The loss from discontinued operations for fiscal 2010 of $2.7 million was due to severance and other closure costs, primarily related to the closure of our Singapore IC packaging operations of our vision systems product line in the first quarter.
Backlog at June 30, 2011 was $62.0 million, an increase of $17.1 million from June 30, 2010. The year-end fiscal 2011 backlog consisted of $31.4 million, or 51%, in the Metrology Solutions segment and $30.6 million, or 49%, in the Optical Systems segment. Bookings for fiscal 2011 totaled $167.2 million. Bookings by segment for fiscal 2011 consisted of $103.0 million, or 62%, in the Metrology Solutions segment and $64.2 million, or 38%, in the Optical Systems segment.
Sales to Canon, Inc., a stockholder representing approximately 7% ownership at June 30, 2012, and Canon Sales Co., Inc., a distributor of certain of our products in Japan and a subsidiary of Canon Inc. (collectively “Canon”), were $16.8 million (10% of net revenues), $19.7 million (13% of net revenues) and $8.8 million (9% of net revenues), for the years ended June 30, 2012, 2011 and 2010, respectively. Substantially all of these revenues occurred in the Metrology segment. Selling prices of products sold to Canon are based, generally, on the terms customarily given to distributors. At June 30, 2012 and 2011, there were, in the aggregate, $1.6 million and $2.6 million, respectively, of trade accounts receivable from Canon.
LIQUIDITY AND CAPITAL RESOURCES
We assess our liquidity in terms of our ability to generate cash to fund our operating, investing and financing activities. Our principal source of liquidity is operating cash flows. In addition to operating cash flows, other significant factors that affect our overall liquidity include: capital expenditures, customer credit requirements, investments in businesses and the availability of bank lines of credit.
Fiscal 2012 Compared with Fiscal 2011
At June 30, 2012, cash and cash equivalents were $84.1 million, an increase of $24.1 million from $60.0 million at June 30, 2011, of which $15.3 million is located in foreign jurisdictions subject to repatriation restrictions. As of June 30, 2012, $1.3 million of standby letters of credit were outstanding. These letters of credit are used primarily overseas to cover certain warranty periods or to cover future product shipments. These letters of credit are expected to expire at varying dates through October 2012. The cash equivalents balance in our money market account, which is invested primarily in U.S. government securities, was $19.9 million as of June 30, 2012. We do not believe there is any risk to liquidity in the money market account, nor are there currently any limits on redemptions.
Cash flow provided by operating activities from continuing operations for the year ended June 30, 2012 of $32.1 million was primarily due to an increase in net earnings, excluding non-cash items, partially offset by changes in deferred income taxes, prepaid expenses and other current assets, and accounts payable, accrued expenses and taxes payable.
Cash flow used for investing activities for the year ended June 30, 2012 decreased by $1.8 million compared with the prior year period. In fiscal 2011, we used cash of $7.1 million to purchase the assets of our EPO facility in Richmond, California, as well as purchasing $1.5 million of property, plant and equipment. In fiscal 2012, we purchased $8.5 million of property, plant and equipment, which included $4.0 million for the purchase of a manufacturing building in Tucson, Arizona.
Cash flow provided by financing activities for the year ended June 30, 2012 of $1.0 million was primarily due to the receipt of proceeds from stock option exercises of $3.6 million, partially offset by dividend payments of $2.2 million to noncontrolling interests.
We currently have no debt or lines of credit. In the future, if the need for debt or credit lines arose, there is no assurance that we would be able to secure such financing. We believe we have sufficient operating flexibility and cash reserves to maintain adequate amounts of liquidity and to meet our future liquidity requirements for at least the next twelve months.
Fiscal 2011 Compared with Fiscal 2010
At June 30, 2011, cash, cash equivalents and marketable securities were $61.0 million, an increase of $13.5 million from $47.5 million at June 30, 2010, of which $16.0 million is located in foreign jurisdictions subject to repatriation restrictions. Our marketable securities consist of $1.0 million in a United States treasury bill. As of June 30, 2011, $0.3 million of standby letters of credit were outstanding. These letters of credit are used primarily overseas to cover certain warranty periods or to cover future product shipments. These letters of credit are expected to expire at varying dates through January 2012. The cash equivalents balance in our money market account, which is invested primarily in U.S. government securities, was $19.9 million as of June 30, 2011. We do not believe there is any risk to liquidity in the money market account, nor are there currently any limits on redemptions.
Cash flow provided by operating activities from continuing operations for the year ended June 30, 2011 of $20.7 million was primarily due to an increase in net earnings, excluding non-cash items, partially offset by an increase in receivables and inventories.
Cash flow used by investing activities for the year ended June 30, 2011 increased by $10.4 million compared with the prior year period. This increase was primarily related to the purchase of ASML’s Richmond, California assets for $7.1 million and a net decrease in proceeds from sales and maturities of marketable securities.
Cash flow provided by financing activities in the year ended June 30, 2011 of $0.7 million was primarily due to the receipt of proceeds from stock option exercises of $1.7 million, partially offset by dividend payments of $0.8 million to noncontrolling interests.
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CONTRACTUAL OBLIGATIONS
The following table summarizes our significant contractual obligations at June 30, 2012 and the effect such obligations are expected to have on our liquidity and cash flows in future periods.
| | | | | | | | | | | | | | | | |
| | Payments Due By Period
(Dollars in millions) | |
| | | | | | | | | | | | | | | | |
| | Total | | Less than
1 year | | 1-3 years | | 3-5 years | | More than
5 years | |
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| |
| |
| |
| |
| |
ZygoLot buy-out | | $ | 3.2 | | $ | 3.2 | | $ | — | | $ | — | | $ | — | |
Operating leases | | | 1.9 | | | 1.0 | | | 0.9 | | | — | | | — | |
Deferred compensation and non-compete agreements | | | 0.7 | | | 0.2 | | | 0.5 | | | — | | | — | |
Consulting agreement | | | 0.2 | | | 0.1 | | | 0.1 | | | — | | | — | |
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|
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|
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|
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|
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Total | | $ | 6.0 | | $ | 4.5 | | $ | 1.5 | | $ | — | | $ | — | |
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At June 30, 2012, we have a liability of $3.6 million for uncertain tax positions in accordance with FASB Accounting Standards Codification 740: “Accounting for Uncertainty in Income Taxes”. Please refer to Note 15: Income Taxes of our audited financial statements included in this Annual Report on Form 10-K.
OFF-BALANCE SHEET ARRANGEMENTS
We have not created and are not party to any special-purpose or off-balance sheet entities for the purpose of raising capital, incurring debt, or operating parts of our business that are not consolidated in our financial statements. We have not guaranteed any obligations of a third party.
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Item 7A. Quantitative and Qualitative Disclosures about MarketRisk
The following discussion about our market risk involves forward-looking statements. Actual results could differ materially from those projected in the forward-looking statements. We are exposed to market risk related to changes in interest rates, changes in the investment grade of marketable securities and foreign currency exchange rates. We do not use derivative financial instruments for speculative or trading purposes.
Interest Rate Sensitivity
We currently maintain a portfolio of cash equivalents consisting of an institutional money market fund and marketable securities consisting primarily of a mutual fund. The institutional money market fund, with a balance of $19.9 million, consists primarily of U.S. treasury securities. The mutual fund of $0.7 million, which is related to our deferred compensation program, consists of corporate securities. Our interest income is sensitive to changes in the general level of U.S. interest rates, particularly on our short-term instruments. There is little downward exposure on our interest income. To the extent interest rates increase or we change our investment strategy, there could be an increase in investment income.
Exchange Rate Sensitivity
Approximately 81% of our fiscal 2012 net revenues were denominated in U.S. dollars. At June 30, 2012, our backlog included bookings in U.S. dollars of $61.0 million, or 90%, of the total backlog. Substantially all of our costs are negotiated and paid in U.S. dollars. Significant changes in the values of foreign currencies relative to the value of the U.S. dollar can impact sales of our products in export markets as would changes in the general economic conditions in those markets. For our net revenues that are based in local currency, we are exposed to foreign exchange fluctuations from the time customers are invoiced in local currency until collection occurs.
We enter into 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 forward 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. The majority of our foreign currency transactions and foreign operations are denominated in the Japanese yen and euro. In the absence of a substantial increase in sales orders in currencies other than U.S. dollars, we believe a 5% appreciation or depreciation of the U.S. dollar against the euro, yen and yuan would have an immaterial impact on our consolidated financial position and results of operations.
Item 8. Financial Statements and SupplementaryData
Financial statements and supplementary data required pursuant to this item begin on Page F-1 of this Annual Report on Form 10-K.
Item 9. Changes in and Disagreements With Accountants on Accounting and FinancialDisclosure
None.
Item 9A. Controls andProcedures
The Company’s Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of Zygo’s disclosure controls and procedures (as defined in SEC Rule 13a-15(e)) to ensure that the information included in periodic reports filed with the SEC is processed in accordance with accounting principles generally accepted in the United States of America and reported within the appropriate time periods. Based on that evaluation, and as discussed in more detail below, Zygo management has concluded that these disclosure controls and procedures were ineffective as of June 30, 2012 due to a material weakness that Zygo identified in its internal control over financial reporting, specifically related to the accounting for income taxes.
34
Report of Management on Zygo Corporation’s Internal Control Over Financial Reporting
Zygo management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in SEC Rule 13a-15(f)). Zygo’s internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America. Management assessed the effectiveness of Zygo’s internal control over financial reporting as of June 30, 2012. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework. During this assessment, management identified a material weakness in internal control over financial reporting, specifically related to accounting for income taxes. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of Zygo’s annual or interim financial statements will not be prevented or detected on a timely basis. As a result of the material weakness described below, management has concluded that Zygo’s internal control over financial reporting was not effective as of June 30, 2012 based upon the COSO Framework.
Zygo’s processes, procedures and controls related to accounting for income taxes were not designed and did not operate effectively as of June 30, 2012 to ensure that amounts related to certain tax assets and liabilities and the current and deferred income tax expense were recorded in accordance with accounting principles generally accepted in the United States of America. Specifically, Zygo did not maintain effective controls over the preparation and review of the calculations and related supporting documentation for the tax accounts noted above. Zygo management has concluded that these internal control deficiencies constitute a material weakness in internal control, because there is a reasonable possibility that a material misstatement of the annual or interim financial statements would not have been prevented or detected on a timely basis.
Remediation Plan for Material Weakness in Internal Control over Financial Reporting
We are in the process of actively addressing the identified material weakness. Actions will be taken to improve internal controls over Zygo’s accounting for income taxes, and Zygo will take further steps to strengthen controls, including the following planned actions:
| | |
| • | allocate additional resources, which may include the use of an independent consultant with sufficient expertise in accounting for income taxes and reporting, to assist in the preparation and review of accounting for income taxes, |
| • | enhance policies and procedures relating to tax account reconciliation, analysis and review, and |
| • | accelerate certain yearend tax analysis and reporting activities to periods earlier in the year, in order to provide additional analysis and reconciliation time. |
We anticipate that actions described above and resulting improvements in controls will strengthen Zygo’s internal control over financial reporting and will, over time, address the related material weakness identified as of June 30, 2012. However, because many of the controls in Zygo’s system of internal controls rely extensively on manual review and approval, the successful operation of these controls may be required for several quarters prior to management being able to conclude that the material weakness has been remediated.
