SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
FORM 8-K/A
---------------
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) August 19, 1996
ZYGO CORPORATION
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 0-12944 06-0864500
- ---------------------------- ----------- -------------------
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
Laurel Brook Road, Middlefield, Conn. 06455
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (860) 347-8506
Not Applicable
- --------------------------------------------------------------------------------
(Former name or former address, if changed since last report)
This Form 8-K/A amends the Form 8-K filed with the Commission on August 30, 1996
relating to the acquistion by Zygo Corporation of the proprietary products
division of Technical Instrument Company. This Form 8-K/A contains the
information referred to in Item 7 of the Form 8-K.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
a. Financial Statements of Business Acquired.
1. Financial Statements as of December 31, 1995 and 1994 and for the
three years ended December 31, 1995, 1994 and 1993.
Report of Independent Certified Public Accountants.
Balance Sheets as of December 31, 1995 and 1994.
Statements of Operations and Retained Earnings for the years
ended December 31, 1995, 1994 and 1993.
Statements of Cash Flow for the years ended December 31, 1995,
1994 and 1993
Notes to Financial Statements.
2. Interim Financial Statements as of June 30, 1996 and for the
six-month periods ended June 30, 1996 and 1995.
Balance Sheet as of June 30, 1996.
Statements of Operations for the six-months ended June 30,
1996 and 1995.
Statements of Cash Flows for the six-months ended June 30,
1996 and 1995.
Notes to Financial Statements.
-2-
b. Pro Forma Financial Information.
1. Pro Forma Consolidated Financial Statements as of June 30, 1996 and
for the year ended June 30, 1996.
Consolidated Balance Sheets as of June 30, 1996.
Consolidated Statements of Income for the year ended June 30,
1996.
Notes to Combined Financial Statements.
c. Exhibits.
2. The Agreement and Plan of Merger by and among Technical Instrument
Company, Zygo Corporation, Zygo Acquisition Corporation, Francis E. Lundy, The
Lundy 1996 Charitable Trust, The Sherman Family Living Trust, Frank J. Scheufele
Trust, David Lytle, and Inspectron Development Partners L.P., a California
Limited Partnership dated as of August 7, 1996.*
23.1 Consent of Grant Thornton LLP
99.1 Press Release dated August 20, 1996*
- ----------
* Previously filed as part of Form 8-K dated August 19, 1996, filed on August
30, 1996.
-3-
SIGNATURES
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
Date: November 4, 1996 By /s/ Gary K. Willis
-------------------------------------
Gary K. Willis
President and Chief Executive Officer
-4-
TECHNICAL INSTRUMENT COMPANY
INDEX TO FINANCIAL STATEMENTS
Page
----
Report of Independent Auditors.......................................... F-2
Financial Statements:
Balance Sheets.................................................... F-3
Statements of Operations and Retained Earnings ................... F-4
Statements of Cash Flows.......................................... F-5
Notes to Financial Statements..................................... F-6
Interim Financial Statements:
Balance Sheet..................................................... F-14
Statements of Operations and Retained Earnings ................... F-15
Statements of Cash Flows.......................................... F-16
Notes to Financial Statements..................................... F-17
Pro Forma Consolidated Financial Statements:
Pro Forma Consolidated Financial Information ..................... F-24
Consolidated Balance Sheets ...................................... F-25
Consolidated Statements of Income ................................ F-26
Notes to Consolidated Financial Statements ....................... F-27
F-1
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Technical Instrument Company
We have audited the accompanying balance sheets of Technical Instrument
Company as of December 31, 1994 and 1995, and the related statements of
operations and retained earnings, and cash flows for each of the three years in
the period ended December 31, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Technical Instrument Company
as of December 31, 1994 and 1995, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1995, in
conformity with generally accepted accounting principles.
GRANT THORNTON LLP
San Francisco, California
June 12, 1996
F-2
Technical Instrument Company
BALANCE SHEETS
(000 Omitted)
December 31,
-----------------------
1994 1995
------ ------
ASSETS
Current assets
Accounts receivable, less
allowance for doubtful
accounts of $51, and $103 $1,558 $1,740
Inventories 2,124 3,582
Deferred income taxes 94 278
Other current assets 30 47
Net assets of discontinued
operations (note B) 3,178 1,648
------ ------
Total current assets 6,984 7,295
Property and equipment, less
accumulated depreciation
and amortization 6 54
Investments (note F) -- --
Goodwill 122 108
------ ------
$7,112 $7,457
====== ======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Note payable to bank $1,664 $2,000
Current portion of long-term debt 304 306
Accounts payable 2,329 1,895
Accrued liabilities 196 383
------ ------
Total current liabilities 4,493 4,584
Long-term debt, less current portion 800 494
Shareholders' equity
Common stock, no par value;
authorized 10,000 shares;
issued and outstanding 2,988 shares 464 464
Retained earnings 1,355 1,915
------ ------
1,819 2,379
------ ------
$7,112 $7,457
====== ======
The accompanying notes are an integral part of these statements.
