FORM 10-Q. QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
(Mark One)
X Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the quarterly period ended December 31, 1999
or
Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the transition period from ____________________________
to _______________________________
Commission File Number 0-12944
Zygo Corporation
(Exact name of registrant as specified in its charter)
Delaware 06-0864500
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Laurel Brook Road, Middlefield, Connecticut 06455
(Address of principal executive offices) (Zip Code)
(860) 347-8506
Registrant's telephone number, including area code
N/A
(Former name, former address, and former fiscal year,
if changed from last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES [X] NO [ ]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13, or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. YES [ ] NO [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
11,692,097 Common Stock, $.10 Par Value at February 8, 2000
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
CONSOLIDATED STATEMENTS OF EARNINGS
(Thousands, except per share amounts)
For the Three Months For the Six Months
Ended December 31, Ended December 31,
------------------------- -------------------------
1999 1998 1999 1998
-------- -------- -------- --------
Net sales $ 21,272 $ 15,979 $ 39,173 $ 31,417
Cost of good sold 11,923 9,860 22,499 19,924
-------- -------- -------- --------
Gross profit 9,349 6,119 16,674 11,493
Selling, general and administrative expenses 4,632 3,982 8,800 8,623
Research, development and engineering expenses 2,144 2,562 4,162 4,833
Amortization of goodwill and other intangibles 403 277 806 493
-------- -------- -------- --------
Operating profit (loss) 2,170 (702) 2,906 (2,456)
-------- -------- -------- --------
Other income (expense):
Interest income 255 313 519 624
Miscellaneous (expense), net (10) (23) (70) (114)
-------- -------- -------- --------
245 290 449 510
-------- -------- -------- --------
Earnings (loss) before income taxes and
minority interest 2,415 (412) 3,355 (1,946)
Income tax expense (benefit) 870 (76) 1,224 (539)
-------- -------- -------- ========
Earnings (loss) before minority interest 1,545 (336) 2,131 (1,407)
Minority interest (73) 0 (73) 0
-------- -------- -------- --------
Net earnings (loss) (note 2) $ 1,472 $ (336) $ 2,058 $ (1,407)
======== ======== ======== ========
Earnings (loss) per share:
Basic (1) $ .13 $ (.03)(2) $ .18 $ (.13)(2)
======== ======== ======== ========
Diluted (1) $ .12 $ (.03)(2) $ .17 $ (.13)(2)
======== ======== ======== ========
Weighted average number of shares:
Basic 11,306 11,158 11,273 11,110
======== ======== ======== ========
Diluted 12,328 11,158 12,242 11,110
======== ======== ======== ========
(1) The difference between basic shares outstanding and diluted shares
outstanding is the assumed conversion of common stock equivalents (stock
options) in the amounts of 1,022,000 in the three months ended December 31,
1999 and 969,000 in the six months ended December 31, 1999.
(2) As per generally accepted accounting principles, the computation of the net
loss per share is based on the weighted average basic shares outstanding.
CONSOLIDATED BALANCE SHEETS
As of December 31, 1999 and June 30, 1999
(Thousands, except share amounts)
ASSETS December 31, June 30,
1999 1999
-------- --------
Current Assets:
Cash and cash equivalents $ 14,616 $ 13,020
Marketable securities 8,297 8,351
Receivables 21,143 12,094
Inventories:
Raw materials and manufactured parts 5,156 7,866
Work in process 3,907 4,622
Finished goods 2,393 2,985
-------- --------
Total inventories 11,456 15,473
-------- --------
Costs in excess of billings 1,526 660
Income taxes receivable 0 741
Prepaid expenses and taxes 1,086 799
Deferred income taxes 3,678 3,683
-------- --------
Total current assets 61,802 54,821
-------- --------
Property, plant and equipment, at cost 34,478 33,708
Less accumulated depreciation 18,569 17,460
-------- --------
Net property, plant and equipment 15,909 16,248
-------- --------
Goodwill and other intangible assets, net 9,271 9,939
Other assets 964 819
-------- --------
Total assets $ 87,946 $ 81,827
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 6,199 $ 4,989
Accrued expenses and customer progress payments 5,532 6,251
Federal and state income taxes 1,608 0
-------- --------
Total current liabilities 13,339 11,240
-------- --------
Deferred income taxes 2,213 2,213
Minority interest 163 0
