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 December 30, 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
- --------------------------------------------------------------------------------
(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
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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 NO X (1)
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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.
17,434,609 shares of Common Stock, $.10 Par Value, at February 8, 2002
(1) The Company erroneously omitted to file by EDGAR, with the Securities and
Exchange Commission, a copy of the Company's proxy statement dated October
6, 2001, in connection with the Annual Meeting of Stockholders held on
November 14, 2001. The proxy and the consequent amendment to the Company's
Annual Report on Form 10K-405 dated June 30, 2001 were filed by the Company
on February 13, 2002.
FORWARD LOOKING STATEMENTS
All statements other than statements of historical fact included in this Form
10-Q Quarterly Report, regarding the Company's financial position, business
strategy, plans and objectives of management of the Company for future
operations, are forward-looking statements. These forward looking statements
include without limitation statements under "Management's Discussion and
Analysis of Financial Condition and Results of Operations." Forward-looking
statements are intended to provide management's current expectations or plans
for the future operating and financial performance of the Company, based upon
information currently available and assumptions currently believed to be valid.
Forward-looking statements can be identified by the use of words such as
"anticipate," "believe," "estimate," "expect," "intend," "plans," "strategy,"
"project" and other words of similar meaning in connection with a discussion of
future operating or financial performance. Actual results could differ
materially from those contemplated by the forward-looking statements as a result
of certain factors such as those disclosed under "Risk Factors" which references
the Form 10-K405. Such statements reflect the current views of the Company with
respect to future events and are subject to these and other risks, uncertainties
and assumptions relating to the operations, results of operations, and growth
strategy of the Company.
PART I - Financial Information
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF EARNINGS
(Thousands, except per share amounts)
Three Months Ended Six Months Ended
December 30, December 30,
-------------------- --------------------
2001 2000 2001 2000
------- ------- -------- --------
Net sales ....................................... $ 19,006 $ 32,731 $ 39,962 $ 56,663
Cost of good sold ............................... 14,328 19,120 28,259 33,083
-------- -------- -------- --------
Gross profit ............................... 4,678 13,611 11,703 23,580
Selling, general and administrative expenses .... 6,625 6,254 12,437 11,645
Research, development and engineering expenses .. 6,529 4,216 11,753 7,471
Amortization of goodwill and other intangibles .. 235 200 434 399
Automation Systems Group exit costs ............. 1,920 -- 1,920 --
-------- -------- -------- --------
Operating (loss) profit ....................... (10,631) 2,941 (14,841) 4,065
Gain on sale of Automation Systems Group ........ 6,117 -- 6,117 --
Other income (expense):
Interest income ............................... 350 268 905 590
Interest expense .............................. (277) (36) (506) (39)
Miscellaneous (expense), net .................. (296) (110) (123) (174)
-------- -------- -------- --------
Total other (expense) income ............... (223) 122 276 377
-------- -------- -------- --------
(Loss) earnings before income taxes and
minority interest ........................ (4,737) 3,063 (8,448) 4,442
Income tax benefit (expense) .................... 1,800 (1,041) 3,210 (1,510)
-------- -------- -------- --------
(Loss) earnings before minority interest ... (2,937) 2,022 (5,238) 2,932
Minority interest ............................... 82 117 152 210
-------- -------- -------- --------
Net (loss) earnings ........................ $ (3,019) $ 1,905 $ (5,390) $ 2,722
(Loss) earnings per common and common
equivalent share:
Basic (1) .................................. $ (.17) $ .13 $ (.31) $ .19
======== ======== ======== ========
Diluted (1) ................................ $ (.17) $ .13 $ (.31) $ .18
======== ======== ======== ========
Weighted average common shares and common
dilutive equivalents outstanding:
Basic (2) .................................. 17,390 14,359 17,390 14,329
======== ======== ======== ========
Diluted (2) ................................ 17,390 15,123 17,390 15,166
======== ======== ======== ========
- ------------
(1) The difference between basic shares outstanding and diluted shares
outstanding is the assumed conversion of common stock equivalents (stock
options) in the amount of 764 and 837 shares for the three and six months
ended December 30, 2000, respectively.
(2) Accounting principles generally accepted in the United States of America
require the computation of the net loss per share to be based on the
weighted average basic shares outstanding.
