the balance of these amended standards will require presentation of disaggregated activity within the reconciliation for fair value measurements using significant unobservable inputs (Level 3). We believe the adoption of the balance of these amended standards will not have a material impact on our consolidated financial statements.
In December 2010, the FASB also issued guidance to clarify the reporting of pro forma financial information related to business combinations of public entities and to expand certain supplemental pro forma disclosures. This guidance is effective prospectively for business combinations that occur on or after the beginning of the fiscal year beginning on or after December 15, 2010, with early adoption permitted. It is applicable to our fiscal year beginning July 1, 2011. We are currently evaluating this guidance, but do not expect its adoption to have a material effect on our consolidated financial statements.
In May 2011, the FASB issued guidance to amend certain measurement and disclosure requirements related to fair value measurements to improve consistency with international reporting standards. This guidance is effective prospectively for public entities for interim and annual reporting periods beginning after December 15, 2011, with early adoption by public entities prohibited, and is applicable to our fiscal quarter beginning January 1, 2012. We are currently evaluating this guidance, but do not expect its adoption to have a material effect on our consolidated financial statements.
In June 2011, the FASB issued new guidance on the presentation of comprehensive income that will require presentation of components of net income and other comprehensive income in one continuous statement or in two separate, but consecutive statements. There are no changes to the components that are recognized in net income or other comprehensive income under current GAAP. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2011, with early adoption permitted. It is applicable to our fiscal year beginning July 1, 2012. We are currently evaluating this guidance, but do not expect its adoption will have a material effect on our consolidated financial statements.
F - 10
NOTE 2: ACQUISITIONS
Richmond, California
On November 12, 2010, we completed a transaction with ASML US, Inc. (“ASML”) to purchase substantially all the assets of their Richmond, California operations, including a 55,300 square-foot manufacturing facility. This acquisition expanded our optical manufacturing capabilities. The assets were acquired for $12,475, of which $7,142 was in cash, and the balance was future consideration, with a net present value of $5,333 using a discount factor of 14%, based on the level of shipments to ASML over the subsequent three years beginning January 1, 2011. On the acquisition date, the future consideration was recorded as a liability, with $1,127 recorded as a current liability and $4,206 recorded as a long-term liability. The future consideration represented a supply agreement that was entered into with ASML that provided for a volume discount. In addition, we hired key management and employees working at the Richmond facility. These activities resulted in a newly formed operation known as the Extreme Precision Optics group (“EPO”) which is included in our Optical Systems segment. On June 30, 2011, we recorded a final valuation adjustment that increased property and equipment and gain on acquisition by $7, respectively.
This transaction met the conditions of a business combination as defined by Accounting Standards Codification (“ASC”) 805 and, as such, is accounted for under ASC 805 using the purchase method of accounting. ASC 805 defines the three elements of a business as Input, Process and Output. As a result of the acquisition of substantially all the Richmond facility assets, Zygo acquired the machinery and equipment utilized in the processes to manufacture product, the building that houses the entire operation and intellectual property needed in the process to manufacture the product. The ASML employees hired by Zygo in connection with the acquisition brought with them the skills, experience and know-how necessary to provide the operational processes that, when applied to the acquired assets, represent processes being applied to inputs to create outputs. Having met all three elements of a business as defined in ASC 805, we determined that the acquisition of substantially all the assets of ASML’s Richmond, California operation should be accounted for as a business acquisition.
The results of EPO are included in our consolidated statements of operations from the acquisition date. Zygo performed a preliminary fair value exercise to allocate the purchase price to the acquired assets and liabilities at November 12, 2010. The fair value exercise was completed on June 30, 2011. The following table summarizes the consideration paid for the business and the final fair values of the assets acquired at the date of acquisition:
| | | | |
| | Final Fair
Value as of
June 30,
2011 | |
| |
| |
Consideration: | | | | |
Cash | | $ | 7,142 | |
Future consideration | | | 5,333 | |
| |
|
| |
Purchase price | | $ | 12,475 | |
| |
|
| |
| | | | |
Assets Acquired: | | | | |
Inventories | | $ | 2,399 | |
Property and equipment | | | 11,474 | |
Technology and customer relationships | | | 623 | |
| |
|
| |
Total assets | | | 14,496 | |
| | | | |
Less: gain on acquisition | | | 2,021 | |
| |
|
| |
Purchase price | | $ | 12,475 | |
| |
|
| |
In addition to recording the fair values of the assets acquired and the future consideration liability, we also recorded a gain on acquisition of $2,021 in the consolidated statement of operations within miscellaneous income in accordance with ASC 805 using the purchase method of accounting. The gain on acquisition was primarily due to the difference between market value of the acquired real estate and its book value and the desire of ASML to sell the assets. In addition, a deferred tax liability of $725 was recorded in the opening balance sheet, which had the effect of reducing the gain on acquisition to $1,296. We maintain a
F - 11
full valuation allowance on our net deferred tax assets. Therefore, we recorded a tax benefit to reduce the valuation allowance to the net deferred tax asset balance. Prior to recording the gain, we reassessed whether we had correctly identified all of the assets acquired and all of the liabilities assumed. Additionally, we also reviewed the procedures used to measure the amounts of the identifiable assets acquired, liabilities assumed and consideration transferred.
The purchased inventory was comprised of raw materials and work in process. The fair value for work in process was $1,833 and was determined by considering the sales price of finished units to represent fair value. The fair value for the building and land was $6,080 and was determined by using the sales comparison approach to value the land and a combination of the sales and cost approach for the building and improvements. The fair value of the equipment was determined by the market approach to be $5,394. Fair value of customer relationships was determined to be $23 by using the multi-period excess earnings method. The fair value of technology was $600 and was determined using the relief from royalty method.
From the date of the acquisition through June 30, 2011, EPO contributed revenue and net earnings of $14,444 and $4,069, respectively. Acquisition-related expenses of $406 were recognized in administration expense in the twelve months ended June 30, 2011.
Proforma financial information of revenues and net earnings for the operation is impractical to provide. Prior to the acquisition, the Richmond operations were accounted for as a cost center within ASML. Therefore, revenues were not recorded at the Richmond level within ASML and separate financial statements for the Richmond operations were not prepared. While ASML provided financial information sufficient for Zygo to conclude that the acquisition was not significant under Regulation S-X rule 3-05, ASML did not provide and Zygo does not have access to financial information for the appropriate periods to present pro forma financial information.
The following disclosure presents certain information regarding the intangible assets acquired from ASML as of June 30, 2011. All acquired intangible assets were valued by the income approach and are being amortized over their initial estimated useful lives of five years for both customer relationships and technology, in both instances with no estimated residual values. We review our intangible assets for impairment annually.
| | | | | | | | | | |
| | Customer
Relationships | | Technology | | Total | |
| |
| |
| |
| |
| | | | | | | | | | |
Balance at November 12, 2010 | | $ | 23 | | $ | 600 | | $ | 623 | |
| | | | | | | | | | |
Accumulated amortization | | | (3 | ) | | (76 | ) | | (79 | ) |
| | | | | | | | | | |
| |
|
| |
|
| |
|
| |
Balance at June 30, 2011 | | $ | 20 | | $ | 524 | | $ | 544 | |
| |
|
| |
|
| |
|
| |
Zemetrics
In January 2010, the Company entered into an agreement to purchase all of the outstanding stock and to retire the outstanding shareholder notes of Zemetrics, Inc., an Arizona corporation (“Zemetrics”), in exchange for 361,217 shares of the Company’s common stock. The value of the common stock issued was $3,901, based on the fair value of the common stock on the closing date of $10.80. In accordance with the purchase agreement, the number of shares delivered was calculated by taking the sum of $1,941 and the outstanding shareholder notes (including accrued interest) of $856 divided by the average of the closing prices of the Company’s common stock reported by the NASDAQ Stock Market during the forty trading days ended two days prior to the closing date of January 22, 2010 of $7.74 (the “Average Trading Price”).
