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, 2000
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
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(Exact name of registrant as specified in its charter)
Delaware 06-0864500
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Laurel Brook Road, Middlefield, Connecticut 06455
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(Address of principal executive offices) (Zip Code)
(860) 347-8506
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Registrant's telephone number, including area code
N/A
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(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
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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
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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.
14,860,144 Common Stock, $.10 Par Value, at January 29, 2001
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,
-------------------- ------------------
2000 1999 2000 1999
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Net sales ........................................... $32,731 $22,362 $56,663 $40,965
Cost of good sold ................................... 19,120 12,515 33,083 23,522
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Gross profit ............................... 13,611 9,847 23,580 17,443
Selling, general and administrative expenses ........ 6,254 5,001 11,645 9,351
Research, development and engineering expenses ...... 4,216 2,285 7,471 4,421
Amortization of goodwill and other intangibles ...... 200 403 399 806
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Operating profit ........................... 2,941 2,158 4,065 2,865
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Other income (expense):
Interest income ............................ 268 255 551 555
Miscellaneous income (expense), net ........ (146) 11 174 70
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122 266 377 485
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Earnings before income taxes and
minority interest ................................ 3,063 2,424 4,442 3,350
Income tax expense .................................. 1,041 960 1,510 1,314
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Earnings before minority interest ................... 2,022 1,464 2,932 2,036
Minority interest ................................... 117 73 210 73
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Net earnings (note 4) ............................... $ 1,905 $ 1,391 $ 2,722 $ 1,963
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Earnings per share:
Basic (1) .................................. $ .13 $ .12 $ .19 $ .16
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Diluted (1) ................................ $ .13 $ .11 $ .18 $ .15
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Weighted average number of shares:
Basic ...................................... 14,359 11,938 14,329 11,905
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Diluted .................................... 15,123 13,219 15,166 13,083
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(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 764,000 and 1,281,000 in the three months ended
December 31, 2000 and 1999, respectively, and 837,000 and 1,178,000 in the
six months ended December 31, 2000 and 1999, respectively.
CONSOLIDATED BALANCE SHEETS
As of December 31, 2000 and June 30, 2000
(Thousands, except share amounts)
December 31, June 30,
ASSETS 2000 2000
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Current assets:
Cash and cash equivalents ......................................... $ 9,350 $ 15,598
Marketable securities ............................................. 7,292 8,268
Receivables ....................................................... 22,031 20,138
Inventories:
Raw materials and manufactured parts .......................... 11,805 7,034
Work in process ............................................... 6,051 3,471
Finished goods ................................................ 1,724 1,374
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Total inventories ...................................... 19,580 11,879
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Costs in excess of billings ....................................... 2,276 5,743
Income taxes receivable ........................................... 2,256 866
Prepaid expenses and taxes ........................................ 439 1,173
Deferred income taxes ............................................. 9,149 9,020
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Total current assets ................................... 72,373 72,685
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Property, plant and equipment, at cost ................................. 50,673 37,991
Less accumulated depreciation .......................................... 21,141 19,498
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Net property, plant and equipment ................................. 29,532 18,493
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Goodwill and other intangible assets, net .............................. 4,765 3,078
Other assets ........................................................... 436 906
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Total assets ........................................... $107,106 $ 95,162
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LIABILITIES AND STOCKHOLDERS' EQUITY
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Current liabilities:
Accounts payable .................................................. $ 10,595 $ 8,380
Accrued salary and wages .......................................... 2,695 3,485
Other accrued liabilities ......................................... 4,035 4,270
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Total current liabilities .............................. 17,325 16,135
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Long-term debt ......................................................... 5,079 84
Deferred income taxes .................................................. 262 271
Minority interest ...................................................... 654 443
Stockholders' equity:
Common stock, $.10 par value per share:
40,000,000 shares authorized; 14,609,894
shares issued (14,441,231 at June 30, 2000)........................ 1,461 1,444
Additional paid-in capital ........................................ 71,339 68,304
Retained earnings (note 4) ........................................ 11,777 9,055
Currency translation effects ...................................... (399) (182)
Net unrealized (loss) on marketable securities .................... (91) (91)
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84,087 78,530
Less treasury stock, at cost; 207,600 shares ...................... 301 301