CONSOLIDATED BALANCE SHEETS
(Thousands, except share amounts)
DECEMBER 30, June 30,
2001 2001
------------ ---------
ASSETS
Current assets:
Cash and cash equivalents ............................... $ 42,739 $ 52,630
Marketable securities ................................... 8,354 7,121
Receivables ............................................. 16,509 27,278
Inventories ............................................. 25,030 24,261
Costs in excess of billings ............................. 1,082 1,802
Prepaid expenses ........................................ 1,010 1,393
Deferred income taxes ................................... 4,067 4,076
--------- ---------
Total current assets ............................... 98,791 118,561
--------- ---------
Property, plant and equipment, net ........................ 54,887 47,475
Deferred income taxes ..................................... 19,167 15,819
Goodwill and other intangibles, net ....................... 4,681 4,867
Other assets .............................................. -- 110
--------- ---------
TOTAL ASSETS .............................................. $ 177,526 $ 186,832
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt ....................... $ 698 $ 279
Accounts payable ........................................ 5,649 8,648
Accrued progress payments ............................... 604 549
Accrued salary and wages ................................ 3,593 7,153
Other accrued liabilities ............................... 6,056 4,688
Income taxes payable .................................... 2,890 3,132
--------- ---------
Total current liabilities ......................... 19,490 24,449
--------- ---------
Long-term debt ............................................ 11,862 12,281
Other long-term liabilities ............................... 1,193 --
Minority interest ......................................... 1,115 963
Stockholders' equity:
Common stock, $.10 par value per share:
40,000,000 shares authorized;
17,837,442 shares issued (17,803,812 at
June 30, 2001); 17,390,237 shares outstanding
(17,356,607 at June 30, 2001) ......................... 1,784 1,780
Additional paid-in capital .............................. 134,935 134,380
Retained earnings ....................................... 14,324 19,714
Accumulated other comprehensive income:
Currency translation effects .......................... (1,393) (1,786)
Net unrealized gain (loss) on swap agreement .......... (563) 31
Net unrealized gain on marketable securities .......... 66 37
--------- ---------
149,153 154,156
Less treasury stock, at cost;
447,205 common shares (447,205 shares at June 30, 2001) 5,287 5,017
--------- ---------
Total stockholders' equity ........................ 143,866 149,139
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ................ $ 177,526 $ 186,832
========= =========
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Thousands)
Accum.
Other
Comp. Common Paid-In Retained Comp. Treasury
Total Income Stock Capital Earnings Income Stock
--------- --------- --------- --------- --------- --------- ---------
Balance at June 30, 2001 .............. $ 149,139 $ 1,780 $ 134,380 $ 19,714 $ (1,718) $ (5,017)
Comprehensive loss
Net loss ............................ (2,371) (2,371) (2,371)
---------
Other comprehensive loss, net of tax
Unrealized gain on marketable
securities ...................... 51 51
Unrealized loss on swap agreement . (899) (899)
Foreign currency translation effect 913 913
---------
Other comprehensive loss ............ 65 65
---------
Comprehensive loss .................... (2,306)
=========
Repurchased common stock adjustment ... (270) (270)
Exercise of employee stock options,
net of related tax effect ............ 511 4 507
--------- --------- --------- --------- --------- --------- ---------
Balance at September 30, 2001 ......... $ 147,074 $ 1,784 $ 134,887 $ 17,343 $ (1,653) $ (5,287)
Comprehensive loss
Net loss ............................ (3,019) (3,019) (3,019)
---------
Other comprehensive loss, net of tax
Unrealized loss on marketable
securities ...................... (22) (22)
Unrealized gain on swap agreement . 306 305
Foreign currency translation effect (521) (520)
---------
Other comprehensive loss ............ (237) (237)
---------
Comprehensive loss .................... (3,256)
=========
Non-cash compensation charges related
to stock options ................. 45 45
Exercise of employee stock options,
net of related tax effect ........... 3 3
--------- ---------- --------- --------- --------- --------- ---------
Balance at December 30, 2001 .......... $ 143,866 $ 1,784 $ 134,935 $ 14,324 $ (1,890) $ (5,287)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands)
Six Months Ended
December 30,
---------------------
2001 2000
-------- --------
CASH PROVIDED BY (USED FOR) OPERATING ACTIVITIES:
Net (loss) earnings ......................................... $ (5,390) $ 2,722
Adjustments to reconcile net (loss) earnings to cash
provided by (used for) operating activities:
Depreciation and amortization ............................. 3,596 2,042
Gain on sale of Automation Systems Group .................. (6,117) --
Loss on disposal of assets ................................ 160 --
Deferred income taxes ..................................... (3,339) (185)
Non-cash compensation charges related to stock options .... 45 --
Changes in operating accounts:
Receivables ............................................. 10,251 (1,893)
Costs in excess of billings ............................. (1,772) 3,466
Inventories ............................................. (2,144) (7,701)
Prepaid expenses ........................................ 362 734
Accounts payable and accrued expenses ................... (3,606) (360)
Minority interest ....................................... 152 210
-------- --------
Net cash provided by (used for) operating activities ...... (7,802) (965)