F-3
Technical Instrument Company
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
(000 Omitted)
Year ended December 31,
-----------------------------
1993 1994 1995
------- ------- -------
Revenues
Product sales $ 5,296 $ 4,744 $ 7,867
Product support 217 246 505
------- ------- -------
5,513 4,990 8,372
Cost of sales 3,118 2,773 4,721
------- ------- -------
Gross profit 2,395 2,217 3,651
Operating expenses
Selling, general and administrative 2,073 2,413 2,598
Research and development 653 744 874
------- ------- -------
2,726 3,157 3,472
------- ------- -------
Operating profit (loss) (331) (940) 179
Interest expense 216 274 318
------- ------- -------
Loss before income
taxes (benefit) and
discontinued operations (547) (1,214) (139)
Income taxes (benefit)
Current (290) (463) 176
Deferred 1 (2) (184)
------- ------- -------
(289) (465) (8)
------- ------- -------
Loss from continuing operations (258) (749) (131)
Discontinued operations (note B)
Income (loss) from
discontinued operations
(less applicable income taxes) 315 (124) 691
------- ------- -------
NET EARNINGS (LOSS) 57 (873) 560
Retained earnings - beginning of year 2,171 2,228 1,355
------- ------- -------
Retained earnings - end of year $ 2,228 $ 1,355 $ 1,915
======= ======= =======
The accompanying notes are an integral part of these statements.
F-4
Technical Instrument Company
STATEMENTS OF CASH FLOW
(000 Omitted)
Year Ended December 31,
-----------------------------
1993 1994 1995
------- ------- -------
Increase (decrease) in cash
Cash flows from operating activities
Net earnings (loss) $ 57 $ (873) $ 560
(Income) loss of discontinued operations (315) 124 (691)
Adjustments to reconcile net earnings (loss)
to net cash provided by (used in)
continuing operations
Depreciation and amortization 26 17 39
Deferred taxes 1 (2) (184)
Changes in assets and liabilities
Accounts receivable (345) (94) (182)
Inventories (436) 105 (1,458)
Other current assets (4) (1) (17)
Accounts payable 244 1,113 (434)
Accrued expenses (29) 32 187
------- ------- -------
Net cash provided by (used in)
continuing operations (801) 421 (2,180)
Income (loss) of discontinued
operations 315 (124) 691
Net assets of discontinued operations (1,007) (51) 1,530
------- ------- -------
Net cash provided by (used in)
operating activities (1,493) 246 41
Cash flows from investing activities
Purchase of equipment (7) -- (73)
Investment -- -- --
------- ------- -------
Net cash used in investing activities (7) -- (73)
Cash flows from financing activities
Net proceeds from (payment of) bank note 350 (33) 336
Proceeds from (payment of) long-term debt 1,150 (213) (304)
------- ------- -------
Net cash provided by (used in)
financing activities 1,500 (246) 32
------- ------- -------
NET INCREASE IN CASH -- -- --
Cash - beginning of period -- -- --
------- ------- -------
Cash - end of period $ -- $ -- $ --
------- ------- -------
Cash paid during the period for:
Interest $ 389 $ 334 $ 469
Income taxes -- 129 --
The accompanying notes are an integral part of these statements.
F-5
Technical Instrument Company
NOTES TO FINANCIAL STATEMENTS
December 31, 1993, 1994 and 1995
NOTE A - SUMMARY OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Technical Instrument Company (the Company) designs, manufactures and distributes
microscopes and other precision optical instruments and equipment. The Company
has two divisions: a proprietary products division and a distribution division
(see Note B).
The Company's proprietary products division designs, manufactures and
distributes precision optical equipment used by manufacturers of semiconductors
and other high technology products. The proprietary products division derives
approximately 45% of its revenues from international sales. The Company's
distribution division has an exclusive license to distribute microscopes and
other precision optical instruments in Northern California.
A summary of the Company's significant accounting policies applied in the
preparation of the accompanying financial statements follows:
o Inventories
Inventories are stated at the lower of cost (first-in, first-out method)
or market.
o Property and Equipment
Property and equipment are stated at cost and depreciated by the
straight-line method over their estimated useful lives (3 to 10 years).
o Goodwill
The excess of cost over the fair value of net assets acquired of purchased
business at the date of acquisition is amortized by the straight-line
method over 15 years.
o Income Taxes
Income taxes are determined using the liability method of accounting.
Under this method, deferred tax assets and liabilities are determined
based on differences between the financial reporting and tax basis of
assets and liabilities. Additionally, the deferred tax items are measured
using current tax rates. The principal types of differences between assets
and liabilities for financial statement and tax return purposes are
allowances, inventory and certain accrued liabilities.
o Use of Estimates
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
the disclosure of contingent assets and liabilities at the date of the
financial statements, as well as revenues and expenses during the period.
Significant estimates made by management include the allowance for
doubtful accounts and inventory obsolescence. Actual results could differ
from those estimates.