Dr. Chris L. Koliopoulos, Zygo’s President and CEO, was a major shareholder of Zemetrics stock as well as being the major holder of Zemetrics’ outstanding shareholder notes. Dr. Koliopoulos received a total of 195,790 shares of Company common stock consisting of 106,233 shares of Company common stock as consideration for the purchase of his shares of Zemetrics stock and 89,557 shares of Company common stock in payment of $680 principal amount of outstanding shareholder notes (plus accrued interest thereon) issued by Zemetrics to Dr. Koliopoulos.
F - 12
Acquisition costs for the twelve months ended June 30, 2010 were $457, and are included in selling, general & administrative expenses.
The following is the final purchase price allocation based on the estimated fair values of the assets acquired and liabilities assumed as of the date of acquisition on January 22, 2010:
| | | | |
Cash | | $ | 11 | |
Inventories | | | 403 | |
Prepaid expenses | | | 18 | |
Property and equipment | | | 15 | |
Customer relationships | | | 112 | |
Technology | | | 1,428 | |
Goodwill | | | 2,003 | |
| |
|
| |
Total assets | | | 3,990 | |
| | | | |
Less: Liabilities assumed | | | 89 | |
| |
|
| |
Total | | $ | 3,901 | |
| |
|
| |
In addition, net deferred tax assets of $360 were recorded in the opening balance sheet at zero value, net of a full valuation allowance. Based on the Company’s expectations of future U.S. taxable income, the Company believes it is more likely than not that such net deferred tax assets could not be realized.
The purchase price was allocated to the underlying assets acquired and liabilities assumed based on their fair values. Analyses supporting the purchase price allocation include a valuation of assets and liabilities as of the closing date, an analysis of intangible assets and a detailed review of the opening balance sheet to determine other significant adjustments required to recognize assets and liabilities at fair value. Intangible assets of technology and customer relationships were valued on an income approach based on future earnings projections.
The following disclosure presents certain information regarding the Company’s acquired intangible assets as of June 30, 2010. All acquired intangible assets were valued by the income approach and are being amortized over their initial estimated useful lives of three years for customer relationships and seven years for technology with no estimated residual values. We review our intangible assets for impairment annually.
| | | | | | | | | | |
| | Customer
Relationships | | Technology | | Total | |
| |
| |
| |
| |
| | | | | | | | | | |
Balance at January 22, 2010 | | $ | 112 | | $ | 1,428 | | $ | 1,540 | |
| | | | | | | | | | |
Amortization expense | | | (16 | ) | | (85 | ) | | (101 | ) |
| |
|
| |
|
| |
|
| |
Balance at June 30, 2010 | | $ | 96 | | $ | 1,343 | | $ | 1,439 | |
| |
|
| |
|
| |
|
| |
The Company recorded an impairment charge of $2,003 relating to acquired goodwill in the quarter ended March 31, 2010 subsequent to the acquisition date. The Zemetrics reporting unit had minimal sales history and cumulative losses since inception. In addition, the fair value of common stock issued as consideration on the closing date was $10.80 per share, which was significantly in excess of the implied value per share in the formula used in the purchase agreement to determine the number of common shares issued as consideration (which was based on the market price per share during the 40-day period prior to closing). In consideration of these factors, management determined the carrying value of the reporting unit exceeded its fair value, and that the implied fair value of goodwill was zero at March 31, 2010.
F - 13
From the date of acquisition, the Zemetrics reporting unit had revenues of $103 and an operating loss of $2,658 (including the aforementioned $2,003 goodwill impairment charge), which are included in the consolidated financial statements in fiscal 2010. The following unaudited proforma condensed financial information presents the results of operations for the years ended June 30, 2010 and 2009 as though the acquisition of Zemetrics had occurred at the beginning of each respective fiscal year. The proforma information is presented for informational purposes only and is not necessarily indicative of the results of operations that actually would have been achieved had the acquisition been consummated as of that time:
| | | | | | | |
| | Year ended June 30, | |
| |
| |
| | 2010 | | 2009 | |
| |
| |
| |
| | | | | |
Net revenues | | $ | 101,330 | | $ | 114,734 | |
Net loss attributable to Zygo Corporation | | $ | (3,565 | ) | $ | (63,169 | ) |
| | | | | | | |
Loss per share amounts: | | | | | | | |
Basic and Diluted - Loss per share | | $ | (0.21 | ) | $ | (3.75 | ) |
Diluted - Loss per share | | $ | (0.21 | ) | $ | (3.75 | ) |
Solvision, Inc.
On February 28, 2008, we acquired certain assets of Solvision, Inc. (“Solvision”), a Canadian-based company, including the shares of its Singapore subsidiary for $4,155, net of cash received, under the purchase method of accounting with the purchase price allocation being finalized in fiscal 2009. This final consideration consisted of $4,240 of cash and $17 representing the value of assets received for the forgiveness of a $1,500 note extended to Solvision. In fiscal 2009 (as part of the final purchase price allocation) and 2008, $924 and $559, respectively, of the note was charged to bad debt expense. This acquisition was integrated into the Metrology segment. The results of operations of this acquisition have been included in the consolidated statement of operations since on February 28, 2008.
During the quarter ended September 30, 2009, we determined to sell or otherwise close down the Singapore IC packaging metrology operations of our Vision Systems product line, included in our Metrology Solutions segment. As of September 30, 2009, operations had ceased at this location. The results of operations for the aforementioned operations are presented in the Company’s Consolidated Financial Statements as discontinued operations. We have restated the financial presentation and related footnotes for fiscal 2009 to show the effects of the discontinued operations.
During our fiscal 2009 annual review of intangible assets, we determined, based on the downturn in the business climate for this product line and the level of its then operating losses, that all of the acquired intangible assets resulting from the acquisition of Solvision in the prior year were impaired. Of the $2,149 of impairment charges in fiscal 2009, $1,048 was related to continuing operations and $1,101 related to discontinued operations.
Fiscal 2009 Merger Termination
On October 16, 2008, we and Electro Scientific Industries, Inc. (“ESI”) jointly announced the execution of a definitive agreement, providing for the two companies to merge in an all stock transaction, subject to the prior satisfaction of certain enumerated conditions precedent. On January 20, 2009, Zygo announced that it notified ESI of Zygo’s Board of Directors’ withdrawal of its recommendation in favor of the previously announced merger agreement with ESI. On April 2, 2009, ESI and Zygo agreed to terminate their previously executed merger agreement. Pursuant to the terms of the settlement agreement, Zygo paid ESI a break-up fee of $5,400. During fiscal 2009, we paid an additional $2,900 related to the merger in legal and various other related expenses. The break-up fee, legal and other expenses are included in selling, general and administrative expenses in fiscal 2009.
F - 14
NOTE 3: RESTRUCTURING AND RELATED COSTS
During fiscal 2009, we initiated restructuring actions related to cost reduction efforts comprised of workforce reductions and the consolidation of manufacturing operations in Tucson, Arizona. In fiscal 2010, we recorded restructuring and related charges totaling $661 ($383 in selling, general and administrative expenses, and $278 in research, development and engineering expenses). There were no additional charges during fiscal 2011. The severance-related costs are part of the Metrology Solutions segment, and the facility consolidation costs are related to the Optical Systems segment
The following table summarizes the accrual balances and utilization by cost type for the fiscal 2011 and 2010 restructuring actions:
| | | | | | | | | | |
| | Severance | | June 30, 2011
Facility
Consolidation
Costs | | Total | |
| |
| |
| |
| |
Balance at June 30, 2010 | | $ | 290 | | $ | 227 | | $ | 517 | |
Payments | | | (290 | ) | | (194 | ) | | (484 | ) |
| |
|
| |
|
| |
|
| |
Balance at June 30, 2011 | | $ | — | | $ | 33 | | $ | 33 | |
| |
|
| |
|
| |
|
| |
| | | | | | | | | | |
| | Severance | | June 30, 2010
Facility
Consolidation
Costs | | Total | |
| |
| |
| |
| |
Balance at June 30, 2009 | | $ | 262 | | $ | 452 | | $ | 714 | |
Restructuring charges | | | 661 | | | — | | | 661 | |
Payments | | | (633 | ) | | (225 | ) | | (858 | ) |
| |
|
| |
|
| |
|
| |
Balance at June 30, 2010 | | $ | 290 | | $ | 227 | | $ | 517 | |
| |
|
| |
|
| |
|
| |
We expect the remaining restructuring liabilities at June 30, 2011 to be paid within the next three months.