-------- --------
CASH PROVIDED BY (USED FOR) INVESTING ACTIVITIES:
Additions to property, plant and equipment .................. (11,522) (12,682)
Investment in marketable securities ......................... (5,426) 976
Investments in other assets ................................. (139) (1,616)
Proceeds from sale of Automation Systems Group,
net of cash sold ($88) .................................... 11,305 --
Receivables related to Sale of Automation Systems Group ..... (772) --
Proceeds from the sale of marketable securities ............. 4,221 --
-------- --------
Net cash provided by (used for) investing activities ........ (2,333) (13,322)
-------- --------
CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES:
Proceeds of debt ............................................ -- 4,987
Exercise of employee stock options, net of related tax effect 514 3,052
Repurchased common stock adjustment ......................... (270) --
-------- --------
Net cash provided by (used for) financing activities ........ 244 8,039
-------- --------
Net increase (decrease) in cash and cash equivalents .......... (9,891) (6,248)
Cash and cash equivalents, beginning of year .................. 52,630 15,598
-------- --------
Cash and cash equivalents, end of period ...................... $ 42,739 $ 9,350
======== ========
These interim financial statements should be read in conjunction with the
financial statements and notes included in the Company's June 30, 2001 Annual
Report on Form 10-K405 including items incorporated by reference therein.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Thousands of dollars, except for share and per share amounts
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The Consolidated Balance Sheet at December 30, 2001, the Consolidated Statements
of Earnings for the three and six months ended December 30, 2001 and 2000, the
Consolidated Statement of Stockholders' Equity for the three and six months
ended December 30, 2001, and the Consolidated Statements of Cash Flows for the
six months ended December 30, 2001 and 2000 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 accompanying consolidated financial statements include the accounts of Zygo
Corporation and its subsidiaries ("ZYGO" or the "Company"). All material
transactions and accounts with the subsidiaries have been eliminated from the
consolidated financial statements. The results of operations for the period
ended December 30, 2001 are not necessarily indicative of the results to be
expected for the full fiscal year.
EARNINGS PER SHARE
Basic and diluted earnings per share are calculated in accordance with Statement
of Financial Accounting Standards No. 128, "Earnings Per Share."
The following table sets forth the reconciliation of weighted average shares
outstanding and diluted weighted average shares outstanding:
Three Months Ended Six Months Ended
December 30, December 30,
------------------ ----------------
2001 2000 2001 2000
------- -------- ------ -------
Weighted average shares outstanding.. 17,390 14,359 17,390 14,329
Dilutive effect of stock options .... -- 764 -- 837
------ ------ ------ ------
Diluted weighted average shares
outstanding ...................... 17,390 15,123 17,390 15,166
------ ------ ------ ------
For three and six months ended December 30, 2001, the Company recorded net
losses. Due to these net losses, stock options of 324 and 328 for the three and
six month periods, respectively, were excluded from the computation because of
the anti-dilutive effect on earnings per share.
INVENTORIES
Inventories are stated at the lower of cost (determined on a first-in, first-out
basis) or market. At December 30, 2001 and June 30, 2001, inventories were as
follows:
DECEMBER 30, June 30,
2001 2001
----------- ---------
Raw materials and manufactured parts.. $ 19,095 $ 20,359
Work in process ...................... 7,102 5,674
Finished goods ....................... 1,287 1,308
-------- --------
27,484 27,341
Reserves ............................. (2,454) (3,080)
-------- --------
$ 25,030 $ 24,261
======== ========
PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment are stated at cost. Costs of additions,
replacements and improvements are capitalized. Maintenance and repairs are
charged to expense as incurred. At December 30, 2001 and June 30, 2001,
property, plant, and equipment, at cost, were as follows:
DECEMBER 30, June 30,
2001 2001
----------- ---------
Land and land improvements ......................... $ 3,822 $ 3,778
Buildings and building improvements ................ 24,330 9,199
Machinery, equipment, and office furniture ......... 41,304 31,101
Leasehold improvements ............................. 222 625
Construction in progress ........................... 8,098 23,849
-------- --------
77,776 68,552
Accumulated depreciation ........................... (22,889) (21,077)
-------- --------
$ 54,887 $ 47,475
======== ========
Depreciation is based on the estimated useful lives ranging from 3-40 years for
the various classes of assets and is computed using the straight-line method.
LONG-TERM DEBT
On May 14, 2001, the Company entered into a mortgage on its Westborough,
Massachusetts facility. The mortgage amount is $12,560 at an interest rate of
LIBOR plus 100 basis points (approximately 2.9% at December 30, 2001) and is
payable in full on May 14, 2007. Interest only payments are to be made through
February 14, 2002. The mortgage principal is then amortizing on a 15-year level
amortization schedule requiring monthly principal and interest payments. As of
December 30, 2001, long-term debt was $11,862 and the current portion of
long-term debt was $698. The agreement contains financial covenants, which among
others relate to debt service and consolidated debt ratios. As of December 30,
2001, the Company is in compliance with the financial covenants.
