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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
X Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the quarterly period ended March 31, 2001
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.
18,040,349 Common Stock, $.10 Par Value, at May 11, 2001
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
ZYGO CORPORATION
CONSOLIDATED STATEMENTS OF EARNINGS
(Thousands, except per share amounts)
For the Three Months For the Nine Months
Ended March 31, Ended March 31,
--------------------- ----------------------
2001 2000 2001 2000
--------- --------- -------- ----------
Net sales $ 38,717 $ 22,408 $ 95,380 $ 63,373
Cost of good sold 19,228 13,416 52,311 36,938
-------- -------- -------- --------
Gross profit 19,489 8,992 43,069 26,435
Selling, general and administrative expenses 9,720 4,009 21,365 13,360
Research, development and engineering expenses 4,528 2,637 11,999 7,058
Amortization of goodwill and other intangibles 199 412 598 1,218
Nonrecurring acquisition related charges (1) 0 741 0 3,081
-------- -------- -------- --------
Operating profit 5,042 1,193 9,107 1,718
Other income (expense):
Interest income 445 305 996 860
Miscellaneous income (expense), net (432) (103) (606) (173)
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13 202 390 687
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Earnings before income taxes and minority interest 5,055 1,395 9,497 2,405
Income tax expense 1,719 609 3,229 1,923
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Earnings before minority interest 3,336 786 6,268 482
Minority interest 129 (6) 339 67
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Net earnings (note 4) $ 3,207 $ 792 $ 5,929 $ 415
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Earnings per share:
Basic (2) $ .21 $ .06 $ .40 $ .03
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Diluted (2) $ .20 $ .06 $ .38 $ .03
======== ======== ======== ========
Weighted average number of shares:
Basic 15,535 12,197 14,731 12,003
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Diluted 15,975 13,792 15,436 13,318
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(1) Nonrecurring acquisition related charges of $741,000 and $3,081,000 for the
three and nine months ended March 31, 2000 represent non-cash compensation
charges related to stock options.
(2) The difference between basic shares outstanding and diluted shares
outstanding is the assumed conversion of common stock equivalents (stock
options) in the amounts of 440,000 and 1,595,000 in the three months ended
March 31, 2001 and 2000, respectively, and 705,000 and 1,315,000 in the
nine months ended March 31, 2001 and 2000, respectively.
ZYGO CORPORATION
CONSOLIDATED BALANCE SHEETS
As of March 31, 2001 and June 30, 2000
(Thousands, except share amounts)
March 31, June 30,
2001 2000
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ASSETS
Current assets:
Cash and cash equivalents $ 58,210 $ 15,598
Marketable securities 7,884 8,268
Receivables 26,622 20,138
Inventories:
Raw materials and manufactured parts 14,971 7,034
Work in process 8,095 3,471
Finished goods 994 1,374
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Total inventories 24,060 11,879
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Costs in excess of billings 1,694 5,743
Income taxes receivable 4,908 866
Prepaid expenses and taxes 195 1,173
Deferred income taxes 9,211 9,020
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Total current assets 132,784 72,685
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Property, plant and equipment, at cost 54,516 37,991
Less accumulated depreciation 21,447 19,498
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Net property, plant and equipment 33,069 18,493
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Goodwill and other intangible assets, net 4,626 3,078
Other assets 908 906
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Total assets $ 171,387 $ 95,162
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 11,771 $ 8,380
Accrued salary and wages 4,586 3,485
Other accrued liabilities 4,530 4,270
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Total current liabilities 20,887 16,135
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Deferred income taxes 256 271
Long-term debt 5,059 84
Minority interest 834 443
Stockholders' equity:
Common stock, $.10 par value per share:
40,000,000 shares authorized; 17,799,644
shares issued (14,441,231 at June 30, 2000) 1,780 1,444
Additional paid-in capital 128,378 68,304
Retained earnings (note 4) 14,984 9,055
Currency translation effects (510) (182)
Net unrealized gain (loss) on marketable securities 20 (91)
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144,652 78,530
Less treasury stock, at cost; 207,600 shares 301 301
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Total stockholders' equity 144,351 78,229
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Total liabilities and stockholders' equity $ 171,387 $ 95,162
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ZYGO CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended March 31, 2001 and 2000
(Thousands of dollars)
2001 2000
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Cash (used for) provided by operating activities:
Net earnings (note 4) $ 5,929 $ 415
Adjustments to reconcile net earnings to cash
provided by (used for) operating activities:
Depreciation and amortization 3,667 3,778
Deferred income taxes (319) 0
Loss on disposal of assets 860 532
Non-cash compensation charges related to stock options 0 3,081
Changes in operating accounts:
Receivables (6,483) (5,932)
Costs in excess of billings 4,049 (1,869)
Inventories (12,182) 475
Prepaid expenses 976 3
Accounts payable and accrued expenses 438 8,754
Minority interest 391 67
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Net cash (used for) provided by operating activities (2,674) 9,304
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Cash (used for) provided by investing activities:
Additions to property, plant and equipment (18,505) (3,111)
Sale (investment) in marketable securities (627) (1,477)
Investment in other assets (2,147) (540)