NOTE 4: MARKETABLE SECURITIES
Marketable securities consisted primarily of government agency securities and a mutual fund, consisting of corporate securities, for fiscal 2011 and 2010. The Company classifies these securities as held-to-maturity and trading. Dividend and interest income is recognized when earned. Straight-line amortization related to discounts and premiums on the purchase of marketable securities is recorded in interest income. Realized gains and losses are included in earnings and are derived using the specific identification method for determining the cost of securities sold.
At June 30, 2011 and 2010, the held-to-maturity securities consisted of a government treasury bill. We have both the intent and the ability to hold the government treasury bill to maturity. The amortized cost, gross unrealized gains and losses and fair value of held-to-maturity securities at June 30, 2011 and 2010 were as follows:
| | | | | | | | | | | | | |
| | Amortized
Cost | | Gross
Unrealized
Gains | | Gross
Unrealized
Losses | | Fair
Value | |
| |
| |
| |
| |
| |
At June 30, 2011 | | | | | | | | | | | | | |
Government treasury bill | | $ | 1,000 | | $ | — | | $ | — | | $ | 1,000 | |
| |
|
| |
|
| |
|
| |
|
| |
| | | | | | | | | | | | | |
At June 30, 2010 | | | | | | | | | | | | | |
Government treasury bill | | $ | 1,000 | | $ | — | | $ | — | | $ | 1,000 | |
| |
|
| |
|
| |
|
| |
|
| |
F - 15
Trading securities consist of a mutual fund investment corresponding to elections made in our deferred compensation program. In December 2010, we began quarterly distributions in accordance with the deferred compensation program agreement. The cost, gross unrealized gains and losses, contributions, redemptions and fair value of trading securities at June 30, 2011 and 2010 were as follows:
| | | | | | | | | | | | | | | | | | | |
| | Beginning
Balance | | Gross
Unrealized
Gains | | Gross
Unrealized
Losses | | Contri-
butions | | Redemp-
tions | | Ending
Balance | |
| |
| |
| |
| |
| |
| |
| |
June 30, 2011 | | | | | | | | | | | | | | | | | | | |
Mutual Fund | | $ | 922 | | $ | 210 | | $ | (16 | ) | $ | — | | $ | (136 | ) | $ | 980 | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| | | | | | | | | | | | | | | | | | | |
June 30, 2010 | | | | | | | | | | | | | | | | | | | |
Mutual Fund | | $ | 499 | | $ | 191 | | $ | (58 | ) | $ | 290 | | $ | — | | $ | 922 | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Maturities of investment securities classified as held-to-maturity at June 30, 2011 and 2010 were as follows:
| | | | | | | | | | | | | |
| | June 30, 2011 | | June 30, 2010 | |
| |
| |
| |
| | Amortized
Cost | | Fair
Value | | Amortized
Cost | | Fair
Value | |
| |
| |
| |
| |
| |
Due within one year | | $ | 1,000 | | $ | 1,000 | | $ | 1,000 | | $ | 1,000 | |
| |
|
| |
|
| |
|
| |
|
| |
There were no securities in a continuous unrealized loss position at June 30, 2011 and 2010.
In determining whether investment holdings are other than temporarily impaired, we consider the nature, cause, size and duration of the impairment. We and our investment advisors use analyst reports, credit ratings and other items as part of our review.
F - 16
NOTE 5: FAIR VALUE MEASUREMENTS
Fair value measurements uses a valuation hierarchy for disclosure of the inputs to valuation used to measure fair value. This hierarchy prioritizes the inputs into three broad levels. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 inputs are quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument. Level 3 inputs are unobservable inputs based on the management’s assumptions used to measure assets and liabilities at fair value. A financial asset or liability’s classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement.
The following table provides the assets and liabilities carried at fair value measured on a recurring and nonrecurring basis as of June 30, 2011:
| | | | | | | | | | | | | | | | |
Assets Measured at Fair Value: | | | | | | | | | | | | | | | | |
(Dollars in thousands) | | | | | Fair value measurements at June 30, 2011 | | | | |
| | | | |
| | | | |
| | Total carrying
value at
June 30, 2011 | | Quoted prices
in active
markets
(Level 1) | | Significant
other
observable
inputs
(Level 2) | | Significant
unobservable
inputs
(Level 3) | | | | |
| |
| |
| |
| |
| | | | |
Money market funds | | $ | 19,930 | | $ | 19,930 | | $ | — | | $ | — | | | | |
Trading securities | | | 980 | | | 980 | | | — | | | — | | | | |
Foreign currency hedge | | | (82 | ) | | — | | | (82 | ) | | — | | | | |
| |
|
| |
|
| |
|
| |
|
| | | | |
Total | | $ | 20,828 | | $ | 20,910 | | $ | (82 | ) | $ | — | | | | |
| |
|
| |
|
| |
|
| |
|
| | | | |
| | | | | | | | | | | | |
Assets Measured at Fair Value on a Nonrecurring Basis: | | | | | | | | | | |
(Dollars in thousands) | | | | | Fair value measurements at June 30, 2011 | | | | |
| | | | |
| | | | |
| | Total carrying
value at
June 30, 2011 | | Quoted prices
in active
markets
(Level 1) | | Significant
other
observable
inputs
(Level 2) | | Significant
unobservable
inputs
(Level 3) | | Total Gains
(Losses) | |
| |
| |
| |
| |
| |
| |
Property, plant and equipment (1) | | $ | — | | $ | — | | $ | — | | $ | — | | $ | (563 | ) |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Total | | $ | — | | $ | — | | $ | — | | $ | — | | $ | (563 | ) |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
(1) See Note 8: Property, Plant and Equipment
F - 17
The following table provides the assets and liabilities carried at fair value measured on a recurring and nonrecurring basis as of June 30, 2010:
| | | | | | | | | | | | | | | | |
Assets Measured at Fair Value: | | | | | | | | | | | | | | | |
| | | | | Fair value measurements at June 30, 2010 | | | | |
| | | | |
| | | | |
| | Total carrying
value at
June 30, 2010 | | Quoted prices
in active
markets
(Level 1) | | Significant
other
observable
inputs
(Level 2) | | Significant
unobservable
inputs
(Level 3) | | | | |
| |
| |
| |
| |
| | | | |
Money market funds | | $ | 22,141 | | $ | 22,141 | | $ | — | | $ | — | | | | |
Trading securities | | | 922 | | | 922 | | | — | | | — | | | | |
Foreign currency hedge | | | (70 | ) | | — | | | (70 | ) | | — | | | | |
| |
|
| |
|
| |
|
| |
|
| | | | |
Total | | $ | 22,993 | | $ | 23,063 | | $ | (70 | ) | $ | — | | | | |
| |
|
| |
|
| |
|
| |
|
| | | | |
| | | | | | | | | | | | | | | | |
Assets Measured at Fair Value on a Nonrecurring Basis: |
| | | | | | | | | | | | | | | | |
| | Total carrying
value at
June 30, 2010 | | Quoted prices
in active
markets
(Level 1) | | Significant
other
observable
inputs
(Level 2) | | Significant
unobservable
inputs
(Level 3) | | Total Gains
(Losses) | |
| |
| |
| |
| |
| |
| |
Goodwill (1) | | | — | | | — | | | — | | | — | | | (2,003 | ) |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Total | | $ | — | | $ | — | | $ | — | | $ | — | | $ | (2,003 | ) |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
(1) See Note 2: Acquisitions
When available, the Company uses quoted market prices to determine the fair value of its marketable securities included in Level 1. When quoted market prices are unobservable, the Company uses quotes from independent pricing vendors based on recent trading activity and other relevant information.