In conjunction with the mortgage, the Company entered into an interest rate swap
agreement that provides for a fixed interest rate of approximately 7% for the
duration of the mortgage. As of December 30, 2001, the market value of the
agreement is $(563) and is recorded as a liability with a corresponding charge
to stockholders' equity.
NOTE 2: RECENT ACCOUNTING PRONOUNCEMENTS
In June 2001, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) No. 141, "Business Combinations" which
addresses the financial accounting and reporting for business combinations and
supercedes Accounting Principles Board (APB) Opinion No. 16, "Business
Combinations," and SFAS No. 38, "Accounting for Preacquisition Contingencies of
Purchased Enterprises." SFAS No. 141 requires that all business combinations be
accounted for by a single method, the purchase method, modifies the criteria for
recognizing intangible assets, and expands disclosure requirements. The
provisions of SFAS No. 141 apply to all business combinations initiated after
June 30, 2001. We do not expect the adoption of SFAS No. 141 to have a material
effect on our results of operations or statements of financial position.
In June 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible
Assets" which addresses financial accounting and reporting for acquired goodwill
and other intangible assets
and supersedes APB No. 17, "Intangible Assets." SFAS No. 142 addresses how
intangible assets that are acquired individually or with a group of other assets
should be accounted for in financial statements upon their acquisition and after
they have been initially recognized in the financial statements. SFAS No. 142
requires that goodwill and intangible assets that have indefinite useful lives
not be amortized but rather tested at least annually for impairment, and
intangible assets that have finite useful lives be amortized over their useful
lives. SFAS No. 142 provides specific guidance for testing goodwill and
intangible assets that will not be amortized for impairment. In addition, SFAS
No. 142 expands the disclosure requirements for goodwill and other intangible
assets in the years subsequent to their acquisition. SFAS No. 142 is effective
for our fiscal year 2003, with early adoption permitted at the beginning of our
fiscal year 2002. Impairment losses for goodwill and indefinite-life intangible
assets that arise due to the initial application of SFAS No. 142 are to be
reported as resulting from a change in accounting principles. However, goodwill
and intangible assets acquired after June 30, 2001 will be subject immediately
to provisions of SFAS No. 142. We do not expect the adoption of SFAS No. 142 to
have a material effect on our results of operations or statements of financial
position and will adopt SFAS No. 142 effective for our fiscal year 2003.
In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations" which addresses financial accounting and reporting for retirement
obligations associated with the retirement of tangible long-lived assets and for
the associated asset retirement costs. SFAS No. 143 requires a company to record
the fair value of an asset retirement obligation in the period in which it is
incurred. When the retirement obligation is initially recorded, the company also
records a corresponding increase to the carrying amount of the related tangible
long-lived asset and depreciates that cost over the useful life of the tangible
long-lived asset. The retirement obligation is increased at the end of each
period to reflect the passage of time and changes in the estimated future cash
flows underlying the initial fair value measurement. Upon settlement of the
retirement obligation, the company either settles the retirement obligation for
its recorded amount or incurs a gain or loss upon settlement. SFAS No. 143 is
effective for fiscal years beginning after June 15, 2002 with earlier
application encouraged. Management is currently assessing the impact that SFAS
No. 143 will have on the Company's financial position and results of operations.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets" which addresses financial accounting and
reporting for the impairment or disposal of long-lived assets and also affects
certain aspects of accounting for discontinued operations. SFAS No. 144
supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed of," and APB No. 30, "Reporting the Results
of Operations--Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions." SFAS
is effective for fiscal years beginning after December 15, 2001. Management is
currently assessing the impact that SFAS No. 144 will have on the Company's
financial position and results of operations.
NOTE 3: SALE OF THE AUTOMATION SYSTEMS GROUP
On December 12, 2001, the Company sold its Automation Systems Group in Longmont,
Colorado, to Brooks Automation, Inc. of Chelmsford, Massachusetts, in a cash
transaction, for $12,165 (including a receivable of $772 related to post closing
adjustments). Substantially all of the assets were sold to Brooks and
substantially all the liabilities were assumed by Brooks. The gain on the sale
was $6,117 before related exit costs of $1,920 to be paid from the proceeds,
inventory write-downs of $808, and tax expense of $1,288.
NOTE 4: SEGMENT INFORMATION
FASB Statement No. 131, "Disclosures about Segments of an Enterprise and Related
Information" establishes standards, using a management approach, for reporting
information regarding operating segments in annual financial statements. The
management approach designates the internal reporting that is used by the chief
operating decision-maker when making operating decisions and assessing
performance as the source of the Company's reportable segments. The Company's
president has been determined to be its chief operating decision-maker, as
defined under Statement 131.