Deloitte & Touche LLP, Zygo’s independent registered public accounting firm, issued the report below on the effectiveness of Zygo’s internal control over financial reporting.
| | | |
| | Zygo Corporation | |
| | | |
September 13, 2012 | By: | /s/ Chris L. Koliopoulos | |
| |
| |
| | Chris L. Koliopoulos | |
| | Chairman, President and Chief Executive Officer |
| | | |
September 13, 2012 | By: | /s/ John P. Jordan | |
| |
| |
| | John P. Jordan | |
| | Vice President, Chief Financial Officer and Treasurer |
35
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of Zygo Corporation
Middlefield, Connecticut
We have audited the internal control over financial reporting of Zygo Corporation and subsidiaries (the “Company”) as of June 30, 2012, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Report of Management on Zygo Corporation’s Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed by, or under the supervision of, the company’s principal executive and principal financial officers, or persons performing similar functions, and effected by the company’s board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis. The following material weakness has been identified and included in management’s assessment:
| | |
| • | The Company’s processes, procedures and controls related to accounting for income taxes were not designed and did not operate effectively as of June 30, 2012, to ensure that amounts related to certain tax assets and liabilities and the current and deferred income tax expense were recorded in accordance with U.S. generally accepted accounting principles. Specifically, the Company did not maintain effective controls over the preparation and review of the calculations and related supporting documentation for the tax accounts. |
This material weakness was considered in determining the nature, timing, and extent of audit tests applied in our audit of the consolidated financial statements and consolidated financial statement schedule as of and for the year ended June 30, 2012, of the Company, and this report does not affect our report on such consolidated financial statements and consolidated financial statement schedule.
36
In our opinion, because of the effect of the material weakness identified above on the achievement of the objectives of the control criteria, the Company has not maintained effective internal control over financial reporting as of June 30, 2012, based on the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements and consolidated financial statement schedule as of and for the year ended June 30, 2012 of the Company and our report dated September 13, 2012 expressed an unqualified opinion on those financial statements and financial statement schedule.
/s/ Deloitte & Touche LLP
Hartford, Connecticut
September 13, 2012
Item 9B. OtherInformation
None.
37
PART III
Item 10. Directors, Executive Officers and Corporate Governance
Except for the information concerning executive officers which is set forth in Part I of this Annual Report on Form 10-K, information required by this item will be included under the captions “Election of Board of Directors” and “Corporate Governance” in our Proxy Statement to be filed pursuant to Regulation 14A for use in connection with our Company’s 2012 Annual Meeting of Stockholders (referred to below as our “2012 Proxy Statement”) and is incorporated herein by reference.
Item 11. ExecutiveCompensation
Information required by this item will be included in our 2012 Proxy Statement under the captions “Compensation of Executive Officers” and “Corporate Governance” and is incorporated herein by reference.
Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Information required by this item will be included in our 2012 Proxy Statement under the captions “Equity Compensation Plan Information,” and “Security Ownership of Certain Beneficial Owners” and is incorporated herein by reference.
Item 13.Certain Relationships and Related Transactions, and Director Independence
Information required by this item will be included in our 2012 Proxy Statement under the captions “Certain Relationships and Related Party Transactions,” “Election of Board of Directors,” and “Corporate Governance” and is incorporated herein by reference.
Item 14. PrincipalAccountant Fees and Services
Information required by this item will be included in our 2012 Proxy Statement under the caption “Relationship with Independent Public Accountants” and is incorporated herein by reference.
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PART IV
Item 15. Exhibits, Financial Statement Schedules
| | |
(a) | The following documents are filed as part of this report: |
| | |
| 1. and 2. | Consolidated Financial Statements and Financial Statement Schedule: |
| | |
| | An index to the consolidated financial statements and financial statement schedule filed is located on page F-1. |
| | |
| 3. | EXHIBITS |
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| 3.(i) | Restated Certificate of Incorporation of the Company and amendments thereto (Exhibit 3.(i) to the Company’s Annual Report on Form 10-K for its year ended June 30, 1993)* |
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| 3.(ii) | Certificate of Amendment of Certificate of Incorporation, filed June 3, 1996 (Exhibit 3.(ii) to the Company’s Annual Report on Form 10-K 405 for its year ended June 30, 1996)* |
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| 3.(iii) | By-laws of the Company (Exhibit (3)(b) to Registration No. 2-87253 on Form S-1 hereinafter “Registration No. 2-87253”)* |
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| 10.1 | Confidentiality and Non-Competition Agreement dated October 25, 1983, between the Company and Carl A. Zanoni (Exhibit (10)(b) to Registration No. 2-87253)* |
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| 10.2 | Agreement dated November 20, 1980, between the Company and Canon Inc. regarding exchange of information (Exhibit (10)(y) to Registration No. 2-87253)* |
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| 10.3 | Amended and Restated Zygo Corporation Profit Sharing Plan (Exhibit 10.15 to the Company’s Annual Report on Form 10-K 405 for its year ended June 30, 1995)* |
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| 10.4 | Zygo Corporation Amended and Restated Non-Qualified Stock Option Plan ratified and approved by the Company’s Stockholders on November 19, 1992 (Exhibit 10.30 to the Company’s Annual Report on Form 10-K for its year ended June 30, 1993)* |
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| 10.5 | Zygo Corporation Non-Employee Director Stock Option Plan ratified and approved by the Company’s Stockholders on November 17, 1994 (Exhibit 10.30 to the Company’s Annual Report on Form 10-K 405 for its year ended June 30, 1995)* |
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| 10.6 | Zygo Corporation Amended and Restated Non-Employee Director Stock Option Plan ratified and approved by the Company’s Stockholders on November 17, 1999 (Exhibit to the Company’s Definitive Proxy Statement for its year ended June 30, 1999)* |
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| 10.7 | Subcontract B519044 between The Regents of The University of California Lawrence Livermore National Laboratory and Zygo Corporation dated January 14, 2002 (Exhibit 10.25 to the Company’s Annual Report on Form 10-K for its year ended June 30, 2002)* |
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| 10.8 | Zygo Corporation 2002 Equity Incentive Plan Restricted Stock Agreement. (Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for its quarterly period ended September 30, 2005)* |
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| 10.9 | Zygo Corporation 2002 Equity Incentive Plan Stock Option Agreement. (Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for its quarterly period ended September 30, 2005)* |
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| 10.10 | Employment contract dated November 20, 2006 between Zygo Corporation and John Stack. (Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for its quarterly period ended December 31, 2006)* |
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| 10.11 | Agreement dated February 8, 2007 between Zygo Corporation and Carl A. Zanoni (Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for its quarterly period ended March 31, 2007)* |
39
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| 10.12 | Employment Agreement dated November 19, 2007 between Zygo Corporation and Douglas J. Eccleston (Exhibit 99.1 to the Company’s Current report on Form 8-K dated November 20, 2007)* |
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| 10.13 | Employment agreement amendments between Zygo Corporation, and John M. Stack, dated October 21, 2008 (Exhibit 10.3, to the Company’s Current Report on Form 8-K dated October 21, 2008)* |
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| 10.14 | Asset Transfer Agreement, dated as of June 17, 2009, by and between Zygo Corporation and Nanometrics Corporation (Exhibit 10.30 to the Company’s Annual Report on Form 10-K/A, Amendment No. 2, dated December 23, 2009 for its year ended June 30, 2009)* ** |
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| 10.15 | Supply Agreement, dated as of June 17, 2009, by and between Zygo Corporation and Nanometrics Corporation (Exhibit 10.31 to the Company’s Annual Report on Form 10-K/A, Amendment No. 2, dated December 23, 2009 for its year ended June 30, 2009)* ** |
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| 10.16 | Employment agreement amendment between Zygo Corporation and John M. Stack, dated September 1, 2009 (Exhibit 99.1 to the Company’s Current Report on Form 8-K dated September 4, 2009)* |
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| 10.17 | Employment agreement amendment between Zygo Corporation and John M. Stack, dated September 8, 2009 (Exhibit 99.1 to the Company’s Current Report on Form 8-K dated September 11, 2009)* |
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| 10.18 | Employment and Stock Option Agreement between Zygo Corporation and Dr. Chris L. Koliopoulos, dated January 18, 2010 (Exhibit 10.1 and 10.3 to the Company’s Current Report on Form 8-K dated January 22, 2010)* |
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| 10.19 | Zemetrics, Inc. acquisition agreement between ZMI Acquisition Corporation, a wholly-owned subsidiary of Zygo Corporation, and Zemetrics, Inc., dated January 18, 2010 (Exhibit 10.2 to the Company’s Current Report on Form 8-K dated January 22, 2010)* |
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| 10.20 | Asset Purchase Agreement, dated as of October 27, 2010, by and among Zygo Corporation, Zygo Richmond, and ASML, US, Inc. (Exhibit 10.1 to the Company’s Current Report on Form 10-Q for its quarter ending December 31, 2010)* ** |
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| 10.21 | Employment Agreement between Zygo Corporation and John P. Jordan, dated February 17, 2011 (Exhibit 10.1 to the Company’s Current Report on Form 8-K dated February 22, 2011)* |
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| 10.22 | Zygo Corporation 2002 Equity Incentive Plan, as amended effective as of November 16, 2006. (Exhibit 4.2 to the Company’s Current Report on Form S-8 dated March 16, 2012)* |
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| 10.23 | Zygo Corporation Employee Stock Purchase Plan, as amended as of August 24, 2011. (Exhibit 4.1 to the Company’s Current Report on Form S-8 dated March 16, 2012)* |
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| 10.24 | Zygo Corporation 2012 Equity Incentive Plan dated as of August 24, 2011. (Exhibit 4.1 to the Company’s Current Report on Form S-8 dated March 16, 2012)* |
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| 14. | Zygo Corporation Code of Ethics (Exhibit 14.1 to the Company’s Quarterly Report on Form 10-Q for its quarterly period ended March 26, 2004)* |
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| 21. | Subsidiaries of Registrant |
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| 23.1 | Consent of Independent Registered Public Accounting Firm |
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| 24. | Power of Attorney (included in the signature page) |
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| 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 |
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| 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 |
40
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| 32.1 | Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
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| 32.2 | Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
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| 101.INS | XBRL Instance Document*** |
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| 101.SCH | XBRL Taxonomy Extension*** |
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| 101.CAL | XBRL Taxonomy Extension Calculation Linkbase*** |
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| 101.DEF | XBRL Taxonomy Extension Definition Linkbase*** |
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| 101.LAB | XBRL Taxonomy Extension Label Linkbase*** |
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| 101.PRE | XBRL Taxonomy Extension Presentation Linkbase*** |
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Exhibit numbers 10.3, 10.4, 10.5, 10.6, 10.8, 10.9, 10.10, 10.12, 10.13, 10.16, 10.17, 10.18, 10.21, 10.22, 10.23 and 10.24 are management contracts, compensatory plans or compensatory arrangements. |
* Incorporated herein by reference.
** Confidential treatment has been requested for portions of this exhibit. Omitted portions have been filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.
*** Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, or Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.
41
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
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ZYGO CORPORATION | | | | |
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Registrant | | | | |
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By | /s/ John P. Jordan | | Date | September 13, 2012 | |
|
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| John P. Jordan | | | |
| Vice President, Chief Financial | | | |
| Officer and Treasurer | | | |
Know all persons by these presents, that each person whose signature appears below constitutes and appoints Chris L. Koliopoulos and John P. Jordan, jointly and severally, his or her attorneys-in-fact, each with the power of substitution, for each of them in any and all capacities, to sign any amendments to this report on Form 10-K, and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each of said attorney’s-in-fact, or his substitute or substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
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/s/ Chris L. Koliopoulos | | Chairman, President and Chief Executive | | September 13, 2012 | |
| | Officer (principal executive officer) and Director | |
| |
| Chris L. Koliopoulos | | | | | |
| | | | | | |
/s/ John P. Jordan | | Vice President, Chief Financial Officer and | | September 13, 2012 | |
| | Treasurer (principal financial officer) | |
| |
| John P. Jordan | | | | | |
| | | | | | |
/s/ Stephen D. Fantone | | Director | | September 13, 2012 | |
| | | |
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| Stephen D. Fantone | | | | | |
| | | | | | |
/s/ Samuel H. Fuller | | Director | | September 13, 2012 | |
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| Samuel H. Fuller | | | | | |
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/s/ Seymour E. Liebman | | Director | | September 13, 2012 | |
| | | |
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| Seymour E. Liebman | | | | | |
| | | | | | |
/s/ Robert B. Taylor | | Director | | September 13, 2012 | |
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| Robert B. Taylor | | | | | |
| | | | | | |
/s/ Carol P. Wallace | | Director | | September 13, 2012 | |
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| Carol P. Wallace | | | | | |
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/s/ Gary K. Willis | | Director | | September 13, 2012 | |
| | | |
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| Gary K. Willis | | | | | |
42
ZYGO CORPORATION AND CONSOLIDATED SUBSIDIARIES
Index to Consolidated Financial Statements and Schedule
| |
| All other schedules have been omitted since the required information is not present or not present in amounts sufficient to require submission of the schedules or the information required is included in the consolidated financial statements or notes thereto. |
F - 1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of Zygo Corporation
Middlefield, CT
We have audited the accompanying consolidated balance sheets of Zygo Corporation and subsidiaries (the “Company”) as of June 30, 2012 and 2011, and the related consolidated statements of operations, equity and comprehensive income (loss), and cash flows for each of the three years in the period ended June 30, 2012. Our audits also included the consolidated financial statement schedule of the Company listed on page F-1 of this Annual Report on Form 10-K. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the consolidated financial position of Zygo Corporation and subsidiaries as of June 30, 2012 and 2011, and the results of their consolidated operations and their cash flows for each of the three years in the period ended June 30, 2012, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such consolidated financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s internal control over financial reporting as of June 30, 2012, based on the criteria established inInternal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated September 13, 2012 expressed an adverse opinion on the Company’s internal control over financial reporting because of a material weakness.
/s/ Deloitte & Touche LLP
Hartford, Connecticut
September 13, 2012
F - 2
|
CONSOLIDATED BALANCE SHEETS |
(Thousands, except share and per share amounts) |
| | | | | | | |
| | June 30, 2012 | | June 30, 2011 | |
| |
| |
| |
Assets | | | | | | | |
Current assets: | | | | | | | |
Cash and cash equivalents | | $ | 84,053 | | $ | 60,039 | |
Marketable securities (note 4) | | | — | | | 1,000 | |
Receivables, net of allowance for doubtful accounts of $760 and $1,399, respectively (notes 6 and 17) | | | 31,601 | | | 31,424 | |
Inventories (note 7) | | | 27,760 | | | 28,379 | |
Prepaid expenses and other current assets | | | 2,851 | | | 1,690 | |
Revenue recognized in excess of billings on uncompleted contracts | | | 2,371 | | | — | |
Deferred income taxes (note 15) | | | 8,004 | | | 55 | |
| |
|
| |
|
| |
Total current assets | | | 156,640 | | | 122,587 | |
Marketable securities (note 4) | | | 729 | | | 980 | |
Property, plant and equipment, net (note 8) | | | 33,694 | | | 30,195 | |
Deferred income taxes (note 15) | | | 13,760 | | | — | |
Intangible assets, net (note 9) | | | 5,198 | | | 5,842 | |
| |
|
| |
|
| |
Total assets | | $ | 210,021 | | $ | 159,604 | |
| |
|
| |
|
| |
Liabilities and Equity | | | | | | | |
Current liabilities: | | | | | | | |
Accounts payable | | $ | 9,613 | | $ | 7,120 | |
Accrued progress payments and deferred revenue | | | 5,482 | | | 4,706 | |
Accrued salaries and wages | | | 6,198 | | | 8,636 | |
Other accrued expenses (note 10) | | | 7,234 | | | 6,093 | |
Income taxes payable (note 15) | | | 416 | | | 550 | |
Current liabilities of discontinued operations (note 20) | | | — | | | 281 | |
| |
|
| |
|
| |
Total current liabilities | | | 28,943 | | | 27,386 | |
Deferred income taxes (note 15) | | | 2,580 | | | — | |
Other long-term liabilities | | | 2,518 | | | 4,131 | |
| |
|
| |
|
| |
Total liabilities | | | 34,041 | | | 31,517 | |
| |
|
| |
|
| |
Commitments and contingencies (note 11) | | | | | | | |
|
Equity (notes 13 and 14): | | | | | | | |
Common stock, $.10 par value per share: | | | | | | | |
40,000,000 shares authorized; | | | | | | | |
20,499,861 shares issued (19,985,631 in 2011); | | | | | | | |
18,239,941 shares outstanding (17,763,346 in 2011) | | | 2,050 | | | 1,999 | |
Additional paid-in capital | | | 176,305 | | | 168,662 | |
Retained earnings (Accumulated deficit) | | | 22,253 | | | (20,765 | ) |
Accumulated other comprehensive income (loss): | | | | | | | |
Currency translation effects | | | (186 | ) | | 1,197 | |
Less treasury stock, at cost; 2,259,920 common shares (2,222,285 in 2011) | | | 26,797 | | | 26,373 | |
| |
|
| |
|
| |
Total stockholders’ equity - Zygo Corporation | | | 173,625 | | | 124,720 | |
Noncontrolling interests | | | 2,355 | | | 3,367 | |
| |
|
| |
|
| |
Total equity | | | 175,980 | | | 128,087 | |
| |
|
| |
|
| |
Total liabilities and equity | | $ | 210,021 | | $ | 159,604 | |
| |
|
| |
|
| |
See accompanying notes to consolidated financial statements.
F - 3
|
CONSOLIDATED STATEMENTS OF OPERATIONS |
(Thousands, except per share amounts) |
| | | | | | | | | | |
| | Fiscal Year Ended June 30, | |
| |
| |
| | 2012 | | 2011 | | 2010 | |
| |
| |
| |
| |
| | | | | | | | | | |
Net revenue | | $ | 166,837 | | $ | 150,126 | | $ | 101,330 | |
Cost of goods sold | | | 85,127 | | | 79,333 | | | 59,361 | |
| |
|
| |
|
| |
|
| |
Gross profit | | | 81,710 | | | 70,793 | | | 41,969 | |
| | | | | | | | | | |
Selling, general and administrative expenses | | | 35,486 | | | 34,705 | | | 29,520 | |
Research, development and engineering expenses | | | 16,501 | | | 14,990 | | | 14,284 | |
Impairment of goodwill | | | — | | | — | | | 2,003 | |
| |
|
| |
|
| |
|
| |
Operating profit (loss) | | | 29,723 | | | 21,098 | | | (3,838 | ) |
| |
|
| |
|
| |
|
| |
| | | | | | | | | | |
Other income (expense): | | | | | | | | | | |
Interest income | | | 61 | | | 26 | | | 87 | |
Miscellaneous income (expense), net | | | (540 | ) | | 784 | | | 51 | |
| |
|
| |
|
| |
|
| |
Total other income (expense) | | | (479 | ) | | 810 | | | 138 | |
| |
|
| |
|
| |
|
| |
Earnings (loss) from continuing operations before income tax expense, including noncontrolling interest | | | 29,244 | | | 21,908 | | | (3,700 | ) |
Income tax benefit (expense) (note 15) | | | 15,827 | | | (1,316 | ) | | 1,032 | |
| |
|
| |
|
| |
|
| |
Net earnings (loss) from continuing operations | | | 45,071 | | | 20,592 | | | (2,668 | ) |
Net earnings (loss) from discontinued operations, net of tax (note 20) | | | — | | | 91 | | | (2,669 | ) |
| |
|
| |
|
| |
|
| |
Net earnings (loss) including noncontrolling interests | | | 45,071 | | | 20,683 | | | (5,337 | ) |
Less: Net earnings attributable to noncontrolling interests | | | 2,053 | | | 1,604 | | | 957 | |
| |
|
| |
|
| |
|
| |
Net earnings (loss) attributable to Zygo Corporation | | $ | 43,018 | | $ | 19,079 | | $ | (6,294 | ) |
| |
|
| |
|
| |
|
| |
| | | | | | | | | | |
Basic - Earnings (loss) per share attributable to Zygo Corporation: | | | | | | | | | | |
Continuing operations | | $ | 2.39 | | $ | 1.08 | | $ | (0.21 | ) |
Discontinued operations | | | — | | | — | | | (0.16 | ) |
| |
|
| |
|
| |
|
| |
Net earnings (loss) per share | | $ | 2.39 | | $ | 1.08 | | $ | (0.37 | ) |
| |
|
| |
|
| |
|
| |
| | | | | | | | | | |
Diluted - Earnings (loss) per share attributable to Zygo Corporation: | | | | | | | | | | |
Continuing operations | | $ | 2.30 | | $ | 1.05 | | $ | (0.21 | ) |
Discontinued operations | | | — | | | — | | | (0.16 | ) |
| |
|
| |
|
| |
|
| |
Net earnings (loss) per share | | $ | 2.30 | | $ | 1.05 | | $ | (0.37 | ) |
| |
|
| |
|
| |
|
| |
| | | | | | | | | | |
Weighted average number of shares: | | | | | | | | | | |
Basic | | | 18,014 | | | 17,639 | | | 17,183 | |
| |
|
| |
|
| |
|
| |
Diluted | | | 18,711 | | | 18,140 | | | 17,183 | |
| |
|
| |
|
| |
|
| |
Amounts Attributable to Zygo Corporation | | | | | | | | | | |
Net earnings (loss) from continuing operations attributable to Zygo Corporation | | $ | 43,018 | | $ | 18,988 | | $ | (3,625 | ) |
Discontinued operations, net of tax (note 20) | | | — | | | 91 | | | (2,669 | ) |
| |
|
| |
|
| |
|
| |
Net earnings (loss) attributable to Zygo Corporation | | $ | 43,018 | | $ | 19,079 | | $ | (6,294 | ) |
| |
|
| |
|
| |
|
| |
See accompanying notes to consolidated financial statements.
