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FORM 10-Q. QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
(Mark One)
_X_ Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended September 30, 1998
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___
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13, or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. YES ___ NO __
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
11,143,672 Shares of Common Stock, $.10 Par Value, at November 2, 1998
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
CONSOLIDATED STATEMENTS OF EARNINGS
(Thousands, except per share amounts)
For the Three Months
Ended September 30, (1)
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1998 1997
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Net sales $15,438 $24,316
Cost of good sold 10,064 12,851
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Gross profit 5,374 11,465
Selling, general and administrative expenses 4,641 3,928
Research, development and engineering expenses 2,271 2,445
Nonrecurring acquisition-related charges -- 1,585
Failed merger costs -- 335
Amortization of goodwill and other intangibles 216 142
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Operating (loss) profit (1,754) 3,030
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Other income (expense):
Interest income 310 285
Miscellaneous (expense), net (90) (21)
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220 264
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(Loss) earnings before income taxes (1,534) 3,294
Income tax (benefit) expense (463) 1,596
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Net (loss) earnings (note 1) $(1,071) $ 1,698
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(Loss) earnings per share: (4)
Basic (2) $ (.10) (3) $ .16
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Diluted 2) $ (.10) (3) $ .14
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Weighted average number of shares:
Basic 11,063 10,738
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Diluted 11,063 12,241
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(1) The results of Sight Systems, Inc. which is being accounted for as an
immaterial pooling-of-interests, are included from July 1, 1997; the
results of Syncotec Neue Technologien und Instrumente GmbH ("Syncotec")
are included from September 1, 1997 when the acquisition of the remaining
50% of Syncotec not then owned by Zygo was completed.
(2) The difference between basic shares outstanding and diluted shares
outstanding is the assumed conversion of common stock equivalents (stock
options) in the amount of 1,503,200 in the three months ended September
30, 1997.
(3) As per generally accepted accounting principles, the computation of the
net loss per share is based on the weighted average basic shares
outstanding.
(4) The net earnings or loss per common share have been restated as a result
of the adoption of Statement of Financial Accounting Standards No. 128,
Earnings Per Share.
CONSOLIDATED BALANCE SHEETS
As of September 30, 1998 and June 30, 1998
(Thousands, except share amounts)
ASSETS September 30, June 30,
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Current Assets:
Cash and cash equivalents $16,169 $22,023
Marketable securities 10,855 8,264
Receivables 14,209 16,555
Inventories:
Raw materials and manufactured parts 9,089 9,763
Work in process 4,073 3,723
Finished goods 1,396 944
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Total inventories 14,558 14,430
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Costs in excess of billings -- 1,182
Income taxes receivable 281 --
Prepaid expenses and taxes 845 829
Deferred income taxes 2,671 2,680
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Total current assets 59,588 65,963
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Property, plant and equipment, at cost 31,541 30,690
Less accumulated depreciation 15,555 15,001
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Net property, plant and equipment 15,986 15,689
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Goodwill and other intangible assets, net 8,346 8,524
Other assets 826 829
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Total assets $84,746 $91,005
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 4,090 $ 5,993
Accrued expenses and customer progress payments 5,792 9,542
Billings in excess of costs 495 --
Federal and state income taxes -- 343
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Total current liabilities 10,377 15,878
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Deferred income taxes 2,961 2,961
Stockholders' Equity:
Common stock, $.10 par value per share:
15,000,000 shares authorized; 11,339,272
shares issued (11,217,942 at June 30, 1998) 1,134 1,122
Additional paid-in capital 42,471 42,267
Retained earnings (note 1) 27,992 29,063
Currency translation effects 84 1
Net unrealized gain on marketable securities 28 14
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71,709 72,467
Less treasury stock, at cost; 207,600 shares 301 301
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Total stockholders' equity 71,408 72,166
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Total liabilities and stockholders'
equity $84,746 $91,005
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CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended September 30, 1998 and 1997
(Thousands of dollars)
1998 1997
Cash provided by (used for) operating activities: ---- ----
Net earnings (loss) (note 1) $(1,071) $ 1,698
Adjustments to reconcile net earnings
(loss) to cash provided by (used for)
operating activities:
Depreciation and amortization 1,047 805
Deferred income taxes 0 0
Loss on disposal of assets 99 68
Nonrecurring in-process R&D 0 879
Gain on sale of marketable securities 0 (20)
Changes in operating accounts:
Receivables 2,346 2,790
Costs in excess of billings 1,677 (1,021)
Inventories (128) (1,838)
Prepaid expenses (16) 183
Accounts payable and accrued expenses (6,195) (2,064)
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Net cash provided by (used for)
operating activities (2,241) 1,480
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Cash provided by (used for) investing activities:
Additions to property, plant and equipment (1,262) (2,026)
Investment in marketable securities (4,363) (509)
Investment in other assets 0 (156)
Acquisition of business 0 (1,268)
Proceeds from maturity of marketable
securities 1,795 2,400
Cash acquired from acquisitions 0 2,059
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Net cash provided by (used for)
investing activities (3,830) 500
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Cash provided by (used for) financing activities:
Repayment of long-term debt 0 0
Exercise of employee stock options 217 270
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Net cash provided by (used for)
financing activities 217 270
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Net increase (decrease) in cash and
cash equivalents (5,854) 2,250
Cash and cash equivalents, beginning of year 22,023 10,981
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Cash and cash equivalents, end of quarter $16,169 $13,231
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The interim financial statements furnished herein reflect all adjustments which
are, in the opinion of management, necessary for a fair statement of the results
for the interim periods presented. All such adjustments are of a normal and
recurring nature. The results for the quarter ended September 30, 1998 are not
necessarily indicative of the results to be expected for the entire fiscal year.