The Company operates in three principal business segments globally:
Semiconductor; Industrial; and Telecommunications. The segment data is presented
below in a manner consistent with management's internal measurement of the
business.
Three Months Ended Six Months Ended
December 30, December 30,
--------------------- --------------------
2001 2000 2001 2000
-------- -------- -------- --------
SEMICONDUCTOR
Sales .................................. $ 8,119 $ 20,713 $ 18,503 $ 35,803
Gross profit ........................... 1,729 8,868 5,660 15,094
Gross profit as a % of sales ........... 21% 43% 31% 42%
INDUSTRIAL
Sales .................................. $ 9,157 $ 8,649 $ 17,430 $ 16,167
Gross profit ........................... 3,262 3,330 5,911 6,471
Gross profit as a % of sales ........... 36% 39% 34% 40%
TELECOMMUNICATIONS
Sales .................................. $ 1,730 $ 3,369 $ 4,029 $ 4,693
Gross (loss) profit .................... (313) 1,413 132 2,015
Gross (loss) profit as a % of sales .... (18)% 42% 3% 43%
TOTAL
Sales .................................. $ 19,006 $ 32,731 $ 39,962 $ 56,663
Gross profit ........................... $ 4,678 $ 13,611 $ 11,703 $ 23,580
Gross profit as a % of sales ........... 25% 42% 29% 42%
The total gross profit and the semiconductor segment gross profit for the three
and six months ended December 30, 2001 included $808 of inventory write-downs
related to the sale of the Automation Systems Group.
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 of the Company.
Substantially all of the Company's operating results, assets, depreciation, and
amortization are U.S. based. The Company's sales by geographic area were as
follows:
Three Months Ended Six Months Ended
December 30, December 30,
------------------- ------------------
2001 2000 2001 2000
------- --------- ------- --------
Americas (primarily United States) $10,489 $15,740 $20,880 $30,243
Far East:
Japan ............................. 3,605 11,590 9,506 16,787
Pacific Rim ....................... 1,379 2,279 2,766 4,329
------- ------- ------- -------
Total Far East ....................... $ 4,984 $13,869 $12,272 $21,116
Europe and Other (primarily Europe) .. 3,533 3,122 6,810 5,304
------- ------- ------- -------
Total ................................ $19,006 $32,731 $39,962 $56,663
======= ======= ======= =======
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
Net sales of $19,006,000 for the second quarter and $39,962,000 for the six
months ended December 30, 2001 decreased by $13,725,000, or 42%, and
$16,701,000, or 29%, from the comparable prior year periods.
For the second quarter of fiscal 2002, net sales in the semiconductor segment
were $8,119,000, or 43% of total net sales, as compared to $20,713,000, or 63%,
in the prior year period; net sales in the industrial segment were $9,157,000,
or 48% of total net sales, as compared to $8,649,000, or 27%, in the prior year
period; and net sales in the telecommunications segment were $1,730,000, or 9%
of total net sales, as compared to $3,369,000, or 10%, in the prior year period.
For the first half of fiscal 2002, net sales in the semiconductor segment were
$18,503,000, or 46% of total net sales, as compared to $35,803,000, or 63%, in
the prior year period; net sales in the industrial segment were $17,430,000, or
44% of total net sales, as compared to $16,167,000, or 29%, in the prior year
period; and net sales in the telecommunications segment were $4,029,000, or 10%
of total net sales, as compared to $4,693,000, or 8%, in the prior year period.
The Company continues to be impacted significantly by the downturn in the
semiconductor industry.
Company sales to the Americas, the vast majority of which are in the United
States, amounted to $10,489,000 in the second quarter of fiscal 2002, a decrease
of $5,251,000, or 33%, from the second quarter of fiscal 2001 levels of
$15,740,000. The Company's sales outside the Americas amounted to $8,517,000 in
the second quarter of fiscal 2002, a decrease of $8,474,000, or 50%, from the
second quarter of fiscal 2001 levels of $16,991,000. Sales to Japan during the
second quarter of fiscal 2002 amounted to $3,605,000, a decrease of $7,985,000,
or 69%, from the second quarter of fiscal 2001 sales levels. Japan sales were
affected by the continued weakness in the semiconductor market, especially the
Company's product lines, which serve original equipment manufacturers. Sales to
Europe/Other, primarily Europe, amounted to $3,533,000, an increase of $411,000,
or 13%, from the second quarter of fiscal 2001. Sales to the Pacific Rim,
excluding Japan, amounted to $1,379,000, a decrease of $900,000, or 39%, from
the second quarter of fiscal 2001 sales levels.
Company sales to the Americas, the vast majority of which are in the United
States, amounted to $20,880,000 in the first half of fiscal 2002, a decrease of
$9,363,000, or 31%, from the first half of fiscal 2001 levels of $30,243,000.