F - 4
|
CONSOLIDATED STATEMENTS OF EQUITY AND COMPREHENSIVE INCOME (LOSS) |
(Thousands) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Additional
Paid-In
Capital | | | | Retained Earnings
(Accumulated
Deficit) | | Accumulated Other
Comprehensive
Income (Loss) | | Total
Zygo Corp. | | Non-
Controlling
Interest | | Total
Equity | | Comprehensive
Income (Loss)
Attributable
to Zygo Corp. | |
| | Common Stock | | Treasury Stock | |
| |
| |
| |
| | Shares | | Amount | | Shares | | Amount | |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
Balance at July 1, 2009 | | | 16,915 | | $ | 1,904 | | $ | 156,176 | | | 2,129 | | $ | (25,641 | ) | $ | (33,550 | ) | $ | (306 | ) | $ | 98,583 | | $ | 1,444 | | $ | 100,027 | | | | |
Comprehensive income (loss): | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net earnings (loss) | | | — | | | — | | | — | | | — | | | — | | | (6,294 | ) | | — | | | (6,294 | ) | | 957 | | | (5,337 | ) | $ | (6,294 | ) |
Foreign currency translation | | | — | | | — | | | — | | | — | | | — | | | — | | | (422 | ) | | (422 | ) | | (208 | ) | | (630 | ) | | (422 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
|
| |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | $ | (6,716 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
|
| |
Share based compensation | | | — | | | — | | | 2,556 | | | — | | | — | | | — | | | — | | | 2,556 | | | — | | | 2,556 | | | | |
Issuance - acquisition | | | 361 | | | 36 | | | 3,865 | | | — | | | — | | | — | | | — | | | 3,901 | | | — | | | 3,901 | | | | |
Repurchase of restricted stock | | | 147 | | | 22 | | | (22 | ) | | 54 | | | (407 | ) | | — | | | — | | | (407 | ) | | — | | | (407 | ) | | | |
Exercise of employee stock options and related tax effect | | | 57 | | | 4 | | | 477 | | | — | | | 5 | | | — | | | — | | | 486 | | | — | | | 486 | | | | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| | | | |
Balance at June 30, 2010 | | | 17,480 | | $ | 1,966 | | $ | 163,052 | | | 2,183 | | $ | (26,043 | ) | $ | (39,844 | ) | $ | (728 | ) | $ | 98,403 | | $ | 2,193 | | $ | 100,596 | | | | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| | | | |
Comprehensive income (loss): | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net earnings (loss) | | | — | | | — | | | — | | | — | | | — | | | 19,079 | | | — | | | 19,079 | | | 1,604 | | | 20,683 | | $ | 19,079 | |
Foreign currency translation | | | — | | | — | | | — | | | — | | | — | | | — | | | 1,925 | | | 1,925 | | | 393 | | | 2,318 | | | 1,925 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
|
| |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | $ | 21,004 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
|
| |
Share based compensation | | | — | | | — | | | 3,965 | | | — | | | — | | | — | | | — | | | 3,965 | | | — | | | 3,965 | | | | |
Repurchase of restricted stock | | | 116 | | | 15 | | | (15 | ) | | 39 | | | (330 | ) | | — | | | — | | | (330 | ) | | — | | | (330 | ) | | | |
Exercise of employee stock options and related tax effect | | | 167 | | | 18 | | | 1,660 | | | — | | | — | | | — | | | — | | | 1,678 | | | — | | | 1,678 | | | | |
Dividends paid | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (823 | ) | | (823 | ) | | | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| | | | |
Balance at June 30, 2011 | | | 17,763 | | $ | 1,999 | | $ | 168,662 | | | 2,222 | | $ | (26,373 | ) | $ | (20,765 | ) | $ | 1,197 | | $ | 124,720 | | $ | 3,367 | | $ | 128,087 | | | | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| | | | |
Comprehensive income (loss): | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net earnings (loss) | | | — | | | — | | | — | | | — | | | — | | | 43,018 | | | — | | | 43,018 | | | 2,053 | | | 45,071 | | $ | 43,018 | |
Foreign currency translation | | | — | | | — | | | — | | | — | | | — | | | — | | | (1,383 | ) | | (1,383 | ) | | (236 | ) | | (1,619 | ) | | (1,383 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
|
| |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | $ | 41,635 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
|
| |
Share based compensation | | | — | | | — | | | 4,128 | | | — | | | — | | | — | | | — | | | 4,128 | | | — | | | 4,128 | | | | |
Repurchase of restricted stock | | | 111 | | | 15 | | | (15 | ) | | 38 | | | (424 | ) | | — | | | — | | | (424 | ) | | — | | | (424 | ) | | | |
Exercise of employee stock options and related tax effect | | | 366 | | | 36 | | | 3,530 | | | — | | | — | | | — | | | — | | | 3,566 | | | — | | | 3,566 | | | | |
Dividends paid and declared | | | | | | | | | | | | | | | | | | | | | | | | | | | (2,829 | ) | | (2,829 | ) | | | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| | | | |
Balance at June 30, 2012 | | | 18,240 | | $ | 2,050 | | $ | 176,305 | | | 2,260 | | $ | (26,797 | ) | $ | 22,253 | | $ | (186 | ) | $ | 173,625 | | $ | 2,355 | | $ | 175,980 | | | | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| | | | |
See accompanying notes to consolidated financial statements.
F - 5
|
CONSOLIDATED STATEMENTS OF CASH FLOWS |
(Thousands) |
| | | | | | | | | | |
| | Fiscal Year Ended June 30, | |
| |
| |
| | 2012 | | 2011 | | 2010 | |
| |
| |
| |
| |
Cash provided by operating activities: | | | | | | | | | | |
Net earnings (loss) including noncontrolling interests | | $ | 45,071 | | $ | 20,683 | | $ | (5,337 | ) |
Adjustments to reconcile net earnings (loss) to cash provided by operating activities: | | | | | | | | | | |
(Earnings) loss from discontinued operations | | | — | | | (91 | ) | | 2,669 | |
Depreciation and amortization | | | 5,720 | | | 6,431 | | | 6,125 | |
Gain on acquisition | | | — | | | (1,296 | ) | | — | |
Deferred income taxes | | | (18,900 | ) | | (780 | ) | | (789 | ) |
Impairment and disposal of property, plant and equipment | | | 22 | | | 549 | | | 67 | |
Impairment and disposal of intangible assets | | | 47 | | | 4 | | | 2,003 | |
Inventory valuation adjustment | | | — | | | — | | | 543 | |
Provision for doubtful accounts | | | (458 | ) | | (298 | ) | | (586 | ) |
Dividend declared to noncontrolling interest | | | (641 | ) | | — | | | — | |
Compensation cost related to share-based payment arrangements | | | 4,128 | | | 3,965 | | | 2,492 | |
Excess tax benefits from share-based payment arrangements | | | — | | | (173 | ) | | (33 | ) |
Other | | | 318 | | | (677 | ) | | (379 | ) |
Changes in operating accounts, excluding the effect of acquisition: | | | | | | | | | | |
Receivables | | | (123 | ) | | (10,381 | ) | | 1,446 | |
Inventories | | | 682 | | | (125 | ) | | 5,314 | |
Prepaid expenses and other current assets | | | (4,131 | ) | | 1,494 | | | 1,247 | |
Revenue recognized in excess of billings on uncompleted contracts | | | (2,371 | ) | | — | | | — | |
Accounts payable, accrued expenses and taxes payable | | | 2,779 | | | 1,340 | | | 270 | |
| |
|
| |
|
| |
|
| |
Net cash provided by operating activities from continuing operations | | | 32,143 | | | 20,645 | | | 15,052 | |
| |
|
| |
|
| |
|
| |
Net cash used for operating activities from discontinued operations | | | (281 | ) | | (263 | ) | | (1,542 | ) |
| |
|
| |
|
| |
|
| |
Cash provided by (used for) investing activities: | | | | | | | | | | |
Purchases of property, plant and equipment | | | (8,542 | ) | | (1,522 | ) | | (1,441 | ) |
Purchase of marketable securities | | | (999 | ) | | (1,998 | ) | | (2,288 | ) |
Additions to intangibles and other assets | | | (259 | ) | | (906 | ) | | (505 | ) |
Investments and acquisitions, excluding cash acquired | | | — | | | (7,142 | ) | | 11 | |
Proceeds from the sale and maturity of marketable securities | | | 2,173 | | | 2,136 | | | 5,000 | |
Proceeds from the sale of property, plant and equipment | | | 63 | | | 63 | | | 291 | |
| |
|
| |
|
| |
|
| |
Net cash provided by (used for) investing activities | | | (7,564 | ) | | (9,369 | ) | | 1,068 | |
| |
|
| |
|
| |
|
| |
Cash provided by financing activities: | | | | | | | | | | |
Dividend payments to noncontrolling interests | | | (2,188 | ) | | (823 | ) | | — | |
Excess tax benefits from share-based payment arrangements | | | — | | | 173 | | | 33 | |
Restricted stock vesting and related tax benefits | | | (424 | ) | | (330 | ) | | (407 | ) |
Exercise of employee stock options | | | 3,566 | | | 1,678 | | | 486 | |
| |
|
| |
|
| |
|
| |
Net cash provided by financing activities | | | 954 | | | 698 | | | 112 | |
| |
|
| |
|
| |
|
| |
Effect of exchange rate changes on cash and cash equivalents | | | (1,238 | ) | | 1,792 | | | (877 | ) |
| |
|
| |
|
| |
|
| |
Net increase in cash and cash equivalents | | | 24,014 | | | 13,503 | | | 13,813 | |
Cash and cash equivalents, beginning of year | | | 60,039 | | | 46,536 | | | 32,723 | |
| |
|
| |
|
| |
|
| |
Cash and cash equivalents, end of year | | $ | 84,053 | | $ | 60,039 | | $ | 46,536 | |
| |
|
| |
|
| |
|
| |
Supplemental cash flow information:
Cash paid for income taxes was $2,992, $524, and $281, in fiscal 2012, 2011 and 2010, respectively.
Dividend of $641 declared but not paid to noncontrolling interest as of June 30, 2012.
Purchases of property, plant and equipment included in accounts payable was $436, $200, and $36 in fiscal 2012, 2011 and 2010, respectively.
See accompanying notes to consolidated financial statements.
F - 6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended June 30, 2012, 2011 and 2010
(Thousands, except for per share amounts)
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Operations and Principles of Consolidation
Zygo Corporation is a worldwide supplier of optical metrology instruments, precision optics, and electro-optical design and manufacturing services, serving customers in the semiconductor capital equipment, bio-medical, scientific and industrial markets. The accompanying consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and include the accounts of Zygo Corporation and its subsidiaries (“Zygo,” “we,” “us,” “our” or “Company”). All transactions and accounts with the subsidiaries have been eliminated from the consolidated financial statements. Noncontrolling interest related to our ownership interests of less than 100% is reported as noncontrolling interest in the consolidated balance sheets. Net earnings attributable to the noncontrolling interest, net of tax, is reported as net earnings attributable to noncontrolling interest in the consolidated statements of operations.
Discontinued Operations
The Company classifies operations as discontinued when the operations have either ceased or are expected to be disposed of in a sale transaction in the near term, the operations and cash flows of all discontinued operations have been eliminated or will be eliminated upon the ceasing of operations or the consummation of an expected sale transaction, and the Company will not have any significant continuing involvement in the discontinued operations. Impairment or disposal of long-lived assets requires the calculation of estimated fair value less cost to sell of long-lived assets for assets held for sale. The calculation of estimated fair value less cost to sell includes significant estimates and assumptions, including, but not limited to: operating projections; excess working capital levels; property values; and the anticipated costs involved in the selling process.