Stockholders' Equity:
Common stock, $.10 par value per share:
15,000,000 shares authorized; 11,603,972 1,160 1,140
shares issued (11,402,442 at June 30, 1999)
Additional paid-in capital 44,441 42,587
Retained earnings (note 2) 27,132 25,074
Currency translation effects (104) (57)
Net unrealized (loss) on marketable securities (97) (69)
-------- --------
72,532 68,675
Less treasury stock, at cost; 207,600 shares 301 301
-------- --------
Total stockholders' equity 72,231 68,374
-------- --------
Total liabilities and stockholders' equity $ 87,946 $ 81,827
======== ========
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended December 31, 1999 and 1998
(Thousands of dollars)
Cash provided by (used for) 1999 1998
operating activities: -------- --------
Net earnings (loss) (note 2) $ 2,058 $ (1,407)
Adjustments to reconcile net earnings (loss) to cash
provided by (used for) operating activities:
Depreciation and amortization 2,524 2,049
Loss on disposal of assets 54 108
Gain on sale of marketable securities 0 (35)
Changes in operating accounts:
Receivables (5,732) 5,128
Costs in excess of billings (866) (866)
Inventories 812 (486)
Prepaid expenses (287) 242
Accounts payable and accrued expenses 4,084 (7,465)
Minority interest 73 0
-------- --------
Net cash provided by (used for) operating activities 2,720 (2,732)
-------- --------
Cash (used for) provided by
investing activities:
Additions to property, plant and equipment (1,439) (1,492)
Investment in marketable securities (248) (9,113)
Investment in other assets (309) (2,212)
Proceeds from sale of marketable securities 0 5,361
Proceeds from maturity of marketable securities 250 2,545
-------- --------
Net cash (used for) by investing activities (1,746) (4,911)
-------- --------
Cash provided by financing activities:
Repayment of long-term debt 0 0
Exercise of employee stock options 532 280
Contributions from minority interest of consolidated subsidiaries 90 0
-------- --------
Net cash provided by financing activities 622 280
-------- --------
Net increase (decrease) in cash and cash equivalents 1,596 (7,363)
Cash and cash equivalents, beginning of year 13,020 22,023
-------- --------
Cash and cash equivalents, end of quarter $ 14,616 $ 14,660
======== ========
These interim financial statements should be read in conjunction with the
financial statements and notes included in the Company's June 30, 1999 Annual
Report on Form 10-K405 including items incorporated by reference therein.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1: Principles of Consolidation
The consolidated balance sheet at December 31, 1999, the consolidated statements
of earnings for the three- and six-months ended December 31, 1999 and 1998, and
the consolidated statements of cash flows for the six-months ended December 31,
1999 and 1998 are unaudited but, in the opinion of the Company, include all
adjustments, consisting only of normal recurring accruals, necessary for a fair
statement of the results of the interim periods. The consolidated statements
include the accounts of Zygo Corporation and all consolidated subsidiaries,
including a consolidated joint venture, which the Company entered into in
October 1999. The minority interest represents the 40% of the joint venture not
owned by the Company. The results of operations for the three-month and
six-month periods ended December 31, 1999 are not necessarily indicative of the
results to be expected for the full year.
Note 2: New Accounting Pronouncements
As of July 1, 1998, the Company adopted Statement of Financial Accounting
Standards No. 130 "Reporting Comprehensive Income." SFAS No. 130 establishes new
rules for the reporting and display of comprehensive income and its components;
however, the adoption of this statement had no impact on the Company's reported
net income or stockholders' equity. Comprehensive income (loss) is defined as
net income plus nonstockholder direct adjustments to stockholders' equity which
consist of foreign currency translation adjustments and adjustments for the net
unrealized gains (losses) related to the Company's marketable equity securities.
Comprehensive income totaled $1,359,000 and $1,983,000 in the three-month and
six-month periods ended December 31, 1999, respectively, as compared to
comprehensive losses of $372,000 and $1,346,000 in the comparable prior-year
periods.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information." This statement establishes standards using
a management approach, for reporting information regarding operating segments.