F-6
Technical Instrument Company
NOTES TO FINANCIAL STATEMENTS (continued)
December 31, 1993, 1994 and 1995
NOTE B - DISCONTINUED OPERATIONS
In March 1996, the Company entered into discussions to sell all of its
outstanding common stock. The transaction is expected to be completed in July
1996. In connection with this transaction, the Company's shareholders will form
a new company and purchase the assets and assume liabilities of the Distribution
Division at net book value. The Distribution Division has been treated as a
discontinued operation. Net assets of the Distribution Division are summarized
as follows:
December 31,
------------------
1994 1995
------ ------
(000) Omitted
ASSETS
Current assets
Accounts receivable, less allowance for
doubtful accounts $1,512 $1,667
Inventories 4,071 3,128
Deferred income taxes 720 621
Refundable income taxes 338 --
Prepaid and other 195 221
------ ------
Total current assets 6,836 5,637
Non-current assets 692 683
------ ------
7,528 6,320
LIABILITIES
Current liabilities 2,046 2,485
Non-current liabilities 2,304 2,187
------ ------
4,350 4,672
NET ASSETS $3,178 $1,648
====== ======
The net assets of the Distribution Division have been classified a current asset
because of the pending sale. Included in net assets of the discontinued
operations is a liability under a defined benefit pension plan (Plan) amounting
to approximately $1.0 million. Management has notified its employees of the
Company's intent to freeze the Plan as of June 30, 1996, with the intent of
liquidating the Plan. Any benefit or obligation resulting from the liquidation
of the Plan will accrue to the Distribution Division.
F-7
Technical Instrument Company
NOTES TO FINANCIAL STATEMENTS (continued)
December 31, 1993, 1994 and 1995
NOTE B - DISCONTINUED OPERATIONS (continued)
The condensed statements of operations for the Distribution Division are
summarized as follows:
(000 omitted)
Year ended December 31,
--------------------------------
1993 1994 1995
------- ------- -------
Sales $ 7,346 $ 8,008 $ 9,567
Cost of sales 5,002 6,362 6,894
------- ------- -------
Gross profit 2,344 1,646 2,673
Operating expenses 1,477 1,719 1,852
------- ------- -------
Operating profit (loss) 867 (73) 821
Other expenses - net 199 128 87
------- ------- -------
Income (loss) before income taxes 668 (201) 734
Income taxes (benefit) 353 (77) 43
------- ------- -------
INCOME (LOSS) $ 315 $ (124) $ 691
======= ======= =======
F-8
Technical Instrument Company
NOTES TO FINANCIAL STATEMENTS (continued)
December 31, 1993, 1994 and 1995
NOTE C - INVENTORIES
Inventories comprise:
(000 omitted)
December 31,
---------------------
1994 1995
------ ------
Purchased parts and subassemblies $1,778 $2,970
Finished instruments 346 612
------ ------
$2,124 $3,582
====== ======
F-9
Technical Instrument Company
NOTES TO FINANCIAL STATEMENTS (continued)
December 31, 1993, 1994 and 1995
NOTE D - SHORT-TERM BORROWINGS
The Company has a revolving line of credit for $2.5 million with a bank with
interest at 1.5% above the bank's prime rate (8.5% at December 31, 1995),
payable on a monthly basis. At December 31, 1995, $2 million was outstanding
under the line of credit, which is scheduled to expire on June 1, 1996. The
borrowings are collateralized by accounts receivable and inventory (of both the
continued and discontinued operations), and have been personally guaranteed by
the Company's president. The Company is required to maintain a minimum tangible
net worth, minimum working capital and a minimum quick ratio, in addition to
other covenants, under the line of credit. The Company is in violation of
certain financial covenants as of December 31, 1995. The Bank has not formally
extended the line of credit nor has it waived the covenant violations, but has
indicated it will do so during the week of July 1, 1996, subject to final
approval by the appropriate bank committee.
NOTE E - LONG-TERM DEBT
Long-term debt as of December 31, 1994 and 1995 is as follows:
(000 omitted)
1994 1995
------ ------
Note payable to a bank, collateralized
by all corporate assets and a personal
guarantee by an officer of the Company
Payments are $22 monthly plus
interest at 1.5% above the bank's
prime rate (8.5% at December 31, 1995)
The loan matures on October 15, 1998 $1,009 $ 746
9% unsecured note payable 26 14
Other 69 40
------ ------
1,104 800
Less current portion 304 306
------ ------
$ 800 $ 494
====== ======
The aggregate annual maturities of long-term debt at December 31, 1995 are as
follows:
Year ending December 31,
- ------------------------
1996 $306
1997 274
1998 220
----
Total future payments $800
====
F-10
Technical Instrument Company
NOTES TO FINANCIAL STATEMENTS (continued)
December 31, 1993, 1994 and 1995
NOTE F - COMMITMENTS
Operating Lease
The Company leases facilities under an operating lease expiring in 2000. Under
terms of the lease, the Company is responsible for common area maintenance
expenses including taxes, insurance and other operating costs. Future minimum
lease payments required under the operating lease are $182,400 per year through
2000.
Total rent expense for the years ended December 31, 1993, 1994 and 1995 were
$122,200, $115,800 and $120,400, respectively.
Other
The Company has an option, for an indefinite period of time, to purchase 50%
interest in a German company for one hundred thousand deutsche marks.