As more fully described in Note 20, “Discontinued Operations”, we discontinued the Singapore Integrated Circuit (“IC”) packaging metrology operations of our vision systems product line in fiscal 2009, which was included in our Metrology Solutions segment.
Translation of Foreign Currency Financial Statements
Zygo’s reporting currency is the U.S. dollar. The functional currency of our foreign subsidiaries is their local currency and amounts included in the consolidated statements of operations are translated at the weighted-average exchange rates prevailing during the period. Assets and liabilities are translated at the rates of exchange in effect at the balance sheet date, and resulting foreign exchange translation adjustments are recorded in the consolidated balance sheets as a component of accumulated other comprehensive income (loss).
Foreign Currency Transactions
Monetary assets and liabilities denominated in currencies other than the functional currency are remeasured into their respective functional currencies at exchange rates in effect at the balance sheet date. The resulting exchange gain or loss is included in our consolidated statements of operations as miscellaneous income, net.
Cash and Cash Equivalents
We consider cash and investments in securities with maturities at the date of purchase of three months or less to be cash and cash equivalents.
Marketable Securities
We consider investments in securities with maturities at the date of purchase in excess of three months as marketable securities. Held-to-maturity investments are recorded at amortized cost. Trading investments are recorded at fair value and adjusted through the consolidated statements of operations.
F - 7
Inventories
Inventories include the costs of material, labor and overhead and are stated at the lower of cost (determined on a first-in, first-out basis) or market. Obsolete inventory or inventory in excess of management’s estimated future usage is written down to its estimated market value, if less than its cost.
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Maintenance and repairs are charged to expense as incurred. Management evaluates the carrying value of our property, plant and equipment, on an ongoing basis, and makes adjustments when impairments are identified. Depreciation is based on the estimated useful lives of the various classes of assets and is computed using the straight-line method.
Intangible Assets
Intangible assets include patents, trademarks, a covenant not-to-compete, acquired technology and customer lists. The cost of intangible assets is amortized on a straight-line basis, over estimated useful lives ranging from 5-17 years.
Valuation of Long-Lived Assets
The carrying values of intangible assets and other long-lived assets are reviewed on a regular basis for the existence of facts or circumstances, both internally and externally, that may suggest impairment. Some factors considered important, which could trigger an impairment review, include a significant decrease in the market value of an asset, a significant change in the extent or manner in which an asset is used, a significant adverse change in the business climate that could affect the value of an asset, an accumulation of costs for an asset in excess of the amount originally expected, a current period operating loss or cash flow decline combined with a history of operating losses or cash flow uses or a projection that demonstrates continuing losses and a current expectation that, it is more likely than not, a long-lived asset will be disposed of at a loss before the end of its estimated useful life.
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 2012, we did not record any impairment charges. During fiscal 2011, we recorded an impairment charge on property, plant and equipment of $563 related to our vision systems product line in Canada. During fiscal 2010, we recorded an impairment charge on goodwill of $2,003.
Income Taxes
Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Deferred tax assets are reduced by valuation allowances to an amount that is more likely than not to be realized if it is determined that it is more likely than not that the deferred tax asset will not be realized. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
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.
F - 8
Revenue Recognition and Allowance for Doubtful Accounts
We recognize revenue based on guidance provided in SEC Staff Accounting Bulletin (“SAB”) No. 104, “Revenue Recognition” and in accordance with authoritative guidance issued by the Financial Accounting Standard Board (“FASB”) pertaining to revenue arrangements with multiple deliverables. We recognize revenue when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, our price is fixed or determinable and collectability is reasonably assured. We recognize revenue on our standard products when title passes to the customer upon shipment. While our standard products generally require installation, the installation is considered a perfunctory performance obligation. Standard products do not have customer acceptance criteria. Generally, software is a component of our standard product and, as such, is not separately recognized as revenue. We have standard rights of return for defective products that we account for as a warranty provision under authoritative guidance of accounting for contingencies. We do not have any price protection agreements or other post shipment 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, all in a manner consistent with SAB No. 104 and related authoritative guidance. Standalone software products are recognized as revenue when they are shipped.
Certain customer transactions include payment terms whereby we receive a partial payment of the total order amount prior to the related revenue being recognized in our financial statements. These advance payments are included in progress payments, deferred revenue and billings in excess of costs and estimated earnings in the consolidated balance sheet. 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 progress payments or deferred revenue until our applicable revenue recognition criteria have been met.
Certain contracts we enter into continue over an extended period of time. We review those contracts for possible revenue recognition as a long-term contract. If long-term contract accounting is appropriate, we then evaluate whether revenues should be recognized using the percentage-of-completion method. Under the percentage-of-completion method, we develop estimates as a basis for contract revenue and costs in progress as work on the contract continues. Estimates are reviewed and revised as additional information becomes available. During fiscal 2012, changes in estimates under the percentage of completeness method were not material. Revenue recognized in excess of billings is included in revenue recognized in excess of billings on uncompleted contracts in the consolidated balance sheet. Billings in excess of costs and earnings would be included in billings in excess of costs and estimated earnings on uncompleted contracts in the consolidated balance sheet. The percentage-of-completion method is used in circumstances in which all the following conditions exist:
| | |
| • | The contract includes enforceable rights regarding goods or services to be provided to the customer, the consideration to be exchanged, and the manner and terms of settlement |
| • | Both the Company and the customer are expected to satisfy all contractual obligations and |
| • | Reasonably reliable estimates of total revenue, total cost, and the progress toward completion can be made. |
We maintain an allowance for doubtful accounts based on a continuous review of customer accounts, payment patterns and specific collection issues. We perform on-going credit evaluations of our customers and do not require collateral from our customers. For many of our international customers, we require an irrevocable letter of credit from the customer before a shipment is made. If the financial condition of one or more of our customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required.
Research and Development
Research and development costs are expensed as incurred. For fiscal 2012, 2011 and 2010, we expensed $10,420, $7,899 and $8,566 of research and development costs, respectively. Reimbursements from customers for research and development costs are recorded as offsets to the expenses. There were no reimbursed research and development costs in fiscal 2012 and 2011 and $33 were recorded in fiscal 2010.
F - 9
Earnings per Share
Basic Earnings per share (“EPS”) is computed based on the weighted average number of shares 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, 2012 | | June 30, 2011 | | June 30, 2010 | |
| |
| |
| |
| |
| | | | | | | | | | |
Weighted average shares outstanding | | | 18,014,325 | | | 17,638,635 | | | 17,183,224 | |
Dilutive effect of stock options and restricted stock units | | | 696,969 | | | 501,739 | | | — | |
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|
| |
|
| |
|
| |
Diluted weighted average shares outstanding | | | 18,711,294 | | | 18,140,374 | | | 17,183,224 | |
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|
| |
|
| |
|
| |
For fiscal 2012, 2011 and 2010, 278,225, 814,741 and 2,036,759, 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 measure share-based compensation cost at the grant date based on the fair value of the award and recognize it as expense, net of estimated forfeitures, over the vesting or service period, as applicable, of the share award using the straight line method.
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.
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, contract revenues and warranty obligations. Actual results could differ from those estimates.
Economic Hedges
We hedge certain intercompany transactions by entering into 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 nor do we designate such hedges for hedge accounting purposes. These contracts are entered into for periods consistent with the currency transaction exposures, generally three to nine months. Any gains and losses on the fair value of these contracts are expected to be largely offset by gains and losses on the underlying transactions.
Reclassifications
Certain amounts included in the consolidated financial statements for the prior year have been reclassified to conform with the current year presentation of current deferred income taxes on the consolidated balance sheets. In fiscal 2011, deferred income taxes of $55 was reported as part of prepaid expenses and other current assets.
Recent Accounting Guidance Not Yet Adopted
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 earnings or other comprehensive income under current U.S. 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 periods beginning and subsequent to July 1, 2012. This guidance will not have a material effect on our consolidated financial statements.
F - 10
Adoption of New Accounting Pronouncements
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 was applicable to our fiscal periods beginning January 1, 2012. The adoption of this guidance did not have a material impact on our consolidated financial statements.
In January 2010, the FASB issued amended standards that require additional fair value disclosures. These disclosure requirements became 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. On July 1, 2011, we adopted the requirements for disclosures concerning the presentation of disaggregated activity within the reconciliation for fair value measurements using significant unobservable inputs (Level 3). The adoption of these amended standards did 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 a fiscal year beginning on or after December 15, 2010, with early adoption permitted. It was applicable to our fiscal year beginning July 1, 2011. The adoption of this guidance did not have a material impact on our consolidated financial statements.
F - 11
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 both property, plant and equipment and gain on acquisition by $7.
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 acquisition 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 | |
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| |
Consideration: | | | | |
Cash | | $ | 7,142 | |
Future consideration | | | 5,333 | |
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| |
Purchase price | | $ | 12,475 | |
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| | | | |
Assets Acquired: | | | | |
Inventories | | $ | 2,399 | |
Property and equipment | | | 11,474 | |
Technology and customer relationships | | | 623 | |
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| |
Total assets | | | 14,496 | |
Less: gain on acquisition | | | 2,021 | |
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| |
Purchase price | | $ | 12,475 | |
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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. On the date of purchase, we maintained a 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.
F - 12
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 was 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.
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| | Customer
Relationships | | Technology | | Total | |
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| | | | | | | | | | |
Balance at November 12, 2010 | | $ | 23 | | $ | 600 | | $ | 623 | |
Accumulated amortization | | | (3 | ) | | (76 | ) | | (79 | ) |
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Balance at June 30, 2011 | | $ | 20 | | $ | 524 | | $ | 544 | |
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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.
Acquisition costs for the twelve months ended June 30, 2010 were $457, and are included in selling, general and administrative expenses.
F - 13
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 | |
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Total assets | | | 3,990 | |
Less: Liabilities assumed | | | 89 | |
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Total | | $ | 3,901 | |
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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 believed it was 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.
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| | Customer
Relationships | | Technology | | Total | |
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Balance at January 22, 2010 | | $ | 112 | | $ | 1,428 | | $ | 1,540 | |
Amortization expense | | | (16 | ) | | (85 | ) | | (101 | ) |
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Balance at June 30, 2010 | | $ | 96 | | $ | 1,343 | | $ | 1,439 | |
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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 - 14
From the date of acquisition through June 30, 2010, 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 as though the acquisition of Zemetrics had occurred at the beginning of the 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 | |
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Net revenues | | $ | 101,330 | |
Net loss attributable to Zygo Corporation | | $ | (3,565 | ) |
| | | | |
Loss per share amounts: | | | | |
Basic and Diluted - Loss per share | | $ | (0.21 | ) |
Diluted - Loss per share | | $ | (0.21 | ) |
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 2012 or fiscal 2011.