The Company's sales outside the Americas amounted to $19,082,000 in the first
half of fiscal 2002, a decrease of $7,338,000, or 28%, from the first half of
fiscal 2001 levels of $26,420,000. Sales to Japan during the first half of
fiscal 2002 amounted to $9,506,000, a decrease of $7,281,000, or 43%, from the
first half of fiscal 2001 sales levels. Sales to Europe/Other, primarily Europe,
amounted to $6,810,000, an increase of $1,506,000, or 28%, from the first half
of fiscal 2001 due to increased sales in the industrial markets. Sales to the
Pacific Rim, excluding Japan, amounted to $2,766,000, a decrease of $1,563,000,
or 36%, from the first half of fiscal 2001 sales levels due to weakness in sales
to the semiconductor market.
Substantially all of the Company's sales and 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 the sales of the Company's products in its export markets, as would
changes in the general economic conditions in those markets. The impact of such
changes in foreign currency values on the Company's sales cannot be measured.
Gross profit in the second quarter of fiscal 2002 amounted to $4,678,000
(including $808,000 of inventory write-downs related to the sale of the
Automation Systems Group), a decrease of $8,933,000, or 66%, from gross profit
of $13,611,000 in the second quarter of fiscal 2001. Gross profit as a
percentage of sales in the second quarter of fiscal 2002 was 25%, as compared to
42% in the second quarter of fiscal 2001. Gross profit in the first half of
fiscal 2002 amounted to $11,703,000, a decrease of $11,877,000, or 50%, from
gross profit of $23,580,000 in the first half of fiscal 2001. Gross profit as a
percentage of sales in the first half of fiscal 2002 was 29%, as compared to 42%
in the first half of fiscal 2001. The decreases in gross profit and gross profit
as a percentage of sales primarily were due to lower production volumes, a
change in product mix from the semiconductor to the industrial segment, which
carries a lower margin due to the government business, and the inventory
write-downs related to the sale of the Automation Systems Group.
Selling, general and administrative expenses ("SG&A") in the second quarter of
fiscal 2002 amounted to $6,625,000, an increase of $371,000, or 6%, from the
second quarter of fiscal 2001. As a percentage of net sales, SG&A for the second
quarter of fiscal 2002 was 35%, as compared to 19% in the second quarter of
fiscal 2001. SG&A in the first half of fiscal 2002 amounted to $12,437,000, an
increase of $792,000, or 7%, from the first half of fiscal 2001. As a percentage
of net sales, SG&A for the first half of fiscal 2002 was 31%, as compared to 21%
in the first half of fiscal 2001. The increase in SG&A resulted from the
increase in the sales infrastructure for the telecommunications market,
partially offset by lower incentive compensation costs due to lower sales volume
and net losses.
Research, development and engineering expenses ("R&D") in the second quarter of
fiscal 2002 totaled $6,529,000 and increased by $2,313,000, or 55%, from
$4,216,000 in the second quarter of fiscal 2001. R&D as a percentage of net
sales for the second quarter of fiscal 2002 was 34%, as compared to 13% in the
comparable prior year period. R&D in the first half of fiscal 2002 totaled
$11,753,000 and increased by $4,282,000, or 57%, from $7,471,000 in the
comparable prior year period. R&D as a percentage of net sales for the first
half of fiscal 2002 was 29%, as compared to 13% in the first half of fiscal
2001. The increase in R&D primarily was due to continued investment in the
semiconductor segment, primarily in the motion measurement product line, and
telecommunications products, including telecommunications automation. These
investments are due to increased customer interest in Zygo's new technology
products.
The Company recorded an operating loss of $10,631,000 (including $1,920,000 of
exit costs and $808,000 of inventory write-downs related to the sale of the
Automation Systems Group) in the second quarter of fiscal 2002, as compared to
operating profit of $2,941,000 in the second quarter of fiscal 2001. The
operating loss as a percentage of sales in the second quarter of fiscal 2002 was
(56%), as compared to an operating profit as a percentage of sales of 9% in the
second quarter of fiscal 2001. The Company recorded an operating loss of
$14,841,000 in the first half of fiscal 2002, as compared to operating profit of
$4,065,000 in the first half of fiscal 2001. The operating loss as a percentage
of sales in the first half of fiscal 2002 was (37%), as compared to an operating
profit as a percentage of sales of 7% in the first half of fiscal 2001.
On December 12, 2001, the Company sold its Automation Systems Group in Longmont,
Colorado, to Brooks Automation, Inc. of Chelmsford, Massachusetts, in a cash
transaction, for $12,165,000 (including a receivable of $772,000 related to post
closing adjustments). Substantially all of the assets were sold to Brooks and
substantially all the liabilities were assumed by Brooks. The gain on the sale
was $6,117,000 before related exit costs of $1,920,000 to be paid from the
proceeds, inventory write-downs of $808,000, and tax expense of $1,288,000. The
majority of the exit costs relate to a portion of the lease on the Longmont
facility not assumed by Brooks.