The carrying value of other financial instruments, including cash, accounts receivable, accounts payable and accrued liabilities approximate fair value due to their short maturities. The remainder of our marketable securities at June 30, 2011 are accounted for as held-to-maturity investments and are recorded at amortized cost of $1,000.
F - 18
NOTE 6: RECEIVABLES
At June 30, 2011 and 2010, receivables were as follows:
| | | | | | | |
| | June 30, 2011 | | June 30, 2010 | |
| |
| |
| |
Trade | | $ | 32,515 | | $ | 21,314 | |
Other | | | 308 | | | 609 | |
| |
|
| |
|
| |
| | | 32,823 | | | 21,923 | |
Allowance for doubtful accounts | | | (1,399 | ) | | (1,975 | ) |
| |
|
| |
|
| |
| | $ | 31,424 | | $ | 19,948 | |
| |
|
| |
|
| |
NOTE 7: INVENTORIES
At June 30, 2011 and 2010, inventories were as follows:
| | | | | | | |
| | June 30, 2011 | | June 30, 2010 | |
| |
| |
| |
Raw materials and manufactured parts | | $ | 13,265 | | $ | 12,682 | |
Work in process | | | 10,742 | | | 9,322 | |
Finished goods | | | 4,372 | | | 3,216 | |
| |
|
| |
|
| |
| | $ | 28,379 | | $ | 25,220 | |
| |
|
| |
|
| |
NOTE 8: PROPERTY, PLANT AND EQUIPMENT
At June 30, 2011 and 2010, property, plant and equipment, at cost, were as follows:
| | | | | | | | | | |
| | June 30, 2011 | | June 30, 2010 | | Estimated
Useful Life
(Years) | |
| |
| |
| |
| |
| | | | | | | |
Land and improvements | | $ | 2,930 | | $ | 615 | | | — | |
Building and improvements | | | 21,265 | | | 17,390 | | | 15-40 | |
Machinery, equipment and office furniture | | | 58,157 | | | 56,136 | | | 3-8 | |
Leasehold improvements | | | 989 | | | 1,002 | | | 1-5 | |
Construction in progress | | | 357 | | | 332 | | | — | |
| |
|
| |
|
| | | | |
| | | 83,698 | | | 75,475 | | | | |
Less accumulated depreciation | | | (53,503 | ) | | (52,446 | ) | | | |
| |
|
| |
|
| | | | |
| | $ | 30,195 | | $ | 23,029 | | | | |
| |
|
| |
|
| | | | |
Depreciation expense for the fiscal years ended June 30, 2011, 2010, and 2009 was $5,363, $5,318 and $7,245, respectively. In fiscal 2011, we utilized a future discounted cash flow model over five years to assess the net realizable value of our property, plant and equipment and concluded that an impairment charge of $563 should be recorded in selling, general and administrative expenses related to the Vision systems product line in our Metrology Solutions segment. In fiscal 2009, we recorded impairment charges on our plant, property and equipment of $4,460 including $4,004 related to the precision positioning systems product line in our Metrology Solutions segment. We utilized a future discounted cash flow model over five years to assess the net realizable value of our property, plant and equipment in our precision positioning systems product line. These charges were included in cost of sales ($2,911), selling, general and administrative expenses ($82), and research, development and engineering expenses ($1,467) on the statement of operations for fiscal 2009.
F - 19
NOTE 9: INTANGIBLE ASSETS
Intangible assets, at cost, at June 30, 2011 and 2010 were as follows:
| | | | | | | | | | |
| | June 30, 2011 | | June 30, 2010 | | Estimated Useful
Life (Years) | |
| |
| |
| |
| |
| | | | | | | | | | |
Patents and trademarks | | $ | 6,774 | | $ | 5,882 | | | 5-17 | |
Customer relationships and technology | | | 2,163 | | | 1,540 | | | 3-7 | |
Covenant not-to-compete | | | 851 | | | 851 | | | 4 | |
| |
|
| |
|
| | | | |
| | | 9,788 | | | 8,273 | | | | |
Accumulated amortization | | | (3,946 | ) | | (2,886 | ) | | | |
| |
|
| |
|
| | | | |
Total | | $ | 5,842 | | $ | 5,387 | | | | |
| |
|
| |
|
| | | | |
Amortization expense related to intangible assets for the fiscal years ended June 30, 2011, 2010 and 2009 was $1,070, $793, and $687, respectively. Amortization expense is estimated to be approximately $992 in fiscal 2012 and approximately $852, $746, $729 and $635 annually in fiscal 2013-2016, respectively. Amortization expense related to patents and trademarks is included in cost of goods sold in the consolidated statements of operations. Amortization expense related to customer relationships, technology and covenant not-to-compete is included in selling, general and administrative expense in the consolidated statements of operations.
A non-compete agreement went into effect with the retirement of the chief technology officer of the Company in February 2009. This agreement requires payments totaling $878 over four years, including imputed interest of $27.
In fiscal 2009, we recorded an impairment charge of $2,935 on our patents related to our precision positioning systems product line in our metrology segment that was included in cost of sales on the consolidated statement of operations as result of our review of our business operations in the economic downturn. We utilized a future discounted cash flow model over five years to assess the net realizable value of our patents in our precision positioning systems product line.
In addition, in fiscal 2009, we recorded an impairment charge of $1,048 on the total value of our customer relationships and technology related to our vision systems product line in our metrology segment that was included in selling, general and administrative expenses and research, development and engineering expenses on the consolidated statement of operations, as noted in Note 2.
NOTE 10: WARRANTY LIABILITY
We provide a limited warranty on our products for periods typically ranging from 3 to 24 months, and allowances for estimated warranty costs are recorded during the period of sale. The determination of such allowances requires management to make estimates of product return rates and expected costs to repair or replace products under warranty. If actual return rates or repair and replacement costs, or both, differ significantly from management’s estimates, adjustments to recognize additional expense may be required.
The following is a reconciliation of the beginning and ending balances of the accrued warranty liability, which is included in “other accrued expenses” in the consolidated balance sheets:
| | | | | | | |
| | June 30, 2011 | | June 30, 2010 | |
| |
| |
| |
Beginning balance | | $ | 1,360 | | $ | 1,614 | |
Reductions for payments made | | | (1,083 | ) | | (881 | ) |
Changes in accruals related to warranties issued in the current period | | | 920 | | | 1,236 | |
Changes in accrual related to pre-existing warranties | | | 136 | | | (609 | ) |
| |
|
| |
|
| |
Ending balance | | $ | 1,333 | | $ | 1,360 | |
| |
|
| |
|
| |
F - 20
NOTE 11: COMMITMENTS AND CONTINGENCIES
From time to time, we are subject to certain legal proceedings and claims that arise in the normal course of our business. At June 30, 2011, we did not have a reserve for any contingencies. We are not party to any litigation that we believe could have a material effect on our financial condition, results of operation or liquidity. During fiscal 2011, we settled and paid a royalty claim in the amount of $1,400.
We are aware of certain levels of contamination on our property in Connecticut which are below reportable levels. In addition, we are aware of certain contamination on an adjacent property that we formerly owned. The future effect of environmental matters, including potential liabilities, is often difficult to estimate. Testing of both properties has not shown contaminants above reportable levels. We are unable to determine or reasonably estimate the amount of costs, if any, that we might incur or for which we may ultimately become responsible. We will record a reserve if it is both probable that a liability has been incurred, and the amount of any liability can be reasonably estimated, whether or not a claim has been asserted.