These interim financial statements should be read in conjunction with the
financial statements and notes included in the Company's June 30, 1998 Annual
Report on Form 10-K405 including items incorporated by reference herein.
NOTE TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1: New Accounting Pronouncements
As of July 1, 1998, the Company adopted Statement of Financial Accounting
Standards No. 130 "Reporting Comprehensive Income." SFAS No. 130 establishes new
rules for the reporting and display of comprehensive income and its components;
however, the adoption of this statement had no impact on the Company's reported
net income or shareholders' equity. Comprehensive income (loss) is defined as
net income plus nonshareholder direct adjustments to shareholders' equity which
consist of foreign currency translation adjustments and adjustments for the net
unrealized gains (losses) related to the Company's marketable equity securities.
For the three months ended September 30, 1998 and 1997, total comprehensive
losses and income amounted to $974,000 and $1,716,000, respectively.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information." This standard changes the criteria used to
determine the segments for which SEC registrants must report information. The
statement is effective for both interim and annual financial statements for
periods beginning after December 15, 1997; however, this statement need not be
applied to interim financial statements in the initial year of its application.
The Company intends to adopt SFAS No. 131 for the fiscal year ended June 30,
1999.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Results of Operations
Net sales in the three months ended September 30, 1998 totaled $15,438,000 a
decrease of $8,878,000 or 37% from $24,316,000 in the three months ended
September 30, 1997. Net sales of the Company's instruments and systems decreased
by 45% to approximately $9,412,000 and net sales of its modules and components
totaled approximately $6,026,000, a decrease of 15% from the comparable quarter
in the prior year. Net sales of both instruments and systems and modules and
components were significantly impacted by the Asian economic environment
combined with the prolonged downturn in the semiconductor and data storage
industries.
Gross profit for the three months ended September 30, 1998, amounted to
$5,374,000, a decrease of $6,091,000 from gross profit of $11,465,000 for the
comparable prior year period. For the three months ended September 30, 1998,
gross profit as a percentage of sales amounted to 35%, a decrease of 12
percentage points from gross profit as a percentage of sales of 47% in the three
months ended September 30, 1997. The decrease in gross profit and gross profit
as a percentage of sales were primarily due to volume shortfalls and the
associated underutilization of the Company's manufacturing facilities. Pricing
pressures, most notably in the mask metrology sector, also impacted current
margin levels.
Selling, general and administrative expenses in the three months ended September
30, 1998, amounted to $4,641,000, an increase of $713,000 from $3,928,000 in the
three months ended September 30, 1997. This increase was primarily due to the
recording of $900,000 of bad debt expense associated with the establishment of
an allowance for doubtful accounts relating to contracts in process with
StorMedia Inc. and its affiliates which filed for Chapter 11 protection with the
U.S. Bankruptcy Court on October 11, 1998. This increase was partially offset by
the impact of cost reduction actions initiated early in the quarter. As a
percentage of sales, selling, general and administrative expenses increased in
the three months ended September 30, 1998, to 30% as compared to 16% in the
comparable prior year period.
Research, development, and engineering ("R&D") expenses in the three months
ended September 30, 1998, totaled $2,271,000 or 15% of sales, as compared to
$2,445,000 or 10% of sales in the comparable prior year period. The decrease in
R&D expenses primarily resulted from cost reduction actions taken during the
quarter. Management has focused considerable attention on
ensuring that appropriate cost reductions be implemented while at the same time
investing in activities which will enhance long-term benefits to the Company.
The Company's operating loss in the three months ended September 30, 1998, was
$1,754,000, as compared to an operating profit of $3,030,000, which included
nonrecurring charges of $1,920,000 reported in the three months ended September
30, 1997.