The following table summarizes the accrual balances and utilization by cost type for the fiscal 2012 and 2011 restructuring actions:
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| | Severance | | June 30, 2012
Facility
Consolidation
Costs | | Total | |
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Balance at June 30, 2011 | | $ | — | | $ | 33 | | $ | 33 | |
Payments | | | — | | | (33 | ) | | (33 | ) |
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Balance at June 30, 2012 | | $ | — | | $ | — | | $ | — | |
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| | Severance | | June 30, 2011
Facility
Consolidation
Costs | | Total | |
| |
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| |
| |
Balance at June 30, 2010 | | $ | 290 | | $ | 227 | | $ | 517 | |
Payments | | | (290 | ) | | (194 | ) | | (484 | ) |
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Balance at June 30, 2011 | | $ | — | | $ | 33 | | $ | 33 | |
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The severance-related costs are related to the Metrology Solutions segment, and the facility consolidation costs are related to the Optical Systems segment.
F - 15
NOTE 4: MARKETABLE SECURITIES
Marketable securities consisted of a mutual fund investment consisting primarily of corporate securities as of June 30, 2012 which is classified as a trading security. There were no held-to-maturity securities at June 30, 2012. Marketable securities consisted of a government agency security, classified as held-to-maturity, and mutual funds consisting primarily of corporate securities as of June 30, 2011. 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.
The amortized cost, gross unrealized gains and losses and fair value of the held-to-maturity security at June 30, 2011 with a maturity date of August 8, 2011 were as follows:
| | | | | | | | | | | | | |
| | Amortized
Cost | | Gross
Unrealized
Gains | | Gross
Unrealized
Losses | | Fair
Value | |
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At June 30, 2011 | | | | | | | | | | | | | |
Government treasury bill | | $ | 1,000 | | $ | — | | $ | — | | $ | 1,000 | |
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There were no securities in a continuous unrealized loss position at June 30, 2012. In determining whether investment holdings are other than temporarily impaired, we consider the nature, cause, severity and duration of the impairment. We use analyst reports, credit ratings and other items as part of our review.
The trading security consists 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 following table sets forth the beginning balance at July 1, 2011 and 2010, gross unrealized gains and losses, contributions, redemptions and fair value of the trading security at June 30, 2012 and 2011:
| | | | | | | | | | | | | | | | | | | |
| | Beginning
Balance of
Fiscal
Year | | Gross
Unrealized
Gains | | Gross
Unrealized
Losses | | Contributions | | Redemptions | | Ending
Balance of
Fiscal
Year | |
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June 30, 2012 | | | | | | | | | | | | | | | | | | | |
Mutual Fund | | $ | 980 | | $ | 99 | | $ | (177 | ) | $ | — | | $ | (173 | ) | $ | 729 | |
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June 30, 2011 | | | | | | | | | | | | | | | | | | | |
Mutual Fund | | $ | 922 | | $ | 210 | | $ | (16 | ) | $ | — | | $ | (136 | ) | $ | 980 | |
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F - 16
NOTE 5: FAIR VALUE MEASUREMENTS
Fair value measurement disclosures utilize a valuation hierarchy for determining the grouping of inputs used. 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.
When available, the Company uses quoted market prices to determine the fair value of its assets and liabilities 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, approximates fair value due to their short maturities.
The following table provides the assets and liabilities carried at fair value measured on a recurring basis as of June 30, 2012:
Assets and Liabilities Measured at Fair Value:
| | | | | | | | | | | | | |
| | | | | Fair value measurements at June 30, 2012 | |
| | | | |
| |
| | Total carrying
value at
June 30, 2012 | | Quoted prices
in active
markets
(Level 1) | | Significant
other
observable
inputs
(Level 2) | | Significant
unobservable
inputs
(Level 3) | |
| |
| |
| |
| |
| |
Money market funds | | $ | 19,931 | | $ | 19,931 | | $ | — | | $ | — | |
Trading securities | | | 729 | | | 729 | | | — | | | — | |
Foreign currency economic hedges | | | (3 | ) | | — | | | (3 | ) | | — | |
| |
|
| |
|
| |
|
| |
|
| |
Total | | $ | 20,657 | | $ | 20,660 | | $ | (3 | ) | $ | — | |
| |
|
| |
|
| |
|
| |
|
| |
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 and Liabilities Measured at Fair Value:
| | | | | | | | | | | | | |
| | | | | 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 economic hedges | | | (82 | ) | | — | | | (82 | ) | | — | |
| |
|
| |
|
| |
|
| |
|
| |
Total | | $ | 20,828 | | $ | 20,910 | | $ | (82 | ) | $ | — | |
| |
|
| |
|
| |
|
| |
|
| |
Assets Measured at Fair Value on a Nonrecurring Basis:
| | | | | | | | | | | | | | | | |
| | | | | 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
NOTE 6: RECEIVABLES
At June 30, 2012 and 2011, receivables were as follows:
| | | | | | | |
| | June 30, 2012 | | June 30, 2011 | |
| |
| |
| |
Trade | | $ | 32,261 | | $ | 32,515 | |
Other | | | 100 | | | 308 | |
| |
|
| |
|
| |
| | | 32,361 | | | 32,823 | |
Allowance for doubtful accounts | | | (760 | ) | | (1,399 | ) |
| |
|
| |
|
| |
| | $ | 31,601 | | $ | 31,424 | |
| |
|
| |
|
| |
NOTE 7: INVENTORIES
At June 30, 2012 and 2011, inventories were as follows:
| | | | | | | |
| | June 30, 2012 | | June 30, 2011 | |
| |
| |
| |
Raw materials and manufactured parts | | $ | 12,753 | | $ | 13,265 | |
Work in process | | | 12,031 | | | 10,742 | |
Finished goods | | | 2,976 | | | 4,372 | |
| |
|
| |
|
| |
| | $ | 27,760 | | $ | 28,379 | |
| |
|
| |
|
| |
NOTE 8: PROPERTY, PLANT AND EQUIPMENT
At June 30, 2012 and 2011, property, plant and equipment, at cost, were as follows:
| | | | | | | | | | |
| | June 30, 2012 | | June 30, 2011 | | Estimated
Useful Life
(Years) | |
| |
| |
| |
| |
| | | | | | | | | |
Land and improvements | | $ | 4,030 | | $ | 2,930 | | — | |
Building and improvements | | | 24,228 | | | 21,265 | | 15-40 | |
Machinery, equipment and office furniture | | | 58,259 | | | 58,157 | | 3-8 | |
Leasehold improvements | | | 964 | | | 989 | | 1-5 | |
Construction in progress | | | 1,625 | | | 357 | | — | |
| |
|
| |
|
| | | | |
| | | 89,106 | | | 83,698 | | | | |
Less accumulated depreciation | | | (55,412 | ) | | (53,503 | ) | | | |
| |
|
| |
|
| | | | |
| | $ | 33,694 | | $ | 30,195 | | | | |
| |
|
| |
|
| | | | |
Depreciation expense for the fiscal years ended June 30, 2012, 2011 and 2010 was $4,864, $5,363 and $5,318, respectively. In fiscal 2011, due to our historical operating results, we utilized a future discounted cash flow model over five years to assess the net realizable value of our property, plant and equipment related to the vision systems product line and recorded an impairment charge of $563 in selling, general and administrative expenses in our Metrology Solutions segment.
F - 18
NOTE 9: INTANGIBLE ASSETS
Intangible assets, at cost, at June 30, 2012 and 2011 were as follows:
| | | | | | | | | | |
| | June 30, 2012 | | June 30, 2011 | | Estimated
Useful Life
(Years) | |
| |
| |
| |
| |
| | | | | | | | | | |
Patents and trademarks | | $ | 6,934 | | $ | 6,774 | | 5-17 | |
Customer relationships and technology | | | 2,163 | | | 2,163 | | 3-7 | |
Covenant not-to-compete | | | 851 | | | 851 | | 4 | |
| |
|
| |
|
| | | |
| | | 9,948 | | | 9,788 | | | | |
Accumulated amortization | | | (4,750 | ) | | (3,946 | ) | | | |
| |
|
| |
|
| | | | |
Total | | $ | 5,198 | | $ | 5,842 | | | | |
| |
|
| |
|
| | | | |
| | | | | | | | | | |
Amortization expense related to intangible assets for the fiscal years ended June 30, 2012, 2011 and 2010 was $857, $1,070 and $793, respectively. Amortization expense is estimated to be approximately $901 in fiscal 2013 and approximately $806, $795, $716, and $487 annually in fiscal 2014-2017, 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.
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, 2012 | | June 30, 2011 | |
| |
| |
| |
Beginning balance | | $ | 1,333 | | $ | 1,360 | |
Reductions for payments made | | | (1,016 | ) | | (1,083 | ) |
Changes in accruals related to warranties issued in the current period | | | 1,315 | | | 920 | |
Changes in accrual related to pre-existing warranties | | | (444 | ) | | 136 | |
| |
|
| |
|
| |
Ending balance | | $ | 1,188 | | $ | 1,333 | |
| |
|
| |
|
| |
F - 19
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, 2012, 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.
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 2017. Total lease expense, net, charged to operations was $1,236, $1,330 and $1,295 in fiscal 2012, 2011 and 2010, respectively. At June 30, 2012, 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 | |
| |
| |
2013 | | $ | 992 | |
2014 | | | 563 | |
2015 | | | 298 | |
2016 | | | 21 | |
2017 | | | 12 | |
| |
|
| |
Total minimum lease payments | | $ | 1,886 | |
| |
|
| |
NOTE 12: PROFIT-SHARING PLAN
We maintain the Zygo Corporation Profit Sharing Plan (“Plan”) in which substantially all full-time employees are eligible to participate. The Plan is comprised of a profit-sharing program and 401(k) tax deferred payroll deduction program. The profit-sharing program consists of cash distributions determined annually at the discretion of the Board of Directors. Within the 401(k) program, employees may contribute a tax-deferred amount of up to 60% of their compensation, as defined. Effective January 2012, we reinstated the 401(k) match up to 4% of an employee’s contributions. There was no company 401(k) match in the first half of fiscal 2012 or in fiscal 2011 and 2010. Our expenses related to these programs for the years ended June 30, 2012, 2011 and 2010 amounted to $1,947, $2,526 and $0, respectively.
NOTE 13: SHARE-BASED COMPENSATION PLANS
Share-Based Compensation Plans
The Zygo Corporation 2012 Equity Incentive Plan (“2012 Plan”) permits the granting of stock options to purchase shares of common stock and the granting of restricted stock units. The Board of Directors may also amend the 2012 Plan to authorize the grant of other types of equity-based awards, without further action by our stockholders. We have 1,650,000 shares authorized for issuance under the 2012 Plan, of which 1,573,074 remain available for grant at June 30, 2012. The exercise price per share of common stock covered by an option may not be less than the fair 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 under the Zygo Corporation 2002 Equity Incentive Plan (“2002 Plan”), as amended in 2006, vest 50% after three years and 50% after four years. The 2002 Plan permitted the granting of stock options to purchase shares of common stock and the granting of restricted stock units. The 2002 Plan expired on August 27, 2012, and no further stock options or restricted stock units may be granted after that date.
F - 20
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. 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 2012, 2011 and 2010 were $7.21, $5.68 and $4.45, respectively.
Share-based compensation expense for the fiscal year ended June 30, 2012 was $4,128, with a related tax benefit of $1,486. This increased cost of goods sold by $790, selling, general and administrative expenses by $2,708 and research, development and engineering expenses by $630. 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. 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.