The Company has viewed its operations as one segment providing sales and service
in metrology, process control, and yield enhancement solutions for high
precision manufacturing industries. Substantially all of the Company's operating
results, assets, depreciation, and amortization are U.S. based. The Company's
export sales are as follows:
For the Three Months For the Six Months
Ended December 31, Ended December 31,
------------------ --------------------
1999 1998 1999 1998
------- ------- ------- -------
(Thousands of dollars)
Far East:
Japan $ 4,412 $ 3,379 $ 8,012 $ 7,836
Pac Rim 2,679 783 5,309 1,383
------- ------- ------- -------
Total Far East 7,091 4,162 13,321 9,219
Europe and other 3,211 2,939 4,915 4,665
------- ------- ------- -------
Total $10,302 $ 7,101 $18,236 $13,884
======= ======= ======= =======
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
Net sales of $21,272,000 for the three months and $39,173,000 for the six months
ended December 31, 1999, increased by $5,293,000 or 33% and $7,756,000 or 25%,
respectively, from the net sales in the comparable prior year periods. Net sales
of the Company's instruments and systems during the second quarter of fiscal
2000 increased by 38% to $15,680,000 over the second quarter of fiscal 1999,
mainly as a result of sales growth in the mask metrology and automation markets.
Net sales of modules and components totaled approximately $5,592,000, an
increase of 22% from the comparable quarter in the prior year. Net sales of the
Company's instruments and systems and net sales of modules and components
increased by $7,148,000 or 34% and $608,000 or 6%, respectively, for the six
months ended December 31, 1999 as compared to the six-month period ended
December 31, 1998.
Gross profit for the three months and six months ended December 31, 1999,
amounted to $9,349,000 and $16,674,000, respectively, an increase of $3,230,000
and $5,181,000 from the comparable prior year periods. Gross profit as a
percentage of net sales for the quarter and six months ended December 31, 1999,
amounted to 44% and 43%, respectively, an increase in both periods of 6
percentage points from gross profit as a percentage of net sales of 38% and 37%,
respectively, for the three months and six months ended December 31, 1998. The
increase in gross profit and gross profit as a percentage of net sales were
primarily due to the significant increase in sales levels and an improved mix.
Selling, general and administrative expenses of $4,632,000 and $8,800,000,
respectively, in the three months and six months ended December 31, 1999,
increased by $650,000 or 16%, and $177,000 or 2%, respectively, from the same
periods the year earlier. The increases in the three-month period ended December
31, 1999 primarily resulted from product marketing and volume related expenses,
such as commissions paid to the Company's direct sales personnel and external
sales agents, and increased expenses related to the additional infrastructure,
such as sales offices in Japan and a new joint venture in Europe (ZygoLOT). As a
percentage of net sales, selling, general and administrative expenses decreased
in both the three months and six months ended December 31, 1999, to 22%, as
compared to 25% and 27%, respectively, in the comparable prior year period.
Research, development and engineering expenses ("R&D") amounted to $2,144,000 or
10% of net sales and $4,162,000 or 11% of net sales, respectively, for the three
months and six months ended December 31, 1999. In the comparable three- and
six-month periods in the prior year, R&D expenses totaled $2,562,000 or 16% of
net sales and $4,833,000 or 15% of net sales, respectively. The decrease in R&D
expenses is primarily a result of cost reduction actions taken in fiscal 1999.
The Company's management continues to focus considerable attention on projects
which will enhance the Company's product offering and should provide long-term
benefits to the Company.
The Company recorded operating profit in the three months ended December 31,
1999 totaling $2,170,000, as compared to an operating loss in the comparable
prior year period of $702,000. The Company's operating profit in the six months
ended December 31, 1999 was $2,906,000, as compared to an operating loss of
$2,456,000 in the six months ended December 31, 1998.
The Company recorded net income of $1,472,000 in the three-month period ended
December 31, 1999, as compared to a net loss of $336,000 in the three-month
period ended December 31, 1998. The net earnings on a per share basis was $.12
for the quarter ending December 31, 1999, compared with a net loss on a per
share basis in the comparable prior year period of $(.03). The Company recorded
net income of $2,058,000 or $.17 per share for the first half of fiscal 2000, as
compared to a net loss in the comparable prior-year period of $1,407,000 or
$(.13) per share.
Financial Condition
At December 31, 1999, working capital was $48,463,000, an increase of $4,882,000
from the amount at June 30, 1999 and $3,957,000 from September 30, 1999 levels.