Proceeds from maturity of marketable securities 1,180 1,500
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Net cash (used for) investing activities (20,099) (3,628)
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Cash provided by financing activities:
Issuance of long-term debt 4,975 50
Exercise of employee stock options and secondary offering 60,410 4,238
Contributions from minority interest of consolidated subsidiaries 0 156
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Net cash provided by financing activities 65,385 4,444
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Net increase in cash and cash equivalents 42,612 10,120
Cash and cash equivalents, beginning of year 15,598 13,022
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Cash and cash equivalents, end of period $ 58,210 $ 23,142
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These interim financial statements should be read in conjunction with the
financial statements and notes included in Zygo Corporation'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 March 31, 2001, the consolidated statements of
earnings for the three and nine months ended March 31, 2001 and 2000, and the
consolidated statements of cash flows for the nine months ended March 31, 2001
and 2000 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 March 31, 2000 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 March 31,
2001 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
did not have a significant impact on us, as the Company does 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 will be adopted 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 Issues 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 March 31, 2001
(Thousands of dollars)
Semiconductor Industrial Telecommunications Total
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Sales $25,014 $8,807 $4,896 $38,717
Gross Profit 12,302 4,321 2,866 19,489
Gross Profit as a % Sales 49% 49% 59% 50%
Nine Months Ended March 31, 2001
(Thousands of dollars)
Semiconductor Industrial Telecommunications Total
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Sales $60,817 $24,974 $9,589 $95,380
Gross Profit 27,396 10,792 4,881 43,069
Gross Profit as a % Sales 45% 43% 51% 45%
Export sales by geographic area were as follows:
Three Months Nine Months
Ended March 31, Ended March 31,
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2001 2000 2001 2000
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(Thousands of dollars)
Far East:
Japan $15,032 $ 4,550 $31,819 $12,562
Pac Rim 1,392 5,210 5,721 10,519
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Total Far East 16,424 9,760 37,540 23,081
Europe and other 3,029 2,487 8,333 7,402
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Total $19,453 $12,247 $45,873 $30,483
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NOTE 4: COMPREHENSIVE INCOME
Comprehensive income totaled $3,207,000 and $5,712,000 in the three months and
nine months ended March 31, 2001, respectively, compared to comprehensive income
of $1,526,000 and $1,074,000 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
securities.
NOTE 5: SUBSEQUENT EVENT
On April 11, 2001, we purchased shares of our common stock from two of our
executive officers and directors, pursuant to stock purchase agreements, all at
a price per share of $20.81 (being the then closing price of the common stock in
the public markets). We purchased a total of 239,605 shares from these two
officers and directors. The funding for the purchase came from cash balances.
The purpose of the purchases was to allow these two officers and directors to
satisfy their tax obligations arising from our acquisition of Firefly
Technologies, Inc., in which they were principal stockholders, and to satisfy
and extinguish the margin loan they incurred to pay additional taxes, which
arose from our acquisition of Firefly and which were due prior to the date we
made the loans. The common stock we purchased is being held as treasury stock.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The third quarter 2001 earnings release issued on April 19, 2001 by Zygo
Corporation included comparable financial information for the three and nine
months ended March 31, 2000 which inadvertently did not include the nonrecurring
charges recorded during those fiscal 2000 periods. The nonrecurring acquisition
related charges for the three and nine months ended March 31, 2000 were $741,000
and $3,081,000, respectively. These nonrecurring non-cash compensation costs
related to stock options held by shareholders of Firefly Technologies, Inc.,
which was merged with Zygo Corporation in a pooling-of-interest transaction in
May 2000. The Form 10-Q for the quarter ended March 31, 2000 was correct as
filed since the restatement related to the poolings-of-interest transaction
occurred in a subsequent period. The nonrecurring charges were properly reported
in Zygo's Annual Report on Form 10-K405 for year ended June 30, 2000. No changes
are being made to the 2001 financial information. These nonrecurring charges
have been included in the fiscal 2000 results used for comparison and discussed
in this section.
Results of Operations
Net sales of $38,717,000 for the three months and $95,380,000 for the nine
months ended March 31, 2001, increased by $16,309,000, or 73% and $32,007,000,
or 51%, respectively, from the net sales in the comparable prior year periods.
Fiscal 2001 net sales in the semiconductor segment for the third quarter were
$25,014,000 or 64%; net sales in the industrial segment were $8,807,000 or 23%;
and net sales in the telecommunications segment were $4,896,000 or 13%. The
increase in net sales primarily resulted from an increase in volume.
Gross profit for the three months and nine months ended March 31, 2001, amounted
to $19,489,000 and $43,069,000, respectively, an increase of $10,497,000 and
$16,634,000 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 nine months ended March 31,
2001, amounted to 50% and 45%, an increase of ten and three
percentage points from gross profit as a percentage of net sales of 40% and 42%,
respectively, for the three and nine months ended March 31, 2000.