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Total stockholders' equity ............................. 83,786 78,229
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Total liabilities and stockholders' equity ............. $107,106 $ 95,162
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CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended December 31, 2000 and 1999
(Thousands of dollars)
2000 1999
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Cash (used for) provided by
operating activities:
Net earnings (note 4) ................................................. $ 2,722 $ 1,963
Adjustments to reconcile net earnings to cash
provided by (used for) operating activities:
Depreciation and amortization .................................... 2,042 2,548
Deferred income taxes ............................................ (185) 0
Loss on disposal of assets ....................................... 0 54
Changes in operating accounts:
Receivables .................................................. (1,893) (5,680)
Costs in excess of billings .................................. 3,466 (866)
Inventories .................................................. (7,701) 794
Prepaid expenses ............................................. 734 (314)
Accounts payable and accrued expenses ........................ (360) 4,328
Minority interest ............................................ 210 73
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Net cash (used for) provided by operating activities ............. (965) 2,900
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Cash (used for) provided by
investing activities:
Additions to property, plant and equipment ............................ (12,682) (1,507)
Sale (investment) in marketable securities ............................ 976 (248)
Investment in other assets ............................................ (1,616) (295)
Proceeds from maturity of marketable securities ....................... 0 250
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Net cash (used for) investing activities .............................. (13,322) (1,800)
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Cash provided by (used for) financing activities:
Issuance of long-term debt ............................................ 4,987 56
Exercise of employee stock options .................................... 3,052 532
Contributions from minority interest of consolidated subsidiaries ..... 0 90
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Net cash provided by financing activities ........................ 8,039 678
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Net (decrease) in cash and cash equivalents .................................... (6,248) 1,778
Cash and cash equivalents, beginning of year ................................... 15,598 13,022
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Cash and cash equivalents, end of period ....................................... $ 9,350 $14,800
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These interim financial statements should be read in conjunction with the
financial statements and notes included in ZYGO's June 30, 2000 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, 2000, the consolidated statements
of earnings for the three months and six months ended December 31, 2000 and
1999, and the consolidated statements of cash flows for the six months ended
December 31, 2000 and 1999 are unaudited but, in our opinion, 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 we
entered into in October 1999. The minority interest represents the 40% of the
joint venture not owned by us. The consolidated financial statements included
here for the period ended December 31, 1999 have been restated to reflect the
May 2000 acquisition of Firefly Technologies, Inc. which was accounted for as a
pooling of interests. The results of operations for the period ended December
31, 2000 are not necessarily indicative of the results to be expected for the
full fiscal year.
NOTE 2: RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board, or FASB, issued
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts, and for hedging activities. It requires that an
entity recognize all derivatives as either assets or liabilities in the
statements of financial position and measure those instruments at fair value. In
addition, SFAS No. 133 permits hedge accounting when certain conditions are met.
SFAS No. 133, as amended by SFAS No. 137 and No. 138, is effective for all
fiscal quarters of fiscal years beginning after June 15, 2000. This statement
will not have a significant impact on us, as we do not significantly utilize
derivatives or hedges.
In December 1999, the Securities and Exchange Commission, or SEC, issued Staff
Accounting Bulletin No. 101, which summarizes views of the SEC staff in applying
accounting principles generally accepted in the United States to revenue
recognition in financial statements.
Subsequently, the SEC issued SAB No. 101A and SAB No. 101B, "Amendment: Revenue
Recognition in Financial Statements," that delays the implementation date of
certain provisions of SAB No. 101. Management currently is evaluating the
impact, if any, that this SAB will have on our results of operations or
financial position and expects to adopt it in the fourth quarter of this fiscal
year.
In March 2000, the FASB issued Interpretation No. 44, "Accounting for Certain
Transactions Involving Stock Compensation, an interpretation of APB Opinion No.
25." The Interpretation answers questions dealing with APB No. 25 implementation
practice issues. Interpretation No. 44 is being applied prospectively to new
awards, modifications to outstanding awards, and changes in employee status on
or after July 1, 2000, except as follows: (a) requirements related to the
definition of an employee apply to new awards granted after December 15, 1998;
(b) modifications that directly or indirectly reduce the exercise price of an
award apply to modifications made after December 15, 1998; and (c) modifications
to add a reload feature to an award apply to modifications made after January
12,
2000. Financial statements for periods prior to July 1, 2000 will not be
affected. The adoption of Interpretation No. 44 did not have a material impact
on our results of operations or financial position.
In September 2000, the FASB's Emerging Issued Task Force released its discussion
on EITF Issue No. 00-10, "Accounting for Shipping and Handling Fees and Costs."
EITF No. 00-10 sets forth guidance on how a seller of goods should classify in
the income statement (a) amounts billed to a customer for shipping and handling
and (b) costs incurred for shipping and handling. The consensus guidance must be
adopted by the fourth quarter of our fiscal year 2001. Management is in the
process of evaluating this standard, but believes that any effect will generally
be limited to the form and content of our financial statement disclosures.