Income tax benefit in the second quarter of fiscal 2002 totaled $1,800,000, or
38% of pretax losses, which compares with an income tax expense of $1,041,000,
or 34% of pretax profits, in the second quarter of fiscal 2001. Income tax
benefit in the first half of fiscal 2002 totaled $3,210,000, or 38% of pretax
losses, which compares with an income tax expense of $1,510,000, or 34% of
pretax profits, in the first half of fiscal 2001. The effective tax rate of 38%
for first half of fiscal 2002 has increased from the 34% tax rate used for
fiscal 2001. The lower effective tax rate in fiscal 2001 primarily was due to
the impact of transactions involving the early sale of stock resulting from the
exercise of incentive stock options by former employees of Firefly Technologies,
Inc.
The Company recorded a net loss of $3,019,000 for the second quarter ended
December 30, 2001 as compared to net earnings of $1,905,000 for the comparable
quarter ended December 30, 2000. Excluding the gain on the sale of the
Automation Systems Group in Longmont, Colorado of $6,117,000 and related exit
costs ($1,920,000), inventory write-downs ($808,000), and tax expense
($1,288,000), the net loss for the second quarter ended December 30, 2001 was
$5,120,000. On a diluted per share basis, the net loss was $.17 per share (net
loss of $.29 per share excluding the gain on sale and related exit costs,
inventory write-downs, and tax expense) for the quarter ended December 30, 2001,
compared with net earnings of $.13 per share in the comparable prior year
quarter. For the first half of fiscal 2002, the Company recorded a net loss of
$5,390,000, or $.31 per share, as compared to net earnings of $2,722,000, or
$.18 per share, for the comparable prior year period. Excluding the gain on sale
and related exit costs, inventory write-downs, and tax expense, for the first
half of fiscal 2002 the net loss was $7,491,000, or $.43 on a diluted per share
basis. The net loss per share is based on the weighted average basic shares
outstanding which equals the diluted weighted average shares.
The basic and fully diluted weighted average number of shares outstanding for
the quarter ended December 30, 2001 were 17,390,000 as compared to 14,359,000
basic shares and 15,123,000 fully diluted shares for the quarter ended December
30, 2000. The basic and fully diluted weighted average number of shares
outstanding for the first half of fiscal 2002 were 17,390,000 as compared to
14,329,000 basic shares and 15,166,000 fully diluted shares for the comparable
prior year period ended December 30, 2000. The increases in the number of shares
outstanding were due to the 2,924,500 shares issued in March 2001 in the
secondary offering of the Company's common stock and the exercise of stock
options.
Backlog at December 30, 2001 totaled $53,410,000 (excluding $3,053,000 related
to the Automation Systems Group), an increase of $2,569,000, or 5%, from
$50,841,000 (excluding $3,905,000 related to the Automation Systems Group) at
September 30, 2001. Backlog at December 30, 2001, decreased $12,512,000, or 19%,
from $65,922,000 at December 30, 2000. Orders for the second quarter of fiscal
2002 totaled $20,723,000 (including $948,000 related to Automation Systems
Group), and consisted of $4,941,000, or 24%, in the semiconductor segment;
$12,238,000, or 59%, in the industrial segment; and $3,544,000, or 17%, in the
telecommunications segment. Orders for first half of fiscal 2002 totaled
$40,923,000 (including
$1,448,000 related to Automation Systems Group), and consisted of $11,203,000,
or 28%, in the semiconductor segment; $21,789,000, or 53%, in the industrial
segment; and $7,931,000, or 19%, in the telecommunications segment.
RELATED PARTY TRANSACTIONS
Sales to Canon Inc., a stockholder, and Canon Sales Co., Inc., a distributor of
certain of the Company's products in Japan and a subsidiary of Canon Inc.,
amounted to $1,837,000 (10% of net sales), and $6,632,000 (17% of net sales),
for the three and six months ended December 30, 2001, respectively, as compared
to $8,737,000 (27% of net sales) and $14,679,000 (26% of net sales) for the
comparable prior year periods. Selling prices of products sold to Canon Inc. and
Canon Sales Co., Inc. are based, generally, on the normal terms given to
distributors. At December 30, 2001 and June 30, 2001, there was approximately,
in the aggregate, $1,043,000 and $3,827,000 respectively, of trade accounts
receivable from Canon Inc. and Canon Sales Co., Inc.