NOTE G - INCOME TAXES
The Company's overall effective income tax rate on its operations is different
from the federal statutory income tax rate because of the following factors:
(000 omitted)
Year ended December 31,
----------------------------
1993 1994 1995
------ ------ ------
Statutory rate 34.0% (34.0)% 34.0%
Nondeductible items 15.7 1.0 5.2
State taxes 25.6 (2.4) 5.2
Tax credits (60.3) (50.9) --
Valuation allowance on deferred tax assets 60.3 50.9 (32.8)
Adjustment for overaccruals -- (2.1) (7.4)
Other (22.4) (.8) 1.6
------ ------ ------
Effective tax rate 52.9% (38.3)% 5.8%
====== ====== ======
F-11
Technical Instrument Company
NOTES TO FINANCIAL STATEMENTS (continued)
December 31, 1993, 1994 and 1995
Income tax expense (benefit) has been allocated to continuing and discontinued
operations proportionately based on their income (loss) before income tax
(benefit).
NOTE G - INCOME TAXES (continued)
Deferred federal and state tax assets and valuation allowance are as follows:
(000 omitted)
Year ended December 31,
--------------------------
1993 1994 1995
---- ---- ----
Inventory $ 38 $ 37 $ 58
Reserve for bad debt 18 20 42
Vacation accrual 15 16 34
Warranty accrual 21 21 21
Research and development credits 125 197 123
---- ---- ----
217 291 278
Valuation allowance 125 197 --
---- ---- ----
$ 92 $ 94 $278
==== ==== ====
The valuation allowance increased by $125 and $72 in 1993 and 1994,
respectively, and decreased by $197 in 1995.
NOTE H - STOCK OPTIONS
As of December 31, 1995 there are options to purchase 29,815 shares of common
stock at $4.50 per share, with 20% vesting each year commencing January 1, 1994.
As of December 31, 1995, options to purchase 11,926 shares of common stock are
exercisable.
Accounting for Stock Issued to Employees
The Company has not elected early adoption of Financial Accounting Standard No.
123 ("FAS 123"), Accounting for Stock-Based Compensation. Upon adoption of FAS
123, the Company will continue to measure compensation expense for its
stock-based employee compensation plans using the intrinsic value method
prescribed by APB Opinion No. 25, Accounting for Stock Issued to Employees and
will provide pro forma disclosures of net income and earnings per share as if
the fair value method prescribed by FAS 123 had been applied in measuring
compensation expense.
F-12
Technical Instrument Company
NOTES TO FINANCIAL STATEMENTS (continued)
December 31, 1993, 1994 and 1995
NOTE I - PRIOR PERIOD ADJUSTMENT
The financial statements for the year ended December 31, 1994 have been adjusted
to reverse the recording of the 50% equity interest in the net earnings of a
foreign subsidiary. In 1995 it was determined that the option to purchase the
50% interest was not properly exercised.
The adjustment is as follows:
(000 omitted)
Retained Net
Earnings Loss
-------- ------
As previously reported $1,463 $ 765
Adjustment for investment recorded
on the equity method 108 108
------ ------
As adjusted $1,355 $ 873
====== ======
NOTE J - FAIR VALUE OF FINANCIAL INSTRUMENTS
The financial instruments of the Company consist mainly of current receivables,
short-term credit, accounts payable, accrued liabilities and long-term debt. In
view of their short-term nature, the fair value of the items included in current
assets and current liabilities approximates their carrying value. The fair value
of the long-term loans approximates their carrying value, since they bear
interest at rates at or close to the prevailing market rates.
F-13
Technical Instrument Company
Balance Sheet - Unaudited
(In thousands, except share amounts)
June 30,
1996
--------
Assets:
Current assets:
Accounts receivable, less allowance for doubtful
accounts of $150 $ 3,411
Inventories 4,380
Deferred income taxes 223
Other current assets 26
Net assets of discontinued operations 1,559
--------
Total current assets 9,599
Property, plant and equipment, less accumulated
depreciation 138
Goodwill 101
Other assets 98
--------
Total assets $ 9,936
========
Liabilities and Shareholders' Equity:
Current liabilities:
Note payable to bank $ 2,100
Current portion of long-term debt 310
Accounts payable 2,440
Accrued liabilities 1,567
--------
Total current liabilities 6,417
Long-term debt, less current portion 351
--------
Total Liabilities 6,768
Shareholders' equity:
Common stock, no par; authorized 10,000;
issued and outstanding 2,988 shares 464
Retained earnings 2,704
--------
Total shareholders' equity 3,168
--------
Total liabilities and shareholders' equity $ 9,936
========
The accompanying notes are an integral part of these statements
F-14
Technical Instrument Company
Statements of Operations - Unaudited
(In thousands)
Six Months Ended June 30,
-------------------------
1996 1995
------- -------
Revenues
Product sales $ 5,237 $ 2,583
Product support 173 113
------- -------
5,410 2,696
Cost of sales 2,689 1,520
------- -------
Gross profit 2,721 1,176
------- -------
Selling, general and administrative expenses 1,382 1,170
Research and development expenses 308 422
------- -------
1,690 1,592
Operating profit (loss) 1,031 (416)
------- -------
Interest expense 133 164
------- -------
Income (loss) before income tax benefits
and discontinued operations 898 (580)
Income taxes (benefit) 468 (33)
------- -------
Income (loss) from continuing operations 430 (547)
Income from discontinued operations
(less applicable income taxes) 359 320
------- -------
Net earnings (loss) 789 (227)
Retained earnings - beginning of period 1,915 1,355