NOTE 3: SEGMENT INFORMATION
Under the criteria established by SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information," we operate in three principal business
segments globally. These segments are based on the markets served by us:
Semiconductor; Industrial; and Telecommunications. The segment data is presented
below in a manner consistent with our management's internal measurement of the
business.
Three Months Ended December 31, 2000
(Thousands of dollars)
Semiconductor Industrial Telecommunications Total
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Sales ............................. $20,713 $8,649 $3,369 $32,731
Gross Profit ...................... 8,868 3,330 1,413 13,611
Gross Profit as a % Sales ......... 43% 39% 42% 42%
Six Months Ended December 31, 2000
(Thousands of dollars)
Semiconductor Industrial Telecommunications Total
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Sales ............................. $35,803 $16,167 $4,693 $56,663
Gross Profit ...................... 15,094 6,471 2,015 23,580
Gross Profit as a % Sales ......... 42% 40% 43% 42%
Export sales by geographic area were as follows:
Three Months Six Months
Ended December 31, Ended December 31,
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2000 1999 2000 1999
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(Thousands of dollars)
Far East:
Japan ...................... $11,590 $ 4,412 $16,787 $ 8,012
Pac Rim .................... 2,279 2,679 4,329 5,309
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Total Far East .................. 13,869 7,091 21,116 13,321
Europe and other ................ 3,122 3,211 5,304 4,915
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Total ........................... $16,991 $10,302 $26,420 $18,236
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NOTE 4: COMPREHENSIVE INCOME
Comprehensive income totaled $1,983,000 and $2,505,000 in the three months and
six months ended December 31, 2000, respectively, compared to comprehensive
income of $1,292,000 and $1,902,000 in the comparable prior year periods.
Comprehensive income is defined as net income plus non-stockholder direct
adjustments to stockholders' equity which consist of foreign currency
translation adjustments and adjustments for the net unrealized gains (losses)
related to our marketable equity securities.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
Net sales of $32,731,000 for the three months and $56,663,000 for the six months
ended December 31, 2000, increased by $10,369,000, or 46% and $15,698,000, or
38%, respectively from the net sales in the comparable prior year periods.
Fiscal 2001 net sales in the semiconductor segment for the second quarter were
$20,713,000, an increase of $5,623,000, or 37%, from the first quarter; net
sales in the industrial segment were $8,649,000, an increase of $1,131,000, or
15%, from the first quarter; and net sales in the telecommunications segment
were $3,369,000, an increase of $2,045,000, or 154%, from the first quarter.
Gross profit for the three months and six months ended December 31, 2000,
amounted to $13,611,000 and $23,580,000, respectively, an increase of $3,764,000
and $6,137,000 from the comparable prior year periods. The increases in gross
profit dollars were primarily due to the increase in sales volume. Gross profit
as a percentage of net sales for the quarter and six months ended December 31,
2000, both amounted to 42%, a decrease of two and one percent, from gross profit
as a percentage of net sales of 44% and 43%, respectively, for the three- and
six-month periods ended December 31, 1999.
Selling, general and administrative expenses of $6,254,000 and $11,645,000,
respectively, in the three months and six months ended December 31, 2000,
increased by $1,253,000, or 25%, and $2,294,000 or 25%, respectively, from the
same periods the year earlier, primarily as a result of an increased sales
infrastructure, as well as increased spending on our telecommunications
business. As a percentage of net sales, selling, general and administrative
expenses in the three- and six-month periods ended December 31, 2000 were 19%
and 21%, respectively, as compared to 22% and 23%, respectively, from the same
prior year periods.
Research, development and engineering expenses ("R&D") amounted to $4,216,000 or
13% of net sales and $7,471,000 or 13%, respectively, for the three- and
six-month periods ended December 31, 2000. In the comparable three- and
six-month periods in the prior year, R&D expenses totaled $2,285,000 or 10% and
$4,421,000 or 11% of net sales, respectively. The investment in R&D primarily
was due to increased expenditures related to original equipment manufacturer
opportunities in the semiconductor area and also to the development of
prototypes for major users in the optical module market.
We recorded operating profit in the three months ended December 31, 2000
totaling $2,941,000, as compared to operating profit in the comparable prior
year period of $2,158,000. Our operating profit in the six months ended December
31, 2000 was $4,065,000, as compared to $2,865,000 in the six months ended
December 31, 1999.
We recorded net income of $1,905,000 in the three months ended December 31,
2000; an increase of $514,000, or 37%, to the net income of $1,391,000 in the
three months ended
December 31, 1999. The net earnings on a per share basis were $.13 for the three
months ended December 31, 2000, compared with $.11 in the comparable prior year
period. We recorded net income of $2,722,000 or $.18 per share for the first
half of fiscal 2001, as compared to $1,963,000 or $.15 per share in the
comparable prior year period. The fully diluted weighted average number of
shares outstanding for the three and six months ended December 31, 2000 were
15,123,000 and 15,166,000, respectively, as compared to 13,219,000 and
13,083,000 in the prior year periods.