We lease certain manufacturing equipment and facilities under operating leases, some of which include cost escalation clauses, expiring on various dates through fiscal 2016. Total lease expense, net, charged to operations was $1,330, $1,295 and $2,340 in fiscal 2011, 2010 and 2009, respectively. At June 30, 2011, the minimum future lease commitments under noncancellable leases payable over the remaining lives of the leases are as follows:
| | | | |
Year ending June 30, | | Minimum
Future Gross Lease
Commitments | |
| |
| |
2012 | | $ | 774 | |
2013 | | | 358 | |
2014 | | | 108 | |
2015 | | | 43 | |
2016 | | | 19 | |
| |
|
| |
Total minimum lease payments | | $ | 1,302 | |
| |
|
| |
Our Oregon facility is subleased for approximately $90 per year through March 2013.
NOTE 12: PROFIT-SHARING PLAN
We maintain a profit-sharing plan in which substantially all full-time employees are eligible to participate. The profit-sharing plan consists of cash distributions determined annually at the discretion of the Board of Directors. We also maintain a 401(k) tax deferred payroll deduction program, under which employees may contribute a tax-deferred amount of up to 60% of their compensation, as defined. In fiscal 2009, we contributed to the 401(k) program based on matching up to 4% of an employee’s contributions. There was no company 401(k) match in either fiscal 2011 or 2010. Our expenses related to the plans for the years ended June 30, 2011, 2010 and 2009 amounted to $2,526, $0 and $967, respectively.
F - 21
NOTE 13: SHARE-BASED COMPENSATION PLANS
|
Share-Based Compensation Plans |
The Zygo Corporation 2002 Equity Incentive Plan (“2002 Plan”), as amended in 2006, permits the granting of stock options to purchase shares of common stock and the granting of restricted stock units. The number of shares authorized under the Plan was 3,300,000 shares, of which 545,000 remain available for grant at June 30, 2011. The exercise price per share of common stock covered by an option may not be less than the par value per share on the date of grant, and in the case of an incentive stock option, the exercise price may not be less than the market value per share on the date of grant. Options and grants of restricted stock units generally vest over a four year period at a rate of 25% each year. Restricted stock awards granted prior to January 1, 2011 vest 50% after three years and 50% after four years. |
The 2002 Plan will expire on August 27, 2012. Pursuant to the terms of the 2002 Plan, the Board of Directors may also amend the 2002 Plan to authorize the grant of other types of equity-based awards, without further action by our stockholders. As part of a director’s compensation for services to the company, non-employee directors are granted 5,000 restricted shares, and a non-employee chairman of the board is granted 7,500 restricted shares, which vest on an annual basis after one year and each new non-employee director is granted options to purchase 16,000 shares of common stock on his or her first day of service, at the market value per share on the date of grant. These options vest over a four year period at a rate of 25% each year.
On June 26, 2001, the Board of Directors granted a warrant to purchase 25,000 shares of our common stock to the Zetetic Institute, a non-profit organization that provided assistance to us in connection with certain research and development activities. The warrant had an exercise price of $18.64 per share, the closing price of the common stock on the date of the grant, and vested in equal annual increments over the four-year period following the date of grant. The warrant expired on June 26, 2011.
We use the Black-Scholes option-pricing model to calculate the fair value of stock option awards. The key assumptions for this valuation method include the expected term of the option, stock price volatility, risk-free interest rate, dividend yield, and exercise price. Under the assumptions indicated below, the weighted-average fair value of stock option grants for fiscal 2011, 2010 and 2009 were $5.68, $4.45 and $3.77, respectively. The table below indicates the key assumptions used in the option valuation calculations for options granted in fiscal 2011, 2010 and 2009, and a discussion of our methodology for developing each of the assumptions used in the valuation model:
| | | | | | | | | | |
| | Fiscal Year Ended June 30, | |
| |
| |
| | 2011 | | 2010 | | 2009 | |
| |
| |
| |
| |
Term | | | 4.1-5.1 Years | | | 4.1-5.1 Years | | | 4-4.6 Years | |
Volatility | | | 45.7 - 57.1% | | | 45.7 - 60.9% | | | 45.5% | |
Dividend yield | | | 0.0% | | | 0.0% | | | 0.0% | |
Risk-free interest rate | | | 1.1-2.6% | | | 2.0-2.5% | | | 0.5-2.9% | |
Term – This is the period of time over which the options granted are expected to remain outstanding. Options granted generally have a maximum term of ten years. An increase in the expected term would increase compensation expense.
Volatility – This is a measure of the amount by which a price has fluctuated or is expected to fluctuate. Volatilities are based on implied volatilities from traded options of Zygo’s shares and historical volatility of Zygo’s shares. An increase in the expected volatility will increase compensation expense.
Risk-Free Interest Rate – This is the U.S. Treasury rate at the time of the grant having a term equal to the expected term of the option. An increase in the risk-free interest rate would increase compensation expense.
Dividend Yield – We did not make any dividend payments during the last five fiscal years and we have no plans to pay dividends in the foreseeable future. An increase in the dividend yield would decrease compensation expense.
F - 22
Stock Options
The following table summarizes information about our stock options granted under our share-based compensation plans for fiscal 2011, 2010 and 2009. Included in the information below are outstanding options from the Zygo Corporation Amended and Restated Non-Qualified Stock Option Plan which expired in fiscal 2003, to the extent the options remain exercisable.
| | | | | | | | | | | | | | | | | | | |
| | June 30, 2011 | | June 30, 2010 | | June 30, 2009 | |
| |
| |
| |
| |
| | Shares
Covered by
Options | | Weighted
Average
Exercise
Price | | Shares
Covered by
Options | | Weighted
Average
Exercise
Price | | Shares
Covered by
Options | | Weighted
Average
Exercise
Price | |
| |
| |
| |
| |
| |
| |
| |
Options - Outstanding at beginning of year | | | 1,976,892 | | $ | 20.14 | | | 1,908,572 | | $ | 22.72 | | | 2,058,639 | | $ | 25.33 | |
Granted | | | 100,000 | | $ | 12.13 | | | 515,000 | | $ | 9.75 | | | 169,000 | | $ | 9.61 | |
Exercised | | | (166,852 | ) | $ | 10.05 | | | (57,300 | ) | $ | 8.39 | | | (21,125 | ) | $ | 8.65 | |
Expired or cancelled | | | (473,800 | ) | $ | 51.07 | | | (389,380 | ) | $ | 29.60 | | | (297,942 | ) | $ | 37.01 | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Options - Outstanding at end of year | | | 1,436,240 | | $ | 10.57 | | | 1,976,892 | | $ | 20.14 | | | 1,908,572 | | $ | 22.72 | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Options vested or expected to vest | | | 1,402,221 | | $ | 10.56 | | | 1,878,816 | | $ | 20.68 | | | 1,846,583 | | $ | 23.10 | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Options - Exercisable at end of year | | | 925,990 | | $ | 10.70 | | | 1,297,492 | | $ | 25.46 | | | 1,573,272 | | $ | 25.19 | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Outstanding options at June 30, 2011, had an intrinsic value of $4,282 with a weighted average remaining contractual life of 5.4 years. Exercisable options at the end of the year had an intrinsic value of $2,659 with a weighted average remaining contractual life of 3.7 years.
The following table summarizes information about our stock options granted under our share-based compensation plans as of June 30, 2011.
| | | | | | | | | | | | | | | | |
| | Options Outstanding | | Options Exercisable | |
| |
| |
| |
Range of
Exercise
Prices | | Number
Outstanding
as of
June 30, 2011 | | Weighted
Average
Remaining
Contractual
Life | | Weighted
Average
Exercise Price | | Number
Exercisable as of
June 30, 2011 | | Weighted
Average
Exercise Price | |
|
|
|
|
|
|
| |
|
|
| |
$ 5.09 - $8.80 | | | 307,305 | | | 5.5 | | $ | 6.72 | | | 166,305 | | $ | 6.39 | |
$ 9.01 - $12.51 | | | 855,331 | | | 5.6 | | $ | 10.58 | | | 536,081 | | $ | 10.43 | |
$12.53 - $14.74 | | | 151,950 | | | 3.9 | | $ | 13.72 | | | 151,950 | | $ | 13.72 | |
$14.90 - $20.09 | | | 121,654 | | | 5.9 | | $ | 16.25 | | | 71,654 | | $ | 16.29 | |
|
|
|
|
|
|
| |
|
|
| |
$ 5.09 - $20.09 | | | 1,436,240 | | | 5.4 | | $ | 7.06 | | | 925,990 | | $ | 10.70 | |
|
|
|
|
|
|
| |
|
|
| |
As of June 30, 2011, there was $1,246 of total unrecognized compensation cost related to stock options. These costs are expected to be recognized over a weighted average period of 1.93 years.