------- -------
Retained earnings - end of period $ 2,704 $ 1,128
======= =======
The accompanying notes are an integral part of these statements
F-15
Technical Instrument Company
Statements of Cash Flows - Unaudited
(In thousands)
Six Months Ended June 30,
-------------------------
1996 1995
------- -------
Increase (decrease) in cash:
Cash flows from operating activities
Net earnings (loss) $ 789 $ (227)
Adjustments to reconcile net earnings (loss) to
cash provided by (used in) operating activities:
Allowance for doubtful accounts 47 --
Depreciation and amortization 18 2
Deferred taxes 55 (33)
Changes in assets and liabilities:
Accounts receivable (1,718) (26)
Inventories (798) (1,784)
Other current assets 21 (92)
Other assets (32) --
Accounts payable 545 (486)
Accrued expenses 1,184 7
------- -------
Net cash provided by (used in)
continuing operations 111 (2,639)
Net assets of discontinued operations 23 2,531
Net cash provided by (used in) operating ------- -------
activities 134 (108)
Cash flows from investing activities
Purchase of equipment (95) (48)
------- -------
Net cash used in investing activities (95) (48)
Cash flows from financing activities
Net proceeds from (payment of) bank line 100 336
Proceeds from (payment of) long-term debt (139) (180)
------- -------
Net cash provided by (used in)
financing activities (39) 156
------- -------
Net increase in cash -- --
Cash - beginning of period -- --
------- -------
Cash - end of period $ -- $ --
======= =======
Cash paid during the year for:
Interest 218 156
Income taxes 465 --
The accompanying notes are an integral part of these statements
F-16
Technical Instrument Company
NOTES TO FINANCIAL STATEMENTS - UNAUDITED
June 30, 1996 and 1995
NOTE A - SUMMARY OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Technical Instrument Company (the Company) designs, manufactures, and
distributes microscopes and other precision optical instruments and equipment.
The Company has two divisions: a proprietary products division and a
distribution division (see Note B).
The Company's proprietary products division designs, manufactures, and
distributes precision optical equipment used by manufacturers of semiconductors
and other high technology products. The proprietary products division derives
approximately 45% of its revenues from international sales. The Company's
distribution division has an exclusive license to distribute microscopes and
other precision optical instruments in Northern California.
A summary of the Company's significant accounting policies applied in the
preparation of the accompanying financial statements follows:
o Inventories
Inventories are stated at the lower of cost (first-in, first-out method) or
market.
o Property and Equipment
Property and equipment are stated at cost and depreciated by the
straight-line method over their estimated useful lives (3 to 10 years).
o Goodwill
The excess of cost over the fair value of net assets acquired of purchased
business at the date of acquisition is amortized by the straight-line
method over 15 years.
o Income Taxes
Income taxes are determined using the liability method of accounting. Under
this method, deferred tax assets and liabilities are determined based on
differences between the financial reporting and tax basis of assets and
liabilities. Additionally, the deferred tax items are measured using
current tax rates. The principal types of differences between assets and
liabilities for financial statement and tax return purposes are allowances,
inventory, and certain accrued liabilities.
o Use of Estimates
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
the disclosure of contingent assets and liabilities at the date of the
financial statements, as well as revenues and expenses during the period.
Significant estimates made by management include the allowance for doubtful
accounts and inventory obsolescence. Actual results could differ from those
estimates.
F-17
Technical Instrument Company
NOTES TO FINANCIAL STATEMENTS - UNAUDITED
June 30, 1996 and 1995
NOTE B - DISCONTINUED OPERATIONS
In March 1996, the Company entered into discussions to sell all of its
outstanding common stock. The transaction was completed effective August 8,
1996. In connection with this transaction, the Company's shareholders formed a
new company and purchased the assets and assumed liabilities of the Distribution
Division at net book value. Accordingly, the Distribution Division has been
treated as a discontinued operation. Net assets of the Distribution Division are
summarized as follows:
1996
-------------
(000 omitted)
ASSETS
Current assets
Accounts receivable, less allowance for doubtful accounts $ 1,075
Inventories 3,893
Deferred income taxes 607
Prepaid and other 159
--------
Total current assets 5,734
Noncurrent assets 675
--------
6,409
LIABILITIES
Current liabilites 2,395
Noncurrent liabilites 2,455
--------
4,850
NET ASSETS $ 1,559
========
The net assets of the Distribution Division have been classified as a current
asset because of the sale of the business. Included in net assets of the
discontinued operations is a liability under a defined benefit pension plan
(Plan) amounting to approximately $1.0 million. Management notified its
employees that it has frozen the Plan as of June 30, 1996, with the intent of
liquidating the Plan. Any benefit or obligation resulting from the liquidation
of the Plan will accrue to the Distribution Division.