FINANCIAL CONDITION
At December 31, 2000, working capital was $55,048,000, a decrease of $1,502,000
from the amount at June 30, 2000. At December 31, 2000, we had cash and cash
equivalents of $9,350,000 and marketable securities of $7,292,000 for a total of
$16,642,000, a decrease of $7,224,000 from June 30, 2000. Accounts receivable
increased by $1,893,000 and inventories increased by $7,701,000. Accounts
payable increased by $2,215,000 and accrued liabilities decreased by $1,025,000.
On December 1, 2000, we borrowed $5,000,000 to finance the acquisition of an
87,000 square foot facility in Westborough, Massachusetts. The financing
currently consists of a bridge loan, which is expected to be converted to a
long-term note. As of December 31, 2000, there were no borrowings outstanding
under our $3,000,000 bank line of credit. Unused amounts under the line of
credit are available for short-term working capital needs.
Our backlog at December 31, 2000 totaled $65,922,000, a record for us and an
increase of $9,443,000 or 17% from September 30, 2000 and an increase of
$33,935,000 or 106% from the backlog at December 31, 1999 of $31,987,000. Orders
for the quarter totaled $42,174,000 and consisted of $18,142,000 or 43% in the
semiconductor segment, $8,647,000 or 21% in the industrial segment, and
$15,385,000 or 36% in the telecommunications segment. The increase in our
backlog in the first half of this fiscal year was primarily due to increased
demand for capital equipment in the industrial and semiconductor markets and the
inroads that we are making in the telecommunications market.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We develop products in the United States and market our products in North
America, and to a lesser extent in the Asia Pacific and Europe regions. As a
result, our financial results could be affected by factors such as changes in
foreign currency exchange rates or weak economic conditions in foreign markets.
Because most of our revenues are currently denominated in U.S. dollars, a
strengthening of the dollar could make our products less competitive in foreign
markets. Our interest income and interest expense on our variable rate debt are
sensitive to changes in the general level of U.S. interest rates, particularly
since the majority of our investments and variable rate borrowings are
relatively short-term instruments. Due to the short-term nature of our
investments and variable rate borrowings, we do not believe that a material risk
exposure exists.
FORWARD LOOKING STATEMENTS
This report contains forward looking statements, including, without limitation,
statements concerning the future of the industry, product development, business
strategy, continued acceptance and growth of our products and dependence on
significant customers. These statements 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 us, most
notably high technology markets such as semiconductor and telecommunications,
and economic and political developments in countries where we conduct business.
PART II
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of Stockholders was held on November 15, 2000. The following
matters were submitted to a vote of the Company's stockholders:
Proposal No. 1 - Election of Board of Directors
The following individuals, all of whom were Zygo Corporation directors
immediately prior to the vote, were elected as a result of the
following vote:
For Against
John Berg 10,631,133 47,077
Paul F. Forman 10,644,244 33,966
R. Clark Harris 10,640,302 37,908
Seymour E. Liebman 10,641,103 37,107
Robert G. McKelvey 10,503,757 174,453
J. Bruce Robinson 10,004,447 673,763
Patrick Tan 10,644,548 33,662
Robert B. Taylor 10,581,187 97,023
Carl A. Zanoni 10,582,001 96,209
Proposal No. 2 - Employee Stock Purchase Plan
The Zygo Corporation Employee Stock Purchase Plan was adopted as a
result of the following vote:.
For 10,106,872
Against 559,283
Abstain 12,055
There were no other matters submitted to a vote of our stockholders.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27. Financial Data Schedule.
(b) 99.1 Purchase and Sale Agreement for 20 Walkup Drive, Westborough,
Massachusetts, dated October 27, 2000 between Zygo TeraOptix
and Cathartes Holdings, LLC.
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
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(Registrant)
/s/ J. BRUCE ROBINSON
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J. Bruce Robinson
President and Chief Executive Officer
/s/ RICHARD M. DRESSLER
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Richard M. Dressler
Vice President Finance, Treasurer,
and Chief Financial Officer
Date: January 31, 2001
EXHIBIT INDEX
Exhibit Description Page
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27 Financial Data Schedule for the quarterly report
on Form 10-Q for the period ended December 31, 2000.
99.1 Purchase and Sale Agreement for 20 Walkup Drive, Westborough,
Massachusetts, dated October 27, 2000 between Zygo TeraOptix
and Cathartes Holdings, LLC.