The Company reported a net loss of $1,071,000 in the three months ended
September 30, 1998 versus net income of $1,698,000 in the year earlier period
ended September 30, 1997, which included $1,920,000 of nonrecurring charges. The
net loss in the most recent quarter was largely due to the adjustments made with
regard to the StorMedia filing which were partially offset by the impact of cost
reductions taken late in the fourth quarter of fiscal 1998 and early in the
first quarter of fiscal 1999. The net loss on a per share basis was $(.10) for
the quarter ending September 30, 1998 compared with net earnings per share in
the comparable prior year period of $.14 which included certain nonrecurring
charges.
Financial Condition
At September 30, 1998, working capital was $49,211,000, a decrease of $874,000
from the amount reported at June 30, 1998. The Company had cash and cash
equivalents of $16,169,000 and marketable securities amounting to $10,855,000
for a total of $27,024,000 at September 30, 1998, a decrease of $3,263,000 from
the amount of cash and cash equivalents and marketable securities at June 30,
1998. Receivables decreased by $2,346,000 and inventory increased by $128,000
from the amounts reported at June 30, 1998. The receivables decrease was due
primarily to lower sales volume in the quarter. Accounts payable decreased by
$1,903,000 in the first quarter of fiscal 1999 to $4,090,000 primarily as a
result of lower activity levels. Accrued liability decreases resulted from the
payment of June 30, 1998 accruals in the first quarter in combination with lower
activity levels. As of September 30, 1998, there were no borrowings outstanding
under the Company's $3,000,000 bank line of credit. Unused amounts under the
line of credit are available for short-term working capital needs.
Backlog at September 30, 1998 totaled $25,520,000 an increase of $1,110,000 or
5% from June 30, 1998 and a decrease of $18,245,000 or 42% from September 30,
1997. While the Company continued to experience softness in orders in the first
quarter for its instruments and systems due to very difficult market conditions
in the semiconductor and data storage markets, the Company had a positive
book-to-bill ratio at 1.07 in the quarter ended September 30, 1998. The backlog
of the Company's instrument and systems at September 30, 1998 increased by
$2,957,000 or 22% from that at June 30, 1998. The backlog of the Company's
modules and components decreased by $1,847,000 or 17% from the quarter earlier.
While sales of the Company's products remain somewhat dependent upon macro
economic conditions in the markets the Company serves, which cannot be
accurately predicted, the Company's strong financial position and actions taken
by the Company to reduce our cost structure and broaden our technology, market
and product base, should allow us to improve our competitive position and
financial performance in the future as these depressed markets improve.
Year 2000
As discussed in the Company's Annual Report for June 30, 1998 filed on Form
10-K405, the Company is currently working to minimize the potential impact of
the Year 2000 software anomaly on the processing of date-sensitive information
by the Company's computerized information systems, as well as any supplier and
customer date-sensitive information transferred to or by the Company. The
Company's products only use the date function of the underlying computer system
to date-stamp data files collected during the measurement process.
Based on an assessment of the systems, the cost of addressing potential problems
is not currently expected to have a material adverse impact on the Company's
financial position, results of operations or cash flows in future periods.
However, if the Company, its customers, and suppliers are unable to resolve such
processing issues on a timely basis, the Company's financial condition and
results of operations could be adversely affected. Accordingly, the Company has
been executing a plan in order to attempt to resolve the significant Year 2000
issues in a timely manner.
Achieving Year 2000 compliance is dependent on many factors, some of which are
not completely within the Company's control. There can be no assurance that the
Company will be able to identify all aspects of its business that are subject to
Year 2000 problems of customers or suppliers that affect the Company's business.
There also can be no assurance that the Company's software vendors are correct
in their assertions that the software is year 2000 compliant, or that the
Company's estimate of the costs of systems preparation for Year 2000 compliance
will prove ultimately to be accurate. Should either the Company's internal
systems of one or more significant suppliers or customers fail to achieve Year
2000 compliance, or the Company's estimate of the costs of becoming year 2000
compliant prove to be materially inaccurate, the Company's business and its
results of operations could be adversely affected.
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
The Company currently does not deal in derivative financial or commodity
instruments for the purpose of managing financial exposures related to interest
rates, foreign currency exchange rates, commodity prices or other market risks.
Forward Looking Statements
This report contains forward looking statements which are subject to a number of
risks and uncertainties that may cause actual results to differ materially from
expectations. These uncertainties include, but are not limited to, general
economic conditions, competitive conditions in markets served by the Company,
most notably high technology markets such as data storage and semiconductor, and
economic and political developments in countries where the Company conducts
business.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit 27. Financial Data Schedule.
(b) 1. None.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Zygo Corporation
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(Registrant)
/s/ GARY K. WILLIS
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Gary K. Willis
President and Chief Executive Officer
/s/ KEVIN M. MCGUANE
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Kevin M. McGuane
Vice President Finance, Treasurer, and
Chief Financial Officer
Date: November 13, 1998
EXHIBIT INDEX
Exhibit Description Page
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27 Financial Data Schedule for the quarterly report,
on Form 10-Q, for the period ended
September 30, 1998.