F-18
Technical Instrument Company
NOTES TO FINANCIAL STATEMENTS - UNAUDITED
June 30, 1996 and 1995
NOTE B - DISCONTINUED OPERATIONS (continued)
The condensed statements of operations for the Distribution Division are
summarized as follows:
Six Months Ended June 30,
-----------------------------
1996 (000 omitted) 1995
------- -------
Sales $ 5,521 $ 4,454
Cost of sales 3,532 2,895
------- -------
Gross profit 1,989 1,559
Operating expenses 1,212 786
------- -------
Operating profit 777 773
Other expenses - net 179 240
------- -------
Income before income taxes 598 533
Income taxes (benefit) 239 213
------- -------
INCOME $ 359 $ 320
======= =======
NOTE C - INVENTORIES
Inventories comprise:
June 30,
1996
(000 omitted)
Purchased parts and subassemblies $3,824
Finished instruments 556
------
$4,380
======
F-19
Technical Instrument Company
NOTES TO FINANCIAL STATEMENTS - UNAUDITED
June 30, 1996 and 1995
NOTE D - SHORT-TERM BORROWINGS
The Company has a revolving line of credit for $2.5 million with a bank with
interest at 1.5% above the bank's prime rate (8.75% at June 30, 1996), payable
on a monthly basis. At June 30, 1996, $2.1 million was outstanding under the
line of credit. The borrowings are collateralized by accounts receivable and
inventory (of both the continued and discontinued operations), and have been
personally guaranteed by the Company's president. The Company is required to
maintain a minimum tangible net worth, minimum working capital, and a minimum
quick ratio, in addition to other covenants, under the line of credit. The
Company is in violation of certain financial covenants as of June 30, 1996. The
Bank extended the line of credit through July 31, 1996.
NOTE E - LONG-TERM DEBT
Long-term debt as of June 30, 1996 is as follows:
1996
(000 omitted)
Note payable to a bank, collateralized by all corporate
assets and a personal guarantee by an officer of the Company.
Payments are $22 monthly plus interest at 1.5% above the
bank's prime rate (8.75% at June 30, 1996). The loan matures
on October 15, 1998. $614
----
Other 47
----
661
Less current portion 310
----
$351
====
The aggregate annual maturities of long-term debt at June 30, 1996 are as
follows:
Year ending June 30,
1997 $264
1998 264
1999 133
----
Total future payments $661
====
F-20
Technical Instrument Company
NOTES TO FINANCIAL STATEMENTS - UNAUDITED
June 30, 1996 and 1995
NOTE F - COMMITMENTS
Operating Lease
The Company leases facilities under an operating lease expiring in 2000.
Under terms of the lease, the Company is responsible for common area
maintenance expenses including taxes, insurance, and other operating costs.
Future minimum lease payments required under the operating lease are
$182,400 per year through 2000.
Total rent expense for the six months ended June 30, 1996 and 1995 were
$91,200 and $60,200, respectively.
Other
The Company has an option, for an indefinite period of time, to purchase a
50% interest in a German company for one hundred thousand deutsche marks.
This option was exercised in July, 1996.
Subsequent Event (unaudited)
In July 1996 the Company exercised its option to purchase a 50% interest in
Syncotec GmbH, and accordingly paid DM100,000 ($67,500) to Syncotec's
owner. This 50% interest is an asset of the continuing operations of the
Company.
NOTE G - INCOME TAXES
The Company's overall effective income tax rate on its continuing
operations is different from the federal statutory income tax rate because
of the following factors:
Six Months Ended June 30,
-------------------------
1996 1995
---- ----
Statutory rate 34.0% (34.0)%
Nondeductible items 8.4% 8.2%
State taxes 9.6% (2.4)%
Valuation allowance on deferred tax assets -- 33.9%
---- -----
Effective tax rate 52.0% 5.7%
==== =====
Income tax expense (benefit) has been allocated to continuing and discontinued
operations proportionately based on their income (loss) before income tax
expense (benefit). All non-deductible items have been included in continuing
operations.
F-21
Technical Instrument Company
NOTES TO FINANCIAL STATEMENTS - UNAUDITED
June 30, 1996 and 1995
NOTE G - INCOME TAXES (continued)
Deferred federal and state tax assets and valuation allowance are as follows:
Six Months Ended June 30,
------------------------------
1996 (000 omitted) 1995
Inventory $ 58 $ 71
Reserve for bad debt 60 20
Vacation accrual 63 16
Warranty accrual 20 20
Other 22 197
------ ------
223 324
Valuation allowance -- 197
------ ------
$ 223 $ 127
====== ======
NOTE H - STOCK OPTIONS
As of June 30, 1996 there are options to purchase 29,815 shares of common stock
at $4.50 per share, with 20% vesting each year commencing January 1, 1994. As of
June 30, 1996, options to purchase 29,815 shares of common stock are
exercisable.
The Company has not elected early adoption of Financial Accounting Standard No.