The table below indicates the key assumptions used in the option valuation calculations for options granted in fiscal 2012, 2011 and 2010, and a discussion of our methodology for developing each of the assumptions used in the valuation model:
| | | | | | |
| | Fiscal Year Ended June 30, |
| |
|
| | 2012 | | 2011 | | 2010 |
| |
| |
| |
|
Term | | 6.6 Years | | 4.1-5.1 Years | | 4.1-5.1 Years |
Volatility | | 59.5% | | 45.7 - 57.1% | | 45.7 - 60.9% |
Dividend yield | | 0.0% | | 0.0% | | 0.0% |
Risk-free interest rate | | 1.5% | | 1.1-2.6% | | 2.0-2.5% |
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 would 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 - 21
Stock Options
The following table summarizes information about our stock options granted under our share-based compensation plans for fiscal 2012, 2011 and 2010. 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 and the 2002 Plan which expired in August 2012, in both instances, to the extent the options remain exercisable.
| | | | | | | | | | | | | | | | | | | |
| | June 30, 2012 | | June 30, 2011 | | June 30, 2010 | |
| |
| |
| |
| |
| | 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 | | | 1,436,240 | | $ | 10.57 | | | 1,976,892 | | $ | 20.14 | | | 1,908,572 | | $ | 22.72 | |
Granted | | | 229,562 | | $ | 12.47 | | | 100,000 | | $ | 12.13 | | | 515,000 | | $ | 9.75 | |
Exercised | | | (365,642 | ) | $ | 9.79 | | | (166,852 | ) | $ | 10.05 | | | (57,300 | ) | $ | 8.39 | |
Expired or cancelled | | | (55,263 | ) | $ | 12.87 | | | (473,800 | ) | $ | 51.07 | | | (389,380 | ) | $ | 29.60 | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Options - Outstanding at end of year | | | 1,244,897 | | $ | 11.03 | | | 1,436,240 | | $ | 10.57 | | | 1,976,892 | | $ | 20.14 | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Options vested or expected to vest | | | 548,144 | | $ | 11.20 | | | 1,402,221 | | $ | 10.56 | | | 1,878,816 | | $ | 20.68 | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Options - Exercisable at end of year | | | 681,185 | | $ | 10.87 | | | 925,990 | | $ | 10.70 | | | 1,297,492 | | $ | 25.46 | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Outstanding options at June 30, 2012, had an intrinsic value of $8,506 with a weighted average remaining contractual life of 6.4 years. Exercisable options at the end of the year had an intrinsic value of $4,763 with a weighted average remaining contractual life of 4.8 years.
F - 22
The following table summarizes information about our stock options granted under our share-based compensation plans as of June 30, 2012.
| | | | | | | | | | | | | | | | | |
| | Options Outstanding | | | Options Exercisable | |
| |
|
| |
|
|
Range of
Exercise
Prices | | Number
Outstanding
as of
June 30, 2012 | | Weighted
Average
Remaining
Contractual
Life | | Weighted
Average
Exercise Price | | | Number
Exercisable as of
June 30, 2012 | | Weighted
Average
Exercise Price | |
|
|
|
|
|
|
|
| |
|
|
|
|
$5.09 - $8.80 | | | 191,275 | | | 6.7 | | $ | 6.86 | | | | 95,775 | | $ | 6.51 | |
$9.01 - $12.51 | | | 839,868 | | | 6.7 | | $ | 11.02 | | | | 417,656 | | $ | 10.46 | |
$12.53 - $14.74 | | | 120,600 | | | 3.1 | | $ | 13.65 | | | | 120,600 | | $ | 13.65 | |
$14.90 - $20.09 | | | 93,154 | | | 7.0 | | $ | 16.38 | | | | 47,154 | | $ | 16.24 | |
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
$5.09 - $20.09 | | | 1,244,897 | | | 6.4 | | $ | 11.03 | | | | 681,185 | | $ | 10.87 | |
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
As of June 30, 2012, there was $1,475 of total unrecognized compensation cost related to stock options. These costs are expected to be recognized over a weighted average period of 1.8 years.
The total intrinsic value of stock options exercised was $2,823, $449 and $109 and the total fair value of stock awards vested was $803, $959 and $478 during the fiscal years ended June 30, 2012, 2011 and 2010, respectively.
Cash received from stock option exercises and the associated tax benefit for the fiscal years ended June 30, 2012, 2011 and 2010 was $2,629, $1,834 and $520, respectively.
|
Restricted Stock |
The following table summarizes information about restricted stock units granted under share-based compensation plans for the fiscal years ended June 30, 2012, 2011, and 2010: |
| | | | | | | | | | | | | | | | | | | |
| | June 30, 2012 | | June 30, 2011 | | June 30, 2010 | |
| |
| |
| |
| |
| | Shares | | Weighted
Average
Fair Value | | Shares | | Weighted
Average
Fair Value | | Shares | | Weighted
Average
Fair Value | |
| |
| |
| |
| |
| |
| |
| |
|
Non vested balance at beginning of year | | | 713,975 | | $ | 8.00 | | | 588,093 | | $ | 9.04 | | | 551,650 | | $ | 11.46 | |
Granted | | | 176,812 | | $ | 13.78 | | | 362,500 | | $ | 8.28 | | | 309,000 | | $ | 6.06 | |
Vested | | | (148,500 | ) | $ | 11.39 | | | (172,865 | ) | $ | 8.89 | | | (205,194 | ) | $ | 11.28 | |
Forfeited | | | (7,955 | ) | $ | 6.43 | | | (63,753 | ) | $ | 9.06 | | | (67,363 | ) | $ | 8.71 | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Non vested balance at end of year | | | 734,332 | | $ | 9.92 | | | 713,975 | | $ | 8.00 | | | 588,093 | | $ | 9.04 | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
As of June 30, 2012, there was $3,290 of total unrecognized compensation costs related to restricted stock awards. These costs are expected to be recognized over a weighted average period of 1.8 years.
At June 30, 2012, an aggregate of 1,838,623 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
The Company has an Employee Stock Purchase Plan (“ESPP”), providing employees who elect to participate with 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. Previously, the ESPP provided for a 10% discount from market value and ceased being available for participation during fiscal 2009. The Company reinstated the amended ESPP effective July 1, 2012 with quarterly offerings to eligible employees. The total number of shares of common stock available under the ESPP is 535,529.
F - 23
NOTE 15: INCOME TAXES
The provision (benefit) for income taxes consists of the following:
| | | | | | | | | | |
| | Fiscal Year Ended June 30, | |
| |
|
|
| | 2012 | | 2011 | | 2010 | |
| |
|
|
|
|
|
|
Current: | | | | | | | | | | |
Federal | | $ | — | | $ | (725 | ) | $ | (1,917 | ) |
State | | | 670 | | | 259 | | | 130 | |
Foreign | | | 2,403 | | | 1,782 | | | 1,544 | |
| |
|
|
|
|
|
|
|
|
|
| | | 3,073 | | | 1,316 | | | (243 | ) |
| |
|
|
|
|
|
|
|
|
|
Deferred: | | | | | | | | | | |
Federal | | | (15,977 | ) | | — | | | (789 | ) |
State | | | (2,918 | ) | | — | | | — | |
Foreign | | | (5 | ) | | — | | | — | |
| |
|
|
|
|
|
|
|
|
|
| | | (18,900 | ) | | — | | | (789 | ) |
| |
|
|
|
|
|
|
|
|
|
Total | | $ | (15,827 | ) | $ | 1,316 | | $ | (1,032 | ) |
| |
|
|
|
|
|
|
|
|
|
The income tax expense (benefits) for operations listed above were provided on the following pre-tax book income (loss) from continuing operations amounts:
| | | | | | | | | | |
| | Fiscal Year Ended June 30, | |
| |
|
|
| | 2012 | | 2011 | | 2010 | |
| |
|
|
|
|
|
|
Earnings (loss) from operations - U.S. | | $ | 22,625 | | $ | 18,543 | | $ | (7,883 | ) |
Earnings from foreign operations | | | 6,619 | | | 3,365 | | | 4,183 | |
| |
|
|
|
|
|
|
|
|
|
| | $ | 29,244 | | $ | 21,908 | | $ | (3,700 | ) |
| |
|
|
|
|
|
|
|
|
|
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 2012, 2011 and 2010 to earnings from continuing operations before income taxes for the following reasons:
| | | | | | | | | | |
| | Fiscal Year Ended June 30, | |
| |
|
|
| | 2012 | | 2011 | | 2010 | |
| |
|
|
|
|
|
|
|
Computed “expected tax expense (benefit)” | | $ | 10,235 | | $ | 7,668 | | $ | (1,295 | ) |
Increases (reductions) in taxes resulting from: | | | | | | | | | | |
State taxes, net of federal income tax benefit | | | 436 | | | 168 | | | 85 | |
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 | | | 1,199 | | | 524 | | | 727 | |
Foreign tax differential | | | (317 | ) | | (399 | ) | | (88 | ) |
Deferred tax asset valuation allowance and related adjustments to NOL | | | (27,380 | ) | | (5,920 | ) | | 2,217 | |
Other, net | | | — | | | — | | | (95 | ) |
| |
|
|
|
|
|
|
|
|
|
| | $ | (15,827 | ) | $ | 1,316 | | $ | (1,032 | ) |
| |
|
|
|
|
|
|
|
|
|
F - 24
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, 2012 and 2011 are presented below:
| | | | | | | |
| | June 30, 2012 | | June 30, 2011 | |
| |
| |
| |
Deferred tax assets: | | | | | | | |
Accounts receivable | | $ | 289 | | $ | 1,741 | |
Accrued liabilities and other | | | 1,669 | | | 1,025 | |
Inventory valuation | | | 3,117 | | | 3,979 | |
Stock award compensation | | | 3,583 | | | 202 | |
Intangible assets | | | 664 | | | 79 | |
Federal, foreign and state net operating loss carryforwards and credits | | | 14,192 | | | 25,406 | |
Contributions | | | — | | | 72 | |
| |
|
| |
|
| |
Deferred tax assets | | | 23,514 | | | 32,504 | |
| |
|
| |
|
| |
Deferred tax liabilities: | | | | | | | |
Intangible assets | | | (542 | ) | | — | |
Property, plant and equipment | | | (2,038 | ) | | (3,270 | ) |
| |
|
| |
|
| |
Deferred tax liability | | | (2,580 | ) | | (3,270 | ) |
| |
|
| |
|
| |
| | | | | | | |
Net deferred tax assets before valuation allowance | | | 20,934 | | | 29,234 | |
Valuation allowance | | | (1,750 | ) | | (29,179 | ) |
| |
|
| |
|
| |
Net deferred tax asset | | $ | 19,184 | | $ | 55 | |
| |
|
| |
|
| |
In fiscal 2012, we recognized a tax benefit of $18.9 million from the reversal of substantially all of the valuation allowance on our net deferred tax assets. Realization of the future tax benefits is dependent on the Company’s ability to generate sufficient taxable income in future periods. Through fiscal 2011, the Company’s net deferred tax assets were substantially reserved due to the uncertainty of realization through future earnings. In fiscal 2012, the Company determined that based on all available evidence, positive and negative, including the Company’s taxable income over the past three fiscal years and expected future profitability, that certain of its deferred tax assets were more likely than not to be realized through future earnings.