LIQUIDITY AND CAPITAL RESOURCES
At December 30, 2001, working capital was $79,301,000, a decrease of $14,811,000
from $94,112,000 at June 30, 2001. Excluding the cash proceeds from the sale of
the Automation Systems Group ($11,393,000) and excluding the working capital
sold ($4,614,000) from the June 30, 2001 balance sheet, there would have been a
decrease of $21,590,000 for the first six months of fiscal 2002. The Company
maintained cash, cash equivalents, and marketable securities of $51,093,000 at
December 30, 2001, which primarily are invested in securities with maturities of
30 days or less. This represents a decrease of $8,658,000 from June 30, 2001.
Excluding the cash received from the sale of the Automation Systems Group
($11,393,000), there would have been a decrease of $20,051,000 for the first six
months of fiscal 2002. The decrease was due to the operating loss, increases in
inventories and costs in excess of billings, decreases in accounts payable and
accrued expenses, and investments in property plant and equipment, partially
offset by a decrease in receivables (in all cases, after excluding the
Automation Systems Group assets and liabilities from the June 30, 2001 balance
sheet which were transferred to Brooks). The decrease in accrued expenses was
due to payments of profit sharing and other incentive compensation that were in
accrued liabilities at June 30, 2001. The investments in property, plant, and
equipment are primarily due to investments in optical equipment ($2,518,000) and
the completion of the TeraOptix facility in Westborough, Massachusetts
($6,222,000). The TeraOptix facility is substantially complete.
As of December 30, 2001 the mortgage balance on the Company's Westborough,
Massachusetts facility was $12,560,000 comprised of long-term debt of
$11,862,000 and a current portion of long-term debt of $698,000. The mortgage
has an interest rate of LIBOR plus 100 basis points (approximately 2.9% at
December 30, 2001) which is payable in full on May 14, 2007. Interest only
payments are to be made through February 14, 2002. The mortgage principal is
then amortizing on a 15-year level amortization schedule requiring monthly
principal and interest payments. Future mortgage principal payments by calendar
years will total $698,000 for 2002; $837,000 for each year 2003-2006; $349,000
for the first 5 months of 2007; and a final payment of $8,165,000 in May 2007.
There were no borrowings outstanding under the Company's $3,000,000 bank line of
credit at December 30, 2001.
Stockholders equity at December 30, 2001 decreased by $5,273,000 from June 30,
2001 to $143,866,000, primarily due to the net loss in the first half of fiscal
2002.
Although cash requirements will fluctuate based on the timing and extent of
various factors, Management believes that cash generated from operations,
together with the liquidity provided by existing cash balances and borrowing
capability, will be sufficient to satisfy the Company's liquidity requirements
for the next 12 months.
RISK FACTORS THAT MAY IMPACT FUTURE RESULTS
Risk factors that may impact future results include those disclosed in our Form
10-K405 for the year ended June 30, 2001.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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 and foreign currency exchange rates. We do not use derivative
financial instruments for speculative or trading purposes.
INTEREST RATE SENSITIVITY
We maintain a portfolio of cash equivalents and marketable securities including
money market funds, commercial paper, corporate bonds and tax-exempt bonds. Our
interest income on our variable rate investments is sensitive to changes in the
general level of U.S. interest rates, particularly since the majority of our
investments are short-term instruments. The impact of interest rate changes on
the Company's results cannot be measured.
During fiscal 2001, the Company entered into a mortgage on its Westborough
facility of $12,560,000 at an interest rate of LIBOR plus 100 basis points (2.9%
December 30, 2001) which is payable in full on May 14, 2007. In conjunction with
the mortgage, the Company entered into an interest rate swap agreement (with a
highly rated financial institution) that provides for a fixed interest rate of
approximately 7% for the duration of the mortgage. Due to the existence of the
swap agreement, we do not believe that a material risk exposure exists.
EXCHANGE RATE SENSITIVITY
Substantially all of the Company's sales and 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 the sales of the Company's products
in its export markets as would changes in the general economic conditions in
those markets. The impact of such changes in foreign currency values on the
Company's sales cannot be measured.
PART II - Other Information
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of Stockholders was held on November 14, 2001. 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 S. Berg .................. 14,801,080 197,994
Paul F. Forman ................ 14,795,241 203,833
R. Clark Harris ............... 14,801,161 197,913
Seymour E. Liebman ............ 14,797,086 201,988
Robert G. McKelvey ............ 14,590,778 401,296
J. Bruce Robinson ............. 14,393,176 605,898
Patrick Tan ................... 14,766,730 232,344
Robert B. Taylor .............. 14,592,683 406,391
Carl A. Zanoni ................ 14,799,920 199,154
There were no other matters submitted to a vote of our stockholders.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) None.
(b) On December 14, 2001, the Company filed a Current Report on Form 8-K with
respect to the sale of the Automation Systems Group to Brooks Automation,
Inc.
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, Chairman, and Chief Executive Officer
/s/ RICHARD M. DRESSLER
-------------------------------------------------
Richard M. Dressler
Vice President, Finance, Chief Financial Officer,
and Treasurer
Date: February 13, 2002