123 (FAS 123), Accounting for Stock-Based Compensation. Upon adoption of FAS
123, the Company will continue to measure compensation expense for its
stock-based employee compensation plans using the intrinsic value method
prescribed by APB Opinion No. 25, Accounting for Stock Issued to Employees, and
will provide pro forma disclosures of net income and earnings per share as if
the fair value method prescribed by FAS 123 had been applied in measuring
compensation expense.
Subsequent Event (unaudited)
Prior to August 8, 1996, all outstanding stock options were exercised.
F-22
Technical Instrument Company
NOTES TO FINANCIAL STATEMENTS - UNAUDITED
June 30, 1996 and 1995
NOTE I - FAIR VALUE OF FINANCIAL INSTRUMENTS
The financial instruments of the Company consist mainly of current receivables,
short-term credit, accounts payable, accrued liabilities, and long-term debt. In
view of their short-term nature, the fair value of the items included in current
assets and current liabilities approximates their carrying value. The fair value
of the long-term loans approximates their carrying value, since they bear
interest at rates at or close to the prevailing market rates.
F-23
PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
Effective as of August 8, 1996, Zygo completed its acquisition of Technical
Instruments Company. Prior to the acquisition, Technical Instrument Company
("TIC") was engaged in two businesses: the proprietary products division which
designs, develops, manufactures, markets, and sells microscopy systems and
subsystems, or modules, and a distribution division which acts as a sales
representative for other firms' products. Prior to the completion of the
acquisition of the TIC stock by Zygo, the distribution division was spun off
into a new company, Technical Instruments--San Francisco. The consideration
given for the stock acquired was approximately $11,700,000 in cash and common
stock of Zygo valued at $3,000,000. Zygo has accounted for the acquisition of
TIC as a purchase under U.S. generally accepted accounting principles ("GAAP").
The following pro forma consolidated balance sheets and consolidated statements
of operations (collectively, the "Pro Forma Financial Statements") were prepared
by Zygo to illustrate the estimated effects of the business combination with
TIC. The pro forma consolidated financial statements do not present the net
assets or results of operations of TIC's discontinued distribution segment.
Included are Pro Forma Consolidated Balance Sheets at June 30, 1996 and Pro
Forma Consolidated Statements of Operations for the fiscal year ended June 30,
1996 for Zygo and TIC consolidated. Note: The Pro Forma Financial Statements
were compiled using the TIC historical data for the comparable period to Zygo's
fiscal year end June 30, 1996.
The Pro Forma Financial Statements give retrospective effect to material
differences between Zygo's and TIC's accounting policies which are expected to
have a material impact on the consolidated financial statements. The Pro Forma
Financial Statements also give retrospective effect for the allocation of the
TIC purchase price to the assets and intangibles of TIC. Such intangibles
include patents, licenses, drawings and technology, workforce, customer lists,
in-process research and development, and goodwill. The Pro Forma Financial
Statements do not purport to represent what the consolidated financial position
or results of operations actually would have been if the consolidation had
occurred at the beginning of the periods or to project the consolidated
financial position or results of operations for any future date or period.
The Pro Forma Financial Statements should be read in conjunction with the
historical consolidated financial statements, including the notes thereto, of
Zygo and TIC, prepared in accordance with the U.S. GAAP which are included
elsewhere in this document.
F-24
PRO FORMA CONSOLIDATED BALANCE SHEETS
June 30, 1996 - Unaudited
(In thousands of Dollars)
ZYGO TIC Pro Forma Pro Forma
Historical Historical(1) Adjustments Combined
---------------------------------------- --------
Assets:
Current assets:
Cash and cash equivalents $ 17,945 $ -- $(11,694)(A) $ 6,251
Marketable securities 20,035 -- 20,035
Accounts and notes receivable 9,942 3,411 (316)(B) 13,037
Inventories 7,034 4,380 (704)(C) 10,710
Prepaid Expenses 215 26 241
Deferred income taxes 1,506 223 424 (D) 2,153
------------------------------------ --------
Total current assets 56,677 8,040 (12,290) 52,427
------------------------------------ --------
Property, plant and equipment, at cost 17,805 485 (2)(E) 18,288
Less accumulated depreciation 11,436 347 11,783
------------------------------------ --------
Net property, plant and equipment 6,369 138 6,505
Other assets, net 738 98 449 (F) 1,285
Goodwill and other intangibles 253 101 6,458 (G) 6,812
------------------------------------ --------
Total assets $ 64,037 $ 8,377 $ (5,385) $ 67,029
==================================== ========
Liabilities and Stockholders' Equity:
Current liabilities:
Current portion of long term debt $ -- $ 310 $ 310
Accounts payable 3,581 2,440 6,021
Notes payable -- 2,100 2,100
Accrued expenses and progress payments 5,096 1,567 709 (H) 7,372
Income taxes payable 1,244 -- 1,244
------------------------------------ --------
Total current liabilities 9,921 6,417 709 17,047
Long term debt, excluding current portion -- 351 351
Deferred income taxes 692 -- 2,599 (I) 3,291
------------------------------------ --------
Total liabilities 10,613 6,768 3,308 20,689
------------------------------------ --------
Stockholders' equity:
Common stock 492 464 (454)(J) 502
Additional paid-in-capital 33,829 -- 2,990 (K) 36,819
Retained earnings 19,439 1,145 (11,229)(L) 9,355
Net unrealized gain/(loss) on marketable
securities (35) -- (35)
------------------------------------ --------
53,725 1,609 (8,693) 46,641
Less treasury shares, at cost 301 -- 301
------------------------------------ --------
Total stockholders' equity 53,424 1,609 (8,693) 46,340
Total liabilities and stockholders' equity $ 64,037 $ 8,377 $ (5,385) $ 67,029
==================================== ========
(1) Excluding net assets of discontinued operations.