At June 30, 2012, our share of the cumulative undistributed earnings of foreign subsidiaries was $14,183. 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, 2012, we have federal, state, and foreign net operating loss (“NOL”) carry forwards of approximately $13,922, $3,270, and $4,454, respectively, and various state and foreign tax credit carry forwards of $4,165 and $1,247, respectively. 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 domestic credit carry forwards of $7,402 and foreign tax credits of $1,247 which are available to reduce federal income taxes, if any, through 2029 and begin to expire in 2013. All deferred tax assets relating to Canadian NOLs and credits have been (and remain so) 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.
F - 25
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 tax rate at the time which the unrecognized benefits are ultimately recognized.
| | | | |
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 | |
Increases - tax positions of prior years | | | 2,639 | |
Increases - tax positions of current year | | | 123 | |
| |
|
| |
Unrecognized tax benefit, June 30, 2012 | | $ | 3,617 | |
| |
|
| |
We are no longer subject to U.S. federal income tax audit or tax adjustments for years prior to June 30, 2008, except to the extent we have NOLs and credits arising from any of those earlier years. Those loss years remain 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, 2008.
F - 26
NOTE 16: SEGMENT AND MAJOR CUSTOMER INFORMATION
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 used in the semiconductor, research, and industrial markets. Zygo’s Optical Systems segment designs, develops and manufactures high precision optical components and electro-optical systems used in the semiconductor, bio-medical and research markets. The chief operating decision-maker uses this information to allocate resources.
| | | | | | | | | | |
| | Fiscal Year Ended June 30, | |
| |
| |
| | 2012 | | 2011 | | 2010 | |
| |
|
|
|
|
| |
Metrology Solutions | | | | | | | | | | |
Net revenues | | $ | 106,189 | | $ | 92,947 | | $ | 65,841 | |
Gross profit | | | 61,523 | | | 50,913 | | | 33,652 | |
Gross margin | | | 58 | % | | 55 | % | | 51 | % |
| | | | | | | | | | |
Optical Systems | | | | | | | | | | |
Net revenues | | $ | 60,648 | | $ | 57,179 | | $ | 35,489 | |
Gross profit | | | 20,187 | | | 19,880 | | | 8,317 | |
Gross margin | | | 33 | % | | 35 | % | | 23 | % |
| | | | | | | | | | |
Total | | | | | | | | | | |
Net revenues | | $ | 166,837 | | $ | 150,126 | | $ | 101,330 | |
Gross profit | | | 81,710 | | | 70,793 | | | 41,969 | |
Gross margin | | | 49 | % | | 47 | % | | 41 | % |
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, | |
| |
| |
| | 2012 | | 2011 | | 2010 | |
| |
|
|
|
|
| |
Americas | | $ | 90,289 | | $ | 81,710 | | $ | 54,066 | |
Japan | | | 26,084 | | | 31,648 | | | 18,280 | |
China | | | 21,806 | | | 9,186 | | | 5,809 | |
Europe | | | 19,499 | | | 17,983 | | | 13,608 | |
Pacific Rim | | | 9,159 | | | 9,599 | | | 9,567 | |
| |
|
| |
|
| |
|
| |
Total | | $ | 166,837 | | $ | 150,126 | | $ | 101,330 | |
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|
| |
|
| |
|
| |
Two customers individually accounted for 11% and 10% of the net revenues for the fiscal year ended June 30, 2012. Revenues from one of these customers accounted for 13% and 9% of the net revenues for the fiscal years ended June 30, 2011 and 2010, respectively. Combined revenues from these customers were included in both of our segments.
F - 27
NOTE 17: TRANSACTIONS WITH STOCKHOLDER
Sales to Canon, Inc., a stockholder representing approximately 7% ownership at June 30, 2012, and Canon Sales Co., Inc., a distributor of certain of our products in Japan and a subsidiary of Canon, Inc. (collectively “Canon”), were $16,810 (10% of net revenues), $19,697 (13% of net revenues) and $8,809 (9% of net revenues), for the years ended June 30, 2012, 2011 and 2010, respectively. Substantially all of these revenues occurred in the Metrology Solutions segment. Selling prices of products sold to Canon are based, generally, on the terms customarily given to distributors. At June 30, 2012 and 2011, there were, in the aggregate, $1,604 and $2,572, respectively, of trade accounts receivable from Canon.
NOTE 18: ECONOMIC 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 as defined under authoritative guidance on accounting for derivative instruments and hedging activities. These contracts are marked-to-market with changes in fair value recorded in the consolidated statements of operations in miscellaneous income/expense. 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, 2012, we had nine foreign currency forward contracts outstanding involving our Japanese and German operations with notional amounts aggregating to $3,090. These foreign currency hedges are not designated as hedging instruments. Net unrealized gains and (losses) recognized from foreign currency forward contracts for fiscal 2012, 2011 and 2010 were $79, ($12) and ($64), respectively, included in miscellaneous income/expense in the consolidated statements of operations. These gains and losses are substantially offset by foreign exchange losses and gains on intercompany balances recorded by our subsidiaries.
The following table summarizes the fair value of derivative instruments as of June 30, 2012, 2011 and 2010:
| | | | | | | | |
Derivatives not designated as hedging instruments | | Balance Sheet Location |
| |
|
| | | | | | | | |
June 30, 2012 | | Number of foreign exchange contracts: | | 9 | | Prepaid expenses and other current assets | | $14 |
| | | | | | Other accrued expenses | | $17 |
| | | | | | | | |
June 30, 2011 | | Number of foreign exchange contracts: | | 6 | | Other accrued expenses | | $82 |
| | | | | | | | |
June 30, 2010 | | Number of foreign exchange contracts: | | 4 | | Other accrued expenses | | $70 |
F - 28
NOTE 19: QUARTERLY RESULTS (UNAUDITED)
The following table sets forth certain unaudited quarterly financial data:
| | | | | | | | | | | | | |
| | For the Fiscal Year Ended June 30, 2012 | |
| |
| |
| | September 30 | | December 31 | | March 31 | | June 30 | |
| |
| |
| |
| |
| |
Net revenues | | $ | 43,992 | | $ | 40,040 | | $ | 38,472 | | $ | 44,333 | |
| |
|
| |
|
| |
|
| |
|
| |
Gross profit | | $ | 21,617 | | $ | 19,642 | | $ | 19,440 | | $ | 21,011 | |
| |
|
| |
|
| |
|
| |
|
| |
Net earnings | | $ | 6,976 | | $ | 6,757 | | $ | 5,926 | | $ | 25,412 | |
| |
|
| |
|
| |
|
| |
|
| |
Net earnings attributable to Zygo Corporation | | $ | 6,469 | | $ | 6,178 | | $ | 5,407 | | $ | 24,964 | |
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|
| |
|
| |
|
| |
|
| |
Net earnings attributable to Zygo Corporation per basic common share | | $ | 0.36 | | $ | 0.34 | | $ | 0.30 | | $ | 1.37 | |
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|
| |
|
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|
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|
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Net earnings attributable to Zygo Corporation per diluted common share | | $ | 0.35 | | $ | 0.33 | | $ | 0.29 | | $ | 1.32 | |
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|
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|
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| | | | | | | | | | | | | |
| | For the Fiscal Year Ended June 30, 2011 | |
| |
| |
| | September 30 | | December 31 | | March 31 | | June 30 | |
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| |
| |
| |
| |
Net revenues | | $ | 31,119 | | $ | 36,086 | | $ | 40,235 | | $ | 42,686 | |
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|
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|
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| |
Gross profit | | $ | 14,203 | | $ | 16,894 | | $ | 18,864 | | $ | 20,832 | |
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|
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|
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|
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|
| |
Net earnings | | $ | 3,256 | | $ | 6,090 | | $ | 4,834 | | $ | 6,503 | |
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|
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|
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Net earnings from continuing operations attributable to Zygo Corporation | | $ | 2,637 | | $ | 5,774 | | $ | 4,473 | | $ | 6,104 | |
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|
| |
|
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|
| |
|
| |
Net earnings attributable to Zygo Corporation | | $ | 2,728 | | $ | 5,774 | | $ | 4,473 | | $ | 6,104 | |
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|
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|
| |
Net earnings attributable to Zygo Corporation per basic common share | | $ | 0.16 | | $ | 0.33 | | $ | 0.25 | | $ | 0.34 | |
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Net earnings attributable to Zygo Corporation per diluted common share | | $ | 0.16 | | $ | 0.32 | | $ | 0.24 | | $ | 0.33 | |
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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. There was no discontinued operations activity in fiscal 2012.
The following table summarizes the operating results of discontinued operations for the fiscal years ended June 30, 2011 and 2010:
| | | | | | | |
| | Fiscal Year Ended June 30, | |
| |
| |
| | 2011 | | 2010 | |
| |
| |
| |
Net revenues | | $ | — | | $ | 665 | |
Cost of goods sold | | | — | | | 268 | |
| |
|
| |
|
| |
Gross profit (loss) | | | — | | | 397 | |
Operating (income) expenses, and other | | | (91 | ) | | 3,066 | |
Asset impairment | | | — | | | — | |
| |
|
| |
|
| |
Earnings (loss) before income taxes | | | 91 | | | (2,669 | ) |
Income tax expense | | | — | | | — | |
| |
|
| |
|
| |
Earnings (loss) from discontinued operations, net of tax | | $ | 91 | | $ | (2,669 | ) |
| |
|
| |
|
| |
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:
| | | | |
| | June 30,
2011 | |
| |
| |
Receivables | | $ | — | |
Other assets | | | — | |
| |
|
| |
Current assets of discontinued operations | | $ | — | |
| |
|
| |
| | | | |
Accounts payable | | $ | — | |
Accrued expenses and other current liabilities | | | 281 | |
| |
|
| |
Current liabilities of discontinued operations | | $ | 281 | |
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|
| |
| | | | |
Other long-term liabilities | | $ | — | |
| |
|
| |
Long-term liabilities of discontinued operations | | $ | — | |
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|
| |
* * * * *
F - 30
ZYGO CORPORATION AND CONSOLIDATED SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Years ended June 30, 2012, 2011 and 2010
(Thousands)
| | | | | | | | | | | | | |
Description | | Balance at
Beginning of
Year | | Provision | | Write-Offs and
Other | | Balance at End
of Year | |
| |
| |
| |
| |
| |
| | | | | | | | | | | | | |
Year Ended June 30, 2012 | | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Allowance for doubtful accounts | | $ | 1,399 | | $ | (463 | ) | $ | (176 | ) | $ | 760 | |
| | | | | | | | | | | | | |
Valuation allowance on net deferred tax assets | | $ | 29,179 | | $ | (27,380 | ) | $ | (49 | ) | $ | 1,750 | |
| | | | | | | | | | | | | |
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 | |
S - 1
EXHIBIT INDEX
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EXHIBIT
TABLE
NUMBER | |
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21 | Subsidiaries of Registrant |
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23.1 | Consent of Independent Registered Public Accounting Firm |
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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 |
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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 |
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32.1 | Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
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32.2 | Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
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101.INS* | XBRL Instance Document |
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101.SCH* | XBRL Taxonomy Extension |
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101.CAL* | XBRL Taxonomy Extension Calculation Linkbase |
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101.DEF* | XBRL Taxonomy Extension Definition Linkbase |
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101.LAB* | XBRL Taxonomy Extension Label Linkbase |
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101.PRE* | XBRL Taxonomy Extension Presentation Linkbase |
*Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, or Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.