The Company at December 31, 1999 had cash and cash equivalents of $14,616,000
and marketable securities of $8,297,000 for a total of $22,913,000, an increase
of $4,984,000 from September 30, 1999. The increase in working capital in the
quarter was principally due to the increase in the level of cash and cash
equivalents. Receivables increased by $2,058,000 and inventory decreased by
$822,000 from the amounts reported at September 30, 1999. As of December 31,
1999, there were no borrowings outstanding under the Company's $3,000,000 bank
line of credit. Unused amounts under the line of credit are available for
short-term working capital needs.
The Company's backlog at December 31, 1999 totaled $31,987,000, an increase of
$816,000 or 3% from September 30, 1999. The increase in the Company's backlog
from September 30, 1999 was due to increased demand for capital equipment in the
industrial and semiconductor markets.
During the quarter, the Company entered into an agreement with LOT-Oriel GmbH
establishing a European joint venture. Zygo owns a 60% interest in this new
company, called ZygoLOT GmbH. The Company's results for the second quarter
include ZygoLOT financial performance effective October 1, 1999.
Year 2000
The Company has transitioned into the year 2000 with minimal interruptions. We
are continuing to monitor our products, product design tools, manufacturing
tools, information systems, business infrastructure, material and service
suppliers and customers. Overall there has been no significant impact on the
Company. The cost spent on the year 2000 problem has been immaterial to date.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
We are subject to interest rate risk on our investment portfolio.
A move in interest rates of 10% of our weighted-average worldwide interest rate
in 2000 affecting our financial investments as of December 31, 1999 would have
an insignificant effect on our pretax earnings. In fiscal 1999, the same move in
the interest rate affecting our interest sensitive investments would have had an
insignificant effect on our financial position, results of operations and cash
flows.
Forward Looking Statements
This report contains forward looking statements which are subject to a number of
risks and uncertainties that may cause actual results to differ materially from
expectations. These uncertainties include, but are not limited to, general
economic conditions, competitive conditions in markets served by the Company,
most notably high technology markets such as data storage and semiconductor, and
economic and political developments in countries where the Company conducts
business.
PART II
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of Stockholders was held on November 17, 1999. The following
matters were submitted to a vote of the Company's stockholders:
Proposal No. 1 - Election of Board of Directors
To elect eight directors for the ensuing year. The following
individuals, all of whom were Company directors immediately prior to
the vote, were elected as a result of the following vote:
For Against
--- -------
Paul F. Forman 9,786,364 54,088
Seymour E. Liebman 9,785,594 54,858
Robert G. McKelvey 9,787,534 52,918
Paul W. Murrill 9,787,930 52,522
J. Bruce Robinson 9,783,426 57,026
Robert B. Taylor 9,788,810 51,642
Gary K. Willis 9,782,995 57,457
Carl A. Zanoni 9,787,426 53,026
Proposal No. 2 - Amend and Restate Non-Employee Director Stock Option Plan
To approve the adoption of the Zygo Corporation Amended and Restated
Non-Employee Director Stock Option Plan.
For 6,952,202
Against 206,217
There were no other matters submitted to a vote of the Company's
stockholders.
Item 6. Exhibits and Reports on Form 8-K
(a) EXHIBITS
10.1 Employment Agreement dated November 17, 1999 between Gary K.
Willis and the Company.
10.2 Amended Employment Agreement dated November 17, 1999, between J.
Bruce Robinson and the Company.
27 Financial Data Schedule.
(b) None
SIGNATURE
Pursuant to the requirements 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.
Zygo Corporation
----------------------------------
(Registrant)
/s/ J. BRUCE ROBINSON
-------------------------------------
J. Bruce Robinson
President and Chief Executive Officer
/s/ KEVIN M. McGUANE
-------------------------------------
Kevin M. McGuane
Vice President Finance, Treasurer,
and Chief Financial Officer
Date: February 9, 2000
EXHIBIT INDEX
Exhibit Description Page
- ------- ----------- ----
10.1 Employment Agreement dated November 17, 1999, between Gary K.
Willis and the Company.
10.2 Amended Employment Agreement dated November 17, 1999, between
J. Bruce Robinson and the Company
27 Financial Data Schedule for the quarterly report on Form
10-Q for the period ended December 31, 1999.