See notes to pro forma combined financial statements
F-25
PRO FORMA CONSOLIDATED STATEMENTS OF INCOME
For the Year Ended June 30, 1996 - Unaudited
(In thousands, except per share amounts)
ZYGO TIC Pro Forma Pro Forma
Historical Historical(1) Adjustments Combined
--------------------------------------- --------
Net sales $ 53,478 $ 11,085 $ 64,563
Cost of goods sold 28,634 5,890 34,524
----------------------- --------
Gross Profit 24,844 5,195 30,039
----------------------- --------
Selling, general and administrative expenses 8,305 2,811 11,116
Research and development expenses 5,538 759 6,297
Amortization of goodwill and intangible
assets -- -- 431(M) 431
----------------------- --------
13,843 3,570 17,844
----------------------- --------
Income from operations 11,001 1,625 12,195
----------------------- --------
Other income/(expense)
Interest income 939 -- (351)(N) 588
Interest expense -- (286) (286)
Miscellaneous expense, net (279) -- (279)
----------------------- --------
660 (286) 23
----------------------- --------
Income before income taxes 11,661 1,339 12,218
Income tax provision 3,730 493 (105)(O) 4,118
----------------------- --------
Net income $ 7,931 $ 846 8,100
====================== ========
Net income per common
and common equivalent share $ 1.53 $ 1.53
======== ========
Common and common equivalent
share outstanding 5,189 5,287
======== ========
- ----------
(1) Excluding discontinued operations.
See notes to pro forma combined financial statements
F-26
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED
FINANCIAL STATEMENTS
(In thousands)
Note 1. Basis of Presentation
The pro forma information presented is theoretical in nature and not necessarily
indicative of the future consolidated results of operations which would have
resulted had Zygo purchased TIC on June 30, 1996, for purposes of the pro forma
consolidated balance sheets and had Zygo purchased TIC on July 1, 1995, for
purposes of the pro forma consolidated income statements.
Note 2.
The Pro Forma Combined Statements of Income do not present the immediate
nonrecurring charge of $10.1 million relating to "in-process research and
development" that would be recognized in connection with the TIC purchase price
allocation.
Note 3. Pro Forma Adjustments
(A) Adjustment to reduce cash for the cash portion of the TIC acquisition
consideration plus related transaction costs.
(B) Adjustment to TIC allowance for doubtful accounts.
(C) Adjustment to reduce the value of TIC inventory to the lower of cost or
market for products to be supported by Zygo.
(D) Adjustment to record a deferred tax asset generated as a result of
adjustments (B) and (C).
(E) Adjustment to record the expense of all capitalized equipment with an
original acquisition value of less than $1,000 to conform to Zygo's
accounting policy.
(F) Adjustment to other assets which includes the purchase cost of 50 percent
holding in Syncotec GmbH acquired in July 1996 by TIC in connection with
the acquisition by Zygo.
(G) Adjustment to record goodwill and other intangibles resulting from the
acquisition of TIC. This excludes the aforementioned $10.1 million of
"in-process research and development" that would be immediately charged
off to operations.
F-27
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED
FINANCIAL STATEMENTS
(In thousands)
(H) Adjustment to record commissions owed and not accrued for at the time of
closing balance sheet, and to record a warranty provision.
(I) Adjustment to record long term deferred tax liability as a result of
intangible assets recorded in connection with the TIC acquisition.
(J) Adjustment to record the par value of shares issued less the historical
value of TIC's common stock.
(K) Adjustment to record the excess over par value of shares issued in
connection with the TIC acquisition.
(L) Adjustment to record a $10.1 million one-time acquisition-related charge
for the write-off of in-process R&D (Not reflected in the pro forma
combined income statements.) and eliminate the historical retained earnings
of $1,145.
(M) Adjustment to record the amortization of goodwill and other intangible
assets (assumed to occur over a 15-year period of time).
(N) Adjustment to reduce interest income for cash used in the acquisition of
TIC.
(O) Adjustment to income taxes for reduced interest income.
F-28
EXHIBIT INDEX
No. Description
- --- -----------
2. The Agreement and Plan of Merger by
and among Technical Instrument
Company, Zygo Corporation, Zygo
Acquisition Corporation, Francis E.
Lundy, The Lundy 1996 Charitable
Trust, The Sherman Family Living
Trust, Frank J. Scheufele Trust, David
Lytle, and Inspectron Development
Partners L.P., a California Limited
Partnership dated as of August 7, 1996*
23.1 Consent of Grant Thornton LLP
99.1 Press Release dated August 20, 1996*
- ----------
* Previously filed