The total intrinsic value of stock options exercised was $449, $109 and $56 and the total fair value of stock awards vested was $959, $478 and $754 during the fiscal years ended June 30, 2011, 2010 and 2009, respectively.
Cash received from stock option exercises and the associated tax benefit for the fiscal years ended June 30, 2011, 2010 and 2009 was $1,834, $520 and $203, respectively.
F - 23
Restricted Stock
The following table summarizes information about restricted stock units granted under share-based compensation plans for the fiscal years ended June 30, 2011, 2010, and 2009:
| | | | | | | | | | | | | | | | | | | |
| | June 30, 2011 | | June 30, 2010 | | June 30, 2009 | |
| |
| |
| |
| |
| | Shares | | Weighted
Average
Fair Value | | Shares | | Weighted
Average
Fair Value | | Shares | | Weighted
Average
Fair Value | |
| |
| |
| |
| |
| |
| |
| |
Non vested balance at beginning of year | | | 588,093 | | $ | 9.04 | | | 551,650 | | $ | 11.46 | | | 635,147 | | $ | 12.23 | |
Granted | | | 362,500 | | $ | 8.28 | | | 309,000 | | $ | 6.06 | | | 189,200 | | $ | 9.72 | |
Vested | | | (172,865 | ) | $ | 8.89 | | | (205,194 | ) | $ | 11.28 | | | (213,060 | ) | $ | 11.63 | |
Forfeited | | | (63,753 | ) | $ | 9.06 | | | (67,363 | ) | $ | 8.71 | | | (59,637 | ) | $ | 11.87 | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Non vested balance at end of year | | | 713,975 | | $ | 8.00 | | | 588,093 | | $ | 9.04 | | | 551,650 | | $ | 11.46 | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
As of June 30, 2011, there was $2,973 of total unrecognized compensation costs related to restricted stock awards. These costs are expected to be recognized over a weighted average period of 2.4 years.
At June 30, 2011, an aggregate of 545,065 shares remained available for future grants under our share-based compensation plans, which cover stock awards and stock options. We issue shares to satisfy stock option exercises and restricted stock awards, as applicable.
NOTE 14: EMPLOYEE STOCK PURCHASE PLAN
Under the Employee Stock Purchase Plan (“ESPP”), employees who elected to participate had the ability to purchase common stock at a 5% discount from the market value of such stock through payroll deductions of an amount between 1% and 10% of compensation. The total number of shares of common stock available under the ESPP was 500,000. In July 2008, we issued approximately 13,072 shares of common stock. In January 2009, we issued 12,897 shares of common stock under the plan. Participation in the Plan was cancelled during fiscal 2009.
F - 24
NOTE 15: INCOME TAXES
The (provision) benefit for income taxes consists of the following:
| | | | | | | | | | |
| | Fiscal Year Ended June 30, | |
| |
|
|
| | 2011 | | 2010 | | 2009 | |
| |
|
|
|
|
|
|
Current: | | | | | | | | | | |
Federal | | $ | 725 | | $ | 1,917 | | $ | 20 | |
State | | | (259 | ) | | (130 | ) | | (185 | ) |
Foreign | | | (1,782 | ) | | (1,544 | ) | | (1,038 | ) |
| |
|
|
|
|
|
|
|
|
|
| | | (1,316 | ) | | 243 | | | (1,203 | ) |
| |
|
|
|
|
|
|
|
|
|
Deferred: | | | | | | | | | | |
Federal | | | — | | | 789 | | | (18,277 | ) |
State | | | — | | | — | | | (2,567 | ) |
Foreign | | | — | | | — | | | (146 | ) |
| |
|
|
|
|
|
|
|
|
|
| | | — | | | 789 | | | (20,990 | ) |
| |
|
|
|
|
|
|
|
|
|
| | | | | | | | | | |
Total | | $ | (1,316 | ) | $ | 1,032 | | $ | (22,193 | ) |
| |
|
|
|
|
|
|
|
|
|
The income tax (expense) benefit for operations listed above were provided on the following pre-tax book income (loss) from continuing operations amounts:
| | | | | | | | | | |
| | Fiscal Year Ended June 30, | |
| |
| |
| | 2011 | | 2010 | | 2009 | |
| |
|
|
|
|
| |
Earnings (loss) from operations - U.S. | | $ | 18,543 | | $ | (7,883 | ) | $ | (39,402 | ) |
Earnings from foreign operations | | | 3,365 | | | 4,183 | | | 385 | |
| |
|
|
|
|
|
|
|
|
|
| | $ | 21,908 | | $ | (3,700 | ) | $ | (39,017 | ) |
| |
|
|
|
|
|
|
|
|
|
F - 25
The total income tax (expense) benefit differs from the amount computed by applying the applicable U.S. federal income tax rate of 35% in fiscal 2011, 2010, and 2009 to earnings from continuing operations before income taxes for the following reasons:
| | | | | | | | | | |
| | Fiscal Year Ended June 30, | |
| |
|
|
| | 2011 | | 2010 | | 2009 | |
| |
|
|
|
|
|
|
Computed “expected tax (expense) benefit” | | $ | (7,668 | ) | $ | 1,295 | | $ | 13,656 | |
(Increases) reductions in taxes resulting from: | | | | | | | | | | |
State taxes, net of federal income tax benefit | | | (168 | ) | | (85 | ) | | (1,789 | ) |
Reversal of allowance for uncertain tax positions | | | — | | | 1,209 | | | — | |
Refund claims relating to net operating loss (“NOL”) carrybacks and other credits | | | — | | | 1,374 | | | — | |
Benefit related to gain on acquisition | | | 725 | | | — | | | — | |
Permanent items | | | (524 | ) | | (727 | ) | | (83 | ) |
Foreign tax differential | | | 399 | | | 88 | | | 935 | |
Deferred tax asset valuation allowance and related adjustments to NOL | | | 5,920 | | | (2,217 | ) | | (36,037 | ) |
Other, net | | | — | | | 95 | | | 1,125 | |
| |
|
|
|
|
|
|
|
|
|
| | $ | (1,316 | ) | $ | 1,032 | | $ | (22,193 | ) |
| |
|
|
|
|
|
|
|
|
|
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities as of June 30, 2011 and 2010 are presented below:
| | | | | | | |
| | June 30, 2011 | | June 30, 2010 | |
| |
| |
| |
Deferred tax assets: | | | | | | | |
Accounts receivable | | $ | 1,741 | | $ | 703 | |
Accrued liabilities and other | | | 1,025 | | | 3,692 | |
Inventory valuation | | | 3,979 | | | 4,918 | |
Stock award compensation | | | 202 | | | 1,977 | |
Intangible assets | | | 79 | | | 12 | |
Federal, foreign and state net operating loss carryforwards and credits | | | 25,406 | | | 32,753 | |
Contributions | | | 72 | | | 81 | |
| |
|
| |
|
| |
Deferred tax assets | | | 32,504 | | | 44,136 | |
| |
|
| |
|
| |
| | | | | | | |
Deferred tax liabilities: | | | | | | | |
Prepaid expenses | | | — | | | (276 | ) |
Property, plant and equipment | | | (3,270 | ) | | (927 | ) |
| |
|
| |
|
| |
Deferred tax liability | | | (3,270 | ) | | (1,203 | ) |
| |
|
| |
|
| |
| | | | | | | |
Net deferred tax assets before valuation allowance | | | 29,234 | | | 42,933 | |
Valuation allowance | | | (29,179 | ) | | (42,933 | ) |
| |
|
| |
|
| |
Net deferred tax asset | | $ | 55 | | $ | — | |
| |
|
| |
|
| |
Management believes, based upon the uncertain and volatile market conditions and because the Company is in a cumulative pre-tax loss position over a three year-period, it is not more likely than not that the deferred tax assets, net of deferred tax liabilities, of $29,179 as of June 30, 2011 will be realized. In future periods, the allowance could be reduced based on future positive evidence indicating that it is more likely than not that a portion of the deferred tax assets will be realized.