Selling, general and administrative expenses of $9,720,000 and $21,365,000,
respectively, in the three and nine months ended March 31, 2001, increased by
$5,711,000, or 142%, and $8,005,000, or 60%, respectively, from the same periods
the year earlier, primarily as a result of an increased sales infrastructure,
higher compensation and incentive compensation due to increased sales and
earnings, and higher audit and legal costs. In addition, prior year general and
administrative expenses were reduced by a $1.0 million legal settlement in the
third quarter. As a percentage of net sales, selling, general and administrative
expenses in the three and nine months ended March 31, 2001 were 25% and 22%,
respectively, as compared to 18% and 21%, respectively, from the same prior year
periods.
Research, development and engineering expenses ("R&D") amounted to $4,528,000,
or 12% of net sales and $11,999,000, or 13% of net sales, respectively, for the
three and nine months ended March 31, 2001. In the comparable three and nine
months in the prior year, R&D expenses totaled $2,637,000, or 12%, and
$7,058,000, or 11% of net sales, respectively. The investment in R&D was
primarily due to increased expenditures related to original equipment
manufacturer opportunities in the semiconductor market and also to the
development of prototypes for major users in the optical module market.
We did not record any nonrecurring charges in the three and nine months ended
March 31, 2001. Nonrecurring acquisition related charges of $741,000 and
$3,081,000 in the three and nine months ended March 31, 2000 were recorded as a
result of the acquisition of Firefly Technologies, Inc. The nonrecurring charges
were for non-cash compensation charges resulting from the difference in the
Firefly stock option exercise price and the deemed fair market value on the date
of grant for financial statement purposes.
Our operating profit in the three months ended March 31, 2001 was $5,042,000, as
compared to $1,193,000 in the three months ended March 31, 2000. Excluding the
nonrecurring charges for the three months ended March 31, 2000, the operating
profit was $1,934,000. Our operating profit in the nine months ended March 31,
2001 was $9,107,000, as compared to $1,718,000 in the comparable prior year
period. Excluding the nonrecurring charges for the nine months ended March 31,
2000, the operating profit was $4,799,000.
We recorded net income of $3,207,000 in the three months ended March 31, 2001,
as compared to $792,000 in the three months ended March 31, 2000. The net
earnings on a diluted per share basis was $.20 for the three months ended March
31, 2001 compared with $.06 in the comparable prior year period. Excluding the
nonrecurring charges for the three months ended March 31, 2000, our net income
was $1,533,000 or $.11 per share. We recorded net income of $5,929,000, or $.38
per share, for the nine months ended March 31, 2001, as compared to $415,000, or
$.03 per share, in the comparable prior year period. Excluding the nonrecurring
charges for the nine months ended March 31, 2000, our net income was $3,496,000
or $.26 per share.
The fully diluted weighted average number of shares outstanding for the three
and nine months ended March 31, 2001 were 15,975,000 and 15,436,000,
respectively, as compared to 13,792,000 and 13,318,000 in the respective prior
year periods. The increases in the number of shares outstanding were due, in
part, to the 2,924,500 shares issued in March 2001 in the follow-on offering.
Financial Condition
In March 2001, we sold 2,924,500 shares of our common stock in a secondary
public offering, at a price of $19.00 per share. The net proceeds to the company
after deducting the underwriting discounts, commissions and offering expenses
totaled approximately $51.8 million.
At March 31, 2001, working capital was $111,897,000, an increase of $55,347,000
from the amount at June 30, 2000. At March 31, 2001, we had cash and cash
equivalents of $58,210,000 and marketable securities of $7,884,000 for a total
of $66,094,000, an increase of $42,228,000 from June 30, 2000. The increase was
primarily due to the proceeds from the secondary offering offset in part by the
increase in receivables and inventories. Accounts receivable increased by
$6,484,000 and inventories increased by $12,181,000. Accounts payable increased
by $3,391,000 and accrued liabilities increased by $1,361,000. On December 1,
2000, we borrowed $5,000,000 to finance the acquisition of an 87,000 square foot
facility in Westboro, Massachusetts. The financing currently consists of a
bridge loan, which is expected to be converted to a long-term note. As of March
31, 2001, there were no borrowings outstanding under our $3,000,000 bank line of
credit.
Our backlog at March 31, 2001 totaled $70,353,000, a record for us and an
increase of $4,431,000, or 7%, from December 31, 2000 and an increase of
$33,976,000, or 93%, from the backlog at March 31, 2000 of $36,377,000. Orders
for the quarter totaled $43,148,000 and consisted of $22,213,000, or 52%, in the
semiconductor segment, $13,522,000, or 31%, in the industrial segment, and
$7,413,000, or 17%, in the telecommunications segment.
As discussed in Note 5 Subsequent Events, on April 11, 2001, we purchased
239,605 shares of common stock from two officers and directors at a price of
$20.81 per share (being the then closing price) for a total of $4,986,000.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We develop products in the United States and market our products predominantly
in North America, the Far East and Europe. 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 investments and 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 which may concern 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.
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: May 15, 2001