F - 26
At June 30, 2011, our share of the cumulative undistributed earnings of foreign subsidiaries was $8,897. No provision has been made for U.S. or additional foreign taxes on the undistributed earnings of foreign subsidiaries because we intend to continue to reinvest these earnings. Determination of the amount of unrecognized deferred tax liability associated with these earnings is not practicable.
At June 30, 2011, we have federal, state, and foreign NOL carry forwards of approximately $44,343, $12,214, and $5,513, respectively, and various state and foreign tax credit carry forwards of $3,866 and $257. The federal NOL will expire from fiscal 2022 through fiscal 2030, while the state NOL and credits will expire from fiscal 2013 through fiscal 2030. The foreign NOL will begin to expire in fiscal 2028. We also have federal general business credit carry forwards of $5,621 and foreign tax credits of $213 which are available to reduce federal income taxes, if any, through 2029 and begin to expire in 2013. All deferred tax assets relating to the NOL’s and credits have been fully reserved in the valuation allowance since June 30, 2009.
Due to our NOL carry forwards, we have accrued no interest or penalties for any unrecognized tax benefits; however, our policy is to recognize interest related to unrecognized tax benefits in interest expense. Penalties, if incurred, would be recognized as a component of income tax expense. In the normal course of business, we provide for uncertain tax positions and adjust our unrecognized tax benefits accordingly. We do not anticipate any significant changes to our recognized tax benefits over the next twelve months.
The following table is a reconciliation of the beginning and ending balances of unrecognized tax benefits. If our unrecognized benefits were to become recognized in the future, the ending balance for each respective year would then impact our effective rate at the time which the unrecognized benefits are ultimately recognized.
| | | | |
Unrecognized tax benefit, June 30, 2008 | | $ | 1,872 | |
Decreases - tax positions of current year | | | (46 | ) |
| |
|
| |
Unrecognized tax benefit, June 30, 2009 | | $ | 1,826 | |
Decreases - tax positions of prior years | | | (1,826 | ) |
| |
|
| |
Unrecognized tax benefit, June 30, 2010 | | | — | |
Increases - tax positions of prior years | | | 855 | |
| |
|
| |
Unrecognized tax benefit, June 30, 2011 | | $ | 855 | |
| |
|
| |
We are subject to U.S. federal income tax as well as income tax in multiple state and foreign jurisdictions. We are no longer subject to U.S. federal income tax audit or tax adjustments for years prior to June 30, 2007, except to the extent we have NOLs and credits arising from any of those years. Those years are subject to audit at the time the NOL or credit is utilized. We are no longer subject to state and foreign income tax audit or tax adjustments for years prior to June 30, 2006.
F - 27
NOTE 16: SEGMENT REPORTING
Our business is organized into two operating divisions – Metrology Solutions (Metrology Solutions segment) and Optical Systems (Optical Systems segment). Consistent with our business structure, we reported our segments as Metrology and Optics. Our Metrology Solutions segment includes 3-Dimensional surface metrology products, precision positioning systems and custom engineered solutions. Zygo’s Optical Systems segment designs, develops and manufactures high precision optical components and electro-optical systems used in the semiconductor, defense, life-sciences and research markets. The chief operating decision-maker uses this information to allocate resources.
| | | | | | | | | | |
| | Fiscal Year Ended June 30, | |
| |
| |
| | 2011 | | 2010 | | 2009 | |
| |
|
|
|
|
| |
Metrology Solutions | | | | | | | | | | |
Net revenues | | $ | 92,947 | | $ | 65,841 | | $ | 82,766 | |
Gross profit | | | 50,913 | | | 33,652 | | | 28,427 | |
Gross margin | | | 55 | % | | 51 | % | | 34 | % |
| | | | | | | | | | |
Optical Systems | | | | | | | | | | |
Net revenues | | $ | 57,179 | | $ | 35,489 | | $ | 31,968 | |
Gross profit | | | 19,880 | | | 8,317 | | | 4,006 | |
Gross margin | | | 35 | % | | 23 | % | | 13 | % |
| | | | | | | | | | |
Total | | | | | | | | | | |
Net revenues | | $ | 150,126 | | $ | 101,330 | | $ | 114,734 | |
Gross profit | | | 70,793 | | | 41,969 | | | 32,433 | |
Gross margin | | | 47 | % | | 41 | % | | 28 | % |
Separate financial information by segment for total assets, capital expenditures and depreciation and amortization is not available and is not evaluated by the chief operating decision-maker.
Substantially all of our operating assets, depreciation and amortization are U.S. based. Revenues by geographic area based on shipping destination were as follows:
| | | | | | | | | | |
| | Fiscal Year Ended June 30, | |
| |
| |
| | 2011 | | 2010 | | 2009 | |
| |
|
|
|
|
| |
| | | | | | | | | | |
Americas: | | $ | 81,710 | | $ | 54,066 | | $ | 55,456 | |
Far East: | | | | | | | | | | |
Japan | | | 31,648 | | | 18,280 | | | 26,352 | |
Pacific Rim | | | 18,785 | | | 15,376 | | | 19,415 | |
| |
|
| |
|
| |
|
| |
Total Far East | | | 50,433 | | | 33,656 | | | 45,767 | |
| |
|
| |
|
| |
|
| |
Europe | | | 17,983 | | | 13,608 | | | 13,511 | |
| |
|
| |
|
| |
|
| |
Total | | $ | 150,126 | | $ | 101,330 | | $ | 114,734 | |
| |
|
| |
|
| |
|
| |
NOTE 17: TRANSACTIONS WITH STOCKHOLDER
Sales to Canon, Inc., a stockholder representing approximately 7% ownership at June 30, 2011, and Canon Sales Co., Inc., a distributor of certain of our products in Japan and a subsidiary of Canon Inc. (collectively “Canon”), were $19,697 (13% of net revenues), $8,809 (9% of net revenues) and $16,229 (14% of net revenues), for the years ended June 30, 2011, 2010 and 2009, respectively. Substantially all of these revenues occurred in the Metrology segment. Selling prices of products sold to Canon are based, generally, on the normal terms given to distributors.
At June 30, 2011 and 2010, there were, in the aggregate, $2,572 and $667, respectively, of trade accounts receivable from Canon.
F - 28
NOTE 18: HEDGING ACTIVITIES
We enter into foreign currency forward contracts to reduce the impact of adverse fluctuations on earnings associated with foreign currency exchange rate changes. We do not enter into any derivative transactions for speculative purposes. These contracts are not designated as cash flow, fair value, or net investment hedges and therefore, are marked-to-market with changes in fair value recorded to earnings. These contracts are entered into for periods consistent with the currency transaction exposures, generally three to six months. Any gains and losses on the fair value of these contracts would largely offset corresponding losses and gains on the underlying transactions.
As of June 30, 2011, we had six foreign currency forward contracts outstanding with notional amounts aggregating to $3,060. Net unrealized losses recognized from foreign currency forward contracts for fiscal 2011, 2010 and 2009 was $12, $64 and $49, respectively, included in other income in the consolidated statements of operations. These losses are substantially offset by foreign exchange gains on intercompany balances recorded by our subsidiaries.
NOTE 19: QUARTERLY RESULTS (UNAUDITED)
The following table sets forth certain unaudited quarterly financial data:
| | | | | | | | | | | | | |
| | For the Fiscal Year Ended June 30, 2011 | |
| |
| |
| | September 30 | | December 31 | | March 31 | | June 30 | |
| |
| |
| |
| |
| |
Net revenues | | $ | 31,119 | | $ | 36,086 | | $ | 40,235 | | $ | 42,686 | |
| |
|
| |
|
| |
|
| |
|
| |
Gross profit | | $ | 14,203 | | $ | 16,894 | | $ | 18,864 | | $ | 20,832 | |
| |
|
| |
|
| |
|
| |
|
| |
Net earnings | | $ | 3,256 | | $ | 6,090 | | $ | 4,834 | | $ | 6,503 | |
| |
|
| |
|
| |
|
| |
|
| |
Net earnings from continuing operations attributable to Zygo Corporation | | $ | 2,637 | | $ | 5,774 | | $ | 4,473 | | $ | 6,104 | |
| |
|
| |
|
| |
|
| |
|
| |
Net earnings attributable to Zygo Corporation | | $ | 2,728 | | $ | 5,774 | | $ | 4,473 | | $ | 6,104 | |
| |
|
| |
|
| |
|
| |
|
| �� |
Net earnings attributable to Zygo Corporation per basic common share | | $ | 0.16 | | $ | 0.33 | | $ | 0.25 | | $ | 0.34 | |
| |
|
| |
|
| |
|
| |
|
| |
Net earnings attributable to Zygo Corporation per diluted common share | | $ | 0.16 | | $ | 0.32 | | $ | 0.24 | | $ | 0.33 | |
| |
|
| |
|
| |
|
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|
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| | | | | | | | | | | | | |
| | For the Fiscal Year Ended June 30, 2010 | |
| |
| |
| | September 30 | | December 31 | | March 31 | | June 30 | |
| |
| |
| |
| |
| |
Net revenues | | $ | 21,325 | | $ | 26,081 | | $ | 25,439 | | $ | 28,485 | |
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|
| |
|
| |
|
| |
|
| |
Gross profit | | $ | 7,174 | | $ | 10,953 | | $ | 11,477 | | $ | 12,365 | |
| |
|
| |
|
| |
|
| |
|
| |
Net earnings (loss) | | $ | (5,655 | ) | $ | (1,592 | ) | $ | (2,464 | ) | $ | 4,374 | |
| |
|
| |
|
| |
|
| |
|
| |
Net earnings (loss) from continuing operations attributable to Zygo Corporation | | $ | (3,952 | ) | $ | (1,266 | ) | $ | (2,503 | ) | $ | 4,096 | |
| |
|
| |
|
| |
|
| |
|
| |
Net earnings (loss) attributable to Zygo Corporation | | $ | (5,787 | ) | $ | (1,905 | ) | $ | (2,696 | ) | $ | 4,094 | |
| |
|
| |
|
| |
|
| |
|
| |
Net earnings (loss) attributable to Zygo Corporation per basic common share | | $ | (0.34 | ) | $ | (0.11 | ) | $ | (0.16 | ) | $ | 0.23 | |
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|
| |
|
| |
|
| |
|
| |
Net earnings (loss) attributable to Zygo Corporation per diluted common share | | $ | (0.34 | ) | $ | (0.11 | ) | $ | (0.16 | ) | $ | 0.23 | |
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|
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|
| |
F - 29
NOTE 20: DISCONTINUED OPERATIONS
During the quarter ended September 30, 2009, we determined to sell or otherwise close down the Singapore IC packaging metrology operations of our vision systems product line, included in our Metrology Solutions segment. As of September 30, 2009, operations had ceased at this location. The results of operations for the aforementioned operations are presented as discontinued operations in the Company’s Consolidated Financial Statements. The financial presentation and related footnotes for fiscal 2009 have been restated to show the comparable effects of the discontinued operations.
The following table summarizes the operating results of discontinued operations for the fiscal years ended June 30, 2011, 2010 and 2009:
| | | | | | | | | | |
| | Fiscal Year Ended June 30, | |
| |
| |
| | 2011 | | 2010 | | 2009 | |
| |
| |
| |
| |
Net revenues | | $ | — | | $ | 665 | | $ | 1,306 | |
Cost of goods sold | | | — | | | 268 | | | 2,271 | |
| |
|
| |
|
| |
|
| |
Gross profit (loss) | | | — | | | 397 | | | (965 | ) |
Operating (income) expenses, and other | | | (91 | ) | | 3,066 | | | 459 | |
Asset impairment | | | — | | | — | | | 2,483 | |
| |
|
| |
|
| |
|
| |
Earnings (loss) before income taxes | | | 91 | | | (2,669 | ) | | (3,907 | ) |
Income tax expense | | | — | | | — | | | (152 | ) |
| |
|
| |
|
| |
|
| |
Earnings (loss) from discontinued operations, net of tax | | $ | 91 | | $ | (2,669 | ) | $ | (4,059 | ) |
| |
|
| |
|
| |
|
| |
The following table sets forth the assets and liabilities of our discontinued operations included in the Consolidated Balance Sheets of the Company as of June 30, 2011 and 2010:
| | | | | | | |
| | June 30,
2011 | | June 30,
2010 | |
| |
| |
| |
Receivables | | $ | — | | $ | — | |
Other assets | | | — | | | 17 | |
| |
|
| |
|
| |
Current assets of discontinued operations | | $ | — | | $ | 17 | |
| |
|
| |
|
| |
| | | | | | | |
Accounts payable | | $ | — | | $ | — | |
Accrued expenses and other current liabilities | | | 281 | | | 287 | |
| |
|
| |
|
| |
Current liabilities of discontinued operations | | $ | 281 | | $ | 287 | |
| |
|
| |
|
| |
| | | | | | | |
Other long-term liabilities | | $ | — | | $ | 281 | |
| |
|
| |
|
| |
Long-term liabilities of discontinued operations | | $ | — | | $ | 281 | |
| |
|
| |
|
| |
Liabilities remaining as of June 30, 2011 include amounts due on a non-compete agreement that will be paid in the next twelve months.
* * * * *
F - 30
ZYGO CORPORATION AND CONSOLIDATED SUBSIDIARY
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Years ended June 30, 2011, 2010 and 2009
(Thousands of dollars)
| | | | | | | | | | | | | |
Description | | Balance at
Beginning of
Year | | Provision | | Write-Offs and
Other | | Balance at End
of Year | |
| |
| |
| |
| |
| |
| | | | | | | | | | | | | |
Year Ended June 30, 2011 | | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Allowance for doubtful accounts | | $ | 1,975 | | $ | (299 | ) | $ | 277 | | $ | 1,399 | |
| | | | | | | | | | | | | |
Valuation allowance on net deferred tax assets | | $ | 42,933 | | $ | (5,920 | ) | $ | 7,834 | | $ | 29,179 | |
| | | | | | | | | | | | | |
Year Ended June 30, 2010 | | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Allowance for doubtful accounts | | $ | 2,550 | | $ | (586 | ) | $ | (11 | ) | $ | 1,975 | |
| | | | | | | | | | | | | |
Valuation allowance on net deferred tax assets | | $ | 39,015 | | $ | (789 | ) | $ | (4,707 | ) | $ | 42,933 | |
| | | | | | | | | | | | | |
Year Ended June 30, 2009 | | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Allowance for doubtful accounts | | $ | 349 | | $ | 3,157 | | $ | 956 | | $ | 2,550 | |
| | | | | | | | | | | | | |
Valuation allowance on net deferred tax assets | | $ | 2,105 | | $ | 20,990 | | $ | (15,920 | ) | $ | 39,015 | |
S - 1
EXHIBIT INDEX
| | |
EXHIBIT
TABLE
NUMBER | | |
| | |
| | |
21 | | Subsidiaries of Registrant |
| | |
23.1 | | Consent of Independent Registered Public Accounting Firm |
| | |
31.1 | | Certification Pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
| | |
31.2 | | Certification Pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
| | |
32.1 | | Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
| | |
32.2 | | Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
